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Existing and emerging financing models and multilateral ...
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IAEAInternational Atomic Energy Agency
Existing and emerging financing models and multilateral nuclear projects
INPRO Dialogue Forum on Nuclear Energy Innovations: Multilateral Approaches to Sustainable Nuclear Energy Deployment –
Institutional Challenges
Vienna, Austria October 4-7, 2010
Nadira BarkatullahDepartment of Nuclear Energy, Planning and Economic Studies Section
IAEA
Current Status: Nuclear Nuclear Power Plants (NPPs) Financing:
Some Challenges Types of Financing Existing and Emerging Financing Models
and Trends Multilateral Nuclear Projects: Financing
Issues Concluding Comments
Overview
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Current status: 1st October 2010
In operation441 nuclear powerreactors [375 GW]
USA 104France 58Japan 54Russia 32S. Korea 21
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Current status: 1st October 2010Under Construction60 nuclear power reactors
China 23Russia 11India 4Korea, Rep 5Bulgaria 2
IAEA IAEA: RDS-1 Publication 2010
IAEA Projections 2010World Nuclear Power Capacity
Outlook for Global Nuclear Power Development
0
200
400
600
800
1000
1200
1400
1600
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Capa
city
(GW
e)
High
Low
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North America
0
122 128 130113.3 128166
260
0
50
100
150
200
250
300
350
400
450
500
2009 2020 2030 2050Year
GW
(e)
Latin America
0 7.1 11 154.1 7.1 2360
0
50
100
150
200
250
300
350
400
450
500
2009 2020 2030 2050Year
GW
(e)
Western Europe
0
93 86 80122.7 129
158
270
0
50
100
150
200
250
300
350
400
450
500
2009 2020 2030 2050Year
GW
(e)
Eastern Europe
0
67 84 8047.6
81111
160
0
50
100
150
200
250
300
350
400
450
500
2009 2020 2030 2050Year
GW
(e)
Africa
0 1.8 6.1 101.8 3 1548
0
50
100
150
200
250
300
350
400
450
500
2009 2020 2030 2050Year
GW
(e)
Middle East & South Asia
0 1432
50
4.423
56
140
0
50
100
150
200
250
300
350
400
450
500
2009 2020 2030 2050Year
GW
(e)
South East Asia & The pacif ic
0 0 1 50 0 627
0
50
100
150
200
250
300
350
400
450
500
2009 2020 2030 2050Year
GW
(e)
Far East
0
148
197220
77.9
179
267
450
0
50
100
150
200
250
300
350
400
450
500
2009 2020 2030 2050Year
GW
(e)
IAEA Projections 2010Regional Nuclear Power Capacity
IAEA
Financing: to raise funds, which is generally a combination of debt and equity
Financing
Cost of debt: Interest paid
Cost of capital: return on capital
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NPPs Financing : Some challenges
1) What is suitable financing mix/method to build a NPP?
How to Finance NPP
How much will NPP Cost ?
How long will it take to build and what will be the payback period?
What will be the cost of finance?
IAEA
Challenge: NPPs Overnight Capital Cost Uncertainty
IAEA: Data collected from various publications and studies to keep track of nuclear power plants investment costs, since 2008 (updated Aug 2010), all data in 2008 USD
0
1000
2000
3000
4000
5000
6000
7000
North America Europe Asia
Ove
rnig
ht c
osts
($/k
W(e
))
2232
26
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-
1 000
2 000
3 000
4 000
5 000
6 000
Noth America Europe Asia
Overnight capital cost
5% 10%
Challenge: Financing Cost- Interest During Construction (IDC)
Note: Assuming: construction duration of 6 years
($/k
We)
in 2
008
dolla
rs
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Challenge: NPP Payback Period
Commercial banks usually look towards a payback period of 5 – 7 years!
That is generally the construction duration of NPPs and payback period starts after 6- 8 years
6th year
Licensing/ Construction
duration
Cost
Revenue
Refinance the loan at better terms
Proj
ect C
ash
Flow
Positive
Negative
Debt repayment
Cash flow cycle
Operations
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Types of Financing
Governments financing:
• Tax revenue
• Electricity tariff subsidies
Industry • Corporate finance or
balance sheet finance
• Project Finance (non or limited recourse): Long term finance based on the projected cash flow of the project
IAEA
Old Financing Model
Governments assume all risks and costs
Vendors built on cost plus basis
Utilities (Generators) borrowed on balance sheet
Who finally pays for all the costs?
Essentially 100% risk on the customer:
All costs: construction and operations passed on to the customer!
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Financing Models: New trends emerging
Corporate Finance:
Governments seek private sector participation (PSP)
Mochovce 3 and 4 project in Slovakia, by Enel (VVER 440MW)
Flamanville 3 project in France, by EDF (Areva PWR 1600MW)
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Financing Models: New trends emerging
Characteristics of hybrid financing (corporate/project finance):
Part of equity and loan is provided by the large customers
A long-term purchasing power agreement (PPA) with large customers ensuring future stable revenue stream from the project
Leverage characteristics similar to project finance
Co-operative model:
Olkiluoto 3 or Finnish Model: expanding - equity partners to diversity risk
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Financing Models: New trends emerging
4) Project Finance trends: More recently, some trends towards project finance are emerging, like:
Large utilities are forming companies, adopting a multilateral approach (or JV) to venture into the nuclear market, like ENEL/EDF (Sviluppo Nucleare Italia), Constellation Energy/EDF (Unistar Nuclear Energy), EOn and RWe (Horizon Nuclear Power)
For a first time a ‘build-own-operate’ (BOO) contact, where Rosatom will BOO the 2 VVER nuclear units at Akkuyu, in Turkey
Areva and New Brunswick, EOI for merchant plant
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Risk
tran
sfer
abili
ty f
rom
pub
lic t
o pr
ivat
e
Ownership transferability from public to private
Government Financing
Corporate Finance
Co-operative Models
Project FinanceCombined models
proposed and alreadyin use
Combined models emerging and likely to be widely used
Combined models widely used
New Financing Models
IAEA
Multilateral Nuclear Projects: Financing Issues
What do we understand by Multilateral or Regional Approach to Finance a project?
When two or more countries join hands to form partnership to build and finance a project
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Why Multilateral Approach?
Wants access to electricity – security of supply
Want to diversity the risks with other regional partners
If a country does not have enough funds to finance a NPP or cannot build a NPP in its own country
Multilateral Nuclear Projects: Financing Issues
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Country A
Country B
Country C
So what are the main financing issues they need to address?
Country A, B and C join hands to build a NPP
Multilateral Nuclear Projects: Financing Issues
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Where is the NPP to be built?
Who owns the NPP? How will it be shared by the regional partners?
Will NPP be built in a country with the highest ownership share?
What regulatory framework will apply?
What are the main financing issues?
Country A?
Country B?
Country C?
Multilateral Nuclear Projects: Financing Issues
IAEA
Who will finance the project?
What financing model is most appropriate?
Government Financing or Industry finance?
If industry finance is a hybrid model(combination of corporate model/project finance), is it feasible?
What will be the extent of government support?
Export Credit Agency? Other Financial institutions?
Country A
Country B
Country C
What are the main financing issues? (Cont’d)
Multilateral Nuclear Projects: Financing Issues
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What about credit rating?
Do all countries have same credit rating? if not which country rating will apply?
How will this impact the cost of financing?
Which financiers will finance such a model?
Country A
Country B
Country C
What are the main financing issues? (Cont’d)
Multilateral Nuclear Projects: Financing Issues
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Rate of return for investors?
Do the investors have a risk appetite?
How are the major investors taxed? Cross-border tax implications? Any tax credits or exceptions or double taxation?
Country A
Country B
Country C
What are the main financing issues? (Cont’d)
Multilateral Nuclear Projects: Financing Issues
IAEA
Country A: Utility
Credit rating AA
Subsidiary company
50% Equity
25% Equity
25% Equity
Country B: Utility
Credit rating BBB+
Country C: Utility
Credit rating BB
Financing issues: Hypothetical case:
- A Robust Financial Risk Management (FRM) Strategy
- Country A to take the lead (good credit rating) and NPP to be built
- Country A regulation to apply
- The shared benefits (electricity output/revenue) based on ownership structure
- To share the costs and liability (waste)
Corporate Finance Model: using utilities balance sheet
Multilateral Nuclear Projects: Financing Issues
Local and International Financial institution
(ECA, etc)
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Europe: Lithuania and other regional partners Estonia Latvia and Poland and rest for private sector
NPP Visaginas along Ignalina site 2 VVER
The project completion 2018-2020
Examples:
Multilateral Nuclear Projects: Financing Issues
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Middle East: The Gulf Co-operation Council (GCC) countries (Behrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE)
Examples:
Multilateral Nuclear Projects: Financing Issues
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Concluding Comments Firm government commitment and support - imminent Appropriate FRM Framework/Strategy to address
challenges to finance NPP New financing approaches/models are emerging:
repackaging the existing methods and combination of project finance/co-operative model to increase the number of credible equity partners to share the financing risk
Multilateral approach to finance nuclear projects is looking favourable for small countries
However, the financing issues like NPP ownership, financing models/approach and tax have to be initially agreed and settled by the regional partners in a multilateral approach to avoid any delays in the project implementation
IAEA
Thank you for your attention!