Existing and emerging financing models and multilateral

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

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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?

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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

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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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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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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

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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


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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


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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?


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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)


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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



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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



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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


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:


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Middle East: The Gulf Co-operation Council (GCC) countries (Behrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE)

Examples:


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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!

Documents

Existing and emerging financing models and multilateral