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3. FINANCIAL MODELLING AND RISK ANALYSIS IN PARTICIPATING

3.2. CHINA

FIG. 10 Main modelled financial metrics and other outcomes for proposed Kozloduy NPP.

3.1.5. Risk Analysis

In the risk evaluation of the Project, an expert estimation method and ‘brainstorming’ are used and the results are as follows. The main risks are:

• Financial and economic — market risks, budget overruns, lack of financing;

• Regulatory, political, legal and environmental — lack of government support;

• Construction — delays in the construction schedule;

• Nuclear fuel cycle — the absence of long-term vision/strategy for managing high radioactive waste.

Government commitment to nuclear power as a part of a national energy strategy carried out in Bulgaria can help to minimize risk, even though the strategy has not been updated since 2011. Early and firm action to put into place the legal and institutional arrangements can effectively demonstrate the strong government support for nuclear power.

Risks were ranked but not quantified, and a risk matrix has been developed.

3.2. CHINA

In November 2014 the Premier announced that China intended about 20% of its primary energy consumption to be from non-fossil fuels by 2030, at which time it expected its peak of CO2

emissions to occur. In the 13th Five Year Plan for power production announced by the National Energy Administration in November 2016, coal capacity will be limited to 1100 GW by 2020, by cancelling and postponing about 150 GW of projects. Gas is projected at 110 GW in 2020, hydro at 340 GW, wind at 210 GW, and solar at 110 GW (of which 60 GW of distributed PV).

The objective of having a nuclear capacity of 58 GW was reiterated for 2020. Non-fossil sources would then produce 15% of electricity.

State Power Investment Corporation (SPIC) is newly established through the merger of China Power Investment Corporation and State Nuclear Power Technology Corporation in 2015. Its business covers power, coal, aluminium, logistics, finance, environmental protection, high-tech industries, etc. It invests and operates nuclear, thermal, hydro and new energy. The core business is coal. It is engaged in comprehensive energy development to facilitate the development of conventional energy with nuclear power project development; complementary to one another and is planning to achieve a breakthrough in the South Africa, Turkey and Bulgaria markets with NPP development projects, as well as to expand nuclear power development in China. Its current nuclear operation capacity is 3360 MW, and 5860 MW is under construction. By 2020, SNPTC is planning to have a nuclear capacity of 14 GW in operation by 2020, and 10 GW under construction.

The main objectives behind participating in the CRP are:

• Understand world best practices of financing nuclear power projects and develop a financial model for financing new NPPs;

• Understand the basics of capital cost evaluation methodology;

• Understand the world best practices on risks assessment for NPPs construction projects and develop a risk mitigation matrix for new NPPs.

The main work performed within the CRP includes cost assessment, financial model and risk assessment via expert survey, with a focus on investigating different financing options for nuclear new build. The research discusses the financing instruments and modes which have been used both in China (historical examples) and worldwide (including new ones) and then discuss their pros and cons. Then it analyses different scenarios for using particular financial modes, instruments and options for the new-builds in China, determining the best sources and the optimal structure. This report is of a qualitative nature with almost no quantitative analysis or in-depth modelling.

3.2.2. Financing options

China’s main nuclear power financing methods were as follows:

Government investment. This method mainly occurred in the early stages of nuclear power development, when governmental support was a necessity for nuclear power development.

An example is the NPP of Qinshan phase I which is fully owned by China National Nuclear Corporation and was build based on a 100% government finance;

Issuance of Stocks and Bonds. An example of this financing mechanism is the Qinshan NPP Phase II project. The capital for this project was jointly contributed to by many enterprises (China National Nuclear Corporation invested 50%, Zhejiang Electric Power Development Company invested 20%, Shenergy Company Limited invested 12%, Jiangsu Guoxin Investment Group Limited invested 10%, CPI Nuclear Power Co., Ltd. invested 6%

and Anhui Province Energy Group Company Limited invested 2%). Short term financing bonds were also issued to raise funds of ¥ 2 billion. The financing and operation modes have characteristics of the general engineering project investment after the implementation of

“assign-change-loan” for the operational capital construction investment in China. This financing method was a method of government investment;

Export credit This method was used to finance projects where a large set of equipment is imported. Examples of this approach are Daya Bay NPP and Qinshan NPP Phase III.

3.2.3. Modelling assumptions

Four financing scenarios were developed to analyse different sources of debt financing. The main characteristics of these four scenarios are provided below. Fig. 11 gives the overall financing structure modelled in this CRP.

Scenario 1: Chinese concessional buyer’s credit

• Borrower: Project Company

• Lender: The Export-Import Bank of China

• Guarantor: Host government

• Loan amount: No more than 85% of the Chinese scope

• Currency: US $

• Use of the loan Payment for the EPC Contract

• Arrangement fee: To be determined

• Interest rate: Fix rate or floating rate

• Term of the loan: No more than 20 years

• Other requirements: Government to Government procedure

• Other requirements: Portion originated from China is no less than 60%

Scenario 2: Chinese buyer’s credit

• Borrower: Project Company

• Lender: Chinese bank

• Guarantor: Host government or other entities acceptable

• Credit insurance Sino sure insurance

• Loan amount: No more than 85% of the Chinese scope

• Currency: US $, ¥

• Use of the loan Payment for the EPC Contract

• Arrangement fee: To be determined

• Interest rate: Fix rate or floating rate

• Premium rate: To be determined

• Term of the loan: No more than 15 years

• Other requirement: Portion originated from China is no less than 60%

Scenario 3: Chinese Commercial loan

• Borrower: Project Company

• Lender: Chinese-led international banking syndication

• Loan amount: Balance of total investment

• Currency: US $; ¥; Local

• Use of the loan Advance Payment for the EPC Contract

• Arrangement fee: To be determined

• Interest rate: Fix rate or floating rate

• Premium rate: To be determined

• Term of the loan: No more than 15 years Scenario 4: Multisource financing versus multinational supply Reference: China Daya Bay NPP

• Export credit from France to cover French supply of nuclear island (NI) equipment, balance of the plant (BOP) equipment, nuclear island erection, civil construction (French scope), engineering service and O&M cost;

• Export credit from UK to cover equipment, BOP equipment and technical support services;

• Export credit from USA to cover quality assurance advisor service and nuclear fuel software supply;

• Export credit from Japan to cover the architect engineer service as well as erection and commissioning support services.

Assurance/guarantee related to financing

• Inter-governmental agreement (IGA);

• Government assurance/support for project execution;

• Treasury guarantee;

• PPA guarantee;

• Repatriated in a convertible currency guarantee;

• ECA insurance.

FIG. 11 China modelling and sources of financing.

An overview of the potential sources of debt financing is provided in Table 4 below.

TABLE 4. CHINA MODELLING OVERVIEW OF POTENTIAL DEBT FINANCING SOURCES

Buyer’s credit OECD export credit Commercial loan Borrower Project company Project company Project Company Lender The Export–Import

Bank of China

Export–Import Bank of the USA and others

Chinese-led international banking syndication Security

Package

Host government or other acceptable entity guarantee

Host government or other acceptable entity guarantee

Same as the export credit and/or combination of project completion guarantee, shareholder’s collateral of asset and/or pledge of rights, PPA guarantee. Subject to bank’s evaluation

Insurance Sino-sure insurance Construction and operation insurance

Currency US $ US $ or other

currencies

US $ Interest rate Fixed rate or floating

rate (6-month LIBOR plus margin)

Fixed rate (CIRR) or floating rate

Fixed rate or floating rate (6-month LIBOR plus margin); higher than ECA rate

Grace period Up to 6 months after project completion

Up to 6 months after project completion

Up to 6 months after project completion Repayment

period

Less than 15 years Up to 18 years Less than Export Credit Agencies

3.2.4. Modelling

The basic methodology and LCOE calculation is based on the IAEA report [12] (including cost account system but not limited to it). The DCF model is used for financial analysis as well as for sensitivity analysis. The assumptions, however, are not described in detail.

Equity

• D/E ratio: depending on the scenario, with a minimum amount of equity share;

• Diversified equity investors: SPIC, CIC, SRF etc. as potential investors;

• Amount: subject to the shareholder agreement and presence of a PPA or CFD;

• Option: equity investment with the arrangement to be repurchased by KNPP at the pre-determined point after the NPPs are put into operation, and at the price covering the cost and pre-determined return of the investment.

Debt

• Lender: syndicated loan group of Chinese first-class banks;

• Borrower: Shareholder company, or Project Company subject to security package;

• Amount: to be determined;

• Option: 100% capitalization of IDC (Interest During Construction), and part of local content (subject to content of EPC contract);

• Tenure: no less than 20 years, matching construction cycle of nuclear power project and subject to PPA/CFD and project cash flow;

• Flexible and diversified currency: EUR, US $ or ¥;

• Competitive interest rate:3M/6M LIBOR19 (London Interbank Offered Rate)plus margin.

Bankability of the Project

The following mechanisms for credit enhancement have been considered:

• Inter-governmental Agreement (IGA)20;

• Host government guarantee21: sovereign guarantee will be preferable. If interest cost could be significantly decreased;

• Guarantee from shareholder, e.g. assignment of tariff receivables under PPA, pledge over shares of the project company, security over asset of the project company, project completion guarantee etc;

• ECA insurance: Export credit insurance/overseas investment insurance provided by SINOSURE. SINOSURE may request counter guarantee in the form mentioned above;

• Supporting policies from host government: tax credit, tariff mechanism, facilitation of capital remittance.

The outcome is a financing plan, which includes evaluation of new NPP capital cost, financing cost and electricity cost to identify the potential financing sources and how to achieve the competitive financing conditions that will result in a competitive electricity cost and defines the process of planning. An example of the project cash flow is provided in Fig. 12.

FIG. 12 China: modelling illustrations

China’s nuclear power project financing mode has been developed from the highly concentrated

“integration” mode of investment and financing — national financial investment financing, in

19 LIBOR is the average of interest rates estimated by each of the leading banks in London that it would be charged were it to borrow from other banks.

20 A possible alternative is a government assurance/support for project execution satisfactory to the lenders.

21 A potential alternative a guarantee provided by government-support entity acceptable to the lenders, or PPA/CFD/RGA guarantee acceptable to the lender.

the early stage of nuclear power development (Qinshan NPP Phase I ), to joint venture project financing mode (Daya Bay NPP) “construct with loans, selling electricity to repay”. The next stage is development funds raised by issuing short term financing bonds in Qinshan NPP Phase II.

The diversification of the investment and financing subject is continuing, and the prototype of financing pattern is appearing. But in general, so far, the routine financing method of State equity investment and creditor right financing is still maintained.

3.2.5. Risk analysis

Risk was defined through expert survey (expert grading) and ranked. Mitigation measures and risk allocation were suggested. Sensitivity analysis has been performed and contingencies were applied. The key risks identified are:

• Short term loans for long term investment;

• Interest rate fluctuation;

• Fluctuations in exchange rates;

• Inflation;

• Project debt risk.

Finally, the sensitivity of LCOE to changes in some important parameters (capital and financing cost, capacity factor and fuel price) have been performed. Results are reported in Fig. 13 below.

FIG. 13 China: sensitivity analysis illustration.

3.3. CROATIA

In document Financing Nuclear Power Plants (Page 35-41)