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JORDAN

In document Financing Nuclear Power Plants (Page 50-55)

3. FINANCIAL MODELLING AND RISK ANALYSIS IN PARTICIPATING

3.5. JORDAN

3.5. JORDAN

addition, the project did not account for any site acquisition or identification works (site survey, site characterization and environmental impact assessment). The study considered that the site was procured and identified. The early works start with site preparation, permit acquisition, and detail design work.

With respect to the economic data of the NPP, the following assumptions have been made:

• Capital costs (CAPEX): US $5 billion or US $5000/kW. This price is the average of several prices reviewed and considered;

• O&M costs: US $135 million/year, best estimates for one reactor, including all personal and non-personal costs (except fuel — front and backend);

• Fuel cost: US $37 million/year, prices reflecting the drop in the global price of uranium as of February 2017 (source: TradeTech Long Term);

• Spent fuel management costs: US $28.5 million/year, prices reflecting the drop in the global price of uranium as of February 2017;

• Decommissioning costs: US $20 million/year, paid over the 60 years of operation with an annual escalation.

The contractual and financial assumptions used for this study are reported below:

• EPC turnkey contract;

• Project ownership and financing structure, 40/60 debt to equity ratio;

• Debt repayment: 18 years (maximum tenor as per OECD arrangement for nuclear), although longer financing tenor might be negotiated with financing institutions;

• Interest rate on debt: 3.73% (minimum CIRR for 18 years for New NPPs);

o reference value for scenario 1 — a Government fully owned project;

o + 100 bps for scenario 2 — joint Government and private ownership;

o + 200 bps for scenario 3 — private ownership.

• Discount factor: For our study, WACC was used as the discount rate. For scenario 1, (7%) was the discount, scenario 2 (8%), and scenario 3 (9%). These are slightly higher than the WACC for each of the scenarios as per best practice;

• Taxes and fees: Taxes and project specific fees were disregarded from any calculation in the project. As rules and regulations differ by country, these laws are also different and incorporating them would only act as a distortion;

• Depreciation: Buildings and main equipment were calculated for the lifetime of the project equipment over 25 years, and short-lived assets at 10 years;

• Currencies: the only currency used is US $;

• Long Term Economic Parameters (Inflation/Escalation):

o Escalation set at 3% — Again as indicative and just for this exercise. This can vary according to region, vendor and supplier;

o Inflation is set at 2.2%, which is average 10 years (2005–2014) inflation for the USA (2.4%) and the Euro area (2%).

The model calculates LCOE, equity investment required, debt investment required, internal rate of return (IRR).

3.5.3. Financial modelling

Three main scenarios were analysed based on the public, private, and joint venture contractual options (see Table 10). As mentioned earlier, the main outcome of the financial section is to determine the most suitable/financially viable option with which to proceed.

TABLE 10. JORDAN FINANCIAL MODELLING: THREE OWNERSHIP SCENARIOS Ownership (%) Required rate of

return (%)

Debt rate (%)

1 Sovereign (government) 100% 9% 3.73%

Investor (private) 0%

2 Sovereign (government) 50% 11.1% 4.47%

Investor (private) 50% 11.1% 4.73%

3 Sovereign (government) 0%

Investor (private) 100% 13.2% 5.73%

The first scenario illustrates a fully governmental ownership of the nuclear plant. A rate of return of 9% has been assumed in this scenario. This would make appropriating public funds for the project viable, but at the cost of a more favourable price of electricity. With full ownership, borrowing rates will most probably be more attractive than they are for private investors. There are several reasons for this, the most important being the balance sheet. CIRR is considered as acceptable for a first project which is government owned.

Government to government agreement with favourable rates, soft loans, etc. have not been considered in this exercise, and can be a major factor for large infrastructure projects moving forward, especially in developing countries.

The second scenario illustrates a public/private join ownership of the nuclear project. With an investor coming in, risk sharing with the government will make a good incentive and mitigate risks that are government specific. Average global country risk premium demanded as per NY Stern January 2015, was 4.2%. As the risk was split between the sovereign and the investor, a risk premium of 2.1% and a rate of return of 11.1% was chosen. This would make appropriating public funds for the project viable, and investment from the private investor viable.

With partial Government ownership, borrowing rates will most probably be more attractive than they are for full private investors. There are several reasons for this, the most important being that, as a partner, the benefits of Government can still be enjoyed, including sovereign guarantees in most cases. CIRR with 100 basis points for this scenario.

The third scenario illustrates a fully private ownership of the nuclear project. With full private sector ownership of the project, the investor coming in will be demanding a little more to compensate for the risk they are taking. All in average country risk premium demanded as per NY Stern January 2015 is 4.2%. Risk premium was added to the required rate of a project owned by the Government. The required rate or return would jump to 13.2%.

With no government ownership of the project, and in addition to the difficulty of procuring financing, the rates will be slightly higher. As this is a mega project, no investor will accept a premium below the norm. Projects just do not move forward. Premium has been 200 basis points over Government owned projects.

The main results of this analysis, and in particular the IRR and the electricity tariff level24 are summarised in Table 11 below. The effect of a full Government ownership, compared with a

24 As opposed to the LCOE, the Tariff includes the returns demanded by investors, and as such, will reflect them. As such, the results indicate that Scenario 1, a full government ownership, produces a more attractive (feasible) price of electricity.

joint venture, and with a full Buy-Own-Operate can be seen in the tariff difference. As opposed to the LCOE, the tariff includes the returns demanded by investors, and will reflect these. As such, the results indicate that Scenario 1, a full government ownership, produces a more attractive (feasible) price of electricity.

TABLE 11. REQUIRED RATE OF RETURN AND TARIFF CALCULATION (IN 2015 PRICES) FOR DIFFERENT SCENARIOS

Required rate of return (%) Tariff (US $2015/MWh)

Scenario 1 9% 86.4

Scenario 2 11.1% 103.6

Scenario 3 13.2% 123.7

Sensitivity analysis has been performed on three main factors: discount rate, delay in construction and unanticipated drop in nuclear power plant availability (load factor). Results are summarised in Table 12, Table 13 and Table 14. Higher required rates of return, lower than expected load factors and longer construction times will have an adverse effect on the levelized cost of electricity and electricity tariff.

TABLE 12. SENSITIVITY CALCULATIONS TO CONSTRUCTION DELAYS

No delays 10% delay 20% delay

Scenario 1

(7% discount rate)

LCOE (%) Base +4.8% +9.6%

Tariff (%) Base +5.23% +10.3%

Scenario 2

(8% discount rate)

LCOE (%) Base +5.12% +10.24%

Tariff (%) Base +5.29% +10.76%

Scenario 3

(9% discount rate)

LCOE (%) Base +5.37% +10.74%

Tariff (%) Base +6.14% +11.03%

TABLE 13. SENSITIVITY CALCULATIONS TO DISCOUNT RATE

5% discount rate 10% discount rate Scenario 1

(7% discount rate) LCOE (%) -16.3% +28.3%

Scenario 2

(8% discount rate) LCOE (%) -23.0% +19.3%

Scenario 3

(9% discount rate) LCOE (%) -29.6% +8.4%

TABLE 14. SENSITIVITY CALCULATIONS TO UNANTICIPATED DROP IN LOAD FACTOR

90% load factor 85% load factor 80% load factor Scenario 1

(7% discount rate)

LCOE (%) Base +5.89% +11.81%

Tariff (%) Base +5.92% +11.81%

Scenario 2

(8% discount rate)

LCOE (%) Base +5.88% +11.82%

Tariff (%) Base +5.79% +11.75%

Scenario 3

(9% discount rate)

LCOE (%) Base +5.93% +11.84%

Tariff (%) Base +5.85% +11.88%

3.5.4. Risk analysis

Risks were identified by expert review, ranked through qualitative review, and plan of risk mitigation has been developed. A risk matrix has been developed with risk impact, probability and mitigation. Project risks have been divided into several major groups: technical, financial, legal. The basis for splitting into these groups is the nature of risk, and the uniqueness and specificity of a nuclear project, as the type of risks change and evolve depending on the stage of the nuclear project.

3.5.5. Key findings

Compared to conventional power plants, NPPs overnight investment cost is higher (in the range of US $5000–7000 per kW). This is coupled with a required time frame of at least five years for construction completion. However, the running and fuel costs are considerably lower, and the nuclear plants operate for at least 60 years.

Owing to the fact that NPPs are quite expensive and the construction time is relatively long, financing these plants in terms of equity or debt is challenging. Main sources of financing are Governments, large utilities, ECAs, vendors and others.

For a newcomer country, the optimum contractual approach is an EPC turnkey approach. This approach minimizes risks facing the project, especially during the construction phase.

The analysis of the three scenarios modelled shows that a Governmental-owned project can attract debt at a lower rate and has a lower required rate of return than projects under a mixed public-private partnership or fully private. Thus, LCOE and the electricity tariff required are significantly lower in case of governmental owned projects: required tariff would be 43%

higher for a fully private project, and 20% higher for a joint public-private project.

Nuclear power projects face a number risk that could be categorized under broad titles such as finance, regulation, technology, management, force majeure, political, environmental or others.

Nevertheless, the nature and structure of the risk differs according to the stage of the project, whether planning, construction, or operation:

o Project risk management plan includes risk identification, analysis, mitigation, and allocation. Risk analysis is the process of quantitatively or qualitatively assessing and measuring risks. The analysis involves an estimation of both the uncertainty of the risk and of its impact. It includes identifying the specific risk levels by establishing the relationship between the probability of a given event and the impact of its occurrence;

o Risk analysis showed the highest risks during the planning phase are unrealistic schedule, changes in standard design due to new technical requirements, limited capabilities to finance the project, additional requirements from lenders, delay in EPC negotiation with unbalanced risks, lack of experience in licensing NPPs and lack of qualified staff;

o The top risks for a newcomer country’s nuclear project are concentrated in vendor design, financing, regulatory system and licensing and EPC contract negotiation.

Risks for a conventional project could be transferred by contracting insurance companies.

However, the particularity of nuclear power projects stipulates a large part of the risks should be managed by the project stakeholders. New tools have emerged to support investments in nuclear plants to manage their risks and hedge against them.

The reduction of open issues in any stage of the nuclear power project means less likelihood of mismanagement of the project, which leads to a reduction of adverse impacts with resources, cost, schedule, and other aspects of the project.

3.6. KENYA

In document Financing Nuclear Power Plants (Page 50-55)