Department of International Relations and European Studies1 Nuclear Power Plant Financing Mgr. Tereza Stašáková 427280@mail.muni.cz 2 Discussion: What do you know about the current state of the new nuclear project in the Czech Republic? Department of International Relations and European Studies Department of International Relations and European Studies3 Lecture outline ̶ Why should we talk about NPP financing? ̶ What is so demanding on large-scale projects? ̶ Theoretical approaches ̶ Financing – basic concepts ̶ Examples of financial and business models ̶ Financial, contractual, and ownership arrangements ̶ Investment and financial arrangements of the NPP in the CZ ̶ Price and construction time around the world and in the EU ̶ Factors influencing the final price ̶ Risk reduction measures ̶ Application Source: www. funnyjokesandlaughs.wordpress.com/tag/nuclear-power/ 4 Why should we talk about NPP financing? ̶ High capital cost– 60-85 % ̶ Low operation cost– 10-25 % ̶ Fuel cost – 7-15 % ̶ A long time before the project starts to generate profit– around 8-10 years ̶ Very demanding for an investor, not attractive for private investors  state support is often needed ̶ Long payback period – more than a decade ̶ Complicated investment environment ̶ Risky business ̶ Technical complexity, political and regulatory risks, complicated financing, liabilities (waste, decommissioning) Department of International Relations and European Studies 5 What is so demanding on large-scale projects? ̶ In general, high demands on: ̶ Project management • Preparation of the project (communication with authorities, law on public procurement, construction permits, EIA) ̶ Supply chain ̶ In the case of nuclear power plant ̶ More demanding preparation of the project (might be more controversial, negotiation on the national and European level) ̶ Complexity of technologies ̶ Safety elements (pressure to increase safety elements also during construction - EU) ̶ Many examples of bad practice ̶ Price increase of the project during construction ̶ Extension of construction time Department of International Relations and European Studies 6 Theoretical approaches ̶ Market vs. Strategic ̶ Nuclear energy as a strategic sector ̶ Important role of the state ̶ Nuclear energy does not fit into the liberalized energy market Department of International Relations and European Studies 7 Financing – basic concepts ̶ Direct x debt financing ̶ State x private financing ̶ Investor x financial x business/ ownership arrangements of a project ̶ Discount Rate ̶ LCOE – Levelized cost of energy Department of International Relations and European Studies Department of International Relations and European Studies8 The effect of the discount rate on the median LCOE for different technologies Source: OECD Nuclear Energy Agency Department of International Relations and European Studies9 The effect of the discount rate on the LCOE of nuclear power plants Source: Vlastní propočty, EGÚ Brno 0 500 1 000 1 500 2 000 2 500 3 000 CZK/MWh depreciation return on investment fixed operational costs variable operating costs fuel costs base-load costs DR = 0% DR = 5% DR = 10% 10 Financial, contractual and ownership arrangements ̶ Financial arrangements ̶ Government financing ̶ Direct financing State incentives for the private sector – loan guarantee, guaranteed long term contract, feed-in tariffs, CfD, ECA State to state – intergovernmental agreement ̶ Private financing Mankala; Corporate financing; Vendor financing; Raising finance through capital markets ̶ Contractual and ownership arrangements ̶ Turnkey contract – risks taken by the supplier ̶ Different degrees of involvement of the supplier - according to his experience ̶ Public Private Partnership ̶ Alternative Contracting and ownership practices: Build-Operate-Transfer, Build-Own-Operate, and their variations, also an example of feed-in tariffs and CfD Department of International Relations and European Studies Department of International Relations and European Studies11 Emerging trends of nuclear financing models Source: Barkatullah 2017 Define footer – presentation title / department12 Examples of financial and business models ̶ Contract for Difference (Hinkley Point C) ̶ Guaranteed purchase price by the state ̶ Mankala (Hanhikivi) ̶ A consortium of investors who are interested in NJZ - profit, electricity supply at a stable price ̶ Vendor financing (Paks II) ̶ Supplier financing ̶ From the supplier's point of view: "assistance" to other states, in order to secure the contract, continuity of production, geopolitical interests ̶ Build-Operate-Transfer (Sinop) ̶ PPP, concessions for co-financing, construction and operation, guarantee of price, transfer to public administration ̶ Build-Own-Operat (Akkuyu) ̶ PPP, same as BOT, but no transfer 13 Financial arrangements of the new NPP in the CZ ̶ NAP considers three models: ̶ 1) investment through the existing owner and operator of Czech NPPs, ČEZ, or its 100% owned subsidiary; ̶ 2) investment through a private investment consortium; ̶ 3) or direct construction by the state through a newly established state-owned enterprise. ̶ Final model? Department of International Relations and European Studies Department of International Relations and European Studies14 Price comparison to the EU Price and construction time around the world and in the EU Median of unit construction time since 1981 USA -10 % Jižní Korea -35 % Čína a Indie -40 % Source: CleanTech Catalyst Ltd 2018 Define footer – presentation title / department15 Factors influencing the final price ̶ Supply Chain ̶ Cost of labor ̶ Project management ̶ Political and regulatory context ̶ Construction time ̶ Project design ̶ Reactor size ̶ The nature of the investor ̶ Unclear financial framework Define footer – presentation title / department16 Risk reduction measures ̶ Selection of finalised design and proven technology with a stable supply chain ̶ Security demonstration ̶ Involvement of experienced project management ̶ Involvement of a project supplier who has the experience and at the same time also has another ongoing nuclear build ̶ Close cooperation with the government ̶ Continuous and systematic support of the government ̶ Government support for project financing ̶ Close cooperation and coordination with the national regulator ̶ Consideration of cultural aspects - working habits, language, way of communication 17 What are the implications for the construction of new NPP in the CZ? What are we good at? ̶ Public support ̶ General support of the project through all the political parties (political consensus) What are the mistakes? ̶ Long decision making ̶ Delay ̶ Problem of taking responsibility ̶ Lack of political consensus on the individual steps ̶ Critique of the chosen investor model ̶ Disagreements regarding the choice of supplier Department of International Relations and European Studies 18 List of companies approved and contacted by the government and milestones Supplier State Type Power Information Westinghouse USA AP 1000 1200 MW ano Rosatom Rusko MIR TOI 1200 MW 1250 MW ano Kepco /KHNP Korea APR 1400 APR 1000+ 1400 MW 1100 MW ano Areva Francie EPR 1700 1700 MW ano Mitsubishi Japonsko APWR 1700 1700 MW ne Atmea Francie / Japonsko Atmea 1100 1100 MW ano CGN Čína HPR 1000 1150 MW ano CNNC Čína ACP 1000 (HPR 1000) 1150 MW ne SNPTC Čína CAP 1400 1400 MW ne Department of International Relations and European Studies Milestone Beginning End Initial documents approved by government 06/2015 06/2015 02/2018 02/2018 EIA  2019 01/2015 01/2015 11/2018 12/2018 Selection of supplier  2024 03/2018 03/2018 09/2023 06/2022 Placement permit 01/2017 01/2017 12/2021 12/2021 Zoning permit 02/2024 02/2020 08/2027 08/2023 Authorisation for the construction 09/2023 09/2022 11/2029 11/2026 Construction permit 01/2025 08/2026 09/2031 02/2028 Transportation route ready 09/2016 09/2016 02/2033 11/2029 The first concreting of a nuclear island 09/2031 06/2028 02/2033 11/2029 Ready for connection 09/2037 09/2033 Construction and commissioning of the first unit  3036 03/2030 08/2026 09/2039 09/2035 19 How to minimise the risks for the new NPP in the Czech Republic? Discussion – What would you suggest to the Czech government and the ministries? ̶ Government has to be consistent (strategic x market) ̶ Sound, efficient and stable investment environment ̶ Successful negotiations with the EU ̶ The investor must have realistic expectations when planning and managing the project ̶ All key aspects must be taken into account when choosing a supplier Department of International Relations and European Studies Department of International Relations and European Studies20 Question time Source: www.cartoonstock.com/directory/n/nuclear_energy.asp 21 Thank you for your attention! Department of International Relations and European Studies 22 Sources ̶ Barkatullah, N., Ahmad, A. (2017). „Current status and emerging trends in financing nuclear power projects.“ Energy Strategy Reviews, 18: 127-140, December 2017. Dostupné z: https://www.sciencedirect.com/science/article/pii/S2211467X1730056 ̶ Energy Tech. Institute (2018). 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