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T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
T.Chirica - Forum Invest Financing Crisis And Nuclear
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T.Chirica - Forum Invest Financing Crisis And Nuclear

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A presentation by Dr. Teodor Chirica on "Financing Crisis and Nuclear Energy Revival" at the Forum Invest held in Bucharest on 12 November 2008. The presentation is based on public references, …

A presentation by Dr. Teodor Chirica on "Financing Crisis and Nuclear Energy Revival" at the Forum Invest held in Bucharest on 12 November 2008. The presentation is based on public references, Cernavoda 3-4 experience, discussions with different bankers and personal observations by the author.

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  • 1. ENERGY IN CENTRAL AND EASTERN EUROPE FINANCING CRISIS AND NUCLEAR ENERGY REVIVAL Dr. Teodor CHIRICA, Director General & CEO NUCLEARELECTRICA SA 12TH of NOVEMBER 2008 1 BUCHAREST, ATHENEE PALACE
  • 2. CONTENTS • International Context - Status and Projections • Romania – Nuclear Energy Today and New Developments - Cernavoda 3 & 4 • Nuclear Energy Vulnerabilities, the Economic Crisis and Mitigation of Risks • Conclusions • References
  • 3. INTERNATIONAL CONTEXT  Interest in new nuclear power is being pushed by (a) growing energy demand, (b) energy supply security, and (c) concerns over climate change;  Main issues: – Consolidation: about six countries able to export complete nuclear power plants — Canada, France, Japan, Russia, South Korea and the US; – Unbalance between demand and offer; – Re-start after a long slow-down period:  Lack of production capacity for some critical components;  Deficit of experienced work-power. – Increasing cost of the investment; – Recent crisis impact on costs; – Technology: Transition to the Third Generation. 3
  • 4. STATUS AND PROJECTIONS STATUS:  June 2008: 439 nuclear power units/ operating in 30 countries/ total capacity of 372 GW  2.6 billion MWh: 16% of the world’s electricity OECD/NEA PROJECTIONS:  The NEA has projected global nuclear capacity to 2050 using low and high scenarios. The outcome is:  By 2050, global nuclear capacity is projected to  increase by a factor of between 1.5 and 3.8.  Under the high scenario, the nuclear share of global electricity production would rise from 16% today to 22% in 2050. 4
  • 5. ROMANIA – NUCLEAR ENERGY TODAY IV/2008 - ENERGY STRUCTURE JAN 2008 NUCLEAR – 17% FEB 2008 NUCLEAR – 16% MAR 2008 NUCLEAR – 18% 5
  • 6. NUCLEARELECTRICA: 10 YEARS OF SUCCESSFUL OPERATION! CERNAVODA NPP - UNITS 1 & 2 Cernavoda 1 & 2 operational data: 2007 – SEP 2008 Unit MWe Energy Production Capacity Factor Lifetime (MWh brut) [%] CF [%] 2007 IX/ 2008 2007 IX/2008 C# 1 706.5 5,518,346 3,654,999 97.62 79.20 87.90 C# 2 706.5 961,986 4,463,461 93.23 96.40 95.80 706.5 MW(e) 704.8 MW(e) UNIT # 1 UNIT # 1 UNIT # 2 UNIT # 2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
  • 7. NUCLEARELECTRICA - CERNAVODA 3 & 4 SHARING A SITE! INVESTORS NUCLEARELECTRICA SA 100% 49% 51% PROJECT COMPANY CERNAVODA NPP PCO UNITS 1 & 2 UNITS 3 & 4 NUCLEARELECTRICA: OPERATION & MAINTENANCE
  • 8. NUCLEARELECTRICA - CERNAVODA 3 & 4 PROJECT ESTIMATED COST Cernavoda 3 & 4 PROJECT ESTIMATED COST Unit Installed Technology Estimated Expected capacity Budget Commissioning (MWe) Date C# 3 720 CANDU-6 EUR about 2015 4.0 Billion C# 4 720 CANDU-6 2016  Cernavoda NPP 3 & 4: 2.5 billion Euro cost 2004/ 4.0 Billion 2008;  Duke Energy (US): two Westinghouse AP1000 of 2234 MWe: 4 – 6 Billion US$ cost 2005/ $11 billion, excluding financing costs and inflation cost 2008 (WNN, 07 November 2008);  South Carolina (US) – VC Summer NPP: $9.8 billion price for two Westinghouse AP1000s cost 2008 (Nucleonics Week, Volume 49 / Number 22 / May 29, 2008
  • 9. NUCLEAR ENERGY VULNERABILITIES: COSTS AND PUBLIC OPINION  Capital construction for Power Projects costs increased by 100% between I/2005 and IV/2007, but: – Falling commodity prices due to an anticipated economic slowdown, may reverse the trend of quickly rising nuclear power plant construction costs; – A slowdown in the global economy or a recession could reduce the labor costs as well.  Financing costs – impact of the economic crisis;  Public opinion is veering in favor of nuclear power even in countries with moratorium or phase-out laws due to safe operation record and better communications efforts; 9
  • 10. 2008 EUROBAROMETER
  • 11. IMPACT OF THE FINANCING CRISIS  No significant impact over operating units;  Impact on capital spending, financing difficult to obtain, and financing costs would be higher, for new nuclear constructions, but: – Companies’ plans not affected, but some delays are to be expected; – Main Projects are at an early stage and by the time of financial close, two or three years away, is expected the markets to recover; – Earliest start of Cernavoda 3 and 4: 2010 - 2011.  The fundamentals of energy demand will support the nuclear revival despite the financial crisis: – Nuclear energy represents for Romania a least cost option, main contributor to security of supply strategy and CO2 reduction: Cernavoda 3 & 4 and next NPP; – Interest of Investors to stay in the Project. 11
  • 12. STRUCTURING FINANCING  Different situations for nuclear plant financing: – Loan guarantees to secure financing (ex. DOE guarantees provided to regulated utilities in US); – Parent companies support of back-up PPA provided to unregulated commercial generating plant - require more equity and less debt, and greater security for debt; – ―Investment‖ through partnerships of varied companies, like Finnish cooperative Teollisuuden Voima Oy (TVO) - in which TVO is using proceeds from its existing two reactors, plus the third once it is finished, to repay debt).  Project finance – NOT AGREED BY THE BANKS for Nuclear Projects;  The financial crisis can be expected to influence the European debate on energy market rules, such as loan guarantees or other - EU rules currently prohibit state aid except in certain circumstances. 12
  • 13. STRUCTURING FINANCING (cont’d)  Promoters of two new nuclear projects in Europe have abandoned attempts at pure project financing: – Bulgaria - the Bulgarian Energy Holding: merge of NEK, Kozloduy NPP and other 3 companies, allows cash flows from operation to support debt service for the new VVERs to be build at Belene: – BEH: €4.3bn assets and annual revenues more than €1.8bn; – Romania - the original standalone project to build Cernavoda 3 & 4 has been converted into one where the government will take 51%, based on high portion of equity financing, increasing the project’s financeability:  Compliance with EU competition rules to be demonstrated (the market economy operator test);  Turkey’s recent attempt to start its first NPP with project financing failed, as only one vendor submitted a valid bid; 13
  • 14. RISKS MITIGATION  Cost uncertainties associated with past nuclear construction projects may add a premium of 3%- 5% to financing of nuclear plants compared to other power plants: – Lenders may also require further protection such as government guarantees;  Ex. DOE’s loan guarantee program is designed to promote innovative generation technologies that have little or no greenhouse gas emissions - the department is authorized to provide $18.5 billion in loan guarantees for new reactor construction; – Sponsors and lenders are worried about a revenue shortfall that could arise from project delays and financing cost overruns. 14
  • 15. RISKS MITIGATION (cont’d)  Use of principles such as shared investment and phased financing could mitigate that risk:  Shared investment: – Proper risk allocation among stakeholders (Owners, Vendors, Banks, Government): a key to successfully financing a nuclear project;  Cernavoda 3 & 4: shared investment risk among Nuclearelectrica, with the support of the State, and private investors (5 electric utilities and on industrial consumer); – Investors off-take the electricity generated (proportionally to the stake in the project), at cost, and market it at their own risk;  this allows also dealing with future electricity price volatility risk and security of supply. 15
  • 16. RISKS MITIGATION (cont’d)  Phased financing: – Construction risk is the overriding risk for new nuclear units - the main risk is completion on time & on budget; – Operation risk: Investors are more ―comfortable‖ with the risks of operation, basically reduced to operational and market risks (revenue stream);  Different financing phases may also have different capital structures, for examples:  Recourse to shareholders during construction phase;  Non-recourse financing may be used upon the beginning of commercial operation.
  • 17. TENDENCIES TO CHANGE GLOBAL RULES FOR NUCLEAR FINANCING  Some Global Nuclear Energy Partnership (GNEP) members are working to put international mechanisms into place to help finance construction of nuclear power plants;  Two principal targets are: – International financial institutions, such as the World Bank, and – National export credit agencies (ECAs).  ECAs’ existing terms are not optimal to stimulate new nuclear power plant development: – The present approach allows a 15-year payback period for nuclear export credits - the proposal under consideration could stretch that period out to 30 years;
  • 18. SECOND ROMANIAN NPP  Romanian Government is considering a second NPP to be commissioned after 2020, as far as the nuclear energy represents the main contributor to security of supply strategy and CO2 reduction: – 2 to 4 units, up to an overall site capacity of about 2,400 MW; – Sites on the internal rivers from energy deficit regions, as well as Danube River could be considered; – Reactor Type – Third Generation (750 – 1,200 MWe/unit): EPR, AP1000, OPR 1000+, APR1400, ACR 1000, (Enhanced CANDU-6) etc.; – Impact of the future European Directive on Nuclear Safety; 18
  • 19. CONCLUSIONS  The Nuclear Program in Romania, part of the national and European energy policy: sustainable development, security of energy supply and competitiveness;  Completion of Cernavoda 3 & 4 - an excellent opportunity utilizing the existing expertise from the previous nuclear units, considering the unique hands- on experience that Nuclearelectrica has;  Support from the political class is crucial, considering that the completion of such projects are covering more than one elections cycle. 19
  • 20. CONCLUSIONS (cont’d)  Companies’ plans for new nuclear construction not affected by the crisis, but some delays are to be expected;  New tendencies in nuclear projects financing (state guarantees, ECAs, MDB);  European Nuclear Energy Policy is needed, consistent with other geographical areas (US, Russia, China, India); 20
  • 21. REFERENCES 1. Nucleonics Week - Volume 49 / Number 41 / October 9, 2008 – Nuclear energy revival vulnerable on costs, public opinion 2. Nucleonics Week - Volume 49 / Number 42 / October 16, 2008 – Impact of financial crisis on global nuclear revival seen as moderate; – Asian industry seeks explanation for rising construction costs 3. Nucleonics Week - Volume 49 / Number 43 / October 23, 2008 – US working with allies to change global rules for nuclear financing 4. Structuring Nuclear Projects for Success, WNA Report, London, 2008 5. Nuclear Energy Outlook 2008, OECD/Nuclear Energy Agency, NEA No. 6348, 2008 6. Energy and Natural Resources – Central and Eastern European Nuclear Energy Outlook, KPMG Energy and Utilities Center of Excellence Team, Budapest, 2008 21
  • 22. Thank you ! 22

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