A non-conventional view at cost and risk of nuclear power plants and prerequisites for benefitting from the technology

1. Dr. Alexander Wolski, Director, Strategic Projects
WorleyParsons Nuclear
Financing of New Nuclear Capacities
International Nuclear Conference
Bulgarian Nuclear Energy – National, Regional and World Energy Security
Varna, 03 June 2015

2. With over 35,100 people in157 offices throughout 46 countries, we
provide our customers with a unique combination of extensive global
resources, world-recognized technical expertise and deep local
knowledge.
Global reach

3. We operate in…

4. WorleyParsons Nuclear Hubs
EU Hub (Sofia)
 100+ employees
 Approximately 550 nuclear
capable employees and staff
augmentation support in the
Region
 Site selection and site hazards
 Feasibility Studies, Licensing
and preconstruction services
 New build/Refurbishment
Owner’s Engineer, design
support
 Safety Assessment and
Verification Analyses including
stress tests
 Major nuclear PM experience
accumulated last 10 years
 Main centre for IAEA and EU
regulations application
experience
Canada Hub (Toronto)
 200 employees
 Approximately 250 nuclear
capable employees and staff
augmentation in the Region
 employees and staff
augmentation support
 Engineering and Design
Support to Canadian nuclear
program and main Canadian
utilities
USA Hub (Reading)
 100+ employees
 Approximately 600 nuclear
capable employees and
staff augmentation in the
Region
 Proven excellence in
nuclear PM role and design
 Vast US NRC regulations
application experience
 New plant services
(deployment, planning,
COLA and ESP)
 Existing plant services
 Decommissioning
 Post-Fukushima evaluations
and modernizations

5.  Pre-construction phase – Armenia, Bulgaria, China,
Czech, Egypt, Jordan, Poland, Russia, Saudi Arabia,
Slovakia, Slovenia, South Africa, Turkey, USA
 Construction – USA, Japan, Korea, Slovenia
 Operation:
 Power-uprates, plant upgrades and modernization –
Bulgaria, Canada, Mexico, Slovenia, Sweden, Russia
and FSU (Lithuania, Ukraine, Armenia), USA
 Post-Fukushima Experience – Bulgaria, Russia,
Turkey, USA
 License renewal – Canada, USA
 SF and RAW management - Canada, UK, USA
 Decommissioning – Armenia, Canada, UK, USA
Nuclear What We Do
55+
Years of Industry Experience
18
Nuclear Units
Engineer of Record
30,000+
MW Nuclear Projects
Customers services through all phases of a nuclear power plant lifecycle

6.  Investment Cost
 Typically 60 – 80% of the generation cost
 Can be influenced by various parameters
 Operational & Maintenance Cost
 Typically 15 – 25% of the generation cost
 Cost are more or less fixed
 Optimization potential is small once a technology is defined
 Fuel Cost
 Typically 10 – 15% of the generation cost
 Spent Fuel Cost defined by SF Management Strategy
 Cost are more or less fixed, optimization potential is small
 Decommissioning Cost
 Typically 1 – 2% of the generation cost;
 Defined by structure of decommissioning fund / legal requirements
Electricity Cost from NPPs
Investment cost
60-80%
Operational &
Maintenance Cost
15-25%
Fuel Cost
10-15%
Decommissioning
Cost 1-2%

7.  Overnight Construction Cost
 Assume plant to be built on one day, no time dependent costs
 EPC Cost
 Directly related to plant engineering, construction, procurement, installation,
testing and commissioning
 Depend on contracting scheme, technology provider(s)and site characteristics
 Typically 70 – 80% of the Overnight Construction Cost
 Owner’s Cost
 Licensing , project management, supervision and infrastructure cost, selection
and training of operating personnel, Owner’s Engineer Services if applicable
 Owner’s cost depend on the current status of the existing infrastructure,
including availability of qualified owner’s resources
 Typically 20 – 30% of the Overnight Construction Cost
Investment Cost for a new NPP

8.  Escalation Cost
 Depend on macro-economic situation (host country and country of origin) and
development during the construction project;
 Sensitive to project delays;
 Typically 10 – 20% of Overnight Construction Cost
 Financing Cost (Interest during Construction)
 Interests and fees paid during plant construction;
 Sensitive to project delays;
 Normally capitalized at the begin of operation;
 Typically 20 – 30% of the Overnight Construction Cost
 Simplified Total Investment Cost
 Recent publicly available data for plant EPC cost (overnight):
- UAE (4 x 1400 MW): 20 bnUSD (3571 USD/kW)
- Akkuyu (4 x 1200 MW): 22 bnUSD (4583 USD/kW)
- Jordan (2 x 1200 MW): 10 bnUSD (4167 USD/kW)
- Hinkley Point C (2 x 1600 MW): 14 bnGBP (5814 USD/kW)
Investment Cost for a new NPP

9. Simplified Overall Investment Cost
% Investment Cost in mUSD
Overnight Cost (ONC) 60-80 7,143 6,250
EPC Cost 70-80 5,000 5,000
Owner’s Cost 20-30 2,143 1,250
Escalation Cost 10-20 714 1,428 625 1,250
Financing Cost (IDC) 20-30 1,428 2,143 1,250 1,875
Investment Cost 9,285
(186% of EPC)
10,714
(214% of EPC)
8,125
(163% of EPC)
9,375
(188%of EPC)

10.  Sovereign (state) Based Structure
 Highest long-term state benefit
 Simplest contractual arrangement structure
 Not compatible with efforts for free market models and liberalization
 Corporate Based Structure
 Corporation through balance sheet, equity, assets to fund investment
 100% state-owned or 100% private owned, or any combination
 State control and benefit corresponding to its share in the corporation
 Compatibility with free market models and liberalization depending on state share
 Project Based Structure
 Project funding (equity and debt, secured by future incomes)
 100% state-owned or 100% private owned, or any combination
 Compatibility with free market models and liberalization depending on state share
Project Ownership & Financing

11.  General Considerations for Nuclear Construction Projects
 High Technology driven (compared with other generation technologies)
 Substantially longer periods of project implementation / construction (construction risk)
 Mandatory specific safety measures to be employed (licensing risk)
 Limited number of technology suppliers and vendors
 Higher funding risk due to 100 years economic cycle
 Strict compliance with environmental requirements and NGO constraints
 (Perceived ?) Track-record of cost- and schedule overruns
 Risks inherent in Nuclear Projects
Project Financing
 Construction schedule risk
 Construction cost risk
 Technology risk / Licensing risk
 Interest rate risk
 Supply chain risk
 Regulatory risk
 Policy risk
 Dispatch risk (dereg. Market)
 Revenue risk (dereg. Market)
 Public opinion risk
 Etc.

12.  Historic construction records
 An Analysis pf NPP Construction Costs (DOE/EIA-0485) for 75 plants starting construction
1966-1977
 Average cost increase to original estimate >200% (75% of overrun not time-related)
 Average construction delay > 90% (60 months to 116 in average)
 No significant effect of learning and/or experience
 A comparable analysis by the French government came to similar conclusions
 On-going construction examples are not building confidence
 Olkiluoto 3, Flamanville 3, Taishan 1 & 2, Hongyanhe, Kudankulam, Sanmen 1 & 2, Shin Kori 3,
Vogtle 3 & 4, Leningrad II 1&2, etc.
 Angra 3, Watss Bar 2
 Still, the nuclear industry has failed to show it can meet schedules or budgets during
construction.
 Moody’s Investors Service:
» New construction of nuclear power plants is generally credit negative «
» Cost overruns more frequent vs other technology types «
Construction Risk

13.  Traditional Model
 Based on regulated and/or government utilities operate in an electricity market based
on vertically integrated monopoly(s) subject to state regulation
 Investments based on long-term national assessment
 Model implicitly ensures long-term revenue
 Target: Minimize long-term cost of the electricity system
 100 years successful experience, all operating NPPs built under this model
 Most current NPP construction projects (CHN, IND, KOR, ARE, RUS, etc.)
 New Model
 Divested/privatized generators compete on a short-term electricity market
 Dispatch based on spot-prices during defined trading periods
 Long-term revenues are uncertain
 Investments based on market incentives
 Target: Minimize short-term marginal cost
 Few nuclear projects in deregulated markets with major out-of-market incentives
Past and Present Electricity Market

14.  Governments to foster general policies through “out-of-market”
mechanisms
 Subsidies for specific types of generation (mostly renewables)
 Various tax schemes (carbon-tax, nuclear fuel and spent-fuel tax, etc.)
 Power Purchase Agreements
 Capacity market mechanisms
 Due to the “Partial” implementation of a free electricity market, the market
completely fails to provide supportive conditions for large-scale energy
infrastructure projects.
 Governments must provide means to increase the attractiveness of large
projects, by creation of an appropriate investment climate
 Guarantee predictability of investment recovery (take on the “market risk”)
 Facilitate financing options through for example sovereign guarantees
 Provide preferential infrastructure development loans
 Etc.
Present Electricity Market

15. 4 x 1600 MW EPR to be built be EdF Energy
Ownership : “PROJECT”, 100% private (from
UK perspective)
Shareholders : EdF (~50%); CNNC/CGN (~30-
40%); AREVA (~10%); others
UK government support
Modified PPA agreement “Contract for
difference”
• Strike price fully indexed with CPI
• Strike (Guarantee) price of £ 92,50 /
128,6 € (2012) per MW for 35 years
(2020: 175 € ; 2030: 256 € ; 2040: 375
€ @ 3.9% CPI)
• UK infrastructure development loan
guarantee for 65% of the project
Equity and Debt : structure unknown
Hinkley Point C – Somerset
Location: UK
Current Examples

16. 4 x 1200 MW AES-2006 to be built be Rosatom project
company
Project Implementation based on Inter-Governmental
Agreement (2010)
First Build-Own-Operate contract in Nuclear Generation
Project Company
Ownership : “PROJECT”, 100% private (from Turkey’s
perspective);
Shareholders : RAOS (74.9%); REA (21.9%); ASE
(2.7%); Inter RAO (0.8%); Atomenergoremont (0.05%);
Atomtekhenergo (0.05%)
Turkish Government support:
• PPA agreement to be signed for 123.5 USD per
MW with annual adjustment possibility never to
exceed 153.3 USD
• PPA valid for 70% of the output of units 1&2 and
30% of the output of units 3&4
• Transfer of Site to PC
Equity and Debt : 100% financing provided by Russian
PC shareholders
Akkuyu NPP – Mersin
Location: Turkey
Current Examples

17. 2 x 700 MW Candu-6 to be built be EnergoNuclear
(completion project)
Project Company : JV between SNN and “investor”
Ownership : “PRIVATE”, (Romania’s perspective);
Shareholders : SNN (30 – 49%); “investor” (51% - 70%)
Romanian Government support:
• New Energy Legislation (preferred grid access)
• PPA agreement (using CfD mechanism)
• Sovereign Guarantees
• Preferential tax environment
• Take on waste management and decommissioning
• Potential Participation as equity investor
Equity and Debt : ? project financing ?
Cernavoda NPP
Location: Romania
Current Examples

18. 1600 MW EPR to be built be AREVA/Siemens
consortium
Financing not disclosed in detail, but key elements
through EC complaint;
TVO is a Finnish “Mankala” company; shareholder take
off electricity in acc. To their share and pay cost in acc.
To their share;
Ownership: Hybrid “CORPORATE”,/”PROJECT”;
Shareholders: none
Government support:
• Finland: Upholding of Mankala principle
• Finland: indirect shareholder through Fortum Power
Oy (51% state)
• Germany: indirect through favored loans from
Bavarian state bank
• France: 610 mEUR ECA
• Sweden: 100mEUR ECA
Equity and Debt : 25:75
Olkiluoto 3
Location: Finland
Current Examples

19.  Ultimately governments are today still the main investor in most NPP
projects.
 Nationally through (majority) state owned utilities (Rosatom, CGN, CNNC, KHNP,
ENEC, etc.);
 In international projects a co-operation between national champions seems to evolve
(EdF & CGN in China, SNN & CGN in Romania, EdF & CGN & CNNC in UK,
Rosatom & CNNC & GoJ in Jordan, etc.)
 The benefits of Nuclear electricity generation are well understood and
generally accepted
 Governments support is essential for Nuclear projects; this applies to host
governments and supplier governments.
 Governmental support includes the firm commitment to the project, but at
the same time substantial monetary commitments for extended periods of
time.
Conclusion