COSTS AND PROJECT RISKS

Transcription

1 COSTS AND PROJECT RISKS ASSOCIATED WITH OWNERSHIP AND CONTRACTING MODELS IN NUCLEAR NEW BUILD Sabin Sabinov, WorleyParsons Nuclear Services Bulatom Conference, Varna, 2014

2 Key Presentation Topics Cost of Nuclear Power Nuclear Projects Ownership Structures Project Risk Matrix Project Risk Treatment

3 Cost of Nuclear Power

4 Cost Components of Electricity from Nuclear Investment Costs Operational & Maintenance Costs Fuel Costs Decommissioning Costs Investment O & M Fuel Decommissioning

5 Investment (Capital) Costs Overnight Construction Costs Engineering costs Procurement costs Construction costs Other Owner s costs Escalation Costs during Construction Interest during Construction Escalation on labor and materials in host country and country of technology origin Financing costs: interest and fees paid on debt during construction

6 Construction Costs Construction costs can vary significantly and are depended on several factors, such as, but not limited to: Site characteristics Reactor Technology Number of Units Host country experience in nuclear Economic factors (labor & materials) Analysis demonstrates: Multiple-Unit plants benefit from economy of scale, shared development costs, common facilities, learning curves First-of-a-Kind plant development carries increased Overnight Costs for both Single and Multiple-Unit plants Tried-and-Tested plant developments share decreased Overnight Costs for both Single and Multiple-Unit plants

7 O&M, Fuel and Decommissioning Costs O&M costs Labor costs Repairs & Maintenance Nuclear Liability Insurance Etc. Fuel Costs Front End Costs supply of fresh nuclear fuel Back End Costs SNF management costs Decom Costs Provisions to ensure future financing of decommissioning

8 Levelised Cost of Electricity (LCOE) Elements considered in calculating LCOE: Cost Component Plant Performance Parameters Discount Rate Capital Costs Net Power The levelised cost of electricity is defined as the constant price per unit of energy that causes the investment to break even. O & M Costs Fuel Costs Decommissioning Costs Availability Load Factor Lifetime Taxes

9 Ownership Structures for NPP Projects

10 Available Options There exist other variations in ownership and commercial structures, which may provide for flexibility and allow more innovative schemes to be envisaged Economics, legal & regulatory environments, and particularly size and duration of nuclear projects put, however, a range of constraints + Market Unbundling and Market Liberalization BOO(T), concessions, Public Private Partnerships Project Finance Model? - Degree of Recourse on Shareholder(s) State Budget Model - Risk Transferability (from public to private sector) + Private/ Corporate Model

11 Ownership Structures The range of ownership and commercial structures for developing and financing a new-build project is, in principle, fairly limited Sovereign-based structure Government leadership Assets on the government s balance sheet Investment financed through state budget Financing based on budget allocations Simple contractual structure Corporate-based structure Corporate leadership Assets on a corporate balance sheet Investment financed thru a combination of debt and equity Financing based on commercial terms Need for more elaborate contractual arrangements Project-based structure Government owned company Publicly-owned corporate Privately-owned corporate BOO(T), PPP, Concession Contracted leadership Assets on a project company s balance sheet ( structured corporate ownership) Investment financed through a combination of debt and equity Financing based on commercial terms Need for comprehensive contractual arrangements

12 Risk Management Framework

13 NPP Project Lifecycle Environment Project Internal Environment Project Development OWNER(S) Project Execution Operations Back-end / Decommissioning

14 NPP Project Lifecycle Environment Context / Outside Environment REGULATORS Project Internal Environment OWNER(S) POLITICAL ENVIRONMENT CUSTOMERS Project Execution Project Development Operations FINANCIAL COMMUNITY PUBLIC Back-end / Decommissioning GOVERNMENT

15 NPP Project Lifecycle Environment Project Risks (known) Context / Outside Environment REGULATORS Project Internal Environment OWNER(S) POLITICAL ENVIRONMENT CUSTOMERS Project Execution Project Development Operations FINANCIAL COMMUNITY PUBLIC Back-end / Decommissioning GOVERNMENT

16 NPP Project Lifecycle Environment Project Risks (known) Context / Outside Environment REGULATORS Project Internal Environment OWNER(S) POLITICAL ENVIRONMENT CUSTOMERS Project Execution Project Development Operations FINANCIAL COMMUNITY Liabilities allocation PUBLIC Back-end / Decommissioning GOVERNMENT Contract / Codified DOR among project stakeholders Decisions in one environment have impact on and are impacted by decisions in another Stakeholders outside of the NPP impact on project internal environment as well as on the strategic environment as a whole

17 NPP Project Lifecycle Environment Externalities Project Risks (known) Context / Outside Environment REGULATORS Project Internal Environment OWNER(S) POLITICAL ENVIRONMENT CUSTOMERS Project Execution Project Development Operations FINANCIAL COMMUNITY PUBLIC Back-end / Decommissioning GOVERNMENT

18 NPP Project Lifecycle Environment Externalities Project Risks (known) Context / Outside Environment Unknown Risk (Black Swan) REGULATORS Project Internal Environment OWNER(S) POLITICAL ENVIRONMENT CUSTOMERS Project Execution Project Development Operations FINANCIAL COMMUNITY PUBLIC Back-end / Decommissioning GOVERNMENT

19 Risk Allocation Arrangements The heart of any plan But it is all about the money

20 Risk Allocation Rationale (Big Picture) SHAREHOLDERS Front-end work, Permitting and licensing POWER PLANT COMPANY Development and construction?? OFFTAKERS? Finance raising Operation and maintenance Electricity off-take Electricity Market Waste disposal / decommissioning Fuel supplies / management

21 Risk Evolution Requires Sophisticated Approach A greater level of risk assessment (mitigation) is required compared to for any other conventional form of generation Development Construction Operation Back-end Purely nuclear-related R I S K Nuclear adjacent Non nuclearrelated Risk mitigation will, amongst others, be a function of the corporate and commercial structure envisaged for developing a new-build project

22 Lifecycle Risk Matrix! Not only for financial risks Nuclear adjacent Non purely nuclearrelated Purely nuclearrelated Back-end Operation Construction Development Suppliers Insurance providers Debt providers Host government Shareholders

23 Risk Allocation Options OWNER (S) OTHER PROJECT STAKEHOLDERS? Risk Elements some of Design certification matters Permitting and licensing matters Compliance, monitoring and inspection matters Reputational matters Commercial matters Contractual matters Political risk matters Force Majeure Supply Chain

24 Project Risk Treatment

25 Mitigation Through Range of Instruments Procurement strategies Split Contract approach vs Turn-key Fixed vs. variable date / price quotations Price setting / price escalation formulae Commercial and contractual arrangements Partnering strategies Best price vs. most reliable long-term contract Fixed vs. variable price contracts (with price escalation formulae) Insurance products Commercial risk cover Political risk cover Off-the-shelf financial products Hedging Forward ECAs, Sovereign guarantees, Gvt comfort letters, shareholders guarantees, credit insurance

26 Selecting the Most Appropriate Tools Changes and variations in Prices (in particular for commodities) Interest rates Exchange rates Credit standing Debt-to-equity level Legal, regulatory and political environment Transferability (repatriation) Financing (sourcing) Delays in project delivery Funding Liquidity Bankability Known unknowns and unknown unknowns -Financial products (hedges, swaps, etc.) -Price setting / escalation formulae -Procurement strategies (open book, etc.) - Traditional financing structures -Insurance products (ECAs, private insurance) -Insurance products (ECAs, private insurance) -Commercial and contractual arrangements -Procurement strategies -Commercial and contractual arrangements -Commercial and contractual arrangements Risk Transfer Price

27 WorleyParsons Presence in Bulgaria Bulgaria power center is managing the regional power business of WorleyParsons All together 18 projects currently: EU - 13 Rest of the world existing offices in four countries: Bulgaria 4 Offices Czech Republic 1 Office Poland 3 Offices Turkey 1 Office Other current project countries in the wide region: Slovak Republic Slovenia Sweden Romania Armenia Egypt

28 Countries with current/recent projects Bulgaria Operations Europe: Sweden Slovakia Czech Slovenia Bulgaria Russia Turkey Ukraine Spain Serbia Belgium Poland Romania Italy United Kingdom Ukraine ME/Asia: Armenia Jordan Saudi Arabia Qatar Uzbekistan Kazakhstan China India Africa: Egypt South Africa Morocco Mauritania Uganda America: Mexico

29 Countries with current/recent projects Bulgaria Operations Related to nuclear power projects economics/risks assessments America: Mexico Europe: Sweden Slovakia Czech Slovenia Bulgaria Russia Turkey Ukraine Spain Serbia Belgium Poland Romania Italy United Kingdom Ukraine Africa: Egypt South Africa Morocco Mauritania Uganda ME/Asia: Armenia Jordan Saudi Arabia Qatar Uzbekistan Kazakhstan China India

30 DISCLAIMER This presentation has been prepared by a representative of WorleyParsons for the Bulatom Conference in Varna(Bulgaria), 4 th -6 th June The presentation contains the professional and personal opinions of the presenter, which are given in good faith. As such, opinions presented herein may not always necessarily reflect the position of WorleyParsons as a whole, its officers or executive. Any forward-looking statements included in this presentation will involve subjective judgment and analysis and are subject to uncertainties, risks and contingencies many of which are outside the control of, and may be unknown to, WorleyParsons. WorleyParsons and all associated entities and representatives make no representation or warranty as to the accuracy, reliability or completeness of information in this document and do not take responsibility for updating any information or correcting any error or omission that may become apparent after this document has been issued. To the extent permitted by law, WorleyParsons and its officers, employees, related bodies and agents disclaim all liability direct, indirect or consequential (and whether or not arising out of the negligence, default or lack of care of WorleyParsons and/or any of its agents) for any loss or damage suffered by a recipient or other persons arising out of, or in connection with, any use or reliance on this presentation or information.

31