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FINANCING CRISIS AND NUCLEAR
ENERGY REVIVAL
Dr. Teodor CHIRICA, Director General & CEO
NUCLEARELECTRICA SA
12TH
of NOVEMBER 2008
BUCHAREST, ATHENEE PALACE
ENERGY IN CENTRAL AND
EASTERN EUROPE
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
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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.
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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.
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JAN 2008
NUCLEAR – 17%
FEB 2008
NUCLEAR – 16%
MAR 2008
NUCLEAR – 18%
ROMANIA – NUCLEAR ENERGY TODAY
IV/2008 - ENERGY STRUCTURE
NUCLEARELECTRICA: 10 YEARS OF
SUCCESSFUL OPERATION!
CERNAVODA NPP - UNITS 1 & 2
Cernavoda 1 & 2 operational data: 2007 – SEP 2008
Unit MWe Energy Production
(MWh brut)
Capacity Factor
[%]
Lifetime
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)
UNIT # 1 UNIT # 2
704.8 MW(e)
Feb MarJan May JunApr Aug SepJul Nov DecOct
UNIT # 1UNIT # 2
NUCLEARELECTRICA SA
CERNAVODA NPP
UNITS 1 & 2
PROJECT COMPANY
PCO
UNITS 3 & 4
NUCLEARELECTRICA:
OPERATION & MAINTENANCE
INVESTORS
100%51%49%
NUCLEARELECTRICA - CERNAVODA 3 & 4
SHARING A SITE!
Cernavoda 3 & 4 PROJECT ESTIMATED COST
Unit Installed
capacity
(MWe)
Technology Estimated
Budget
Expected
Commissioning
Date
C# 3 720 CANDU-6 EUR about
4.0 Billion
2015
C# 4 720 CANDU-6 2016
NUCLEARELECTRICA - CERNAVODA 3 & 4
PROJECT ESTIMATED COST
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
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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;
NUCLEAR ENERGY VULNERABILITIES:
COSTS AND PUBLIC OPINION
2008 EUROBAROMETER
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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.
IMPACT OF THE FINANCING CRISIS
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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.
STRUCTURING FINANCING
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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;
STRUCTURING FINANCING (cont’d)
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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.
RISKS MITIGATION
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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.
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.
RISKS MITIGATION (cont’d)
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;
TENDENCIES TO CHANGE GLOBAL RULES
FOR NUCLEAR FINANCING
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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;
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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.
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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);
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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
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Thank you !
