COSTS AND PROJECT RISKS

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COSTS AND PROJECT RISKS

ASSOCIATED WITH OWNERSHIP AND

CONTRACTING MODELS IN NUCLEAR NEW BUILD

Sabin Sabinov, WorleyParsons Nuclear Services

Bulatom Conference, Varna, 2014

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

Cost of Nuclear Power



Nuclear Projects Ownership Structures



Project Risk Matrix



Project Risk Treatment

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

Investment Costs



Operational & Maintenance Costs



Fuel Costs



Decommissioning Costs

Cost Components of Electricity from Nuclear

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Overnight Construction

Costs

Escalation Costs during

Construction

Interest during

Construction

• Engineering costs

• Procurement costs

• Construction costs

• Other Owner’s costs

• Escalation on labor

and materials in host

country and country of

technology origin

• Financing costs: interest

and fees paid on debt

during construction

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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

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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

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Elements considered in calculating LCOE: Cost Component Capital Costs O & M Costs Fuel Costs Decommissioning Costs Taxes Plant Performance Parameters Net Power Availability Load Factor Lifetime Discount Rate

The levelised cost of

electricity is defined as

the constant price per

unit of energy that

causes the investment

to break even.

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Ownership Structures for NPP

Projects

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

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

Available Options

Risk Transferability (from public to private sector)

Market

Unbu

nd

ling and Market

Liberalization

State Budget Model

Project Finance Model Degre e of Recourse on Shareh olde r(s)

Private/ Corporate Model -+ +

?

BOO(T), c oncessions, Public Private Partnerships

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

The range of ownership and commercial structures for developing

and financing a new-build project is, in principle, fairly limited

Ownership Structures

 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

 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

• Publicly-owned corporate • Privately-owned corporate

• BOO(T), PPP, Concession

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NPP Project Lifecycle Environment

Project Internal Environment

Project Development OWNER(S) Operations Back-end / Decommissioning Project Execution

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NPP Project Lifecycle Environment

REGULATORS CUSTOMERS PUBLIC POLITICAL ENVIRONMENT FINANCIAL COMMUNITY GOVERNMENT Project Internal Environment

Context / Outside Environment

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NPP Project Lifecycle Environment

Context / Outside Environment Project Risks (known)

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

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

NPP Project Lifecycle Environment

Liabilities allocation Contract / Codified DOR among project stakeholders Project Development OWNER(S) Operations Back-end / Decommissioning Project Execution

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NPP Project Lifecycle Environment

Externalities

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NPP Project Lifecycle Environment

Externalities

Unknown Risk

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Risk Allocation Arrangements

But it is all about the money…

The heart of any plan…

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Risk Allocation Rationale (Big Picture)

SHAREHOLDERS Front-end work, Permitting and licensing Waste disposal / decommissioning POWER PLANT COMPANY Development and construction Finance raising Operation and maintenance Fuel supplies / management OFFTAKERS Electricity off-take

?

Electricity

Market

?

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

A greater level of risk assessment (mitigation) is required compared

to for any other conventional form of generation



Risk mitigation will, amongst others, be a function of the corporate

and commercial structure envisaged for developing a new-build

project

Risk Evolution Requires Sophisticated Approach

Development Construction Operation Back-end

R I S K “Purely” nuclear-related ‘Nuclear adjacent’ Non nuclear-related

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Non

‘purely’

nuclear-related

‘Nuclear

adjacent’

‘Purely’

nuclear-related

Lifecycle Risk Matrix

Suppliers Insurance providers Debt providers Shareholders Host government Back-end Operation Construction Development

!

Not only for financial risks

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Risk Allocation Options

OWNER (S)

OTHER PROJECT

STAKEHOLDERS

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 …

?

Risk Elements… some of

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

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

Mitigation Through Range of Instruments

ECAs, Sovereign guarantees, Gvt comfort

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

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

un-known ‘unun-knowns’

Selecting the Most Appropriate Tools

-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

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Bulgaria power center is managing the regional power business of

WorleyParsons



All together 18 projects currently:

 EU - 13

 Rest of the world - 5



9 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

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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

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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

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DISCLAIMER

This presentation has been prepared by a representative of WorleyParsons for the Bulatom Conference in Varna(Bulgaria), 4th_-6th_{June 2014}_.

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.

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