New-Build Nuclear Energy Program Financial Model development
A case to consider extending credit to a business enterprise rather than a physical asset
Situation
- The last decade or so has seen some significant changes in the financing of large infrastructure projects, including nuclear power plants
- Nuclear power projects are among the largest infrastructure projects
- Plant capacity (MW) for nuclear is by far the highest, 1,400MW on average, with a range of 954 to 1,650 MW depending on technologies
- Building a nuclear power plant is a multi-billion-dollar project
- It can range from $3 to $5Bn for a single new nuclear power plant unit, and often several units are planned for development
- It is not unusual to build 4 to 6 units on a site and for countries to engage in building nuclear programs of 10 or more units, meaning some $50Bn to be invested over ten to fifteen years
- Financial models for the new-build nuclear energy programs must take into account factors such as high capital investment, long construction periods, long capital payback periods, problems associated with the fuel cycle, including security of supply, exchange and storage of fuel, non-proliferation
- Agile Dynamics partnered with the client to provide an end-to-end design of the robust, effective, 60 years horizon and user-friendly financial model for ~6GW Nuclear Power Plant (NPP)
Challenge
- In order to be competitive in the market, power plant operators need to have an accurate financial picture of their budgets, revenue and spend and understand the true costs of plant operation
- Nuclear projects present specific features and risk profiles which make them more challenging to finance than other electricity generation plants
- Without this financial insight, making decisions on important issues such as future capital and maintenance expenditure or how to position in the market may be flawed
- More importantly, this can affect long-term profitability and impact your ability to compete with rival power plants
Action
- Agile Dynamics team of experts worked diligently with the client to establish a strong foundation based on intimate understanding of the financial baseline, legal obligations and contractual arrangements
- Our team developed a design of the model based on the FAST methodology that will best accommodate this highly capital-intensive program with significant upfront costs
- Financial model design has been done hand in hand with client’s team of experts ensuring full transparency and effective knowledge transfer
- Financial model includes maintenance outages, degradation of heat rates and most importantly inclusion of variables that reflect risks of actual parameters being different from variables that were agreed to at the financial close of a project
Result
- Achievement of the key objective of ensuring that the financial model has easy to use and understand set functionalities enabling stakeholders to compare commitments made for the capacity charge, the availability and the start date at the commitment date (the financial close or the engagement date) as per the Power Purchase Agreement (PPA)
- Based on the final design of the model these commitments are compared to the actual performance of a business enterprise rather than a physical asset only