experience feedback from recent nuclear new build projects · involvement of a reactorvendor in...

Experience feedback from recent

Nuclear New Build ProjectsHow to manage the risks ?

Yves CrommelynckSenior Vice President Projects

Nuclear Development DivisionSão Paulo, October 5, 2015

Agenda

ENGIE and its nuclear projects

Nuclear New Build framework

Risk allocation and mitigation

Key issues in Brazil & Conclusions

2INAC 2015 – ENGIE - Experience feedback from recent NNB projectsOctober 5, 2015

ENGIE : Key figures and its balanced electricity generation and geographic mix

€74,7 billionin 2014 revenues

152,900employees

10.5 gigawattsunder construction

115.3 gigawattsof installed power capacity

* Including 100% of capacity of assets held by the Group

at December 31, 2014, regardless of the actual holding rate.

(1) Inc. Turkey.

LatinAmerica

Rev.:€4.3bn5,450 emp.

14.2 GW

3.2 GW

NorthAmerica

Rev.:€3.8bn4,100 emp.

13.1 GW

0.1 GW

Europe1

Rev.:€58.7bn136,600 emp.

49.2 GW

0.4 GW

Africa

Rev.:€0,4bn150 emp.

0,3 GW

2.5 GW

Middle East

Rev.:€0.5bn1,250 emp.

25 GW

3.6 GW

Asia

Rev.:€5.4bn2,550 emp.

9.6 GW

0.7 GW

Pacific

Rev.:€1.5bn2,800 emp.

3.9 GW

Breakdown by energy source

€6-7 billion of

net investment per

year over 2014-2016

Operations in 70countries

900 researchers

and experts at 11 R&D

centers


Brazil : Diversified portfolio of generation assets, with strategic locations

Doel

4

Net Installed capacity of 7,044.3 MW from 28 plants operated by

Tractebel Energia: 79% hydro, 16% thermal and 5% NCRE. This

capacity stands for 89% increase since 1998.

50 years of expertise in nuclear energy

� Stakeholder in Europe first commercial PWRs

BR 3 (1962-1987) & Chooz A (1967-1991)

� Operator of 7 reactors in Belgium

3 at Tihange and 4 at Doel

� The Group capacities in Belgium, France and

Germany 6 134 MW

� Strength : independent from vendors

� Participations in Georges Besse II

(uranium enrichment plant)

Tihange

Doel

DEVELOP

New nuclear

capacity

CONSOLIDATE

Value creation of

existing nuclear assets

Expand added value

of NUCLEAR SERVICES

ENGIE nuclear vision and strategy


� The Government objective is to achieve secure, low carbon and affordable

electricity

� ... and to have 16 GW of new nuclear capacity operating by 2030

� To facilitate nuclear new build, implementation by the Government of several

measures

—Streamlining the planning process

— Carrying out strategic siting assessment

— Putting in place the Electricity Market Reform

— Legislating to ensure decommissioning and waste management liabilities will be met

� The first new-generation plants expected to be on line by 2023-24

� Involvement of a reactor vendor in each of three major projects in new nuclear

build (EDF Energy, Horizon and NuGen)

6

United Kingdom: a very specific environment

INAC 2015 – ENGIE - Experience feedback from recent NNB projectsOctober 5, 2015

� On June 30, 2014, Toshiba (60%) and ENGIE (40%) complete NuGen deal, Europe’s

largest new nuclear development

� The first of three Westinghouse AP1000® reactors is targeted to for operation in 2024-26,

with full commercial operation of 3.6 GW targeted to be achieved by 2030

� NuGen’s Moorside NPP to provide nearly 7 % of U.K.’s electricity requirements and

expected to create between 14,000 and 21,000 UK jobs

� The deal will boost development of the Moorside nuclear project on land to the north and

west of the Sellafield site in West Cumbria

7

The nuclear project of ENGIE in the UK

� A deal has been concluded with the NDA on the extension of a

land option agreement for the Moorside site

� Development goes on with

— the recruitment of leading nuclear professionals,

— the characterisation of the site,

— the development of the nuclear site license

— the start of negotiations with HMG on market and financing

framework

� Tractebel Engineering is acting as Owner’s Engineer


� The Government objective is meeting the increase in electricity demand and to

ensure energy independence through secure, baseload, low carbon and

affordable electricity

� ... and to have about 9 GW of nuclear capacity operating before 2030

� To facilitate new nuclear build, implementation by the Government of several

measures

— Deploying Inter Governmental Agreement umbrella

— Allowing long term Power Purchase Agreement

— Willing to develop nuclear culture and a legal, regulatory and industrial framework :

regulatory bodies, localization, educational system, ... with Institutional support by

partner countries

� The first new-generation units expected to be on line by 2023

� Involvement of a reactor vendor in each of two nuclear new build projects

(Akkuyu and Sinop)

8

Turkey: an environment with newcomer challenges


� May 2013 : Turkey signs the 2nd Inter Governmental Agreement (IGA) with Japan for the

construction and operation of 4 ATMEA1 units and a Host Government Agreement

between the Government of Turkey and the Project Sponsors was agreed upon

� IGA and HGA have been ratified by the Turkish parliament on April 1, 2015 and July 31st is

the formal starting date of a 18-24 month Feasibility Study period. It includes a thorough

assessment of the pre-conditions from a siting, technical, financial, economic, business,

legal and regulatory perspective

� A strong and sustainable Partnership in developing the Project is created between local

and international Utilities, developers and a vendor

� Main challenges are

— Capacity building in a newcomer country nuclear environment

— Difficult site conditions

— FoaK ATMEA1 technology

— Non recourse Project Finance

� Tractebel Engineering is acting as Owner’s Engineer for the Technical feasibility

9

SINOP: the ENGIE nuclear project in Turkey


Agenda






� Large scale, duration and limited number of projects,

especially in Western countries

� High fixed and low variable costs

� High capacity & availability

� Long term management of fuel & radioactive waste up to

decommissioning

� Industrial relations with few suppliers of NI and CI

� Nuclear safety (international standards & regulation) with

long licensing and permitting process

� Global nature of nuclear risk

� Experience feedback with limited business cases available

� Lack of nuclear development skills and need for long term

management of expertise in all domains

� Transparency and communication, Fukushima trauma

11

Why are nuclear projects different?

Consequence

High Development costs & need to apply a staged gate de-risking approach


Nuclear New Build projects have changed

� Majority government owned/sponsored

nuclear industry

� Financed through State funds or strong

private balance sheets, with State support in

terms of risk allocation and legal framework

� Electricity market : strong and stable

regulated environment (cost+)

� Mostly in developed countries with stable

political climate and legal framework

� Pre-Fukushima environment

� Proven technologies

� National industry

� In-country human resources

Past

� Privately owned/sponsored (with

short/medium term profitability focus) and

requiring strong government support

� Short investment tenor, financial crisis : new

financing models and sources sought

� Electricity market: volatility of fossil fuel

power prices, deregulated or differently

regulated and unbundled

� Developing countries newcomers in nuclear

� Post-Fukushima environment: risk profile

affected & nuclear industry reputation issue

� “First Of A Kind” technologies

� Increasingly international industry and JVs

� Global human resources challenges and

requirements and significant operational

support, particularly for emerging nuclear

countries

Today & tomorrow

Inspired by


13

Typical investment criteria

� Coherence with Group Strategy

� Workable partnerships

� Stable long term political commitment

� Clear and predictable long term legal and regulatory environment

� A suitable electricity market and revenue guarantee arrangement

� Site assessment (incl. a reliable High Voltage grid)

� Technology assessment

� Local acceptance (see afternoon presentation)

� Industrial framework and possibility

to build local (nuclear) competences

� Fuel cycle and radwaste management solutions

� Economics, Financing & Off-take


Agenda






Focus on large, complex projects to create value in

Development & Operation

Co-Owner & Co-Operator for highest safety level PWR

technology

� Through sustainable partnerships to share risks,

costs, benefits

— to decrease competition and reduce costs

— to meet clients requests/demands

— with adequate industrial scheme coping with local situation

• at equity level : Utilities and/or giant Consumers

• at political level : local incumbent Utilities

• at contractual level : Suppliers / Contractors

�Work on challenging sustainability of the

partnerships

15

Managing the Partnership risk


�Manage Vendor / Investor potential

conflict of interest

� Through Plant delivery contractual

schemes with affordable risks

�Avoid late changes in design

�Prepare and manage the EPC contract

�Avoid cost overruns and delays

�Make sure the site is appropriate

�Make sure that the insurance market is

available at affordable cost

�EPC Consortium to develop the appropriate

supply chain with qualified and available

resources / materials

Managing the Partnership & Technology risk Including Siting and delivery contractual scheme


17

Addressing the Political risk

and working on Public awareness & acceptance

Getting stable long term political commitment could remain out-of-control

�Need to assess and understand Macro / Micro Political Risk Environment

�Cover the change in law to avoid endangering the economic equilibrium

�Prepare to Legal challenges

� Termination of the Project by Sovereign decision to stop the country

Nuclear Program needs to be properly covered including in terms of funding

the early decommissioning.

�Project Company to fulfill its contractual obligations. Reputational risk is key

�Work on Public awareness & acceptance by

— meeting public expectations and engaging with national and local stakeholders,

— promoting nuclear energy as an acceptable and legitimate way of meeting energy

needs,

— building up Project Company image as a legitimate stakeholder in nuclear energy


�NNB projects need a consistent and predictable

application of mature regulations on nuclear safety

and liabilities, both national and international : key

challenge in newcomer countries and/or in case of

adaptation of existing regulations

�Delay in licensing & permitting process is a key risk

� In terms of allocation, governments and regulators have

the responsibility to

— define the National Energy Policies and sign the International

Conventions

— put a stable and consistent legal framework in place, National

Acts and Laws

�Project Company to fulfil all regulatory obligations in

order to be able to

— be recognized as Owner through the implementation of the

Owner/Operator organization in line with Safety & Environment

Authorities requirements

— develop the Licensing process and schedule

18

Finding a way in the legal and regulatory environment


�Need to recruit, train and retain

workforce for the design,

construction and the operation

phases

— mobilize skilled people and skilled

suppliers

— develop local manpower

competency

— create partnerships with research

centers and Universities

— foster bilateral support agreements

� Look ahead staffing plan

— with timeline to facilitate local and

secondees recruitment,

— fully respectful of local labor law

requirements

INAC 2015 – ENGIE - Experience feedback from recent NNB projects 19

Mitigating the competences challenge

October 5, 2015

Lender’s view on investment & Financing principles

� Extensive risk mitigation and allocation is necessary with a need for more commitments

from both Government and Sponsors

� Stability and predictability through an efficient and effective regulatory system is key as

arrangements for the management of radwaste, spent fuel and decommissioning

� Sufficient nuclear insurance cover needs to be available

� Long term Power Purchase contracts with strong off-taker(s) are necessary

� Lenders are not (yet) comfortable with key risks associated with nuclear


Project Company

Debt Equity

Regional

partners

International

partnersECAs

Commercial

BanksState

Banks

� Commercial banks need strong security package

� State Banks and ECAs will demand extensive due diligence

� Bridge financing needed between the EPC NTP and the FC of the long term financing

shall be fully covered by Local Government with reimbursement by Sponsors at FC.

What kind of market support mechanism ?

�PPA or revenue guarantee mechanism is mandatory for both Lenders and

Sponsors

� It shall include, depending on the detailed risk allocation,

— minimum duration to allow adequate return for the Sponsors and to attract long term

financing, which is key for achieving a viable cost of generated electricity

— guaranteed output / take-or-pay, i.e. fixed volume assumptions...

— pass through of some key costs (fuel costs, insurance for example)

— delay LD’s / performance guarantee to be back-stopped by the EPC contractor

— final cost of radwaste disposal and decommissioning risk borne by Government with a

fixed and pre-agreed contribution by Sponsors through adequate funds

— well defined Licensing schedule with any delay not due to Sponsors passed-through in

the PPA

� Therefore, flexibility and willingness of all parties to adapt the tariff/price to

cope with the project uncertainties will be necessary to guarantee final project

viability


Agenda






Brief assessment of nuclear new build in Brazil

� Brazil is active all along the nuclear value chain: producer of Uranium, covering the front-

end of the fuel cycle, R & D Centers, a prototype PWR for naval propulsion under

construction, a heavy components factory, two running nuclear power units, a third one

under construction

� Future contribution of nuclear to the energy mix remains unclear but National Energy Plan

2030 (PNE) indicates the need of new nuclear plants. The capacity gap of the Brazilian

system is around 7.5 GW per year according to the last ten year plan released (PDE 2015-

2024)

� Regulated market : 40 to 50 years’ PPAs could be envisaged for nuclear and the auction

process will probably need some adaptation

� Local manpower is technically competent to the level required for nuclear power

construction, operation and supply. However continuous capacity building is needed and

� Grid can absorb large power, although reinforcement is likely to be required in some locations

� Low seismic risk but non-negligible flood risk near big cities

� Present regulatory conditions need to improve and a new business model shall be

implemented before launching new projects

� Private or semi-private ownership for new nuclear power remains an issue and a strong

political support is needed, as a change in the Brazilian Constitution may be required

2013 11 27_INAC_GDF SUEZ NNB investment


�Based on international IPP developer experience

�Respecting the profitability expected criteria given the risks

�Within environments that are sufficiently regulated and/or formalized via

contracts

�By sharing the risks, costs and benefits with partners

�Establishing a clear governance from the beginning of the project to become an

“intelligent operator” in the country

�Selecting the technology and the right delivery contractual schemes based on

on-going nuclear new build projects using highest safety level PWR types (e.g.

ATMEA1 or AP1000)

ENGIE believes that Brazil will take advantage of

the long term experience of international investors-operators

with strong local presence and nuclear expertise, like ENGIE,

in setting up partnerships and bankable development schemes

24

Conclusions

ENGIE is willing to develop nuclear

as a co-Owner and co-Operator of highest safety level PWRs


experience feedback from recent nuclear new build projects · involvement of a reactorvendor in...

Documents