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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 !