Thanks for the heads up ND. If you are still casting around for sources, I have a few possibilities on the financing beyond the French Sfen article. I don't really understand these, but have cherry-picked some quotes that may or may not be useful! I'm hoping you can work out if UK plc taxpayers should be worried by this financial arrangement.
Way back around July 22, before the recent govt ok and Sfen article, Centrica signed up for a 15% stake, and there were some detailed articles if you knew where to look. Most detailed seems to be on Directors Talk - a real everyday read!
"Centrica Plc to take 15% stake in Sizewell C with £1.3bn commitment"
- Inflation-protected, regulated returns - 10.8% Allowed Return on Equity (real CPIH; WACC 6.7% real CPIH) during construction and initial operations period - Centrica’s IRR is above 12% based on an LRT scenario. Centrica’s IRR is above 10% based on a HRT scenario. - Lower Regulatory Threshold which is based on a moderate outturn on cost and schedule, and the Higher Regulatory Threshold which is based on a severe outturn on cost and schedule - Centrica’s equity [£1.3 billion] share of the RAB expected to grow to around £3 billion at commercial operations date - Agreement in principle for initial 20-year offtake agreement for our share of Sizewell C’s production, and for Centrica to provide Sizewell C with route to market services for additional volumes - Up to the LRT, 100% of construction costs will be added to the RAB plus 50% of the cost savings below LRT. - Above the HRT, in the event further funding is unavailable from the private market, HM Government has committed either to provide the required funding or to discontinue the project and provide compensation to investors in respect of the RAB as at the discontinuation date. Returns continue to accrue during construction in the event of delay.
Morningstar gives similar info in an easier to read form:
- Centrica estimates the internal rate of return will be between 10%-12% until three years after commissioning. - If the project is delayed by more than four years beyond 2039, WACC will be cut to 5.7% during those years. - After the commissioning, the allowed returns will be set every five years, in line with networks. - It will get a 9% interest on this loan during construction, accounted as EBITDA, of which 6% is annual cash yield. - If total costs end up between £40 billion-£47 billion, half of the cost overruns will be added to the project’s regulated asset base. Beyond £47 billion, the government will either ensure the funding or ax the project and compensate the shareholders. - assuming construction costs of £47 billion and a commissioning in 2044, we calculate a value accretion of 10p [to share value] from the project
"Sizewell C Ltd.'s HMG Term Facility Assigned 'BBB+' Rating; Outlook Stable"
Finally S&P BBB+ rating is worth reading: - Our expectation of extraordinary support from the U.K. government during construction and operations provides an uplift to the rating. - The stable outlook reflects the project’s capacity to absorb significant cost overruns and construction delays thanks to protections offered by the regulated asset base (RAB) regime and HMG term facility. -The project benefits from a GSP that addresses high-impact, low-probability events, including a contingent financing agreement ... - breaching the longstop date cannot lead to license revocation but ... lower weighted WACC .. also allows the regulator to impose a potential fine of up to 10% of revenue. [reads to me like: even if we mess up real bad building the damn thing, we'll still make a bit of money!] - highly predictable, RAB-based revenue stream during construction, independent of project performance. - Following an unavailability event, revenue will be adjusted downward in subsequent years through an availability incentive, subject to a 75% revenue floor - Revenue is availability-based, and insulated from market demand and price volatility
Thanks for the heads up ND. If you are still casting around for sources, I have a few possibilities on the financing beyond the French Sfen article. I don't really understand these, but have cherry-picked some quotes that may or may not be useful! I'm hoping you can work out if UK plc taxpayers should be worried by this financial arrangement.
ReplyDeleteWay back around July 22, before the recent govt ok and Sfen article, Centrica signed up for a 15% stake, and there were some detailed articles if you knew where to look. Most detailed seems to be on Directors Talk - a real everyday read!
https://www.directorstalkinterviews.com/centrica-plc-to-take-15-stake-in-sizewell-c-with-1-3bn-commitment/4121208605
"Centrica Plc to take 15% stake in Sizewell C with £1.3bn commitment"
- Inflation-protected, regulated returns
- 10.8% Allowed Return on Equity (real CPIH; WACC 6.7% real CPIH) during construction and initial operations period
- Centrica’s IRR is above 12% based on an LRT scenario. Centrica’s IRR is above 10% based on a HRT scenario.
- Lower Regulatory Threshold which is based on a moderate outturn on cost and schedule, and the Higher Regulatory Threshold which is based on a severe outturn on cost and schedule
- Centrica’s equity [£1.3 billion] share of the RAB expected to grow to around £3 billion at commercial operations date
- Agreement in principle for initial 20-year offtake agreement for our share of Sizewell C’s production, and for Centrica to provide Sizewell C with route to market services for additional volumes
- Up to the LRT, 100% of construction costs will be added to the RAB plus 50% of the cost savings below LRT.
- Above the HRT, in the event further funding is unavailable from the private market, HM Government has committed either to provide the required funding or to discontinue the project and provide compensation to investors in respect of the RAB as at the discontinuation date. Returns continue to accrue during construction in the event of delay.
https://global.morningstar.com/en-gb/stocks/raising-centrica-fair-value-nuclear-plant-investment-is-positive
ReplyDeleteMorningstar gives similar info in an easier to read form:
- Centrica estimates the internal rate of return will be between 10%-12% until three years after commissioning.
- If the project is delayed by more than four years beyond 2039, WACC will be cut to 5.7% during those years.
- After the commissioning, the allowed returns will be set every five years, in line with networks.
- It will get a 9% interest on this loan during construction, accounted as EBITDA, of which 6% is annual cash yield.
- If total costs end up between £40 billion-£47 billion, half of the cost overruns will be added to the project’s regulated asset base. Beyond £47 billion, the government will either ensure the funding or ax the project and compensate the shareholders.
- assuming construction costs of £47 billion and a commissioning in 2044, we calculate a value accretion of 10p [to share value] from the project
https://www.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3471639
"Sizewell C Ltd.'s HMG Term Facility Assigned 'BBB+' Rating; Outlook Stable"
Finally S&P BBB+ rating is worth reading:
- Our expectation of extraordinary support from the U.K. government during construction and operations provides an uplift to the rating.
- The stable outlook reflects the project’s capacity to absorb significant cost overruns and construction delays thanks to protections offered by the regulated asset base (RAB) regime and HMG term facility.
-The project benefits from a GSP that addresses high-impact, low-probability events, including a contingent financing agreement ...
- breaching the longstop date cannot lead to license revocation but ... lower weighted WACC .. also allows the regulator to impose a potential fine of up to 10% of revenue. [reads to me like: even if we mess up real bad building the damn thing, we'll still make a bit of money!]
- highly predictable, RAB-based revenue stream during construction, independent of project performance.
- Following an unavailability event, revenue will be adjusted downward in subsequent years through an availability incentive, subject to a 75% revenue floor
- Revenue is availability-based, and insulated from market demand and price volatility