financing 'stress test“ methodology · 2016-10-03 · 20 september 2016 irrek: financing...

120 September 2016 Irrek: Financing ‘Stress Test‘ Methodology

Institut Energiesysteme und Energiewirtschaft

Financing „Stress Test“ Methodology

OECD-NEA / SSMInternational Conference on Financing Decommissioning

Stockholm, 20 September 2016Prof. Dr. Wolfgang Irrek


National framework conditions allow(ed) NPPs to become„money-printing machines“ during operation

Who should pay for the nuclear back-end?Who will have funds available to pay?

1 2 3Foto/Grafik: Wolfgang Irrek 2012/Hendrik Tammen 2007 [https://commons.wikimedia.org/wiki/File%3ANuclear_power_plant.svg]


Overview

• Germany‘s solo attempt in Europe• German NPP operators‘ estimate of expected costs• Methodology of what has been named a „stress

test“ by the German Ministry of Economy• Methodology of our HRW „stress test“ approach• Updated results of our HRW „stress test“ approach• Conclusions


Germany‘s solo attempt in Europe: Internal unrestricted funds by NPP operatorsType of nuclear provisions EU Member State / SwitzerlandSpecial state‐run financing scheme ItalySeparate external fund Belgium (final disposal), Bulgara, Finland,

Croatia/Slovenia, Latvia, Lithuania, Romania, Sweden, Switzerland, Slovak Republic, Spain, Czech Republic (final disposal), Hungary, United Kingdom

Regulated and separated internal fund ofthe NPP operator, with some protectionagainst insolvency of the operator

Belgium (dismantling), France, Poland, Czech Republic (dismantling)

Internal restricted funds by NPP operatorgoverned by the state

The Netherlands

Internal unrestricted funds by NPP operators (no regulation by the state)

Germany

Source: European Commission 2013


Payments for the nuclear back-end

Source: Annual reports of the mother companies of the NPP operators in Germany (not including Stadtwerke München)


Past payments and expectations by NPP operators regardingfuture payment for nuclear back-end (at constant prices)

Sources: Past payments: Annual reports of the mother companies of the NPP operators in Germany (not including Stadtwerke München); Future development: Own estimate based on WKGT 2015 (there in Figure 2 a more detailed estimate can be found)

How to guarantee theimplementation of the

polluter paysprinciple in the long-

term?


19.719 Shutdown and dismantling9.915 Container, transport, etc.5.823 Interim storage3.750 LLW/ILW final disposal site "Schacht Konrad"4.824 Construction of HLW final disposal site3.497 Operation of HAW final disposal site47.528 Total

NPP operators‘ estimate of future payments[M Euro in prices of 2014]

Source: WKGT 2015

Not yet included: Costs for not yet used fueland further not yet used radioactive material.


19.719 Shutdown and dismantling9.915 Container, transport, etc.5.823 Interim storage3.750 LLW/ILW final disposal site "Schacht Konrad"4.824 Construction of HLW final disposal site3.497 Operation of HAW final disposal site47.528 Total

NPP operators‘ estimate of future payments[M Euro in prices of 2014]

Source: WKGT 2015

Not yet included: Costs for not yet used fueland further not yet used radioactive material.

Just an extrapolation of a governmental estimate for the

HAW final disposal site„Gorleben“ of 1997 (!)


When will there be a technical concept for final disposal?

What kind of technicalsolution will it propose?

Where will be the final disposal site?

How much will final disposal cost?

What if free-release requirements tightened?

What to do in themeantime with interimstorage facilities withexpiring licenses?

What if containers leak? Quelle: www.atommuellreport.de

Cost estimate possible?


Total provisions for nuclear back-end bycommercial NPP operators in Germany 31/12/2015

Source: Annual reports 2015

Provisions for commercial German NPP [million Euro] E.on Group RWE Group EnBW Group Vattenfall Group TOTAL

Net nuclear provisions 16.974,0 10.289,0 8.187,3 3.090,0 38.540,3Shutdown and dismantling 7.857,0 4.809,9 4.057,1 1.328,7 18.052,7Container, Transport, etc. 2.902,0 1.650,6Interim storage 2.205,0 756,5

LLW/ILW Final Disposal "Konrad" 1.363,0 615,3HLW Final Disposal 2.647,0 1.107,5

5.479,1 1.761,3 20.487,7


Warth & Klein Grant Thornton (WKGT) study 2015 on behalf of BMWi: „Stress Test“?

Source: WKGT 2015

• First German publication of NPP operators‘ aggregatedestimates of total costs for the nuclear back-end differentiated by cost category

• Checking for completeness of cost data and for consistencyof liabilities with cost estimates

• Playing around with inflation and discounting rates until theyear 2100, with total cumulative costs summing up tounbelievable >350 bn Euro in high inflation scenario Authors themselves do not name it „Stress Test“ Not an assessment of cost estimates Not an assessment of NPP operators‘ financial

capabilities (just some aggregated asset figures)


HRW „Stress Test“ by Irrek/Vorfeld: Will NPP operators be able to pay for nuclear back-end expenses when it is needed to do so?Total of provisions (38.5 bn Euro) does not have any informationvalue with regard to the NPP operators‘ ability to pay!

Future financing possibilities are crucial:o Cashflow from operationo Credit and equity financingo Asset sale / asset restructuring (Sale of tangible assets,

shareholdings, financial assets, liquid assets)

Not to be forgotten:Other liabilities (e.g. pension liabilities) have to be covered, too


HRW „Stress Test“ approach

Source: Irrek/Vorfeld 2015

Analysis of future financing possibilities:Possible futuresource of finance

Central question / focus of analysis

Cash flow How will the operators earn money in the future? Analysis of energy business based on annual reportsof groups and selected daughter companies

Credit financing Will the operators still receive credit financing?Analysis of development of credit ratingsand respective rating reports

Asset sales / assetrestructuring

Extrapolation of accelerated, unscheduleddepreciation; critical view on intangibles; Comparison with market value

Nuclear liabilities vs. all liabilities

Do long‐term assets cover all long‐term liabilities?


Payments from free cash flow?


Cash flow from operation and investment including net interest, redemption payments deducted

Group Cash flow 2015[million Euro]

Net nuclear provisions/ Cash flow 2015 [a]

E.ON 1,076 15.8

RWE ‐3,853 Payment of nuclear back‐end

expensesfrom futurecash flow?

EnBW ‐383

Vattenfall ‐1,623


What will be the future cash flow in the courseof the transition of the energy system? Example: RWE Group -> Innogy


2015 2014 2013 2012RWE Effizienz GmbH 12,7 21,5RWE Energiedienstleistungen GmbH 246,2 223,8RWE Innogy GmbH 355,4 347,0RWE Metering GmbH 132,6 139,4 134,1 14,8RWE Netzservice GmbH 245,2 571,3Total 993,6 1178,4

Company

Turnover [million Euro]


Credit financing? Development of credit ratings by Moody‘s and S&P‘s

Source: Annual reports

Rating Date Standard&Poor's Moody's Rating Date Standard&Poor's Moody's31.12.2015 BBB+ Baa1 31.12.2015 BBB Baa231.12.2014 A‐ A3 31.12.2014 BBB+ Baa131.12.2013 A‐ A3 31.12.2013 BBB+ Baa131.12.2012 A‐ A3 31.12.2012 BBB+ A331.12.2011 A A3 31.12.2011 A‐ A331.12.2010 A A2 31.12.2010 A A231.12.2009 A A2 31.12.2009 A A231.12.2008 A A2 31.12.2008 A A131.12.2007 A A2 31.12.2007 A+ A131.12.2006 AA‐ Aa3 31.12.2006 A+ A131.12.2005 AA‐ Aa3 31.12.2005 A+ A131.12.2004 AA‐ Aa3 31.12.2004 A+ A131.12.2003 AA‐ A1 31.12.2003 A+ A131.12.2002 AA Aa2 31.12.2002 A+ A131.12.2001 AA Aa2 31.12.2001 AA‐ Aa3


Financing from asset restructuring?

Source: Updated own analysis based on Irrek / Vorfeld 2015 based on numbers from annual reports 2014 and 2015

[million Euro]2014 2015 2014 2015

Tangible assets 41.273 38.997 31.059 29.357Shareholdings valued at equity 5.009 4.536 3.198 2.952Real estate held as an investment 0 0 83 72Other shareholdings 1.573 1.202 591 534Securities and time deposits 6.593 6.802 4.977 7.677Assets held for sale, less associated debt 3.543 440 2.905 22Share of other companies without a controlling interest ‐2.128 ‐2.648 ‐1.679 ‐2.097TOTAL key attributable tangible assets and shareholdings 55.863 49.329 41.134 38.517Capital employed: Fixed assets and working capital for business activities 50.501 42.577 47.711 48.234Long‐term provisions 31.376 30.655 27.540 24.623of which in the nuclear sector (long‐term) 15.937 16.367 9.951 10.120Long‐term liabilities 23.588 23.300 17.919 13.977TOTAL long‐term obligations 54.964 53.955 45.459 38.600

E.on RWE

Tangible assetsand shareholdingsstill roughly cover

long-term obligations




[million Euro]2014 2015 2014 2015


E.on RWE




[million Euro]2014 2015 2014 2015


E.on RWE

Asset valuescontinuouslydiminishing


Financing from sale of assets becomes more andmore difficult with asset values diminishing


Market already anticipates further depreciations.

[million Euro at 31 December]2014 2015 2014 2015

TOTAL key attributable tangible assets and shareholdings 55.863 49.329 41.134 38.517Average of annual unscheduled depreciation 2011‐2014 ‐3.034 ‐3.034 ‐2.198 ‐2.198Extrapolated unscheduled depreciation until 2024 ‐30.338 ‐27.304 ‐21.980 ‐19.782

TOTAL key attributable tangible assets and shareholdings in 2024 after continued unscheduled depreciation 24.209 20.835 18.119 17.722 Market value at settlement price at end of year 26.888 17.412 15.785 7.205 Long‐term provisions 31.376 30.655 27.540 24.623of which in the nuclear sector (long‐term) 15.937 16.367 9.951 10.120Long‐term liabilities 23.588 23.300 17.919 13.977TOTAL long‐term obligations 54.964 53.955 45.459 38.600

E.on RWE


Current political proposal after operators‘ interventionShutdown and demolition Waste treatment, storage, final disposal

Internal unrestricted funds. Legal requirement of an immediate dismantling. Not yet decided: green or brown field.

External publicly‐governed fund (trustunder public law)

NPP operators responsible State (trust) responsibleAssets of the NPP operators (Current sizeof provisions: 18 bn Euro)

Assets transferred to the trust. Size: underdiscussion. NPP operators demand lowersum to be transferred.

Any cost increase has to be paid for by theNPP operators

Additional payment liability for not yetspent fuel only. Still open to discussion: • No guarantee scheme, no additional

payments by NPP operators in case ofcost increase?

Transparency requirements TransparencyFinancial risks with the NPP operators. No increase in financial security.

Financial risks with the state, if there is noadditional payment liability

Source: KFK 2016


Assets transferrable to external fund within 5 years


Additional sales / transfer of equity needed for compounding and additional accruals during remaining time of operation

[million Euro]2014 2015 2014 2015

TOTAL key attributable tangible assets and shareholdings 57.991 51.977 42.813 40.614Average of unscheduled depreciation 2011‐2014 ‐3.034 ‐3.034 ‐2.198 ‐2.198Average value of key attributable tangible assets and shareholdings incl. decrease in value over next five years 47.886 42.173 35.452 33.363Net nuclear provisions 16.567 16.974 10.367 10.454of which for radioactive waste management (inflation and discounting taken into account) 8.451 9.117 5.537 5.567without inflation and discounting (rough estimate) 10.175 11.247 6.506 6.384Amount to be transferred annually to radioactive waste management fund over a period of five years (without compounding and other new accruals) 2.035 2.249 1.301 1.277

Transfer of securities not restricted to a specific purpose 4.052 4.101 3.905 6.384Sale or transfer or real estate held as a financial asset 0 0 83 not neededSale of companies valued at equity 5.009 4.536 2.518 not neededSale of other shaeholdings 1.114 1.202 not needed not neededSale of shareholdings in associated companies not needed 1.408 not needed not needed

Possible source of funding for annual transfer to external fund

E.on RWE


Assets transferrable to external fund within 5 years


Additional sales / transfer of equity needed for compounding and additional accruals during remaining time of operation

[million Euro]2014 2015 2014 2015

TOTAL key attributable tangible assets and shareholdings 57.991 51.977 42.813 40.614Average of unscheduled depreciation 2011‐2014 ‐3.034 ‐3.034 ‐2.198 ‐2.198Average value of key attributable tangible assets and shareholdings incl. decrease in value over next five years 47.886 42.173 35.452 33.363Net nuclear provisions 16.567 16.974 10.367 10.454of which for radioactive waste management (inflation and discounting taken into account) 8.451 9.117 5.537 5.567without inflation and discounting (rough estimate) 10.175 11.247 6.506 6.384Amount to be transferred annually to radioactive waste management fund over a period of five years (without compounding and other new accruals) 2.035 2.249 1.301 1.277

Transfer of securities not restricted to a specific purpose 4.052 4.101 3.905 6.384Sale or transfer or real estate held as a financial asset 0 0 83 not neededSale of companies valued at equity 5.009 4.536 2.518 not neededSale of other shaeholdings 1.114 1.202 not needed not neededSale of shareholdings in associated companies not needed 1.408 not needed not needed

Possible source of funding for annual transfer to external fund

E.on RWE

Still no problem totransfer financial

means to an externalrestricted fund forradioactive waste

management withinfive years


Conclusions1. Germany is the only country in Europe with a completely

unrestricted internal fund2. 38.5 bn Euro net nuclear provisions do not mean that funds

are available when needed to cover nuclear back-end expenses3. The main merit of the so-called „Stress Test“ study by the

German Ministry of Economy was to disclose NPP operators‘ cost estimates for the first time

4. Financing responsibility still under discussion – Financial risks are high – Implementation of the polluter pays‘ principlebecomes more and more difficult -> Assets should betransferred and secured into an external fund within shorttime

5. Current tendency of political discussion in Berlin: Limited responsibility of NPP operators -> lump sum approach


www.hochschule-ruhr-west.de

www.energy-campus.de

www.atommuellreport.de

Thank you for your attention!

Download: https://www.gruene-bundestag.de/fileadmin/media/gruenebundestag_de/themen_az/atomausstieg/Rueckstellung_EN.pdf

financing 'stress test“ methodology · 2016-10-03 · 20 september 2016 irrek: financing...

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