CASH FLOW ANALYSIS

Cash flow analyses show the annual and cumulative expenditures and revenues of a plant. They can be used to identify financing requirements and to investigate the financial feasibility of a project. The cash requirements of nuclear power and large hydropower projects will be higher than those of fossil fuel fired power plants prior to the start of operation, but will be lower after the repayment of credits.

Cash flow calculations are usually performed in nominal money, i.e. including the effects of inflation to show the actual cash requirements and revenues. They may also be made in constant money (i.e. in purchasing value of a reference date). Dis-counted cash flows are used for the economic comparison of alternative projects and for the calculation of levelized electricity generation costs.

Illustrative examples of the cash requirements for a 1200 MW(e) nuclear power plant and for twin unit (2 x 600 MW(e)) nuclear, coal and oil fired power plants are presented here. The cost information for the 600 MW(e) units and the assumptions for financing are based on a recent feasibility study of medium sized

TABLE XI. GENERAL ASSUMPTIONS FOR FINANCING A 1200 MW(e) NUCLEAR POWER PLANT AND TWIN UNIT (2 X 600 MW(e)) NUCLEAR, COAL AND OIL FIRED POWER PLANTS [17]

General inflation rate (%) 4 Escalation rate (except fuel) (% nominal) 6 Commitment fee (% per annum) 0.25 Management fee (%) 0.3 Cost reference data January 1991 Start of operation (second unit) January 2000 Operating regime (hours per annum) 6570 Economic plant life (years) 30

Financing conditions for the foreign portion (75%)

Credit (%) 85 Cash (%) 15 Interest rate (% nominal) 10 Payback period (construction) (years) 15

Financing conditions for the domestic portion (25%)

Credit (%) 80 Cash (%) 20 Interest rate (% nominal) 12 Payback period (construction) (years) 8

nuclear power plants [17]. The data and assumptions are summarized in Tables XI and XII. The assumptions for financing are given below.

(a) Construction costs: The annual payments during construction are: 75%

through export credit financing (85% credit and 15% cash) with a 10% per annum interest rate and a repayment period of 15 years of operation; and 25%

through local financing (80% credit and 20% cash) with a 12% per annum interest rate and a repayment period of 8 years of operation.

TABLE XII. PLANT SPECIFIC ASSUMPTIONS AND COST ESTIMATES FOR A 1200 MW(e) NUCLEAR POWER PLANT AND FOR TWIN UNIT (2 X 600 MW(e)) NUCLEAR, COAL AND OIL FIRED POWER PLANTS [17]

Plant type PWR MPRa Coal Oil

Number of units

Unit electricity capacity (MW(e) net) Plant electricity capacity (MW(e) net) Base cost (million US $)

Supplementary costs (million US $) Staff training, simulator (million US $) Owner's cost (million US $)

Site specific cost (million US $) Subtotal construction cost (million US $) Subtotal construction cost (US $/kW(e)) Plant construction period (years) Initial fuel supply (million US $)

Fuel price (US $/tce)c

Annual fuel cost (million US $/a) Nominal escalation rate of fuel (%) Decommissioning charge (mills/kW • h) Annual O&M cost (million US $/a) Levelized costs

investment cost (US $/kW(e)) (mills/kW-h)

a MPR: medium sized power reactor.

c tee: tonnes of coal equivalent.

b The supplementary costs for coal are included in the base cost figures.

1200

r-1000

800

a -600

I

200

I I I I I I

-6 -2 8 10 12 14 16 18 20

Year

PWR MPR Coal FGD Oil 1200 MW(e) 2 x 600 MW{e) 2 x 600 MW(e) 2 x 600 MW(e) FIG. 6. Annual nominal cash requirements for nuclear and conventional power plants (infla-tion rate: 4%; real escala(infla-tion for construc(infla-tion and O&M costs: 2%; real escala(infla-tion for coal prices: 1 %; real escalation for oil prices: 2%; MPR: medium sized power reactor; FGD: flue gas desulphurization).

(b) Initial fuel supply cost for nuclear power plants: Seventy-five per cent of the first fuel load cost of nuclear reactors is financed with a repayment period of ten years.

(c) Fuel stock for coal and oil fired plants: A three month fuel supply for the coal and oil fired plants is paid for in cash in the year preceding commercial operation.

30 000

25 000

20 000

3-§

W 000

10 000

5000

-6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Year

PWR MPR Coal FGD Oil 1200 MW(e) 2 x 600 MW(e) 2 x 600 MW(e) 2 x 600 MW(e) FIG. 7. Cumulative nominal cash requirements for nuclear and conventional power plants

(inflation rate: 4%; real escalation for construction and O&M costs: 2%; real escalation for coal prices: 1%; real escalation for oil prices: 2%).

(d) Financing fees: The management fee is assumed to be 0.3% of the loan amount, and the commitment fee to be 0.25 % per year.

The calculated cash requirements in current money as spent are presented in Figs 6 and 7. Since all plants have the same net electrical output, only the cash requirements are shown. The observations below refer mainly to plants with 600 MW(e) units, which may be adequate for the electricity grids of a number of

developing countries. If a grid could also accept 1200 MW(e), the economics of the nuclear power plant would be improved.

3.6.1. Observations

The financing of expenditures during the construction of a nuclear power plant is an immense task. Depending on the size of the plant and the owner's internal financing capability, about US $1000-2000 million may have to be financed through the construction period and the first 15 operating years.

During the first years of construction, the financing requirements for a nuclear power plant are substantially higher than those for oil or coal fired plants.

In the year preceding commercial operation, the cash requirements for a nuclear power plant may approximately equal or be lower than those for oil or coal fired plants. One reason for this is that construction of the nuclear power plant must be completed at least six months before operation because of the extensive testing requirements and complex startup procedures. Fossil fuel fired plants do not require such extensive testing. Another reason could be that the necessary oil or coal fuel reserve is paid for in cash, whereas the initial nuclear fuel loading may be included in the financing package.

In the first operating year, the cash requirements for a medium sized nuclear power plant will be higher than those for oil or coal fired plants (about 16% higher in the example). Of the cash requirements during the first year of operation of a nuclear plant, over 60% is for debt service for the capital financing and only about 10% is for fuel costs. Conversely, about 20% of the cash requirements for an oil fired plant would be capital investment and about 70% would be for fuel costs. The remainder in both cases is for O&M costs.

After start of operation, the annual cash requirements for a nuclear power plant will usually fall because of the decreasing debt. The cash requirements for oil and coal fired plants will rise, since escalating fuel and O&M costs are usually greater than the benefit accruing as a result of decreasing debt.

After some years of operation, the annual cash requirements of a nuclear power plant will fall below those of an oil or coal fired plant (here, after four and eight years, respectively).

Up to completion of debt repayment (here, year 15), the cash requirements for this purpose will have decreased (to about 50% of the cash requirements for the nuclear power plant in the example). The cash requirements for O&M and fuel costs will have risen for all plant types because of escalation.

After debt repayment, the cash requirements for a nuclear power plant would typically consist of about 30-40% for fuel costs and 60-70% for O&M costs, and may be 40-70% lower than those for a conventional thermal power plant.

The cumulative discounted cash requirements of a nuclear power plant are higher than those for a coal or oil fired power plant during construction and in the

initial years of operation. They will become lower than those for a fossil fuel fired plant after 10-17 years of operation (Fig. 7).

Summing up, the financing requirements of a nuclear power plant are a heavy burden during plant construction and the initial operating years. The essential factors for the economic success of a nuclear power project are:

— Efficient control of construction costs and schedules,

— Reasonable financing conditions)

— Reliable and safe plant operation.

Shortages of financing after starting the project often cause major delays and cost overruns, which can greatly jeopardize the economics of a nuclear power plant.

Therefore, a complete and sound financing framework is a basic prerequisite for the start of the project.

3.7. SHORT TERM IMPLICATIONS OF CASH FLOW ANALYSIS