Overview of LTOFIN - Numerical example of a hypothetical economic assessment of long term opera

5. ECONOMIC ASSESSMENT OF LONG TERM OPERATION

5.3. Numerical example of a hypothetical economic assessment of long term operation

5.3.8. Overview of LTOFIN

LTOFIN was developed to assist in performing an LTO economic assessment within the framework of the process described above.

The model can be used for evaluating the financial viability of LTO for a single nuclear unit or for a group of units, up to a maximum of ten. In all cases, the nuclear unit or the group of units would be considered one profit centre. A larger number of units, or more than one group of nuclear units, could be handled through multiple runs of LTOFIN.

LTOFIN is based on the IAEA’s model FINPLAN⁹ and uses Microsoft Excel as a platform. It consists of a set of worksheets with a front end for user inputs, a computational part and an output module for viewing and analysing results. Figure 11 shows the LTOFIN scheme.

The input module provides a user friendly and convenient method to input the data. In this module, the user can define all the technical and economic data, as well as all the assumptions made for the scenario being considered. The output module contains the results of the analysis and provides reports on the financial performance of the proposed LTO period. This module enables users and management to view and print a number of standard, pre-formatted graphical and tabular output reports for different scenarios.

The LTOFIN computation module performs all necessary calculations on a yearly basis, such as those for sales, costs, depreciation, tax, decommissioning fund, cash flow, dividend payments and financial performance ratios.

It also produces standard financial statements, such as balance sheets, operating accounts and income statements. Figure 12 shows the input module of LTOFIN assumption.

Under competitive electricity market conditions, a decision in favour of LTO of an NPP requires a complex evaluation of not only the production cost and other economic indicators, but also the business viability of the LTO investment proposal. Financial analysis thus becomes the most important factor in decision making. In some cases, the financial analysis of an LTO proposal can lead to a different conclusion than that based on economic assessment, because financial analysis is performed in nominal monetary values, i.e. currency of the year spent or

9 The FINPLAN model (Model for Financial Analysis of Electric Sector Expansion Plans) has been developed to carry out a financial analysis of a power project or an expansion programme to determine whether the project or the programme is viable for the utility and the country involved. It assesses the feasibility of electricity generation projects by computing important financial indicators

Out module

Cash ﬂows Financial statements Indicators( Ra�os) Computa�on module

Reduced /adapted FINPLAN Input module NPP technical

descrip�on LTO cost es�ma�on Financial assump�ons

FIG. 11. Scheme of LTOFIN.

FIG. 9. Monte Carlo simulation of NPVs at 7% discount rate.

FIG. 10. Monte Carlo simulation of NPVs at 10% discount rate.

earned, and not in constant monetary values as is the case with an economic assessment. Additionally, inflation and escalation are included in all costs as well as in prices. Finally, all taxes/subsidies are accounted for. The possibility of financing the investment from long term and short term loans, a company’s internal sources, equity and other sources is considered. The cash flows with schedule are properly recorded. Using all these details, the LTOFIN prepares estimates of a company’s financial statements and shareholders’ accounts for the future years of operation.

To demonstrate financial analysis with LTOFIN, it is assumed that the 1343 MW NPP is owned by a company which operates the plant and sells electricity at the market price of $40/MW⋅h. The total investment of $700 million required for ten year LTO of the NPP is assumed to be financed by a 70:30 debt equity arrangement. It is further assumed that general inflation is 2% and the company must pay a corporate tax at a rate of 20% of the profits. The income statement estimated by LTOFIN is presented in Figs 13 and 14.

It should be noted that the estimated revenues are marginally higher than the expenses in all the years and, consequently, the profits are meagre, giving only a 0.6% return to shareholders. If the price of electricity increases in the future, the profit could be higher but for a realistic return on shareholders’ equity — around 7% — the electricity price has to be above $50/MW⋅h.

This analysis shows that although the LTO proposal appears to be attractive based on an economic assessment — the levelized cost of generation of $32/MW⋅h compared with an electricity price of $40/MW⋅h — it is not viable from the financial viewpoint under the given set of assumptions. Detailed sensitivity analysis can be conducted to identify the critical assumption influencing the financial viability of the LTO proposal. Additionally, business risks can also be assessed using Monte Carlo simulations or scenario analysis.

Further information on the structure of the feasibility report, of which the techno-economic assessment is a part, can be found in Appendix III.

Income statements ($ million)

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Fixed revenues 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total sales 389.40 402.28 415.60 429.35 443.56 458.23 0.00 0.00 534.96 552.67

Foreign exchange gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Interest earnings 1.00 1.90 2.71 3.44 4.10 4.69 5.22 2.66 0.00 1.73

TOTAL REVENUES 390.40 404.18 418.31 432.79 447.65 462.92 5.22 2.66 534.96 554.40

General expenses 10.61 10.93 11.26 11.59 11.94 12.30 12.67 13.05 13.44 13.84

Purchase from IPP 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Local fuel cost 123.76 128.11 132.62 137.28 142.10 147.10 0.00 0.00 163.16 168.90

Foreign fuel cost 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Local O&M cost 113.32 117.22 121.24 125.41 129.72 134.18 76.50 79.08 148.49 153.60

Foreign exchange loss 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Deprecia� on 90.00 81.00 72.90 65.61 59.05 53.14 47.83 43.05 117.49 113.62

Total expenses 355.97 358.88 362.81 367.69 373.49 380.14 136.99 143.90 486.71 494.17

Proﬁ t/loss 34.43 45.30 55.50 65.09 74.16 82.77 -131.78 -141.24 48.25 60.23

FIG. 14. Income statements for a projected ten year long term operation case.

FIG. 12. Screenshot of the LTOFIN assumptions input module (text uncorrected).

FIG. 13. Screenshot of LTOFIN calculation results.