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Report on the chosen sessions of international conference „Baltic Nuclear Energy Forum” organized by Business for Climate, Fahrenheit Universities and Global Contact Network Poland on 18-19 March 2024

The international conference titled “Baltic Nuclear Energy Forum” was organized on March 18-19, 2024, in the European Solidarity Centre located in Gdańsk. The aim of the conference was to exchange knowledge and experience regarding the innovative solutions in nuclear power generation. The conference was also intended to create new perspectives and develop partnerships, especially in the Baltic Sea region. The conference was divided into sessions that opened with a presentation, which in turn was followed by a debate that included selected speakers. The first two sessions of the second day of the conference covered intriguing financial and legal issues, therefore, they were chosen to be the subject of the report.

The first session, titled “Financing of the Nuclear Power Industry: Financial Models”, explored potential solutions for financing nuclear power projects. It also examined legal structures of the discussed financial models, aiming to find those suitable for Polish nuclear energy investments.

The second session, “The Process of Obtaining Key Administrative Decisions”, delved into the complexities of this process, highlighting the obstacles faced by investors and regulatory bodies to ensure the timely development of nuclear projects.

This report summarizes the presentations and debates that took place during these sessions and reflects on the conclusions drawn from the discussions.

 

Financing of the Nuclear Power Industry: Financial Models

 

The first session of the second day of conference focused on financing models for investments in nuclear energy. It was opened by the presentation of Mark Muldowney (BNP Paribas Managing Director), who highlighted the critical need for proper financing of nuclear investments. The presenter discussed the challenges faced during the construction phase including required sheer scale finance, extended construction periods without earnings or the complexity of project development negotiations. The speaker emphasized the conditions necessary for successful investments such as political consensus, transparent legal framework for licensing and planning, plan for long-term radioactive waste disposal, reliable and creditworthy stakeholders with the support of the national government, advanced but proven technology, experienced contractor taking appropriate levels or risks, experienced operator, and credible offtakers such as government or totality of electricity consumers. Mark Muldowney noted that financial markets view nuclear projects as high-risk investments, typically requiring financing by governments or large utilities. However, the recent energy crisis in Europe has led to a more favorable stance by European institutions towards nuclear energy and beneficial changes in EU taxonomy.

The presentation of Mark Muldowney was followed by a debate, focusing on the thesis that nuclear energy could become a cost-effective alternative if the required investments are properly founded. In the debate participated Wojciech Hann (Senior Advisor KPMG Polska), Bożena Horbaczewska, Ph.D. (Assistant Professor at the SGH Warsaw School of Economics), Adam Juszczak, Ph.D. (Research Assistant at the University of Łódź), Mark Nelson (Managing Director of Radiant Energy Group), Jacek Bogucki (Director of Unit of Sector Analysis at the BGK – Polish State Development Bank), Anne Falchi (Head of Strategy at EDF) and Jerzy Bombczyński (Counsel at Baker McKenzie).

Bożena Horbaczewska, Ph.D. elaborated on the “SAHO” financing model, which she co-authored with Łukasz Swaicki. The model assumes that the State or an equivalent entity (so-called primary investor) establishes a joint-stock company, which aim is construction and exploitation of nuclear power plant. Afterwards the stocks are sold to the energy end-consumers (so-called final investor). This transaction can be made at every stage of the investment, even during the construction of nuclear facility. The sales of share are made on the market basis, in tranches intended for specific types of customers. Shareholders have the right and obligation to receive energy at cost of generation, in proportion to their share of ownership. The power plant is not profit-driven. It is a state-initiated (and possibly state-controlled) umbrella organization of energy end-consumers. The sale of shares of the power unit may take place at any time during investment process, at the latest, when the nuclear power plant is connected to the electricity grid.[1]

The discussion covered also the Mankala model, first introduced in Finland. The name of the model comes from the city, which was the headquarters of the first company in this formula, and from the name of the company itself. As of 2018, around 40% of the electricity in Finland was produced in power plants operating under Mankala cost-price model.[2]

In Mankala model a group of investors establishes a limited liability company. The investors commit to paying all costs of the company in proportion to their shareholdings. These costs mainly consist of the cost of building a power production facility and the costs of operating that facility. In turn, the limited liability company commits to transfer all produced power to the investors or shareholders likewise in proportion to their shareholding.[3]

Mankala model has been used for the purpose of construction of three blocks in Olkiluoto nuclear power plant (first two are operating since late 70s’ and the third one has been connected to the grid in 2023) and construction of one reactor to be operated as a part of the new nuclear power plant Hanhikivi.[4]

It is noteworthy that in case of the Fennovima company building the Hanhikivi reactor, 41% of its shares are held by companies operating in energy sector. Most of them are small municipal companies. These companies are also owned by municipalities at a considerable distance from the Hanhikivi site, some as far as 450 km away. The fragmentation of the shareholding and, at the same time, its complex organization is characteristic for ventures financed under Mankala formula.[5]

Another model discussed was the Regulatory Asset Base (RAB). This system was first introduced in the United Kingdom to provide assurance to investors in privatized network utilities by setting out the principles for the calculation of price caps. The RAB model was created to determine the value of existing assets during the UK’s privatization process, instead of focusing on new major investments. This model can be used whether the infrastructure company is privately owned or publicly owned. The RAB calculates the value of the assets used in regulated services. Essentially, it’s an accounting figure that shows the worth of past investments in network infrastructure.[6] In practice, under this model, a company is granted a license from an economic regulator to charge a regulated price to consumers in return for providing the necessary infrastructure. This approach allows investors to share some of the construction and operating risks of the project with consumers, which significantly reduces the cost of capital, a primary factor in the overall cost of a nuclear project to consumers. An independent regulator sets this charge to ensure that all expenditures are in the users’ best interest. The RAB model will require consumers to contribute a small amount to their bills during the construction of a nuclear project. These contributions will prevent the accumulation of interest on loans, which would otherwise result in higher costs for consumers once the nuclear facility becomes operational.[7]

Ultimately, it was mentioned the Contract for Differences (CfD). A two-way contract for difference is an agreement between an electricity generator and a public entity, typically the State, that establishes a strike price, usually determined through a competitive bidding process. The generator sells electricity on the market but settles the difference between the market price and the strike price with the public entity. This arrangement ensures the generator receives stable revenue for the electricity produced while limiting revenue when market prices are high. In a two-way CfD, if the market price falls below the strike price, the public entity pays the generator the difference; if the market price exceeds the strike price, the generator refunds the difference to the public entity.[8]

Anne Falchi highlighted the effectiveness of financing solutions previously implemented by companies building nuclear power plants. She emphasized that for the construction of the first facility, it is crucial to use well-known and proven methods to ensure project success. Only in subsequent investments should companies consider innovative financing models.

Additionally, Anne Falchi raised the necessity of including decommissioning costs in the early stages of planning a nuclear sector investment.

 

The Process of Obtaining Key Administrative Decisions

 

The second session focused on key administrative decisions regarding the construction of a nuclear power plant. The session began with presentation by Marcin Dąbrowski (Director of National Atomic Energy Agency). The presentation, titled „Safe Operation of a Nuclear Power Plant Requires Obtaining the Appropriate Licenses and Permits,” outlined the licensing process from both the applicant’s (investor’s) and the regulatory body’s perspectives.

Marcin Dąbrowski highlighted that from the applicant’s perspective, the licensing process involves demonstrating that appropriate measures will be applied during construction, commissioning, operation, and decommissioning to protect people, the environment, and to fulfill project obligations. From the regulatory body’s perspective, the process involves independently verifying that the applicant meets safety requirements.

The presentation was mainly devoted to the types of licenses and decisions that need to be obtained to begin a construction of a nuclear power plant. The initial license that an investor is obliged to gain is a decision in principle. This decision is issued by the Minister responsible for energy sector, and it specifies the permitted parameters of investment regarding the construction of nuclear facility and entitles to apply for a decision on the location of the investment regarding construction of a nuclear power facility (location decision).[9] The application for the location decision must be submitted by an investor no later than 10 years after obtaining the decision in principle. The location decision is supplied by the locally competent voivode.[10] The condition of issuing the location decision is the prior obtaining and submission by the investor a decision on environmental conditions for the realization of the investment regarding nuclear power facility (a decision on environmental conditions), which may  be submitted by the investor during the procedure for issuing the location decision.[11] The decision on environmental conditions is issued in accordance with the provisions of the 3 October 2008 act on providing information about the environment and its protection, public participation in environmental protection and environmental impact assessments[12].[13] According to these provisions, an organ competent to issue such a decision is General Director of Environmental Protection.[14]

The next step in the licensing process is to obtain nuclear power facility construction license (construction license). The construction license is issued by voivode accordingly to the provisions and procedure introduced in the act of 7 July 1994 Construction Law[15].[16] A prerequisite for the issuance of the construction license is that the applicant first obtains the permit referred to in Article 4 (1) (2) of the act of 29 November 2000 Atomic Law[17] (construction permit), which may be submitted by the investor after initiating the procedure for the construction license.[18] The construction permit is issued by the Director of National Atomic Energy Agency and together with location decision is binding on the voivode who issues the construction license.[19] These steps encompass all the necessary licenses, decisions, and permits to construct a nuclear power plant. Additional permits are required to commission the nuclear facility.

The conclusion that can be drawn from the presentation by the Polish NAEA Director is that the licensing process might seem overly complicated. This complexity is understandable given the strategic and environmental sensitivity of constructing a nuclear power plant. However, the process is further complicated by its fragmentation into numerous laws and references to other legal acts.

 

Marcin Dąbrowski’s introductory presentation was followed by a debate on “The Process of Obtaining Key Administrative Decisions”. In the debate participated Przemysław Gorzkowski (Chief Legal Officer of Nuclear PL), Paweł Smoliński (Director of Innovation and Development Department at the Office of Technical Inspection), Marcin Dąbrowski (Director of National Atomic Energy Agency) and Piotr Otawski (General Director of Environmental Protection).

The discusson primarily focused on the solutions to ensure a prompt licensing process during the stages of processing the investor applications in the regulatory bodies. Piotr Otawski emphasized that, from the perspective of the institution he represents, the efficiency of issuing decisions or permits depends less on the legal procedures and more on the preparation of human resources. This preparation involves ensuring an adequate number of trained personnel and offering courses that substantively prepare them for the licensing procedure.

Paweł Smoliński highlighted that, for the Office of Technical Inspection, the most critical aspect when assessing a nuclear project is the evaluation of individual elements of the technological infrastructure within a nuclear power plant. Additionally, information regarding the choice of technology for the plant’s construction is crucial.

Moreover, the discussion highlighted the importance of cooperation among various national regulatory authorities. The participants agreed that the most crucial relationship is between the regulatory authorities of the technology-supplying state and the recipient state. However, maintaining good relationships with regulators from other countries is also very important. From the perspective of Poland, it is critical to cooperate with those which were recipients of the same technology.

 

Summary

 

The „Baltic Nuclear Energy Forum,” held on March 18-19, 2024, in Gdańsk, served as a critical platform for discussing the future of nuclear energy in Poland and beyond. Organized by Business for Climate, Fahrenheit Universities, and Global Contact Network Poland, the forum brought together distinguished figures from academia, politics, and the business sector to explore the financial and legal challenges and opportunities in nuclear energy investment.

Overall, the conclusion that could be derived from the described sessions is, that while nuclear energy presents significant financial and regulatory challenges, these can be effectively managed through innovative financial models, comprehensive regulatory processes, and strong international collaboration. The insights and discussions from the forum provide a robust foundation for future nuclear energy projects in Poland, contributing to the broader goal of sustainable and reliable energy solutions.

Reference

[1] Łukasz Sawicki, Bożena Horbaczewska, What is the SaHo Model about?,

 avaliable at: https://sahomodel.com/about-model/

[2] Łukasz Sawicki, Bożena Horbaczewska: The Mankala model in the nuclear power industry – case of the Finnish TVO company, Postęp Techniki Jądrowej, vol. 62, 1/2019, p. 11.

[3] Ł. Sawicki, B. Horbaczewska (2019a), p. 11.

[4] Ł. Sawicki, B. Horbaczewska (2019a), p. 11.

[5] Łukasz Sawicki, Bożena Horbaczewska: The Mankala model in the nuclear power industry – case of the Finnish Fennovoima company, Postęp Techniki Jądrowej, vol. 62, 4/2019, p. 9.

[6] D. Makovšek, Daniel Veryard: The Regulatory Asset Base and Project Finance Models: An Analysis of Incentives for Efficiency, International Transport Forum Discussion Papers, 1/2016, OECD Publishing, p. 12, see: https://www.itf-oecd.org/sites/default/files/dp_2016-01_makovsek_and_veryard.pdf.

[7] Department for Business, Energy & Industrial Strategy of United Kingdom, RAB Model for Nuclear: Consultation on a RAB model for new nuclear projects, p. 10: https://assets.publishing.service.gov.uk/media/5fd725b0e90e076630958eb1/rab-model-for-nuclear-consultation-.pdf

[8] European Commission, „Questions and Answers of the revision of the EU’s international electricity market”, 2023, https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_1593.

[9] See: Art. 3a section 1. and 4. of 29 June 2011 act on preparation and implementation of investments regarding nuclear power facilities and accompanying investments, Dziennik Ustaw (Law Gazette) 2024, item 412.

[10] See: Art. 4 section 1. and 2. of 29 June 2011 act on preparation and implementation of investments regarding nuclear power facilities and accompanying investments, Dziennik Ustaw (Law Gazette) 2024, item 412.

[11] See: Art. 5 section 4. and 5. of 29 June 2011 act on preparation and implementation of investments regarding nuclear power facilities and accompanying investments, Dziennik Ustaw (Law Gazette) 2024, item 412.

[12] Act of 3 October 2008 on providing information about the environment and its protection, public participation in environmental protection and environmental impact assessments, Dziennik Ustaw (Law Gazette) 2023, item 1094 with amendments.

[13] See: Art. 20 section 1. of 29 June 2011 act on preparation and implementation of investments regarding nuclear power facilities and accompanying investments, Dziennik Ustaw (Law Gazette) 2024, item 412.

[14] See: Art. 75 section 1. subsection 1a) of 3 October 2008 on providing information about the environment and its protection, public participation in environmental protection and environmental impact assessments, Dziennik Ustaw (Law Gazette) 2023, item 1094 with amendments.

[15] Act of 7 July 1994 Construction Law, Dziennik Ustaw (Law Gazette) 2024, item 725.

[16] See: Art. 15 section 1. of 29 June 2011 act on preparation and implementation of investments regarding nuclear power facilities and accompanying investments, Dziennik Ustaw (Law Gazette) 2024, item 412.

[17] Act of 29 November 2000 Atomic Law, Dziennik Ustaw (Law Gazette) 2023, item 1173.

[18] See: Art. 15 section 4a. of 29 June 2011 act on preparation and implementation of investments regarding nuclear power facilities and accompanying investments, Dziennik Ustaw (Law Gazette) 2024, item 412.

[19] See: Art. 15 section 2. of 29 June 2011 act on preparation and implementation of investments regarding nuclear power facilities and accompanying investments, Dziennik Ustaw (Law Gazette) 2024, item 412.

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