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Aid to Hinkley Point C in the form of a Contract for Difference, the Secretary of State Agreement and a Credit Guarantee, as well as all related elements, which the UK is planning to implement, is compatible with the internal market within the meaning of Article 107(3)(c) of the Treaty on the Functioning of the European Union.
Implementation of the aid is accordingly authorised.
This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland.
ANNEX A
CFD RATE OF RETURN
Table 3
NNBG Financial Risk Assessment — estimated probability distribution of HPC's total outturn costs
[…]
Source: TESLA4, page 12
Figure 2
UK historic forward prices and RP
UK 1- and 2-Seasons Ahead Baseload Forward Prices and Simulated Reference Price
Mid price (GBP/MWh)
Source: Bloomberg ELUBS1, OECM, ELUBS2, OECM; UK REQ
Delivery date
1 Season ahead
Simulated reference price
2 Seasons ahead
Difference if sold 2S ahead (compared to ref.p.)
Gain if sold 2S ahead (compared to ref.p.)
Table 4
Summary of approaches taken for analysing an appropriate rate of return, by KPMG
(per cent)
Approach
Range of returns (project IRR; post-tax nominal)
Comments
Relative risk analysis
8,5-11
(project basis)
Comparison of offshore wind and PPP/PFI returns during construction phase and also UK regulated utilities/nuclear operators during operations phase
Benchmarking Analysis
6-13
(project basis)
Comparison of UK regulated utility/PPP/IWPP/comparable nuclear projects
Project Hurdle Rate analysis
10,5-14,5
Based on EdF WACC estimates plus premium observed in academic studies from a range of corporates
Financing analysis
9-13 — construction
6-9,5 — operational
Analysis of potential financing structures both during construction and during operations
Assumed debt-financed structure with UK Guarantee
10,2 — Project IRR
12,8 — Levered Equity IRR
Analysis of the Project Return and the Levered Equity Return (for the proposed UK guaranteed debt levels) and at the negotiated SP.
The 10,2 % is due to the tax shield effect on project level cash flows and indicative IUK Guarantee pricing.
Source: Notification, Table 5, based on KPMG
Table 5
Commission sensitivity analysis — Model with changed annual cash flows in the construction phase
[…]
Shaded cells denote construction cost capex — target IRR scenarios yielding a lower SP than 92,50 GBP/MWh. Based on NNBG Financial Model version 9.8.
Table 6
Project scenarios, probabilities (confidence levels that outturn factors will be more favourable than assumptions) and key project metrics
[…]
Notes:
(1)
Includes construction gain share benefit of GBP 0,8/MWh (real 2012)
(2)
Lump sum from SZC only released post COD2 and therefore does not form part of funding requirement
(3)
Opex adjustment only applied for first 15 yrs and after CFD period due to potential opex reopener protection.
(4)
Min DSCR excluding first period
(5)
EIRR committed real approximated as EIRR committed nominal minus long term CPI assumption
(6)
Lower level of Committed equity assumed in this version of the Financial Model will mean Committed Equity IRR is optimistic v current modelled results
VERY LOW
Very low likelihood of more favourable outcome than assumed
LOW
Low likelihood of more favourable outcome than assumed
MODERATE
Moderate likelihood of more favourable outcome than assumed
HIGH
High likelihood of more favourable outcome than assumed
VERY HIGH
Very high likelihood of more favourable outcome than assumed
Table 7
Funding profile during construction and DSCR during operations
[…]
Table 8
Combined capex, delay and other downside scenarios
[…]
Table 9
Summary DDM results for a selection of scenarios
Run
Key Assumptions
Capacity Market
First Nuclear Deployment
Grid carbon intensity 2030
Grid carbon intensity 2040
Grid carbon intensity 2049
1a
BAU
No
2037
232
188
96
1d
BAU, High Fuel Prices
No
2031
186
101
46
1e
BAU, Low Fuel Prices
No
2041
269
233
121
2a
BAU + Nuclear CfD
No
2023
158
88
37
3a
Non-nuclear Low Carbon CfDs
No
2037
164
135
61
3d
Non-nuclear Low Carbon CfDs, High Fuel Prices
No
2031
181
123
52
3e
Non-nuclear Low Carbon CfDs, Low Fuel Prices
No
2041
182
120
66
3h
Non-nuclear Low Carbon CfDs, more interconnection
No
2037
160
133
59
4a
Low Carbon CfDs
No
2023
100
42
25
5a
BAU
Yes
2037
236
194
88
5d
BAU, High Fuel Prices
Yes
2032
194
111
52
5e
BAU, Low Fuel Prices
Yes
2041
272
235
126
7a
Non-nuclear Low Carbon CfDs
Yes
2046
104
49
33
7d
Non-nuclear Low Carbon CfDs, High Fuel Prices
Yes
2038
137
65
28
7e
Non-nuclear Low Carbon CfDs, Low Fuel Prices
Yes
Not before 2049
113
51
44
7f
Non-nuclear Low Carbon CfDs, High Nuclear Costs, Low RES and CCS costs
Yes
2048
97
46
35
7g (only to 2030)
Non-nuclear Low Carbon CfDs, more DSR, more EDR, more Interconnection
Yes
Not before 2030
104
N/A
N/A
7h
Non-nuclear Low Carbon CfDs, more interconnection
Yes
2046
101
48
32
8a
Low Carbon CfDs
Yes
2023
104
50
31
8d
Low Carbon CfDs, High Fuel Prices
Yes
2023
99
48
30
8e
Low Carbon CfDs, Low Fuel Prices
Yes
2023
99
38
30
8f
Low Carbon CfDs, High Nuclear costs, Low RES and CCS costs
Yes
2023
102
45
28
8g (only to 2030)
Low Carbon CfDs, more DSR, more EDR, more Interconnection
Yes
2023
98
N/A
N/A
8h
Low Carbon CfDs, more Interconnection
Yes
2023
100
53
32
Table 10
Benchmark infrastructure transactions
Sponsor
Antin Infrastructure Partners
CDP Capital
Brookfield Renewable Energy Partners
Borealis,
First State EDIF
Fund Target
Equity IRR
15 %
16 %
9 – 12 %
9 – 15 %
Source: UK submission ‘ Answers to the Commission's questions received 16 September 2014 ’ based on Fund websites, Preqin, Press releases. Note: Fund target IRRs shown gross of fees and expenses. Exchange rates used: GBP EUR: 1: 1,26, GBP CAD: 1: 1,81. HPC post-tax nominal equity IRR used for comparison purposes. Borealis target IRR: 9 – 12 per cent, First State EDIF target IRR: 10 – 15 per cent.
Table 11
Selected regulatory allowed returns calculations
Electricity Transmission (Ofgem ( 1 ) )
Ofwat ( 2 ) — PR09
Ofwat — PR 14 (not finalised) ( 3 )
Note
Period
2013-21
2010-15
2015-20
Real
Levered cost of equity (post-tax)
7,00 per cent
7,10 per cent
5,65 per cent
Cost of debt (pre-tax real)
2,92 per cent
3,60 per cent
2,75 per cent
Notional gearing
60,0 per cent
57,5 per cent
62,5 per cent
Vanilla WACC
4,55 per cent
5,10 per cent
3,85 per cent
Inflation assumption
3,50 per cent
3,50 per cent
3,50 per cent
Allowed Nominal Costs/Returns (geometric calc)
Levered cost of equity
10,7 per cent
10,8 per cent
9,3 per cent
Cost of debt (pre-tax)
6,5 per cent
7,2 per cent
6,3 per cent
Vanilla WACC*
8,2 per cent
8,8 per cent
7,5 per cent
Nominal (arithmetic calc)
Levered cost of equity*
10,5 per cent
10,6 per cent
9,2 per cent
Cost of debt (pre-tax)*
6,4 per cent
7,1 per cent
6,3 per cent
Vanilla WACC
8,1 per cent
8,6 per cent
7,3 per cent
https://www.ofgem.gov.uk/ofgem-publications/53602/4riiot1fpfinancedec12.pdf
http://www.ofwat.gov.uk/pricereview/pr14/gud_tec20140127riskreward.pdf
http://www.ofwat.gov.uk/pricereview/pr09phase3/det_pr09_finalfull.pdf
Source: Presentation of EDF Energy to Commission officials of 15 July 2014, slide ‘ Comparison of HPC with UK regulated utilities ’.
Table 12
Benchmark nuclear generation project
Project
Ontario Power Authority
Technology
Refurbishment of Bruce Power nuclear plant
Gearing
20-40 per cent
Real cost of debt (pre-tax)
6,20 per cent
Nominal target equity IRR (post-tax)
13,7-18 per cent ( 12,8-17,1 per cent adjusted for current UK interest rate)
Target project IRR
10,6-13,8 per cent ( 9,7-12,9 per cent adjusted for current UK interest rate)
Investment horizon (asset life)
25 years
Investment size
4bn CAD
Level of Revenue certainty
Fixed price CfD for remainder of plant life (25 years)
Level of construction risk
Lower — refurbishment, not new build, cost overrun sharing
Level of operating risk
Lower — staff cost overrun sharing, fuel cost pass-through
Level of financing risk
Lower — smaller capital project, shorter period
Contingent equity required
Unknown
Source: UK submission ‘ Answers to the Commission's questions received 16 September 2014 ’ based on publicly available documents (Bruce Power audit report — April 2007, p. 14.: Confirmed as a project rate of return in letter from CIBC World Markets Inc. to The Ministry of Energy, Ontario, 17 October 2005, http://www.rds.ontarioenergyboard.ca/webdrawer/webdrawer.dll/webdrawer/rec/67137/view/PWU_Exhibit_K11.3_fairness_opinion_bruce_20080613.pdf.PDF, Letter from CIBC World Markets Inc. to the Ministry of Energy, Ontario, 17 October 2005, http://www.rds.ontarioenergyboard.ca/webdrawer/webdrawer.dll/webdrawer/rec/67137/view/PWU_Exhibit_K11.3_fairness_opinion_bruce_20080613.pdf.PDF Bruce Power Fairness Opinion (CIBC World Markets Inc.) — October 2005, p. 5.
Table 13
Benchmark Power Purchase Agreement (PPA) projects
Technology
CCGT
PPA projects
Gearing
< 80 per cent
Unknown
Cost of debt
Unknown
Unknown
Nominal target return on equity (post-tax)
> 13 per cent
Nominal target project return (post-tax)
9-15 per cent ( *1 )
Investment horizon (asset life)
25 years
Various
Investment size
Various
Various
Degree of revenue certainty
20 year PPA
PPA
Level of construction risk compared to HPC
Lower-EPC contract-based, well-known technology
Unknown but likely lower
Level of operating risk compared to HPC
Lower
Unknown
Level of financing risk
Lower shorter construction period
Unknown but likely lower
Contingent equity required
Unknown
Unknown
References
( 4 )
( 5 )
Source: UK submission, Table 2 — on Rate of Return, 10th September as well as (1) and (2) below.
Table 14
Regulated Settlement Benchmarks: Allowed returns on regulated assets for UK energy and water utilities in recent regulatory price controls
Regulator
Ofwat
Ofgem
CC
Ofgem
CC
CAA
ORR
Determination
PR14 (not final) ( 6 )
WPD 14 ( 7 )
NIE 2014 Final ( 8 )
RIIO T1 2012 (NGET) ( 9 )
Bristol W 2010 ( 10 )
HAL 2014 Final ( 11 )
NR 2013 ( 12 )
Gearing
62,50 per cent
65 per cent
45 per cent
60 per cent
60 per cent
60 per cent
62,50 per cent
Real cost of debt (pre-tax)
2,8 per cent
2,6 per cent
3,1 per cent
2,9 per cent
3,9 per cent
3,2 per cent
3,0 per cent
Real cost of equity (post-tax)
5,7 per cent
6,4 per cent
5,0 per cent
7,0 per cent
6,6 per cent
6,8 per cent
6,5 per cent
Real vanilla WACC
3,8 per cent
3,9 per cent
4,1 per cent
4,6 per cent
5,0 per cent
4,7 per cent
4,3 per cent
Inflation
3,5 per cent
3,5 per cent
3,5 per cent
3,5 per cent
3,5 per cent
3,5 per cent
3,5 per cent
Nominal cost of debt (pre-tax)
6,2 per cent
6,1 per cent
6,6 per cent
6,4 per cent
7,4 per cent
6,7 per cent
6,5 per cent
Nominal cost of equity (post- tax)
( 13 )
9,2 per cent
9,9 per cent
8,5 per cent
10,5 per cent
10,1 per cent
10,3 per cent
10,0 per cent
Nominal vanilla WACC
7,3 per cent
7,4 per cent
7,6 per cent
8,1 per cent
8,5 per cent
8,2 per cent
7,8 per cent
Analyst return on equity forecast ( ex ante )
c 14 per cent ( 14 )
Investment horizon ( 15 ) — Price control length
5
8
3
8
5
5
5
Investment Size: Regulatory Asset Value (RAV) ( 16 )
( 17 )
( 18 )
70m — 11,7bn ( 19 ) (estimated 2014 — 15) values)
5,9bn (2014) ( 20 )
c GBP 950m (forecast across price control) ( 21 )
2,2bn — 14,8bn (forecast RAV range of companies over price control) ( 22 )
0,39bn (2013) ( 23 )
14,9bn ( 24 )
45bn (2013) ( 25 )
Degree of revenue protection
More than HPC — see answer to question 2c — NNBG Submission on Rate of Return, 10 September
Degree of construction risk
Less than HPC. See detailed discussion recitals 124 – 131 — NNBG Submission on Rate of Return, 10 September
Degree of operating risk
Less than HPC. See detailed discussion recitals 132 – 135 — NNBG Submission on Rate of Return, 10 September
Degree of financing risk
Less than HPC. See detailed discussion paragraphs 136 – 139 — NNBG Submission on Rate of Return, 10 September
Other risks
Less than HPC. See detailed discussion on difference in fundamental business models; diversification of assets; and technology risks in recitals 113 – 122 — NNBG Submission on Rate of Return, 10 September
Contingent equity required
None
Source: based on UK submission ‘ SA.34974 Hinkley Point C State aid case — Answers to the Commission's questions received 16 September 2014 ’.
Table 15
Cost of capital estimates for companies belonging to industry group ‘Utility (general)’ in the European Union
(per cent)
Company Name
Country
Cost of equity in USD
Pre-tax cost of debt in USD
After-tax cost of debt in USD
Cost of capital in USD
E.ON SE (DB:EOAN)
Germany
8,25
4,04
3,19
5,78
RWE AG (DB:RWE)
Germany
7,95
4,54
3,59
5,54
Centrica plc (LSE:CNA)
UK
6,99
4,44
3,11
6,04
Veolia Environnement S.A. (ENXTPA:VIE)
France
11,62
5,44
4,30
6,46
National Grid plc (LSE:NG.)
UK
9,37
4,44
3,11
6,33
Suez Environnement Company SA (ENXTPA:SEV)
France
9,97
4,94
3,90
6,38
A2A SpA. (BIT:A2A)
Italy
13,72
7,44
5,88
8,68
Hera SpA. (BIT:HER)
Italy
12,65
5,94
4,69
7,94
MVV Energie AG (XTRA:MVV1)
Germany
8,31
4,04
3,19
5,70
ACEA SpA. (BIT:ACE)
Italy
12,15
6,44
5,09
7,68
Iren SpA (BIT:IRE)
Italy
13,85
7,94
6,27
8,80
Mainova AG (DB:MNV6)
Germany
6,96
5,54
4,38
6,30
Gelsenwasser AG (DB:WWG)
Germany
6,09
5,54
4,38
6,08
Telecom Plus plc (LSE:TEP)
UK
6,45
4,94
3,46
6,44
Compagnie Parisienne de Chauffage Urbain (ENXTPA:CHAU)
France
7,73
4,94
3,90
6,33
Zespól Elektrocieplowni Wroclawskich KOGENERACJA Spólka Akcyjna (WSE:KGN)
Poland
7,44
5,39
4,26
6,94
Fintel Energia Group SpA (BIT:FTL)
Italy
9,88
8,94
7,06
9,02
REN — Redes Energéticas Nacionais, SGPS, S.A. (ENXTLS:RENE)
Portugal
19,97
7,64
6,04
10,05
GDF SUEZ S.A. (ENXTPA:GSZ)
France
8,70
4,44
3,51
5,74
Burgenland Holding Aktiengesellschaft (WBAG:BHD)
Austria
6,08
5,54
4,38
6,08
Source: http://www.stern.nyu.edu/~adamodar/pc/datasets/Eurocompfirm.xls (retrieved on 14 June 2014).
(The presented WACCs are nominal (in USD terms, using USD risk free rate = 3,04 per cent) & post-tax. For the various definitions used by Damodaran, see: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/variable.htm).
( 1 ) Final Proposals for National Grid Electricity Distribution and National Grid Gas
( 2 ) Ofwat Future water and sewerage charges 2010-2015: Final determinations
( 3 ) Ofwat: Setting price controls for 2015-20 — risk and reward guidance
( 4 ) In tenders for Independent Water and Power Producer (IWPP) contracts in Abu Dhabi, which include a 20 year fixed-price water/power purchase agreement with inflation indexation, ‘
the nominal internal rate of return (IRR) on equity is required to be not less than 13 per cent
’. These projects will typically involve construction of technically — mature CCGT capacity under a lump sum, date-certain turnkey EPC contract, with provisions to compensate investors for any delays and deviations from the terms of the contract. See Independent water and power producers, Abu Dhabi Regulation & Supervision Bureau, http://rsb.gov.ae/assets/documents/231/infoiwpp.pdf. (Source: UK submission)
( 5 ) http://www.gdfsuez.com/wp-content/uploads/2012/07/GDF-SUEZ-at-a-glance-060712-final.pdf Slide 8
( *1 ) While the UK's submission quotes 9-15 per cent post-tax nominal rates of returns from the source given in (2), the Commission notes that this seems to ignore the ‘
regulated and concession
’ projects mentioned in that source. The Commission understands from (2) that the regulated and concession activities of GDF-Suez are indicated to realise around 5-13 per cent post-tax nominal project returns, with the most likely range being below 10 per cent.
( 6 ) http://www.ofwat.gov.uk/pricereview/pr14/gud_tec20140127riskreward.pdf
( 7 ) https://www.ofgem.gov.uk/ofgem-publications/86375/fast-trackdecisionletter.pdf
( 8 ) https://assets.digital.cabinet-office.gov.uk/media/535a5768ed915d0fdb000003/NIE_Final_determination.pdf. The Commission notes that while Table 13.10 of the quoted document provides a ‘low’ and a ‘high’ estimate for the reported financial indicators, the UK's submission seems to be based on the ‘high’ estimates alone.
( 9 ) https://www.ofgem.gov.uk/publications-and-updates/riio-t1-final-proposals-national-grid-electricity-transmission-and-national-grid-gas-–-overview
( 10 ) Source was not provided in the submission.
( 11 ) http://www.caa.co.uk/docs/33/CAP%201140.pdf
( 12 ) http://orr.gov.uk/data/assets/pdf_file/0011/452/pr13-final-determination.pdf
( 13 ) Nominal values are calculated using an arithmetic approach. A geometric approach would add 0,1 per cent-0,2 per cent to nominal cost of equity and nominal vanilla WACC estimates.
( 14 ) Credit Suisse: National Grid — No longer a growth/value play, cut to Neutral, 29 May 2014; Credit Suisse: SSE — Referendum risk to be addressed, 15 August 2014; Macquarie: National Grid — Quality costs, but better opportunities elsewhere, 24 March 2014.
( 15 ) The submission interpreted the length of the investment horizon as the length of a price control period. However, the submission notes that the asset lives of the investments undertaken by regulated companies often span multiple price control periods, having ‘useful lives’ of up to 60 years.
( 16 ) The value ascribed by the regulator to the capital employed in the licensee's business.
( 17 ) Where source RAV values are stated in historical price terms, they have been converted to current prices using the ONS RPI index (unless otherwise stated).
( 18 ) We note that regulated companies' investment expenditure is in diverse, multiple projects that typically form only a small proportion of its RAV.
( 19 ) http://ofwat.gov.uk/regulating/prs_web_rcvupdates
( 20 ) http://www.westernpower.co.uk/docs/About-us/financial-information/2014/Annual-reports-and-financial-statements/Financial-performance-for-website-Mar-14.aspx
( 21 ) http://www.uregni.gov.uk/uploads/publications/RP5_Main_Paper_22-10-12_FINAL.pdf (page 100).
( 22 ) This is Ofgem's forecast for RAV at the end of the price control period. Note that at the start of the price control period SHETL is estimated to have a RAV of 0,7bn (which is forecast to increase to 3,6 bn by 2020-21): https://www.ofgem.gov.uk/ofgem-publications/53747/sptshetlfpsupport.pdf (pages 36 and 37) and https://www.ofgem.gov.uk/ofgem-publications/53602/4riiot1fpfinancedec12.pdf (pages 8 and 9).
( 23 ) http://www.bristolwater.co.uk/wp/wp-content/uploads/2013/04/Annual-Report-2013.pdf (page 27).
( 24 ) http://www.heathrowairport.com/static/HeathrowAboutUs/Downloads/PDF/Development_of_Regulatory_Asset_Base_30-Jun-2014.pdf
( 25 ) http://www.networkrail.co.uk/browse%20documents/regulatory%20documents/regulatory%20compliance%20and%20reporting/regulatory%20accounts/nril%20regulatory%20financial%20statements%20for%20the%20year%20ended%2031%20march%202013.pdf (page 331).
ANNEX B
CREDIT GUARANTEE
Table 16
Benchmark Information
1. Recent Limited Recourse Project Finance Bank Loans (Low Carbon Energy)
This table updates the one provided in Annex A of our responses dated 5 September 2014 to show the quantum of the commercial debt tranche distinct from the total debt quantum which, for certain projects, included export credit guaranteed or multilateral debt facilities.
Project
Financial Close
Amount
[Commercial Bank Tranche]
Tenor
(Years)
Commercial Bank Loan Margin ( 6 )
Government Support ( 7 )
Gemini Offshore Wind
May 2014
EUR 2 000 m
[EUR 850 m]
14
300
SDE renewable subsidy (per MWh) from Dutch government Separate export credit facilities provided by EKF (Denmark), Euler Hermes (Germany) and Delcredere/Ducroire from Belgium
London Array Offshore Wind
Oct 2013
GBP 266 m
[GBP 266 m]
13
275
Renewables Obligation subsidy (per MWh) from UK Government Separate export credit facility provided by EKF (Denmark) for initial financing
Butendiek Offshore Wind
Feb 2013
EUR 950 m
[EUR 230 m]
8,5
300
Feed-in Tariff subsidy (per KWh) from German government Separate export credit facility provided by EKF (Denmark)
Westermost Rough Offshore Wind
Aug 2014
GBP 370 m
[GBP 197 m]
15
300
Renewables Obligation subsidy (per MWh) from UK Government
[…]
[…]
EUR 650 m
[EUR 650 m]
10
175-275
Finance from commercial banks only
Derbyshire Energy from Waste PFI
Aug 2014
GBP 145 m
[GBP 145 m]
25
315-320
Renewables Obligation subsidy (per MWh) from UK Government Local Authority payments for waste recycling
MEDIAN
300
SWAP SPREAD ( 8 )
+ 13
(To convert from LIBOR margin to Gilt benchmark)
ILLIQUIDITY PREMIUM
– 50
MARKET INDICATION ( 9 )
263
Source: Commercial banks; InfraNews; InfraJournal
2. Corporate Debt (rated BB+) Spreads
Issuer
Ticker
Coupon
Maturity
Amount
Rating
Tenor
(years)
Current Spread (bp)
Government Support
Heathrow Airport
HTHROW
7,125 %
01/03/2017
GBP 325 m
NR/Ba3/BB+
3
231
Nil
Heathrow Airport
HTHROW
5,375 %
01/09/2019
GBP 275 m
NR/Ba3/BB+
5
253
Nil
Anglian Water
OSPRAQ
7,000 %
31/01/2018
GBP 350 m
NR/Ba3/BB+
3
290
Nil
Electricity North-West
NWENET
5,875 %
21/06/2021
GBP 80 m
BB+/NR/NR
7
274
Nil
Yorkshire Water
KEL
5,750 %
17/02/2020
GBP 200 m
BB–/NR/BB+
5
314
Nil
Enel SpA
ENELIM
7,75 %
10/09/2075
GBP 400 m
BB+/Ba1/BBB–
61
373
31,2 % owned by Government Ministry
Enel SpA
ENELIM
6,625 %
15/09/2076
GBP 500 m
BB+/Ba1/BBB–
62
367
Telecom Italia
TITIM
5,875 %
19/05/2023
GBP 400 m
BB+/Ba1/BBB–
9
281
Nil
Energias de Portugal
ELEPOR
8,625 %
04/01/2024
GBP 425 m
BB+/Ba1/BBB–
10
256
Nil
MEAN
293
ILLIQUIDITY PREMIUM
– 50
MARKET INDICATION
243
Source: Bloomberg as at 21 August 2014 using BGN Source.
3. iTraxx Europe Crossover Series 21 Constituents Rated BB+/Ba1
Company
Ticker
Identifier
Rating
Tenor (Years)
CDS Flat Spread
ArcelorMittal
MT NA
CX375716
BB+/Ba1
10
347
EDP Energias de Portugal SA
EDP PL
CEPO1E10
BB+/Ba1
10
203
Finmeccanica SpA
FNC IM
CFME1E10
BB+/Ba1
10
285
HeidelbergCement AG
HEI GY
CHEI1E10
NR/Ba1
10
226
Lafarge SA
LG FP
CLAF1E10
BB+/Ba1
10
168
Telecom Italia SpA
TIT IM
CTII1E10
BB+/Ba1
10
281
Wendel SA
MF FP
CMWP1E10
BB+/NR
10
206
MEAN
245
Source: Markit; Bloomberg as at 21 August 2014 using CMAN Source.
Table 17
Simulated distribution of yield curve at 10 years
1992 - 2013 VAR model simulation
10 Yr (P) vs. 1992-2013 VAR model simulation
[…]
[…]
[…]
Spot in 10 years time
VAR simulation 10 years ahead (June 2024)
VAR simulation 10 years ahead (June 2024)
Tenor
10 Yr (P)
Median
95 % percentile
Distance from median (ppts)
Distance from 95th percentile (ppts)
10 Yr (P) + 1,5 ppt probability
1 Yr
3,47
3,80
6,20
– 0,33
– 2,72
19 %
2 Yr
3,55
4,00
6,24
– 0,45
– 2,69
21 %
3 Yr
3,62
4,16
6,24
– 0,54
– 2,61
22 %
4 Yr
3,70
4,31
6,20
– 0,61
– 2,50
21 %
5 Yr
3,78
4,44
6,17
– 0,66
– 2,39
20 %
7 Yr
3,93
4,64
6,20
– 0,71
– 2,27
19 %
9 Yr
4,09
4,76
6,19
– 0,66
– 2,10
15 %
10 Yr
4,17
4,79
6,14
– 0,62
– 1,97
13 %
12 Yr
4,11
4,88
6,15
– 0,77
– 2,03
15 %
15 Yr
4,07
4,97
6,09
– 0,89
– 2,02
17 %
20 Yr
4,07
4,99
6,12
– 0,92
– 2,05
17 %
30 Yr
3,98
4,97
6,08
– 1,00
– 2,10
20 %
50 Yr
3,91
5,01
6,04
– 1,10
– 2,13
24 %
IUK Sensitivity analysis
[…]
UK Gilt yields by maturity
Graph 1
UK gilt yields at 10, 20, and 30 years
20-year Gilts
Yields (in percent)
30-year Gilts
10-year Gilts
UK Government bond (Gilt) yields by maturity
USD term structure of yield spreads for BB companies
Figure 3
USD term structure of yield spreads for non-financial BB companies
Tenors
USD US Non-financials BB curve — USD Swaps Curve (basis points)
Term structure of yield spreads for non-financial BB-rated companies
Note: the data is a snapshot from Bloomberg on 21 August 2014.
ANNEX C
COMMITMENTS PROVIDED BY THE UNITED KINGDOM
TRADING COMMITMENT
Definition
‘EDF Group Company’ means a member of the same group of companies as EDF Energy.
Operative Terms
[ ].1
Each of NNBG and EDF Energy shall ensure, in any agreement for market services for the sale of the output of HPC entered into with any EDF Group Company (the ‘MSA Counterparty’) that, for so long any EDF Group Company is a shareholder (direct or indirect) in NNBG, the MSA Counterparty agrees to:
(A)
record all trades undertaken to sell the HPC forecast output in a separate NNBG book;
(B)
price all trades undertaken to sell the HPC forecast output conducted with any EDF Group Company at the market price for the product concerned at the time of trading;
(C)
undertake at market price all HPC forecast output bilateral trades with any other asset portfolios owned or traded by any EDF Group Company; and
(D)
provide to NNBG (with consent for NNBG to provide the same to the CfD Counterparty, the Secretary of State and the European Commission) such information as may be reasonably required by NNBG to report to the CfD Counterparty, the Secretary of State and the European Commission on the MSA Counterparty's compliance with points (A), (B) and (C) above.
[ ].2
NNBG shall, and EDF Energy shall procure that NNBG shall, by the [ߦ] Business Day of each calendar year provide the CfD Counterparty (with consent for the CfD Counterparty to provide the same to the Secretary of State and the European Commission) with a written report on the MSA Counterparty's compliance with points (A), (B) and (C) of Clause [ߦ].1 in the previous calendar year.
EQUITY GAINSHARE MECHANISM
1. Overview of the clause
1.1.
There will be an Equity Gain Share arrangement consisting of two distinct components:
(A)
a mechanic to capture gains from the project above certain levels as a result of the project outperforming relative to the original base case assumptions (the ‘Project Gain Mechanic’); and
(B)
a mechanic to capture gains above certain levels arising from sales of equity from the original shareholders (the ‘Equity Sale Mechanic’).
1.2.
The amount of the equity gain will be shared with the CfD Counterparty and will depend on the level of the realised equity IRR at the relevant time. All threshold levels will take account of the cost of committed equity, as determined in accordance with the model:
HPC IUK Model […] per ‘DECC Output’ worksheet
(A)
if the realised Equity IRR is more than the Equity IRR in the model that includes the cost of committed equity (11,4 % (nominal) as of model:
HPC IUK Model […] per ‘DECC Output’ worksheet as supplied to the Commission on 19 September 2014) but less than or equal to the threshold in (B) below, any gain above that Equity IRR threshold will be shared with the CfD Counterparty as to 30 %; and
(B)
if the realised Equity IRR is more than both (i) 13,5 % (nominal) and (ii) 11,5 % (expressed in real terms but taking into account CPI inflation), any gain above such threshold will be shared with the CfD Counterparty as to 60 %.
1.3.
There will be no double counting between the mechanisms.
1.4.
Set out below is further detail on how the mechanics of the provision will operate. In addition, there will be a covenant package in support of these obligations, which may include security.
2. Relevant mechanism — Project Gain Mechanic
2.1.
Subsequent to the Project Gain Mechanic having been first triggered, should a further injection of equity be required in any period, the further injection of equity will be taken into account in calculating equity holders' gains.
2.2.
The Project Gain Mechanic captures the gains above the relevant threshold (as set out in point 1.2 above) as a result of the project outperforming relative to the original base case assumptions.
2.3.
To determine whether any threshold has been reached in any period, the cumulative realised to-date Equity IRR will be calculated using an updated financial model throughout the project life. The Equity Gain Share calculation will be triggered in the same period in which any threshold is reached.
2.4.
Once the Project Gain Mechanic is triggered, the CfD Counterparty will be entitled to the relevant percentage of equity holders' distributions in that period and all future periods (until the next threshold is reached in which case the relevant sharing percentage will be adjusted accordingly).
2.5.
The CfD Counterparty entitlement to equity holders' gains will be in effect over the entire life of the HPC project from the first time the Project Gain Mechanic has been triggered.
3. Relevant mechanism — Equity Sale Mechanic
3.1.
An Equity Gain Share will also be triggered upon a direct or indirect sale of shares or shareholder loans (if applicable) by the original shareholders of NNBG at any time during the life of the HPC project. The steps involved are:
(A) Step 1 — For each investor, establish the base case equity injection and price (as extracted from the appropriate financial model).
(B) Step 2 — Upon the occurrence of a sale/disposal of equity tranche by any investor, establish the Equity Sale IRR achieved by that investor on the particular sale/disposal of the tranche of equity.
(C) Step 3 — The Equity Sale IRR realised by the investor selling the equity tranche is calculated taking into account the actual gross proceeds of the equity tranche sale/disposal, actual equity injections proportionate to this equity tranche sold/disposed and past dividends/shareholder loan interest and principal repayments (proportionate to this equity tranche sold/disposed) to that investor out of NNBG.
(D) Step 4 — If the Equity Sale IRR is above any of the thresholds set out in point 1.2 above, the Equity Gain Share will be calculated as follows.
(E) Step 5 — Calculate the theoretical amount of money that would have to have been realised by the shareholder for the same sale of equity which, if used to calculate the Equity IRR as in Step 3 above, would have resulted in the realised Equity Sale IRR being equal to the relevant threshold.
(F) Step 6 — The positive difference (if any) between the actual sale proceeds amount used in Step 3 above and the theoretical equity sale proceeds amount calculated in Step 5 above is then the excess equity gain to be shared between NNBG shareholders and the CfD Counterparty.
3.2.
The above calculations are carried out for each sale/disposal of equity independent of any prior sale/disposals of equity irrespective of whether or not previous sales/disposals of equity resulted in a gainshare to the CfD Counterparty.
3.3.
Equity sales/disposals by secondary investors (i.e. who bought/acquired the equity on a third-party, arms-length basis from the original equity investors) will be exempt from this mechanic if such secondary investors were to subsequently sell/dispose such equity (being ‘secondary equity’).
4. Provisions to support Equity Gain Share mechanisms
4.1.
Anti-avoidance provisions will ensure that transactions are not designed to frustrate the intent of the Project Gain Mechanics or the Equity Sale Mechanic.
4.2.
To support the Equity Gain Share mechanics, provisions will be made to ensure payments are made to the CFD Counterparty in circumstances where there is a breach of either the Project Gain Mechanic or the Equity Sale Mechanic or there is a breach of the anti-avoidance undertakings.
5. Disputes
Any disputes in relation to the Equity Gain Share mechanism will be resolved in accordance with a similar dispute resolution process as is set out in the HPC Contract.
CONSTRUCTION GAINSHARE MECHANISM
1. Overview of the clause
1.1.
The Construction Gain Share mechanism is designed to share savings, implemented through reduction of the Strike Price, where construction comes in at lower than the forecast cost in the agreed financial model for the HPC project. This mechanism will work in one direction, with no Strike Price increase if construction costs are higher than forecast.
1.2.
The initial gain share calculation will take place on the date which is the earliest of (i) the date falling 6 months after the Reactor Two Start Date; (ii) the tenth anniversary of the Reactor One Start Date; and (iii) the date (if any) after the Reactor One Start Date on which the parties agree that Reactor Two will not reach its start date. The final gain share calculation will take place on the sixth anniversary of the date of the initial gain share calculation (or earlier if all construction related claims have been settled before then).
1.3.
We have set out below further detail on how the mechanics of the provision will operate.
2. Relevant mechanism
2.1.
No earlier than a defined period before each of the Initial Reconciliation Date and the Final Reconciliation Date, NNBG will provide the CfD Counterparty with a written report.
2.2.
Each report shall:
2.2.1.
set out, in reasonable detail:
(a)
the aggregate amount of the Construction Costs to the date of the report, expressed in sterling;
(b)
the aggregate amount of the Construction Costs reasonably forecast to be incurred, paid or accrued by NNBG, expressed in sterling, provided that such Construction Costs shall be limited to those Construction Costs that would be reasonably and properly incurred, paid or accrued by NNBG to satisfy regulatory requirements without incurring excessive cost or expense;
(c)
NNBG's actual Construction Schedules; and
(d)
NNBG's estimated Construction Schedules for any period after the date of the relevant report;
2.2.2.
set out, in reasonable detail, evidence of the steps taken to ensure that the amount of any Construction Costs forecast to be incurred, paid or accrued by NNBG following the date of the report shall be limited to those Construction Costs that would be reasonably and properly incurred, paid or accrued by NNBG to satisfy regulatory requirements without incurring excessive cost or expense;
2.2.3.
if the report, or any part thereof, is prepared by or with the assistance of one or more third parties, include details of those third party(ies) and copies of any reports prepared by such third party(ies); and
2.2.4.
the consequential adjustment (if any) to the Strike Price.
2.3.
The report will provide relevant supporting information and be accompanied by a Directors' Certificate certifying the information enclosed within the report.
2.4.
The CfD Counterparty may require further supporting information from NNBG within a specified period. If the CfD Counterparty makes such a request, NNBG has to provide such supporting information within a specified period from the request.
2.5.
The CfD Counterparty will notify NNBG whether or not it accepts the report provided by NNBG within a specified period. If NNBG and the CfD Counterparty are unable to reach agreement, then the matter may be referred by either party for independent resolution.
2.6.
If NNBG does not provide the CfD Counterparty with a report, the CfD Counterparty may obtain an opinion from an independent firm of cost consultants as to the Construction Costs and Construction Schedules and that opinion will be used instead.
2.7.
NNBG will give the CfD Counterparty and its professional advisers (including the cost consultants) such assistance as the CfD Counterparty may reasonably request for the purposes of reviewing the report and verifying the Construction Costs.
2.8.
The financial model will be updated with the revised Construction Costs and revised Construction Schedules, as set out in the report or as advised by the cost consultants, and rerun to determine a revised Strike Price. The difference between the Strike Prices produced by running the financial model using the forecast Construction Costs and Construction Schedules and rerunning it with the revised Construction Costs and revised Construction Schedules will determine the size of the construction gain, expressed in GBP/MWh. The CfD Counterparty will be entitled to take 50 % of the construction gain discovered by the exercise above (which percentage will increase to 75 % in respect of any construction gain in excess of GBP […] (nominal)), by reducing the then prevailing Strike Price by that amount.
2.9.
If at any time during the period between the Initial and Final Reconciliation Dates NNBG identifies any Construction Costs or Construction Schedules different from the corresponding ones used in the model update and which give rise to savings in respect of the Construction Costs, NNBG may elect to make interim payments to the CfD Counterparty in an amount equal to the whole or part of these additional Construction Costs savings.
Commission Decision (EU) 2015/658 of 8 October 2014 on the aid measure SA.34947 (2013/C) (ex 2013/N) which the United Kingdom is planning to implement for support to the Hinkley Point C nuclear power station (notified under document C(2014) 7142) (Text with EEA relevance) (EUR-Lex). Retrieved via LawPlayer, https://lawplayer.com/eu/act/32015D0658
© European Union, https://eur-lex.europa.eu, 1998-2026. Reuse authorised under Commission Decision 2011/833/EU, provided the source is acknowledged.
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