Division

United Kingdom

Table 13

Benchmark Power Purchase Agreement (PPA) projects

Technology	CCGT	PPA projects
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)
http://www.gdfsuez.com/wp-content/uploads/2012/07/GDF-SUEZ-at-a-glance-060712-final.pdf Slide 8
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.
Source: UK submission, Table 2 — on Rate of Return, 10th September as well as (1) and (2) below.
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^f1
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	^f2	^f3

Annotations

Footnotes

f1: 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.
f2: 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)
f3: http://www.gdfsuez.com/wp-content/uploads/2012/07/GDF-SUEZ-at-a-glance-060712-final.pdf Slide 8