Division
United Kingdom
Table 4
Summary of approaches taken for analysing an appropriate rate of return, by KPMG
| Source: Notification, Table 5, based on 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. |