Q&A with International Bank for Nuclear Infrastructure

Q&A with International Bank for Nuclear Infrastructure
How Will it Make a Difference?

IBNI-Logo_thumb.pngThe International Bank for Nuclear Infrastructure (IBNI) is a conceptual new multilateral International Financing Institution (IFI) that will be solely focused on supporting its member countries in developing new nuclear energy programs or expand existing programs, as a core component, related to their commitments to achieve sustainable net zero CO2-equivalent emissions by 2050 (2050 Net Zero).

In its own words IBNI sees itself as the ‘missing link’ and will serve as the ‘game changer’ in global nuclear finance. The current challenges and impediments affecting the global nuclear sector are both significant and multidimensional. As of September 2022 the bank has not announced any commitment of funds to its mission. The bank anticipates a formal launch in 2023. (Executive Summary SlidesPDF file)

IBNI is positioning itself as offering a comprehensive solution to its member countries and their nuclear project sponsors that will be targeted at overcoming many of the interrelated funding / financial challenges and impediments which have hindered global nuclear developments over the past four decades. IBNI financing and support will be supplemental to, and will not supplant, existing forms of nuclear financing such methods provided from export credit agencies and similar institutions.

23 Questions Answered

Because financing nuclear energy projects is a multi-national concern, Neutron Bytes submitted a series of 23 questions via email to the IBNI. Their answers follow below. The text of the bank’s responses has been edited for format and space. Links in the text to “sections” refer to documents on the IBNI website. Inquiries regrading the answers from IBNI published here should be sent to IBNI to Daniel Dean at: d.dean@nuclearbank-io-sag.org  Also, Elina Teplinsky at Pillsbury Law contributed to the answers.

Q1: What international governance would the IBNI fall under? 

IBNI would be established under international treaty amongst multiple member state shareholders, like the existing major multilateral international financing institutions (such as World Bank Group, EBRD, ADB, African Development Bank, etc.)

Furthermore, it is envisaged that the governance structure of IBNI would be very similar to the existing multilateral models.  IBNI would be entirely owned and governed by its sovereign members state shareholders.  Additional information on IBNI’s proposed capitalization and governance structure can be found in the IBNI Initial Report and Action Plan (IRAP) Section 6. Proposed IBNI Capitalization and Governance Structure.

ibni structure

Q2: Is the bank a free-standing institution or will it be affiliated with any of the multilateral development banks?

IBNI is envisaged to be a new free-standing multilateral bank but would seek to cooperate with existing multilaterals in certain overlapping markets, projects and programs.  IBNI will have a mission separate and distinguished from existing multilaterals.

Q3: How and where will it be chartered?  Which country will IBNI be based in?

Like existing multilateral models, its sovereign member shareholders will need to agree on the charter agreements to establish IBNI (using similar agreement models that have been utilized by existing multilaterals, successfully over many decades).

There is no preconceived headquarters location for IBNI.  Ultimately, the sovereign member shareholders will need to agree on a world headquarters location for IBNI.  It is envisioned, that like other intergovernmental organizations, that world cities will compete for the destination for IBNI’s headquarters.  Typically, world cities and their national and regional governments may provide certain incentives to attract IBNI HQ to their location.

Q4: How does IBNI intend to participate or work alongside or with existing private, government-chartered export banks and multilateral banks, etc., that are already working in this space?

It is assumed that, in addition to serving as a financier and supporter of qualified nuclear projects, programs and companies in members states, IBNI will serve as a leader and catalyst in the global nuclear sector, driving significant addition sources of global financial markets capital into well-structured nuclear sector investment opportunities.

Like existing multilaterals, operating under the principal of additionality, IBNI would seek to participate, cooperate with and work alongside of other participants, such as private sector investors and lenders, export credit agencies and multilaterals.

It is important to note that IBNI does not seek to compete with or replace existing participants and sources of finance for nuclear finance.  Instead, IBNI aims to complement and enhance existing financing sources and drive significant new sources of additional capital into the nuclear sector.

One of the central premises of the IBNI concept is that a nuclear-focused multilateral is necessary in order to drive multiple trillions (USD) of capital into the global nuclear sector and that existing markets, sources, structures and mechanisms are woefully inadequate relative to the scale of nuclear investment needed in order to achieve global policy objectives, such as 2050 Net6 Zero, sustainable decarbonization, just energy transition and global energy security.

IBNI major mailestones

Q5: Is the IBNI actually a bank or just a broker; or a quasi-fund that invests for profit on behalf of shareholders?

Similar to many existing multilateral banks, IBNI is envisaged to be structured as a multilateral bank that will have two primary operations: a) the Ordinary Operations Fund (OOF); and, b) the Special Operations Fund (SOF).

inbni summary 2
The OOF is envisaged to be operated as a ‘AAA’ rated capital markets financing entity.  In addition to sovereign shareholder equity, the OOF will be funded through the issuance of ‘AAA’ rated bonds in the highly-liquid global Sovereign and Supranational Agency (SSA) markets.

The OOF would be operated as a non-loss-making fund on behalf of the sovereign member state shareholders.  It is anticipated that the core mission of the OOF will be to pass-along the benefit of lowest possible financing and support costs for technologically and commercially mature programs and projects, in effort to expand global nuclear capacities and drive down generation costs.

Based on precedent multilateral models, the goal of maximizing shareholder profits is not anticipated to be an overriding objective.  In fact, it is often the case that shareholders in multilaterals will decide to recycle their equity distributions back into the programs.

On the other hand, the much smaller SOF, will be the grantmaking and concessionary financing arm of IBNI that will support specific international programs (available to participants in IBNI member states) that would likely provide competitive grants, concessionary finance and other support for early-stage nuclear programs, projects and innovative technologies.  The SOF is expected to be funded from a subset of IBNI donor member states and private sector donors or investors.  Participating donors would decide on specific targeted SOF programs that they wish to fund and support.  Further details regarding the proposed IBNI operations can be found at IRAP Section 7. IBNI Operations and Programs.

Q6: How will the bank deal with state owned enterprises like EDF in France or self-financing quasi government corporations in Brazil and Argentina? 

IBNI will operate under the “principle of additionality.”  While individual governments, state-owned-enterprises (SOEs), quasi-government corporations and investor-owned utilities and companies may have some short-term capacities to fully (or sufficiently) finance a relatively small share of the multiple trillions (USD) of nuclear sector investment needs, these existing financing models will produce results that are woefully short of the investment volumes necessary to fulfill global policy objectives.

Editor Note: ‘Additionality’ is one of the principles driving the workings of the European Structural and Investment Funds. This principle stipulates that contributions from the Funds must not replace public or equivalent structural expenditure by a Member State in the regions concerned by this principle. (link)

IBNI does not aim to supplant or replace existing financing sources and sector participants.  However, over the medium-term, it is envisaged that IBNI will catalyze the creation much larger, diverse, competitive, and efficient global nuclear markets and industries.  This market creation element of IBNI is seen as an essential enabler toward the aim of driving down costs of nuclear technologies and optimizing the competitiveness of nuclear generation in global energy markets.

Q7: Where does the IBNI solicit and raise funds to support its investment function?  Will the bank accept funds from private equity funds or other types of non-governmental institutional investors such as pensions, etc.? What about direct government funding?

Similar to existing multilateral models, IBNI’s programs and activities are envisaged to be funded from the following sources: a) OOF – from all sovereign shareholder member states (equity) and from the global SSA financial markets (bonds); and, b) SOF – from a subset of participating sovereign donor states member states (a voluntary group of the larger IBNI membership providing donor and other funding for concessionary financing programs “earmarked” for specific programs and private sector donors and/or investors cooperating on specific SOF initiatives.

Q8: Where is the money coming from and what projects would the bank fund?

Money-futures_thumb.jpgIt is envisaged the bank will be capitalized in a manner similar to the existing multilateral models (e.g. with equity from the sovereign member state shareholders and debt: high-grade-bonds sold in the global SSA markets).

The bank will fund all types of nuclear projects, programs and industries on a technology-neutral basis.  It will finance and support qualifying: 1) nuclear new-build (both LR: Gen III/II+ and emerging SMR/AR/Gen. IV designs); 2) life-extensions and restarts; 3) nuclear fuel-cycle; 4) refinancing and restructuring; and, 5) decommissioning and back-end programs and projects.

Q9: What are the target markets for equity investments? Which ones are the best candidates and why?

Similar to many existing multilaterals, it is envisaged that IBNI would provide credit (loans, facilities, guarantees, etc.), equity, “quasi-equity” and other forms of financing and support.  In cases where it may be appropriate IBNI (OOF) to provide equity and ‘quasi-equity’ financing, it is anticipated that this would generally be in the form of minority shareholding or other non-controlling shareholding in a given project or company.

IBNI would seek to advance well-qualified nuclear projects, programs and innovative nuclear industries based on the principle of additionality, in cases where other resources are either unavailable or more costly.

As an example, it is envisaged that IBNI may provide various forms of contingent equity financing (and other similar financing) for projects in the near-term for both existing and emerging nuclear reactor technologies until a point in time where it has been repetitively demonstrated to the global capital markets that mature, ‘nth of a kind’ nuclear projects have been successfully developed under similar, harmonized IBNI standards and criteria. IBNI can serve as the “long-term patient investor” in such projects, having the liquidity and patience to withstand potential near-term delays and cost overruns.

Like existing multilaterals, IBNI will not “throw money at bad projects.”  Instead, it will become an integral and universally respected cornerstone stakeholder that will provide the trusted assurance to co-investors (and lenders) that IBNI-supported projects are structured in accordance with “best international practices”, meet harmonized IBNI Standards and Criteria, and have benefited from rigorous IBNI due diligence and nuclear sector specific knowledge.

A key criteria for consideration of IBNI’s equity participation in a project or company will be the catalytic effect – in other words, what is the potential multiplier investment impact of IBNI’s participation?  If IBNI participates in a project or company, it seeks to mobilize significant additional investment from global financial markets that would not have otherwise been accessible.

Q10: Will the bank invest directly in nuclear energy projects or will its investments be more of a case of bank-to-bank investments in various countries?

The answer is both.  It is envisaged that IBNI would be modeled after the prevailing multilateral finance models that have been proven successful over many decades.  Accordingly, and similar to existing multilaterals, the bank would provide direct financing (credit, equity and other support) as well as indirect financing, which typically includes A/B Loan programs, various form of guarantees and cover and other products that will facilitate additional participation in IBNI-supported projects, programs and industries from the global financial markets.

IBNI does not seek to create or reinvent mechanisms that are already well-proven to catalyze global financial market participation in challenging markets, instead it seeks to apply such decades-proven principles to the nuclear sector.

Q11: Are there near term opportunities for loans? Which ones are the best candidates and why?

Yes.  It is envisaged that IBNI would provide market based (OOF) loan financing and other credit facilities to the following types of near-term projects: (a) technically and commercially proven (Gen III/III+) reactor projects that are at, or will be soon, a finance-ready stage; (b) reactor life-extension and re-start projects; and (c) refinancing and restructuring projects.

In addition, depending on which donor supported programs IBNI members states decide to support, it is seen as likely that the SOF would provide concessionary loan products (and/or grants and other support) for qualified early-stage nuclear projects, programs and innovative industries.

In terms of ‘best candidates and why’, it is simple; IBNI financing and support is a scarce resources that will be highly beneficial and attractive to all potential applicants.  Therefore, a global competition for IBNI financing and support amongst project, program and industry applicant sponsors provides a strong ‘market incentive’ to strongly adhere to IBNI Standards & Criteria, which will help ensure the candidate projects and companies supported by IBNI are aligned with ‘international best practices’ and represent the strongest possible investments/lending cases.

Q12: How does the bank’s operations support, conflict, or facilitate current efforts and financing methods for new reactors such as the UK’s RAB method?

It is recognized that one of the key impediments for nuclear, and all other forms of capital-intensive low carbon generation is the structure of energy markets (particularly, deregulated/liberalized electricity markets).  It is fundamental that individual IBNI member states will need to, in many cases, enact energy market reforms in order to allow nuclear and other forms of low-carbon generation to compete in such markets.  It should be recognized that there is no “one-size-fits-all” approach to energy markets structure.

Certainly, UK RAB-based approach is one example of a model that may provide a market framework supportive of nuclear investments.  However, there are many frameworks alternatives that may supportive of long-term decarbonization goals. IBNI should not dictate which market framework structures that a member state shall or shall not adopt, but rather provide guidance as to ‘best international practices’ in respect to energy market frameworks that should be considered.

In the UK the Sizewell C may be a project that a multilateral such as IBNI could potentially finance and support.  Without going into details as to particular projects and vendors, it should be anticipated that IBNI would also play a very major role in the rapid advancement of SMR/AR/Gen IV technologies.

Energy market reform should be a sovereign (and in many cases, sub-sovereign) decision.  IBNI member states are free to choose any model that best suits their local circumstances.  However, they should be mindful that if they choose to maintain/enact frameworks that deviate significantly from IBNI endorsed ‘best international practices’ that their probability of receiving competitive support will be diminished under IBNI’s Standards and Criteria.

ibni summary1
It is envisaged that IBNI (like other multilaterals) would enter into state-level agreements with all of its members states.  These agreements, provisionally named, Net Zero Cooperation and Framework Agreements” (NZCAFA) would entail binding long-term commitments of the member state to enact and maintain such market reform mechanisms, which would help ensure a viable future for nuclear generators in a given market context.

Q13: In Poland a bid from KHNP offers to take a minority equity stake as a competitive edge as neither of the other two bidders (Rolls Royce, Westinghouse), so far, have not offered to match that proposal. Would the bank be able to make up the difference?

Again, the bank would operate on the principle of additionality.  In cases like the one in Poland, this could very well be the type of “gap funding” scenario that a multilateral can and should participate in (subject to the project being well-structured and well-aligned with IBNI Standards and Criteria).

Again, the role of IBNI would not be to replace or supplant existing funders and financiers of projects (unless IBNI’s participation could significantly drive down the cost of those projects or otherwise improve the project).  IBNI’s objectives would be to enhance and supplement all existing financing and support mechanisms in order to mobile the multiple trillions (USD) of capital necessary for nuclear capacities to very significantly scale-up over 30-years, enable nuclear projects to be delivered better, faster, safer and cheaper.

Q14: Is the bank only for international projects or would it also support new nuclear efforts (post ARDP cost sharing) in the US?

No.  IBNI would support qualified nuclear projects, programs and industries in all of its member states, ranging from developing countries to highly-developed nuclear export countries.

IBNI’s core mission is focused on tackling global climate change, decarbonization, energy transition and global energy security problems.  In addition to needs of the developing world to decarbonize and develop low-carbon economies, there is an ever greater and imminent need in the highly-developed nations (such as the US, UK, France, Canada, Japan and S. Korea) to rapidly decarbonize their economies and transition away from fossil fuels.

If global policy objectives are to be realized, there needs to be immediate and massive (multiple trillions of dollars) of investment in the global nuclear sector.  Currently the combination of global financial markets and governments, clearly do not have the means to address the scale of investment needed under current constructs.

IBNI offers a multi-dimensional solution that needed to catalyze and mobilize this very significant amount of global capital investment into the nuclear sector, in highly developed (carbon intensive) markets through developing economies.

Q15: What makes IBNI unique or different from other existing sources of funding?

As highlighted above, nuclear clearly needs a multilateral.  Currently, there simply are no multilaterals with the mandate, capabilities and mission to finance, support and catalyze nuclear finance and a large global scale.  Clearly a multilateral is unique and different in comparison to existing funders of nuclear in a myriad of aspects.

The lack of access to multilateral finance is one unique inhibiting factor of nuclear expansion.  For all other infrastructure asset classes there are numerous multilaterals participating, financing and supporting those sectors, both directly and indirectly.  In addition to the obvious benefits of a multilateral’s ability to provide and catalyze cost-effective financing, it also serves as a standards setting organization.  The existing multilaterals have fulfilled this role very well, over many decades, where such standards become the norm.  Please see IRAP Section 5. Standards & Criteria.

Q16: How much equity will IBNI require to support projects based on its funding models and governance requirements?

IBNI CapitalIt is recommended that the initial sovereign member shareholder equity commitments of IBNI be US $ 50 billion, which is in-line with many other precedent start-up multilateral banks.

Of the total US $50 billion, it is envisaged that 50% (e.g. US $25 billion) would constitute paid-in capital and 50% (e.g. US $ 25 billion) would constitute callable capital.

This represents the initial start-up capital that is foreseen to enable the bank to support near-term program demand.  However, conditioned upon the ongoing success of the program and demonstrated results and achievements, it is anticipated that the member states may decide to enlarge the program and which may require increased capitalization (but only after initial results are demonstrated).

It is envisaged that all shareholder capital requirements will be equitably distributed amongst the IBNI member states (ca. 50+) based on GDP, carbon-eq. emissions or other equitable methodology.  Please see IRAP Section 6. Capitalization & Governance for details.

Q17: What countries will be included or excluded from using the IBNI, and what are its member requirements? Is it strictly based on capital investment? 

All IBNI member states would be eligible for IBNI support programs, irrespective of development status, GDP, nuclear program status etc. based on an additionality principle.  As with all other intergovernmental organizations, the IBNI member shareholder bodies will need to determine whether certain states (such as internationally sanctioned states) should be eligible for membership and/or support.  Ultimately, it will be up to ‘committees of the whole’ to determine such geopolitical policies.

Q18: If given a choice for investments funds, especially projects which are already subsidized in part by government funds, why would a project, such as Sizewell C, want to seek funding from the bank?  What is its competitive advantage as a financial institution?

IBNI financing and support should be provide based on the principal of additionality.  In the “one off case” of Sizewell C, if the UK Government and other financial resources are willing and capable of providing sufficient financing at a cost the is lower than what could be attained under IBNI participation, then great!

This is the shared mission.  There is nothing wrong with that and we should applaud the UK government.  However, 1) the UK government’s resources are limited and they cannot do multiple Sizewell C’s; and, 2) in reality, Sizewell C may benefit greatly from a entity like IBNI participating in a large or small capacity which would greatly facilitate and catalyze the prospective of low-cost capital investment from global financial markets in the project.  This all would benefit UK Government in the form of greater value relative to taxpayer funded resources.

Q19: Would the bank limit itself to investments in electricity generation or would it also consider nuclear energy projects for process heat in energy intensive industries such as chemicals, metals smelting (ferrous and non-ferrous), cement, etc. 

The current construct provides that the bank should be focused solely on nuclear energy generation (which should include electricity and potential on-site generation of hydrogen, heat, desalinated water and cooling outputs).  While the core further downstream elements of low-carbon chemicals, metals and cement are integral under global policy objectives, we think that these activities may already have sufficient financial support and that there is not a great need for IBNI to expand beyond “core nuclear.”  This presumption can be re-evaluated in the future, as needed.

Q20: Does size matter? Would the bank limit itself to investments in large, e.g., 1,000 MWe or bigger, projects or would it consider small modular reactors, especially when planned to be built in multiple units over time? 

No.  It is important that IBNI should remain technology (and size) neutral.  IBNI Standards and Criteria should be applied equally to all technologies.  Both large reactor (Gen. III/III+) reactor and emerging SMR/AR/Gen IV technologies would be supported.

what-are-smrs_thumb.png

Q21: Would the bank invest in supply chains,, nuclear fuel processing, fabrication, and deconversion? What about large systems such as steam generators and turbines? 

Partially, yes.  The bank should support all exclusively nuclear supply chains, specifically including all elements of the nuclear fuel cycle.  It should not be the priority of IBNI to support turbine and other conventional component industries as it is assumed that there are currently sufficient global financing resources to support such industries.

Q22: How would the bank deal with losses such as the collapse of the V.C. Summer project in South Carolina?

The decision by the utilities SCANA and Santee Cooper to abandon construction of the V.C. Summer due to unexpected regulatory related delays and overruns and ultimately, Westinghouse’s bankruptcy was an unfortunately outcome, mainly for ratepayers and also for the nuclear industry.

While the reasons for the abandonment of the V.C. Summer project are well-understood, we believe that the commercial and risk allocation construct of the V.C. Summer Project (and also Vogtle) could have been structured much differently in a manner that could have prevented the unfortunate outcome of that project.

IBNI supported projects would compel project sponsors to implement ‘best international practices’ with respect to project commercial and contractual structuring and risk allocation principles.

Therefore, with respect to the V.C. Summer project, there are two likely scenarios that could have been in place if IBNI would have been available at the time of development: a) the project (as structured) would not have met IBNI’s Standards & Criteria and therefore, IBNI would have not supported the project; or, b) the project would have been structured much differently in accordance with IBNI Standards & Criteria, and with IBNI’s participation in the project, there is a high likelihood that the project would not have been abandoned and the new reactor units 2 & 3 would have been placed in revenue operations already.

Q23: What would the bank’s priorities be for due diligence in making loans especially for first of a kind nuclear reactor designs?

It is foreseen that IBNI as a specialized global nuclear financing institution will acquire and develop very significant technical, commercial and financial expertise with respect to nuclear generation projects.  It is intended that IBNI will become the global leader and standard setting organization for due diligence with respect to nuclear financing.

Using a model similar to existing multilateral banks, other co-investors and co-lenders will benefit from IBNI’s participation in a project and be able to rely on IBNI’s sector-specific expertise and rigorous due diligence.

With respect to supporting FOAK technologies, IBNI will support advancement of qualifying new reactor designs, applying a variety of financing tools and other supports.  In its approach to FAOK technologies that meet IBNI Standards and Criteria, IBNI will be uniquely positioned to serve as the ‘long-term patient’ investor in such technologies and will have the liquidity and flexibility to withstand potential near-term delays and overruns in order to achieve longer-term objectives of developing new markets and scaling of nuclear industries producing innovative new technologies and global associated supply-chains.

The goal will be to advance FOAK designs to allow them to get to an NOAK (delivered under harmonized global frameworks) status as quickly as possible which is entirely aligned with IBNI’s core goals of making nuclear technologies, most accessible, feasible and cost-efficient for potential technology consumers in all IBNI member states.

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