Terrapower

Harvard Business School Teaching Note: 5-815-050

Courseware 5-816-705

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 Typical Gen-III Nuclear Power Plant --- Simplified Financial Model

Macro Assumptions Capital Assumptions

Plant Size 1,000 MW Assumed WACC 5.0%
Tax Rate 35.0%
Operational Assumptions
Setup Assumptions Wholesale Electricity Price $80.00 USD per MWh
Total Planning Cost $1,000 million Percent Uptime 90.0%
Total Construction Cost $4,000 million Fuel Costs $1.00 USD per MWh Plant
Planning Duration 3 years Ops & Maintenance $11.00 USD per MWh Decom.
Construction Duration 4 years Useful Life 60 years in year
Implied Total Overnight Cost $5,000 million Plant Decommissioning $350 million 67

Year: 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 30 40 50 60 67 70 80 90 100
Setup & Decommissioning Costs
Planning ($M) ($333) ($333) ($333) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Construction ($M) $0 $0 $0 ($1,000) ($1,000) ($1,000) ($1,000) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Decommissioning ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0 $0
Total Setup & Decom. Costs ($M) ($333) ($333) ($333) ($1,000) ($1,000) ($1,000) ($1,000) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0 $0

Operations
Million MWh Produced 0.000 0.000 0.000 0.000 0.000 0.000 0.000 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 0.000 0.000 0.000 0.000
Revenue ($M) $0 $0 $0 $0 $0 $0 $0 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $0 $0 $0 $0
Fuel Costs ($M) $0 $0 $0 $0 $0 $0 $0 ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) ($8) $0 $0 $0 $0
Ops & Maint. ($M) $0 $0 $0 $0 $0 $0 $0 ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) $0 $0 $0 $0
Depreciation ($M) $0 $0 $0 $0 $0 $0 $0 ($333) ($333) ($333) ($333) ($333) ($333) ($333) ($333) ($333) ($333) ($333) ($333) ($333) $0 $0 $0 $0 $0 $0 $0 $0 $0
Operating Income ($M) $0 $0 $0 $0 $0 $0 $0 $203 $203 $203 $203 $203 $203 $203 $203 $203 $203 $203 $203 $203 $536 $536 $536 $536 $536 $0 $0 $0 $0
Taxes ($M) $0 $0 $0 $0 $0 $0 $0 ($71) ($71) ($71) ($71) ($71) ($71) ($71) ($71) ($71) ($71) ($71) ($71) ($71) ($188) ($188) ($188) ($188) ($188) $0 $0 $0 $0
Net Income ($M) $0 $0 $0 $0 $0 $0 $0 $132 $132 $132 $132 $132 $132 $132 $132 $132 $132 $132 $132 $132 $349 $349 $349 $349 $349 $0 $0 $0 $0

Add Back Depreciation ($M) $0 $0 $0 $0 $0 $0 $0 $333 $333 $333 $333 $333 $333 $333 $333 $333 $333 $333 $333 $333 $0 $0 $0 $0 $0 $0 $0 $0 $0
Operating Cash Flows ($M) $0 $0 $0 $0 $0 $0 $0 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $349 $349 $349 $349 $349 $0 $0 $0 $0

Cash Flow from Setup & Decom ($M) ($333) ($333) ($333) ($1,000) ($1,000) ($1,000) ($1,000) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0 $0
Cash Flow from Operations ($M) $0 $0 $0 $0 $0 $0 $0 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $349 $349 $349 $349 $349 $0 $0 $0 $0
Net Cash Flow ($M) ($333) ($333) ($333) ($1,000) ($1,000) ($1,000) ($1,000) $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $465 $349 $349 $349 $349 ($1) $0 $0 $0 $0

Plant NPV Note: The depreciation period for nuclear plants is 15 years.
NPV of Setup/Decom ($M) ($3,984.2) Simplifying assumptions:
NPV of Operations ($M) $5,551.7 - Straight-line depreciation method
Total Plant NPV ($M) $1,567.5 $467.5 - Zero net working capital

WACC 5.0%
Project IRR 7.1%
 TerraPower Prototype Plant (TP1) --- Simplified Financial Model

TerraPower Prototype Plant (TP1) Macro Assumptions TerraPower Prototype Plant (TP1) Assumptions TerraPower Cost of Capital Assumption
TP1 Plant Size 500 MW TP1 Percent Uptime 90.0% TP Assumed WACC 5.0%
TP1 Design Projected Cost $1,000 million Fuel Costs $0.03 USD per MWh
TP1 Design Est. Duration 4 years Ops & Maintenance $11.00 USD per MWh
TP1 Construction Cost $3,000 million Useful Life 60 years
TP1 Construction Duration 6 years Plant Decommissioning $350 million
Assumes 35.0% Tax Rate (from above) Assumes Wholesale Electricity Price of $80.00/MWh (from above) Plant
Decom.
in year
70

Year: 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 30 40 50 60 67 70 80 90 100
TerraPower Prototype Plant Costs
TP1 Design ($M) ($250) ($250) ($250) ($250) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
TP1 Construction ($M) $0 $0 $0 $0 ($500) ($500) ($500) ($500) ($500) ($500) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
TP1 Decommissioning ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0
Total Setup & Decom. Costs ($M) ($250) ($250) ($250) ($250) ($500) ($500) ($500) ($500) ($500) ($500) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0

Tax Shield on Design Expenses $88 $88 $88 $88 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TP1 Operations
Million MWh Produced 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 3.945 0.000 0.000 0.000
Revenue ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $316 $316 $316 $316 $316 $316 $316 $316 $316 $316 $316 $316 $316 $316 $316 $316 $0 $0 $0
Fuel Costs ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) $0 $0 $0
Ops & Maint. ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) ($43) $0 $0 $0
Depreciation ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($200) ($200) ($200) ($200) ($200) ($200) ($200) ($200) ($200) ($200) $0 $0 $0 $0 $0 $0 $0 $0 $0
Operating Income ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $72 $72 $72 $72 $72 $72 $72 $72 $72 $72 $272 $272 $272 $272 $272 $272 $0 $0 $0
Taxes ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($25) ($25) ($25) ($25) ($25) ($25) ($25) ($25) ($25) ($25) ($95) ($95) ($95) ($95) ($95) ($95) $0 $0 $0
Net Income ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $47 $47 $47 $47 $47 $47 $47 $47 $47 $47 $177 $177 $177 $177 $177 $177 $0 $0 $0

Add Back Depreciation ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $0 $0 $0 $0 $0 $0 $0 $0 $0
Operating Cash Flows ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $247 $247 $247 $247 $247 $247 $247 $247 $247 $247 $177 $177 $177 $177 $177 $177 $0 $0 $0

TP1 Cash Flows

Cash Flow from Setup & Decom ($M) ($250) ($250) ($250) ($250) ($500) ($500) ($500) ($500) ($500) ($500) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0
Tax Shield on Design Expenses ($M) $88 $88 $88 $88 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cash Flow from Operations ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $247 $247 $247 $247 $247 $247 $247 $247 $247 $247 $177 $177 $177 $177 $177 $177 $0 $0 $0
Net Cash Flow from TP1 ($M) ($163) ($163) ($163) ($163) ($500) ($500) ($500) ($500) ($500) ($500) $247 $247 $247 $247 $247 $247 $247 $247 $247 $247 $177 $177 $177 $177 $177 ($173) $0 $0 $0

TP1 NPV Note: The depreciation period for nuclear plants is 15 years.
NPV of Setup/Decom ($M) ($2,986) Simplifying assumptions:
NPV of Operations ($M) $2,501 - Straight-line depreciation method
Total Plant NPV ($M) ($485) - Zero net working capital

TP1 WACC 5.0%

TP1 IRR 4.6%
 TerraPower Commercial Plant (TPC) --- Simplified Financial Model

TerraPower Commercial Plant (TPC) Macro Assumptions TerraPower Commercial Plant (TPC) Assumptions TerraPower Commercial Plant Revenue Assumptions TPC Cost of Capital Assumption
TPC Plant Size 1,000 MW TPC Percent Uptime 90.0% % Ownership of NPV of Each Commercial Plant 12.5% TPC Assumed WACC 5.0%
TPC Design Projected Cost $1,000 million Fuel Costs $0.03 USD per MWh # of New Commercial Plants Announced Each Year 5
TPC Design Est. Duration 4 years Ops & Maintenance $11.00 USD per MWh
TPC Construction Cost $3,000 million Useful Life 60 years
TPC Construction Duration 6 years Plant Decommissioning $350 million
Assumes 35.0% Tax Rate (from above) Assumes Wholesale Electricity Price of $80.00/MWh (from above) Plant
Decom.
in year
70

Year: 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 30 40 50 60 67 70 80 90 100
TP Commercial Plant Costs
Planning ($M) ($250) ($250) ($250) ($250) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Construction ($M) $0 $0 $0 $0 ($500) ($500) ($500) ($500) ($500) ($500) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Decommissioning ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0
Total Setup & Decom. Costs ($M) ($250) ($250) ($250) ($250) ($500) ($500) ($500) ($500) ($500) ($500) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0

Tax Shield on Design Expenses $88 $88 $88 $88 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TP Commercial Plant Operations

Million MWh Produced 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 7.889 0.000 0.000 0.000
Revenue ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $631 $0 $0 $0
Fuel Costs ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) ($0) $0 $0 $0
Ops & Maint. ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) ($87) $0 $0 $0
Depreciation ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($200) ($200) ($200) ($200) ($200) ($200) ($200) ($200) ($200) ($200) $0 $0 $0 $0 $0 $0 $0 $0 $0
Operating Income ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $344 $344 $344 $344 $344 $344 $344 $344 $344 $344 $544 $544 $544 $544 $544 $544 $0 $0 $0
Taxes ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($120) ($120) ($120) ($120) ($120) ($120) ($120) ($120) ($120) ($120) ($190) ($190) ($190) ($190) ($190) ($190) $0 $0 $0
Net Income ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $224 $224 $224 $224 $224 $224 $224 $224 $224 $224 $354 $354 $354 $354 $354 $354 $0 $0 $0

Add Back Depreciation ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $0 $0 $0 $0 $0 $0 $0 $0 $0
Operating Cash Flows ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $424 $424 $424 $424 $424 $424 $424 $424 $424 $424 $354 $354 $354 $354 $354 $354 $0 $0 $0

TP Commercial Plant Cash Flows

Cash Flow from Setup & Decom ($M) ($250) ($250) ($250) ($250) ($500) ($500) ($500) ($500) ($500) ($500) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($350) $0 $0 $0
Tax Shield on Design Expenses ($M) $88 $88 $88 $88 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cash Flow from Operations ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $424 $424 $424 $424 $424 $424 $424 $424 $424 $424 $354 $354 $354 $354 $354 $354 $0 $0 $0
Net Cash Flow ($M) ($163) ($163) ($163) ($163) ($500) ($500) ($500) ($500) ($500) ($500) $424 $424 $424 $424 $424 $424 $424 $424 $424 $424 $354 $354 $354 $354 $354 $4 $0 $0 $0

TP Commercial Plant NPV Note: The depreciation period for nuclear plants is 15 years.
NPV of Setup/Decom ($M) ($2,986) Simplifying assumptions:
NPV of Operations ($M) $4,557 - Straight-line depreciation method
Total Plant NPV ($M) $1,571 - Zero net working capital

TP Comm. WACC 5.0%

TP Comm. IRR 8.2%
 TerraPower Corporate Cash Flows --- Simplified Financial Model

Year: 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 30 40 50 60 67 70 80 90 100
Commercial Plants Using TP1 Design
Number of New Plants Each Year 0 0 0 0 0 0 0 0 0 0 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5
NPV of Each New TP Commercial Plant $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571 $1,571
Total NPV of New TP Plants Each Year $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853 $7,853
TerraPower Licensing Rev. (12.5% of NPV) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982 $982
Taxes ($M) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344) ($344)
Cash Flow from Commercial Plants $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638
Cash Flow from TP1 Prototype Plant (above) ($163) ($163) ($163) ($163) ($500) ($500) ($500) ($500) ($500) ($500) $247 $247 $247 $247 $247 $247 $247 $247 $247 $247 $177 $177 $177 $177 $177 ($173) $0 $0 $0
TerraPower Total Cash Flow ($500) $0 $0 $0 $0 $0 $0 $0 $0 $0 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638 $638

TerraPower NPV ($M) $12,603

TerraPower IRR 21.7%
 TerraPower Key Assumptions --- Sensitivity Tables

TP Overall IRR TerraPower's Assumed Ownership of NPV for Each Future Commercial Plant*
21.7% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 30%
1
Assu 2
med 3
Num
ber 4
of 5 --> TerraPower's % Ownership of New Plant NPV (Licensing Terms)
New
Plant 6 and number of new plants constructed each year
s 7 are major factors for TerraPower financial returns
8
Ann
ounc 9
ed 10
for
Plan 15
ning 20
*Note: TerraPower assumed to pay 100% of prototype plant development and construction costs,
but will need a financing partner to finance capital intensive buildout for each commercial reactor.

TP Overall IRR Construction Cost ($M) for TerraPower Prototype Plant (Does not include $1.0 billion for prototype plant design)
21.7% $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 $6,000
1
Dura 2
tion 3
of
Prot 4 --> Construction delays and cost overruns for the Prototype Plant
otyp 5 are also key factors for TerraPower financial returns
e
Plant 6
Cons 7
truc 8
tion
9
10
15
20

Each TPC Plant NPV ($M) Construction Cost ($M) for TerraPower Commercial Plant (Does not include $1.0 billion for prototype plant design)
157063.1% $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 $6,000
400
TPC 500
Plant 600
Prod
uctio 700
n 800 --> Given large planning & construction costs of nuclear power,
Capa 900 plants must be big enough (in terms of MW of generating capacity)
city
(MW 1000 to cover high fixed costs.
) 1100
1200
1300
1400
1500