Ladies and gentlemen, welcome to the Centrica Investor Q&A Call. I'm Sergeant, the cross-call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. You can register for questions at any time by pressing star followed by one on your telephone. If you wish to move yourself from the question queue, you may press star and two. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Chris O’Shea, Group CEO. Please go ahead.
Perfect. Thank you very much. Thanks, everyone, for joining us today. I do hope you've had a chance to watch the presentation and to go through the materials. We're going to open a Q&A session. As usual, I'm joined by our CFO, Russell O’Brien. We've also got two other colleagues with us to help answer your questions. Firstly, we've got Dr. Dave Clifford, who leads our power business. Dave represents us on the existing Nuclear Assets Board and will do the same on the Sizewell C Board. Dave spent almost his entire career building power stations around the world, including Whitegate in Ireland. He brings super valuable experience and perspective both to Centrica and Sizewell, and Dave's been running Bord Gáis for the past few years and ran British Gas before that. We've also got Dr. Raj Roy with us, our General Counsel.
Raj has been absolutely instrumental in structuring the regulatory framework and our discussions with the government, with Ofgem, with other stakeholders. With that, what we'll do is we'll open it up and we'll take your questions on this. We can pass over to operator now to hear where we'll get the first question from.
Yes, we have the first question coming from the line of Pavan Mahbubani from JP Morgan. Please go ahead.
Hi, team. Good morning, and thank you for taking my questions.
You're doing good.
I just have. Yeah, doing well, thank you. I hope you guys are well as well. Congratulations on securing this long-awaited deal. My one question is a help, please, between the bridge of the GBP 1.3 billion of equity CapEx you're going to be investing and the GBP 3 billion of RAB that you say you'll have on commissioning. Is my understanding right that the RAB growth comes from the inflation accretion, not only to the equity but to the debt? Or is there something else I'm missing? That bridge from the GBP 1.3 billion to the GBP 3 billion would be very helpful. Thank you.
Pavan, thanks very much. That sounds very much like a question for Russell. I think there is a bit of inflation in there on the equity, but there is also a return on your investment, some of which gets paid out in cash. About GBP 800 million gets paid out in cash pre-commercial operations. We will put in GBP 1.3 billion, we will get GBP 800 million out. We will have a net investment of GBP 500 million. The GBP 800 million we get out is not all of the return. There is also some return that is rolled up, which will help build the RAB. With that, Russell, you will know the exact answer to that question. If I got it wrong, do not hesitate to correct me.
No, you got it right there, Chris. So hey, Pavan. Just look at the returns we're getting. So 10.8% real through this period. If you add on inflation, around about 13%. We take 6% of that in cash every year. There is about 7% left. If you simply just compound GBP 1.3 billion by 7% over that entire period, you get to approximately GBP 3 billion worth of RAB. That is how the numbers work.
Thanks, Russell.
Okay, that's very clear. Thank you, guys.
The next question comes from the line of Harry Wyburd from BNPP Exane. Please go ahead.
Hi, morning, everyone. Thank you.
Hi, everyone.
I'll start with the apology. Hey, yeah, very good. Thanks, very good. To start with the apology, I didn't get a chance to watch the presentation or listen to the presentation this morning, but I have read the slides. I'm sorry if these are stupid questions as a preamble. Hopefully, they're not. The first one is I just wanted to hone in on the worst possible case. If we assumed—this is obviously very glass-half empty—if we assumed there was going to be a very big cost overrun and a very big delay, what is your high-level view of what ROE you would end up earning here in regulatory terms? I believe you get up to 100 basis points IWAC reduction if the project's more than four years late. As I understand it, you would only recognize half of any excess investment over the LRT in the RAB.
My rough math, which I'm sure aren't perfectly correct to 10 decimal places, was that you'd be looking at an ROE, a real ROE, in the region of around 7-7.5% in the scenario where you were more than four years late and you were way over budget, so above the HRT, where obviously you're sort of capped off. The first question is, could you confirm that my maths are roughly right there or correct me? The second one is on the interaction with your cash. Noted that you're going to recognize the income on the shareholder loan you provide to the project within EBITDA. That's understood. It's GBP 50 million all in by 2028. I just wanted to understand, as you sort of free up cash to invest and put into that shareholder loan, how is this going to work with your interest costs?
At the moment, you're not earning any net interest income or not earning any material net interest income on your net cash balance. You're going to have to basically sort of break some swaps on your net debt position to free up money to invest here. Basically, what I'm getting at is, is the GBP 50 million you put in EBITDA going to be outweighed by additional interest costs on your finance expenses line? I hope I've made that as clear as I can. Thank you.
I'll have a go at the high level, and Russell will give you the detail. When we talk about the shareholder loan, our investment is capped at GBP 1.3 billion in equity. Now, some of that, the way it's structured, goes in as a loan. We're not putting in GBP 1.3 billion of equity and contributing to the project financing. That's all part of the GBP 1.3 billion. It's just some of that is structured as a loan. I don't think we're going to have to break any swaps. We've got plenty of money sitting there, but Russell can confirm that. The worst case, as you know, there's a lower—so the estimate from Sizewell C is GBP 38 billion of construction cost. The lower regulatory threshold is GBP 40 billion, and the higher regulatory threshold is GBP 47 billion.
If we construct it for less than GBP 40 billion, half of the saving between the cost and the GBP 40 billion is added to the RAB, the regulated asset base. If we're between GBP 40 billion and GBP 47 billion, only half of what we spend is added to the RAB. For every pound we spend, we get 50 pence added. There's an incentive to outperform and there's a disincentive to underperform. Beyond GBP 47 billion, that's all for the government. We have the option to invest, but we don't have the obligation to invest. In terms of what our return would be at that HRT, Russell, thank you for that. I think you're a bit on the light side, but Russell will be able to confirm what that is. Sorry, roughly what that is, rather, would be the exact number.
Yeah, no, happy to do so. So what we've explained today is that the IRR for investment at the LRT schedule, and that's the GBP 40.5 billion that Chris just outlined, is about 12%. And then the HRT, which is a very unlikely scenario and a GBP 47.7 billion spend, that drops to about 10%. Most of the reduction in the IRR is because only 50% of the CapEx is getting added to the RAB. There is an additional penalty, as you highlighted, which is the reduction in the IWACC during some of the prolonged periods. So a 50 basis point reduction from January 2042 to 2043, so the first two years, and it's 100 basis points thereafter. If you take that 100 basis points reduction and turn that from a WACC into a cost of equity, that would reduce to 10.8% to 7.9%.
But if you just stand back from it, the reason that the return impact for a delay or cost overrun is more limited than you might expect is that the RAB that you've built up to that point is held firm. The reduction in the WACC only impacts returns on investment thereafter.
Okay, that's important, right? The IWACC reduction's only on the excess. The maths that I did, I was applying it to the entire RAB. It's going to, okay, fine, it'd be higher than 7. All right, if you take the detailed maths offline. All right, thank you. Sorry, to modify—
On the cash side of things, of course, the group is in a very liquid position and expects to have a strong balance sheet right through this investment period. No, we just will be using normal treasury funds to get that. Of course, you'll lose interest on deposit returns, and you'll replace that both with the cash yield for the investment. You're also behind the scenes getting a 10.8% on your money as you go through it.
Yeah, okay. Probably a simpler way to ask the question is, if you think of GBP 50 million of EBITDA that you've got it by 2028, we should assume some payback of that would be a slightly higher interest cost. The accretion to pre-tax profit would be slightly lower than 50. Obviously, as you point out, that's not the whole return because you're also rolling up into the RAB, which gets you to your GBP 3 billion, right?
That's correct. The other delta to your maths is the fact that the return that we're getting from Sizewell C right through this whole period is treated as equity. It will not be taxed on receipt from Centrica, whereas, of course, interest would be taxed. That's another benefit.
Okay, excellent. Thank you very much.
Thanks, Russell. Thanks, Harry.
The next question comes from the line of Dominic Nash from Barclays. Please go ahead.
Good morning, everyone.
Good morning.
Over the line. I'm doing well, thank you. Busy times. A couple of questions for me. One on what's the implied PPA price for electricity at, say, the GBP 38 billion cost? I can't see that anywhere. I'm intrigued to see what we're sort of coming in at. Secondly, can I just go back to the unlikely glass-half empty case of a cost overrun? If you did hit the higher level with the GBP 7 billion overrun, can I just confirm that the maths came—I get quite a higher number than that, which is if you're GBP 7 billion overrun, that's GBP 3.5 billion that the shareholders have to bear. If you divide that by the construction time, you're around about GBP 300 million a year of cost.
If you look at your average equity through the build at that sort of 35% level, you're probably at about GBP 7 billion of equity building up to sort of the end of 2013. I'm getting more sort of 400 - 500 basis points of RORI downside case in the unlikely glass-half empty scenario. I just wanted to confirm whether that's kind of the downside case sort of capped, if you know what I mean. Thank you.
I think the second question is definitely one for Russell, but I think obviously in the excess, you'd expect to fund that not just with equity. That would be equity and debt that would go into the excess case. On the PPA price, I suppose there's no implied PPA price, really, because the way this is going to be funded is going to be a levy on consumer bills. To the extent we've got the right to lift their 15% of electrons, and we've got an agreement in principle to lift more than that. It is in everyone's interest to get the best possible power price because whatever price, if we get a price that gives a profit which is higher than the RAB return to investors, then that will come off consumer bills. It is not that there's an implied price in there.
I think the idea is that the market price is as far as I know. Just ask Russell and Raj maybe to confirm that, and then Russell to tell you why the 500 basis points reduction is definitely not the right number because we've certainly got double-digit return even at the HRT case.
Yeah, I think you're right on the offtake. And just to reconfirm, there's two parts of that for Centrica. One, we will take about four terawatt hours a year of our own electrons from the plant under a purchase agreement, and that will be effectively linked to the market price, which will be linked itself into the Ofgem regulatory framework where we're incentivized to try and make that price. And then we'll also be helping Sizewell C generally from a route-to-market perspective by helping additional electrons to get to market. So that's the structure of the offtake. And of course, no pricing for that. That will depend on the market price when we get there.
Dominic, on the reductions, I think it's effectively the same point I was making before that the returns accrue right through the period at that 10.8% until you get two years after the LRT timetable, where there's a 50% reduction and then 100 basis points thereafter. But that's only applied to the returns in that period thereafter. It doesn't go back into the existing RAB that you've got or the returns. And so that's why if you take the, let's say, the 100 basis points reduction after year two, which reduces the overall WACC from 6.7% to 5.7%, if you back-calculate it, that's a 285 basis point reduction in the equity return in that period. But again, if you then compound that and discount that back, that doesn't actually impact the overall returns, which we're at that point.
Sorry, I'm enabling the point here. The 100 basis point reduction is just for timing delay, not cost overrun delay. Is that correct?
That's correct. It's two separate things. There's a timing part of the regulatory framework, and there's a cost part of the regulatory framework. The timing part is based on the commercial operations date of January 2040, and then it's two years after that as a grace period. After that, the reductions kick in. That's quite separate from the cost part of it, which is the LRT costs of GBP 40.5 billion and HRT of GBP 47.7 billion. There are separate mechanisms there. Just to remind you that the penalty mechanism between LRT and HRT is only 50% of the CapEx you put in is added to RAB. That's the most material part of the IRR reduction between that period. It's the RAB not getting the full CapEx on it.
Yeah, okay. So the maximum exposure is GBP 3.5 billion of RAB. So it's about, what, 8% of RAB or so? Thank you.
Thanks.
Okay. Thanks, Russell. That's fine.
As a reminder, if you wish to register for a question, please press star followed by one on your telephone. We have the next question coming from the line of Jenny Ping from Citi. Please go ahead.
Hi, thanks very much.
Hey, Amy?
For the presentation. Oh, hi, can you hear me?
Yeah, yeah. Can you hear me?
Hi, sorry. Hi, yeah. Right, so two questions, please. Firstly, just sort of absorbing all of this and thinking slightly beyond the nuclear transactions as we stand today, what sort of conversations have you had with your rating agencies on the fact that you've now got a real. Another. Regulated investment under your belt? What's been discussed in terms of the FFO debt threshold. And the credit rating as we go forward? That's question number one. Secondly, if I look at your investment in terms of the GBP 1.3 billion, but netting off the cash yield that you'll be getting, which on the back of all of that is only GBP 500 million. Obviously, Centrica in itself is flowing out cash in the interim.
Can you just update us on what your latest thinking is, again, slightly beyond the nuclear transaction announced today as to how we should be thinking about additional use of cash that's churning off the business? Thank you.
Yeah, thanks. I mean, the first question is going to leave to Russell. I mean, the second one, obviously, we've got our results in two days, so we probably do not want to go beyond talking about Sizewell today. What I would say is it's a great problem to have, a question of what we're going to do with the cash. I mean, we are committed to completing our GBP 2 billion share buyback program, which we expect to do around the end of the year. We've got a very healthy investment pipeline. As you can see from today, I mean, we've been working on this for years. Raj and Dave and Russell and others have really helped to shape this and turn it into an investable proposition. We are patient, but we are determined. We've got lots of good investment opportunities.
I do not worry about what we would do with extra cash because we've got so many wonderful ideas. As you can see today, what we want to do is to invest in something not because we think it's ideologically the right thing or because we've made some previous commitment. We're laser-focused on value, but I'm confident we've got enough things in the hopper that we can use cash to invest and to grow the business and to grow value for shareholders. It's a great question. I keep asking this to Russell, which is when are we going to have a change in our rating metrics? Russell, I did not pay Jenny to ask this question, but over to you.
Yes, it's a bit of déjà vu, Chris. You ask me all the time. Jenny, thanks for the question. Of course, you should take comfort in the fact that we have good relationships with the rating agencies. We engage with them regularly, and we keep them up to date with the various things that we're working on in the portfolio. They will see this investment favorably as bringing ratable cash flows into the portfolio for a very long period of time. If you look back at the last rating reports from both S&P and Moody's, actually, you can see that they are pointing to when we get more material regulated cash flows or contracted cash flows into the portfolio, that will be seen positively. As we sit today, of course, we're building up the map cash flows.
We're bringing the Pickers in Ireland on the end of the year, and we'll be bringing income from Sizewell from next year. It'll take probably a bit of time for them to get to be more material to make a fundamental change to the rating, but we're definitely going in the right direction.
Okay, super helpful. Thank you.
Thanks, Jenny. Thanks, Russell.
The next question comes from the line of Bartłomiej Kubicki from Bernstein. Please go ahead.
Hi, Bartłomiej. How are you?
Hello, and good morning. I am doing very fine and very busy, as you can imagine. Three questions related just to the project. First of all, regarding the funding of the debt portion of the RAB, there is the allowed cost of debt, which is 4. I think 5% or 4.2%. How sure you are that this will be aligned with the actual cost of debt? Meaning, what if the actual cost of debt is higher than the allowed? Who will actually pay for the difference between that? That's the first one. Second of all, your GBP 1.3 billion investment is equity investment is up to the HRT level. But what will be your equity investment if you hit the LRT level? GBP 1.3 billion as well? And if this is the case, then consequently, the difference between the low and the high. Who will pay for this?
I mean, who will carry the funding part of that? The third point is just to reconcile on the shareholder loan. So you will be getting 6% cash return from the investment, while the loan pays 9% coupons. Consequently, there will be a difference. This difference will accrue to the shareholder loan, right? This is the correct way of thinking about this. Thank you.
Okay. T hank you very much for that. On the debt portion, we were at an event this morning with the Chancellor and the Secretary of State, and also the Chief Executive of the National Wealth Fund, which is John Flint. They are the debt provider to this. So John Flint has his biggest single debt provision he is doing. The government are intended to provide almost all of the debt into that. I think we have got a little bit more certainty on the cost. With that, I think the other two questions are clearly for Russell. The GBP 1.3 billion, what would it be at the LRT rather than the HRT? The next question, the debt cost and debt.
Yeah, so great questions. Just to finalize on the debt funding. If the interest rates change during that period, the allowed revenue will change. It is a pass-through of interest costs. We will not be exposed in our return to whatever the interest rate costs are in that period. Your second question was on the GBP 1.3 billion investment and whether that would change between LRT and HRT. The reality is we will be spending GBP 1.3 billion in either case. The reason for that is that a lot of the investment is front-end loaded. We will be investing about GBP 500 million to 2028. It will ramp up into the early 2030s. At that point in time, of course, the RAB is a lot bigger, and the allowed revenue retained in the business is greater. That is helping to fund the project itself.
Of course, the project can regear through time up to 65% to get additional funds available. That means that in either of those scenarios, our amount of investment would be GBP 1.3 billion. Then on your final question about the accounting, just to recap for everybody, there is a shareholder loan structure that has been put in place. It has a 9% headline rate. That will be the rate that will be booked into our accounts, 6% paid in cash. The difference, the 3%, is retained alongside all of the rest of the additional revenue that we get as part of allowed return, and that will be reinvested in the asset and therefore growing the RAB. That is the dynamic of how that works. The repayment of the loans, there is a 6% cash yield cap right up to the Commercial Operations Date.
That cap is removed at that point in time, and that will allow the payment in kind interest cash flows to come back to us in an accelerated fashion at that point in time.
Okay. Russell, thank you very much.
May I just add something to this one? If CapEx is above LRT, who will fund the difference if you are going to put GBP 1.3 billion in either case?
Yeah, that will be funded by.
Who is committed to put the equity?
Yep. Very simply, all the way to HRT, the project will either be funded by the equity participants or debt or the additional allowed revenue that's kept in the venture through that period. We will not be having to put in our estimates any more capital in above the GBP 1.3 billion in that period. Above HRT, then that's separate, as Chris has just outlined, where either the equity participants decide to invest more or the government steps in. That's how the dynamic works.
Okay, thank you.
Okay. Perfect. Thank you. Thank you, Russell. Thank you, Bartłomiej.
Once again, to ask a question, please press star followed by one on your telephone. We have webcast submitted questions. Fraser, could you please sweep them out?
Yeah, thank you. We have one question from Mark Freshney at UBS on the webcast. Are you able to talk about upfront cash that you will be required to put into the project in the current year? Presumably, it'll be higher than the annual payments through to the mid to late 2030s to pay the government back for costs to date.
Russell, I think that's definitely one for you. Thanks for the question, Mark. I think that's for you, Russell.
Yeah, got that one. So indeed, of course, there's been investment already in Sizewell. When we get to revenue commencement, which will be at the end of this year, we'll reset the capital base. New equity will go in. It'll be refinanced. We expect approximately, Mark, between GBP 200 million-GBP 250 million of CapEx at that point in time. The timing of revenue commencement is to be determined by the government, but we do expect that later this year. That CapEx number might change. It might need to be rephased, but that's what we expect. That means that we do have a larger initial investment, and then it'll be more phased as you go through the years thereafter.
Thanks, Russell. We have one last question from the webcast from Phil of Morningstar. You said that you will help to bring electrons to the market on top of the four terawatt hours of your share. Will this boost the earnings of Centrica Energy?
We would expect Centrica Energy to be able to deliver a better price for the electrons for Sizewell. First and foremost, to save money for U.K. energy consumers. We would also expect Centrica Energy to make a return on those sales as well. Whether you see a boost, I would say we would expect it to be profitable activity for Centrica Energy, yes.
Thanks, Chris. That is all the webcast questions we have. Sergeant, can I pass back to you, please?
Yes, of course. We have the next question from the line of Harrison Williams from Morgan Stanley. Please go ahead.
Hi, there. Morning. Thanks for taking my questions. Two from me. Firstly, can you—I mean, the return you've got is obviously pretty attractive at the headline rate. Can you talk about how you settled on a 15% stake, and why you did not look to go beyond this, given with the cash yield you're getting, the overall cash commitment is not excessively large? In relation to that, you've mentioned you've got first right of refusal on a pro-rata basis if the government starts to sell down. Have there been any discussions on when that could start to be considered? That's the first question. The second, hopefully, a slightly broader question to your nuclear assets. What are the latest thinking around potential further lifetime extensions for some of the assets that are due to be retired by the end of this decade?
I know you've already completed a few in the last two years, but wondering on the further scope there. Thank you.
Yeah. To be clear, it's always nice when you make an investment and somebody says, "Why did you not invest more?" That shows the underlying quality of the investment. It's always a balance. It's a judgment call. Could we have gotten higher? We absolutely could have. We have lots of other ideas as well. We felt for now that 15% was the right stake. We do have a right of first offer along with the other existing shareholders should the government decide to sell down its stake. We could increase the stake in the future. It really does depend on what the returns would be like then and what other things we would have in our portfolio. What we want to make sure is that we balance risk. For us, this is a very good regulated asset return model.
We do not want to have too much in a single asset risk. The 15%, I suppose, is as good as any other number. We felt comfortable putting that investment in, and we felt that it gives a sizable stake. It gives us a seat on the board. It gives us blocking rights on key strategic decisions. We felt the governance, the financial investment, and the risk give a good situation. With the extension of the other, the existing nuclear bursts, there is not much more for us to say on that other than we have been quite clear that we will run these things as well as we can with a partner EDF and to the extent it is possible to do so safely and economically, we will continue to extend the line. We have a good track record on that.
Hopefully, we will have more to say going forward. We do not really have anything that we can add at the moment.
That's clear. Thanks.
No problem. Thank you.
We have a follow-up question coming from the line of Harry Wyburd from BNPP Exane. Please go ahead.
Hi. Thanks for taking the follow-up. I'm glad to hear it's a bit more simple than my earlier ones. Just very high level, you're guiding to at least a 10% IRR in the HRT scenario. Does that also assume a late commissioning? If not, and it was commissioned more than four years late, what would—and you've got the lower IWACC and the ROE dilution—what would the cash IRR reduce to in that scenario?
Take that from Russell. I mean, I think obviously, if you go beyond the HRT case, we'd be assuming that not only would we have overspent, we would also have slipped the schedule as well. I think that number that Russell spoke about earlier encompasses both the delay and the cost. Russell, can you confirm that?
Yeah. For modeling purposes, what we've assumed in the HRT case is that a commercial operations date of the end of 2043. So that's approximately four years after the LRT case. We're phasing both the CapEx and the schedule. I would say that due to the dynamics I explained to you earlier, even if you go beyond the HRT case costs and schedule, the impact on the overall IRR is relatively limited as you go forward. It's mainly the reduction in the capital contribution to the RAB. It's a fairly modest impact. It would take a very large CapEx increase or a very prolonged delay to move it materially lower than the number I've given you today.
Yeah. Yeah. Okay. That's very clear. Basically, the bottom line really is that you're going to earn a 10% cash IRR even in a really worst-case scenario, which I think is a pretty important take. Thank you very much for answering all the questions on that.
Thank you. Thanks .
We have a follow-up question coming from the line of Dominic Nash from Barclays. Please go ahead.
Hi there. Yeah, apologies for this one. Can I just confirm that your regulatory setup at the moment is just for construction and commissioning? When you come up with your IRR calculations, is that to the point of commissioning? Is that for the potential life of the asset? What happens, or when will we start to understand the returns that you'll get upon sort of full commissioning of the plant? Thank you.
This is one I'll ask Raj to touch on. Essentially, the returns that we've got cover the construction, the commissioning, and a bit after the commissioning. I think the first three years of the production. I think Raj will confirm, and we therefore do not know what the return will be thereafter. However, there are two things to know. One is we have a well-established regulatory framework. We have been quite critical of Austria in the past on certain things, but they actually do quite a good job on the regulation of the infrastructure. Specifically, there is recognition in the agreement that a single planned nuclear power station carries more risk than a dispersed network, and therefore, the expectation is you should carry a higher return. Raj, could you—you spent a lot of time, and there is a lot of your background in this area.
You spent a lot of time on this. Could you just confirm what the position is, please?
Yeah. Thank you, Chris. No, that's right fundamentally. So we've got clarity during the construction phase. In the operations phase, we've actually got the benefit of Austria's guidance. That is quite an unusual step in that we are looking at an asset that's being regulated for 50-plus years. They're not usually in the habit of publishing guidance like that. They have done in that document. They clearly recognize that a nuclear asset does have unique characteristics that will need to be reflected in the returns. They will start with XANT regulation of networks as their baseline, but they will then adjust for the unique characteristics of a nuclear asset. They also, in their guidance, provide clear examples of where they provide for uplifts for specific adjustments that are needed for certain assets. So they talk about interconnectors and hydrotransmission.
And from that, we derive a degree of comfort and place weight on the fact that we see returns that will reflect the higher risk and the unique characteristics of a nuclear asset over the lifetime.
Thank you.
Thanks, Raj.
We have a final question coming from the line of Ahmed Farman from Jefferies. Please go ahead.
Yes. Hi. I have two clarification questions as I try to sort of understand this a little bit better. Can I just ask on the LRT? In the LRT scenario, as I understand it, you're guiding to at least 12% project IRR, but it already assumes a 2039 commissioning versus sort of the mid-2030s, which is sort of shown as the Sizewell C management estimate. What's the impact of that sort of assumption? Is the IRR sensitive to that or not at all? Also, just my second question, just in terms of thinking about the near-term earnings and cash that comes through to Centrica.
Is there an—I mean, assuming there is already an existing sort of asset and investment that already sits within Sizewell C, do we need to take that into account, or should we just sort of simply think about as you spend CapEx, that's going to drive the cash and the earnings accretion for Centrica? Thank you.
Thank you very much, Kevin. Russell, I think those are probably both questions for you.
Yeah.
Got them. Thank you. To keep things simple today, in terms of the IRRs that we've produced, I've just shown you the numbers of the LRT schedule and the HRT schedule. In terms of dates for both, we're assuming for LRT the beginning of 2040 or the end of 2039 in the LRT case. You're right that the Sizewell C Company is aiming for an outcome which is faster than that and at a lower cost. Of course, mathematically, that would improve our returns because you are incentivized: 50% of the CapEx savings below LRT are added to the RAB. That would boost our returns. We're not giving guidance today on that specific number. In terms of accounting, though, you wouldn't, because we don't yet have RAB accounting, this will be an equity-accounted associate.
What you'll be seeing on the balance sheet will be the injections that we put into Sizewell C through either the loan or the CapEx in each year, and the return will be coming back on the loan, as just described. You will not be seeing on Centrica's accounts, for example, the RAB or any of the other amounts. As explained earlier, on day one, we will step into the existing capital structure, and that'll probably be around GBP 200 million-GBP 250 million Centrica share to get that going.
Thank you. Very clear.
Thanks. Thank you very much. I think is that all of our questions done? Just to say thank you very much, everyone, for joining us at such short notice. Just to recap, this is, I think, a super investment. I think it's good for the country. I think it's good for the company. It's good for all stakeholders. It's in alignment with our strategy of increasing our exposure to regulated and contracted cash flows, with what I'm sure you'll agree is a very, very healthy return. There's a lot to like about that. Now, what we do is we turn our mind to delivering this well ahead of schedule and well under budget, and look to give our customers the green electrons that they're looking for. There's a lot to like about this project.
Look forward to talking to you all in two days when we give you our first half results. Thanks very much, everyone.