Teollisuuden Voima Oyj's Report of the Board of Directors and Financial Statements 2014
Stock Exchange Release February 25, 2015
Report of the Board of Directors and Financial Statements 2014 (pdf)
Corporate Governance Statement 2014 (pdf)
General
In 2014 TVO's nuclear power plant in Olkiluoto achieved the best ever production volume in its history for the second year in a row. The power plant is in excellent production and technical condition thanks to the plant modifications and modernization made according to the principle of continuous improvement. The electricity production of 14.76 TWh (billion kilowatt-hours), accounted for 23 percent of all electricity generated in Finland and 18 percent of all electricity consumed in Finland.
TVO's consolidated turnover in 2014 was EUR 327.2 (365.9) million. The decrease in turnover was due to lower production of the Meri-Pori coal-fired power plant and lower costs of the Olkiluoto power plant compared to the previous year. The amount of electricity delivered to the shareholders was 15,140 (15,331) GWh. TVO operates on a cost-price principle (Mankala principle). TVO's goal is not to make profit or pay dividends. The shareholders are charged incurred costs in the price of electricity and thus in principle the profit/loss for the financial year is zero. Due to the Company's operating principle, key indicators based on financial performance will not be presented.
Modifications are being planned and implemented at the Olkiluoto 1 and Olkiluoto 2 plant units to prepare the units for the renewal of the operating license in 2018. The ongoing modifications will further improve the plant's ability to survive events caused by exceptional natural phenomena possibly involving simultaneous loss of several safety systems. There is also an ongoing project aiming to develop the Company's safety culture and related practises.
In the Olkiluoto 3 project the containment pressure and leak-tightness test was carried out successfully in the spring. The I&C systems proceeded, and tests were carried out.
The energy sector is in the midst of a major, rapid change which may last for years. The economic stagnation has led to a decline in demand while the electricity supply has increased as renewable energy is invested in by means of subsidies. At the same time the costs directed to nuclear power have risen. This development has led to a deterioration of the profitability of nuclear power generation.
Operating Environment
The Finnish Parliamentary Committee on Energy and Climate Issues published in October an energy and climate roadmap up to 2050 aiming toward a carbon-neutral future. According to the roadmap, Finland's energy self-sufficiency can be increased to 80 percent when the nuclear power generated in Finland is included in the self-sufficiency.
The total consumption of electricity in Finland in 2014 was 83.3 terawatt hours (TWh). The consumption decreased by 0.8 percent compared to the previous year. The share of net electricity imports was high as in the previous year, well over one-fifth of the total consumption. The amount of nuclear power generated in 2014 was 22.7 TWh, which accounted for 27.2 percent of the electricity procured.
The Finnish Government withdrew introduction of the new power plant tax ("windfall profit tax") in June. The final decision on repealing the tax was made in Parliament in October 2014.
In December the Finnish Government submitted to Parliament a bill to amend the Nuclear Energy Act and Radiation Act. The bill proposes to extend the mandate of the Radiation and Nuclear Safety Authority, Finland (STUK) and authorize STUK to give binding regulations regarding safety related to the use of radiation.
The bill also suggests that the nuclear safety research fee collected from the operators of nuclear facilities and waste management fee collected from those liable for waste management should be increased for a fixed period. For TVO this could mean an increase in fees by an additional EUR 4 million per year, during 2016–2020.
The amended EU nuclear safety directive came into force in August. The directive has to be transposed to the national legislation within three years. The directive aims at strengthening the powers and independence of national safety authorities and introduces EU-wide safety objectives. It also sets up a European system of regular peer reviews. The directive is not expected to cause TVO any significant needs for changes or investments.
Main Events
In 2014 TVO's nuclear power plant (NPP) in Olkiluoto achieved the best ever production volume in its history for the second year in a row. At 14.76 TWh (billion kilowatt-hours), the total production of the NPP units tops the previous all time high of 14.63 TWh from the year 2013 by almost 130,000 MWh. The combined load factor of the units was 96.0 percent. The excellent production figures in 2014 were based on an exceptionally small number of production disruptions. Together with the share of the Meri-Pori coal-fired power plant TVO's production was 15.15 TWh. The electricity produced in Olkiluoto accounted for about 18 percent of all electricity consumed in Finland.
The annual outages of the plant units were carried out as planned between May 11 and June 9, 2014.
Modernization of the existing NPP units continued. In July TVO made a contract with Westinghouse Electric Sweden (WSE) for the replacement of the main circulation pumps in Olkiluoto 1 (OL1) and Olkiluoto 2 (OL2). The contract covers 12 main circulation pumps. The pumps will be replaced during the annual outages in 2016–2018.
Fuel contracts with AREVA and Westinghouse Electric Sweden (WSE) were renewed in November. The contracts cover fuel deliveries for the years 2016–2018.
At the Olkiluoto 3 (OL3) NPP unit under construction, the containment pressure and leak-tightness tests were carried out successfully in February. Testing of the instrumentation and control (I&C) systems started in April in the test bay of Areva-Siemens in Germany. The purpose of the tests is to verify the operation of the I&C systems prior to their delivery to Olkiluoto.
In September TVO received additional data about the schedule for the OL3 project from the Supplier, AREVA-Siemens Consortium. According to the Supplier, the start of regular electricity production of the OL3 NPP unit would take place in late 2018.
In October TVO updated its estimate regarding the ICC arbitration proceedings concerning the delay of the OL3 project. The updated quantification estimate of TVO's costs and losses is approximately EUR 2.3 billion until the end of 2018. The updated quantification which the Supplier submitted in October and corrected in November brings the total amount claimed by the Supplier for events occurring during the construction period ending June 2011 to approximately EUR 3.4 billion. TVO has considered the Supplier's previously submitted claims being without merit.
On September 25, 2014 the Finnish Government issued a negative decision-in-principle regarding TVO's application to extend the expiration deadline of the decision-in-principle on the Olkiluoto 4 (OL4) NPP unit. The decision-in-principle is still in force, and the deadline for submitting the construction license application is June 30, 2015.
The Board of Directors of TVO appointed Marjo Mustonen as Senior Vice President, Nuclear Safety and Member of the Management Group of TVO as of January 1, 2014. Marjo Mustonen also chairs the Safety Committee of the Company and continues as the responsible director for the construction of OL3.
Standard and Poor's Rating Services affirmed in May its BBB long-term and A-2 short-term corporate credit ratings to TVO but revised its outlook from stable to negative. At the same time Fitch Ratings affirmed its long-term issuer default rating (IDR) and senior unsecured rating of BBB and a short-term rating of F3 with a stable outlook.
A 500 million-euro 7-year bond launched by TVO in March was clearly oversubscribed. More than 300 investors from all over Europe participated in the issue. This was TVO’s third public Euro bond. The total value of bonds issued under the Euro Medium Term Note (EMTN) program of the Company is approximately EUR 2.3 billion.
Financial Performance
TVO operates on a cost-price principle (Mankala principle). TVO's goal is not to make profit or pay dividends. The shareholders are charged incurred costs in the price of electricity and thus in principle the profit/loss for the financial year is zero. The shareholders pay variable costs based on the volumes of energy supplied and fixed costs in proportion to their ownership regardless of whether they have made any use of their share of the output or not. Due to the Company's operating principle, key indicators based on financial performance will not be presented.
The consolidated turnover for 2014 was EUR 327.2 (365.9) million. The decrease in turnover was due to lower production of the Meri-Pori coal-fired power plant and lower costs of the Olkiluoto power plant compared to the previous year. The amount of electricity delivered to the shareholders was 15,140 (15,331) GWh.
The consolidated profit/loss was EUR -0.7 (30.5) million. An updated cost estimate based on a new nuclear waste management technical plan and schedule and the changes of the provision regarding nuclear waste management obligation had an effect on the profit/loss for the previous reporting period. The positive profit impact of the updates and changes was mainly non-recurring.
Financing and Liquidity
TVO's financial situation has developed as planned.
TVO's liabilities (non-current and current) at the end of the year, excluding the loan from the Finnish State Nuclear Waste Management Fund relent to shareholders, totaled EUR 3,727.3 (December 31, 2013: 3,426.6) million, of which EUR 439.3 (339.3) million were subordinated shareholder loans. During 2014, TVO raised a total of EUR 801.8 (361.5) million in non-current liabilities, of which EUR 100.0 (110.0) million were subordinated shareholder loans. Repayments during the year amounted to EUR 580.0 (175.8) million.
In March 2014 Japan Credit Rating Agency (JCR) kept its AA rating for TVO but changed its outlook to negative. In May Fitch Ratings held TVO's long-term issuer default rating (IDR) and senior unsecured rating of BBB and a short-term rating of F3 with a stable outlook, while Standard & Poor's Rating Services held its long-term BBB and a short-term A-2 corporate credit ratings for TVO but revised its outlook from stable to negative.
TVO updated the Euro Medium Term Note Program (EMTN) in June. During the first half of the year, TVO has issued under its EMTN Program a EUR 500 million 7-year bond with an annual coupon of 2.5 percent. The proceeds were used to buy back a bond maturing in June 2016. Furthermore, the Company issued an 18-year EUR 45 million and a 10-year EUR 20 million private placement. Additionally a 6-year SEK 550 million private placement was issued in the Swedish market and the proceeds were used to buy back maturing SEK denominated bonds. During the third quarter of the year, the Company issued a 5.5-year SEK 650 million private placement.
In October TVO raised a EUR 100 million shareholder loan for the OL3 project. At the year end, the Company had undrawn credit facilities and cash and cash equivalents amounting to EUR 2,232 (2,362) million. From that amount EUR 620 million were subordinated shareholder loan commitments of which EUR 400 million is allocated to the financing needs of the OL3 project.
The OL3 project's share of financing costs has been capitalized in the balance sheet.
TVO uses its right to borrow funds back from the Finnish State Nuclear Waste Management Fund within the framework of legal regulations. On December 31, 2014 the amount of the loan was EUR 982.8 (December 31, 2013: 931.7) million and it has been relent to the Company's A-series shareholders. On March 31, 2014 loan from the Finnish State Nuclear Waste Management Fund was increased by EUR 51.1 million (April 2, 2013: EUR 50.0 million).
Share Capital
TVO's share capital on December 31, 2014 was EUR 606.2 (606.2) million.
The Company has 1,394,283,730 (1,394,283,730) shares, of which 680,000,000 belong to the A series, 680,000,000 to the B series and 34,283,730 to the C series. The A series shares entitle to electricity generated at the OL1 and OL2 units and the B series shares to the electricity generated at the OL3 unit. The C series owners have right to acquire electricity generated by TVO's share of the Meri-Pori coal-fired power plant.
Administrative Principles
Because TVO is a non-listed public company applying the cost-price principle, it observes the Corporate Governance Code for listed companies where applicable. TVO is not obligated to observe the Corporate Governance Code nor therefore its Comply or Explain principle. According to the Securities Market Act (14.12.2012/746), the issuer of a security subject to public trading must provide a Corporate Governance Statement in its Annual Report or separately. TVO has given a separate Corporate Governance Statement which is published on its website, www.tvo.fi at the same time with this Report of the Board of Directors.
Administrative Bodies
TVO's administrative bodies and their operations in 2014 have been described in a separate Corporate Governance Statement to be found on the Company's website.
Regulatory Environment
The purpose of the nuclear energy legislation is to ensure that the use of nuclear energy is conducted in a manner that benefits the overall good of society. The main rules of the use of nuclear energy, monitoring the use, and nuclear safety, are included in the Finnish Nuclear Energy Act and Nuclear Energy Decree as well as lower level statutes issued pursuant to them, such as the Radiation and Nuclear Safety Authority's YVL (NPP) guidelines. Other regulations pertaining to the exploitation of nuclear energy will be found in the Radiation Act.
New regulatory guides on nuclear safety (YVL Guides) came into effect in December 2013. The requirements of the guides are stricter than the previous ones and they are meant to improve the safety of nuclear facilities in Finland. The guides will be applied as they stand to all new nuclear power plant units. Later it will be decided how the new requirements will be applied to existing nuclear power plant units and those now under construction, such as OL3. Along with new YVL Guides, also the Nuclear Energy Degree and government decrees were revised and renewed. The changes to the Nuclear Energy Decree and government decrees came also into effect at the end of 2013.
In addition, the Nuclear Liability Act concerns the liability the operator of a nuclear plant has in the event of a nuclear accident. A temporary amendment to the Nuclear Liability Act came into force as of the beginning of 2012. According to the temporary amendment, the plant operator's liability for a nuclear incident in Finland is unlimited but limited to a maximum amount of 600 million Special Drawing Rights (SDR), corresponding to EUR 700 million, for nuclear damage outside of Finland. The operator has to have insurance up to a minimum of 600 million SDR.
The use of nuclear energy is subject to license. Applications are made to the Government for a decision-in-principle, construction license and operating license. The Radiation and Nuclear Safety Authority Finland (STUK) is responsible for monitoring the safety of nuclear energy use. STUK is also responsible for monitoring safety and emergency arrangements and nuclear material.
Risk Management, Major Risks and Uncertainties
Risk Management
Risk management is a systematic approach which aims to support the fulfillment of TVO's strategy and business objectives as well as to ensure the existence of TVO's operational preconditions. Risk management is executed based on the company's policies and corporate governance.
Risk management is supervised by the Board of Directors of the Company, which endorses the principles on which it is based. The CEO, with the help of the Company's Management Board, is in charge of the risk management according to TVO's objectives and strategy. Under the Management Group there is a risk management group that is in charge of ensuring adequate risk treatment in the company.
The organization units are responsible for risk identification, analyzing and risk treatment. Risk identification is carried out as part of TVO´s strategic and operational planning and follow-up as well as part of project management.
TVO has launched a company-wide risk management process which the Company's organization units comply with. By operating in accordance with the risk management process TVO ensures that risks facing the Company are systematically identified and each risk is treated according to its significance. The objective of the risk treatment process is either to prevent the risk from materializing or to reduce its likelihood or consequence.
TVO reduces risks connected with safety and production by keeping the plant units in good condition. Safe and reliable production is ensured by efficient life-cycle management of the plant units and high-quality planning and implementation of the annual outages.
Indemnity and property risks are covered with insurances. The aim of insurance management is to keep the scope, cover and cost of insurance in an acceptable level. TVO is a member of European nuclear insurance associations. Statutory liability insurance is in force for nuclear liability.
Fuel for the production of electricity, uranium and coal, is bought on the global market. Risks connected with nuclear fuel have been reduced by making purchases from a variety of suppliers and by concluding long-term contracts.
At OL3, risk management during the construction stage is primarily a question of overseeing and guiding the work of the Supplier according to the terms of the turnkey contract. Property damage risks and possible delays caused by them are covered by insurances.
TVO's financing and financial risk management is dealt with centrally by the Company's Treasury department in accordance with the financing policy adopted by the Board of Directors. The financing risks of TVO's business include liquidity and market and credit risks. By diversifying sources of finance, and with long-term credit commitments and liquid funds, financing risks can be reduced. The financial position has been strengthened by issuing long term private placements and bonds. TVO has reduced market risks by making use of interest rate and currency derivatives. According to the Company's financing policy, the loans denominated in foreign currencies will be hedged to the euro until the maturity date by using derivatives. Financial risk management and fuel price risks are dealt with in the notes to the consolidated financial statements, note 27 (Financial Risk Management).
Major Risks and Uncertainties
TVO's major risks are related to the schedule of the OL3 project. Originally the electricity production was scheduled to start at the end of April 2009. The completion of the project, however, has been delayed.
In September 2014 TVO received additional data about the schedule for the OL3 project from the Supplier. According to the Supplier, the start of regular electricity production of the plant unit would take place in late 2018. Detailed evaluation of the received data is ongoing.
The delay causes additional costs and losses, for which the Company has claimed compensation from the turnkey supplier of the OL3 plant.
There are no major risks or uncertainties concerning electricity production at OL1 and OL2 plant units or the Meri-Pori coal-fired power plant.
Pending Court Cases and Disputes
TVO submitted in 2012 a claim and defense in the International Chamber of Commerce (ICC) arbitration proceedings concerning the delay and the ensuing costs incurred at the Olkiluoto 3 project. The quantification estimate of TVO's costs and losses updated in October 2014 is approximately EUR 2.3 billion until the end of 2018, which according to the schedule submitted by the OL3 Supplier in September 2014, is the estimated start of the regular electricity production of OL3.
The proceedings were initiated in December 2008 by the OL3 Supplier. The updated quantification which the Supplier submitted in October 2014 and corrected in November 2014 brings the total amount claimed by the Supplier for events occurring during the construction period ending June 2011 to approximately EUR 3.4 billion. Among other things, this sum includes over EUR 1.2 billion in respect of penalty interest (calculated until October 2014) and payments allegedly delayed by TVO under the plant contract, as well as approximately EUR 150 million of alleged lost profit. TVO has considered the Supplier's previously submitted claims being without merit. TVO will scrutinize the new material which has been submitted, and respond to it in due course.
The companies belonging to the Plant Supplier Consortium (AREVA GmbH, AREVA NP SAS and Siemens) are jointly and severally liable for the Plant Contract obligations.
The arbitration proceedings may continue for several years, and the claimed amounts may be updated.
TVO has not recorded any receivables or provisions on the basis of claims presented in the arbitration proceedings.
Nuclear Power
TVO owns and operates two nuclear power plant units, Olkiluoto 1 (OL1) and Olkiluoto 2 (OL2), and is building a new plant unit, Olkiluoto 3 (OL3) at Olkiluoto in Eurajoki, Finland. The Finnish Parliament ratified in 2010 the Government's favorable decision-in-principle concerning the construction of the Olkiluoto 4 (OL4) nuclear power plant unit.
Olkiluoto 1 and Olkiluoto 2
In 2014 TVO's nuclear power plant in Olkiluoto achieved the best ever production result in its history for the second year in a row.
The electricity production of the Olkiluoto power plant units, OL1 and OL2, during 2014 was 14,763 (14,633) GWh. The total load factor was 96.0 (95.1) %.
The plant units operated safely and reliably. OL1's net production was 7,266 (7,470) GWh and load factor 94.5 (97.1) %. OL2's net production was 7,497 (7,163) GWh and load factor 97.4 (93.1) %.
The excellent production figures in 2014 were based on an exceptionally small number of production disruptions.
TVO has started to prepare for the upcoming operating license renewal of OL1 and OL2 in 2018 by initiating plant modifications, which will further improve the plant units’ safety in possible but unlikely accidents in which several safety systems would be lost at the same time.
Annual Outages
The annual outages of 2014 at the Olkiluoto nuclear power plant were carried out in May 11–June 9, 2014. OL1 underwent a maintenance outage that lasted more than 17 days, and OL2 had a refueling outage taking less than 8 days.
The main maintenance activities during the outage at OL1 included the replacement of low-voltage switchgears in two subsystems, piping modifications in the auxiliary feedwater system, installation of a new auxiliary transformer, and several other modification and maintenance tasks.
OL2 had a refueling outage of about one week. In addition to refueling, maintenance and repair work as well as tests were carried out, and two main seawater pumps were replaced.
Apart from TVO's own personnel, up to 800 subcontractor employees were involved in the annual outage work.
Both plant units have operated reliably after the annual outages.
Olkiluoto 3
Olkiluoto 3 (OL3), currently under construction, was procured as a fixed-price turnkey project from the consortium (referred to as the Supplier) formed by AREVA GmbH, AREVA NP SAS and Siemens AG. The said companies belonging to the consortium are jointly and severally liable for the Plant Contract obligations. Originally commercial electricity production was scheduled to start at the end of April 2009. The completion of the project, however, has been significantly delayed. The Supplier's installation works at the plant unit and engineering have not progressed according to the Supplier's schedules.
In December 2013 the Supplier informed that they will reduce the number of subcontractors and employees at the OL3 site due to, among other things, the incomplete planning of the plant unit. For this reason, the progress of the installations at the site has been very slow.
In September 2014 TVO received additional data about the schedule for the OL3 project from the Supplier. According to the Supplier, the start of regular electricity production of the plant unit would take place in late 2018. Detailed evaluation of the received data is ongoing.
The civil construction works of the plant unit have been mainly completed, cladding works of the buildings' exterior walls will be completed later.
The major components of the reactor plant have been installed, primary coolant circuit pipeline has been welded, and building technology systems are in the commissioning phase. Pipeline installation and welding works in the emergency power generating building continued throughout the year. Containment pressure and leak-tightness tests were completed in February. Some cabling works were continued in the fall when also the preservation of pipelines and equipment continued. I&C system tests in the test bay in Erlangen, Germany proceeded.
The first phase of the turbine plant commissioning is nearing completion. Conservation of the low-pressure turbine rotors was started.
The workforce at the site at the end of the year was about 780 persons, and the average during the year was 860. The occupational safety at the site remained at good level.
The pending disputes concerning the plant unit are described in paragraph Pending Court Cases and Disputes.
All the realized costs of the OL3 project that can be recognized in the cost of the asset have been entered as property, plant and equipment in the Group balance sheet.
Olkiluoto 4
On July 1, 2010 the Finnish Parliament approved the favorable decision-in-principle made by the Finnish Government on May 6, 2010 regarding TVO's application to construct a fourth nuclear power plant unit (Olkiluoto 4) in Olkiluoto.
On May 20, 2014 TVO submitted an application to the Government asking for a new time limit for submitting the construction license application and for decision that despite changes in the timing of the project, the construction of the OL4 plant unit is still in accordance with the overall good of society. On September 25, 2014 the Government made a negative decision on TVO's application. The decision-in-principle is still in force, and the deadline for submitting the construction license application is June 30, 2015.
All the realized costs of the OL4 project that can be recognized in the cost of the asset have been entered as property, plant and equipment in the Group balance sheet.
Nuclear Fuel
In 2014 the nuclear fuel purchases amounted to EUR 54.9 (56.5) million and the amount consumed to EUR 51.4 (48.2) million.
The nuclear fuel and uranium stock carrying value on December 31, 2014 was EUR 211.4 (December 31, 2013: 207.9) million.
Nuclear Waste Management
Under the Finnish Nuclear Energy Act, the Company is responsible for the measures related to nuclear waste management and the related costs. Posiva Oy, jointly owned by TVO and Fortum Power and Heat Oy, is responsible for taking care of the final disposal of TVO's spent nuclear fuel.
Equipment of the underground ONKALO research facility with building technology facilities and systems is completed. Raise boring of the ventilation and elevator shafts is also completed. Construction of the second phase of the elevator and entrance building as well as detailed design of the encapsulation plant and its systems have been started.
In the technology development project DOPAS, construction of the concrete sealing plug, which is under Posiva's responsibility, has been started by preparation work for casting the plug. The DOPAS project, partly funded by the EU, is coordinated by Posiva and its purpose is to test plugging and sealing systems for final disposal tunnels. Testing of the machines and equipment to be used in the final disposal has proceeded to the final disposal depth in ONKALO after completing tests in the above-ground test hall.
The construction license application for the final disposal facility has been supplemented by additional clarifications required by the Radiation and Nuclear Safety Authority, Finland (STUK). STUK informed in June that assessing the long-term safety of the construction license application will take longer than planned. According to STUK's information, it will submit its statement on the long-term safety of the final disposal to MEE in January 2015. Posiva has started to prepare for initiating the implementation phase of the encapsulation plant and final repository.
The expansion of the interim storage facility for spent nuclear fuel in Olkiluoto was completed. The facility is intended for the interim storage of the spent fuel elements of both the existing plant units, OL1 and OL2, and OL3 under construction. With the expansion the capacity of the existing fuel pools was doubled.
The liabilities in the consolidated financial statement show a provision related to nuclear waste management liability of EUR 930.3 (December 31, 2013: 897.9) million, calculated according to the international IFRS accounting principles. A corresponding amount, under assets, represents the Company's share in the Finnish State Nuclear Waste Management Fund.
In order to cover the costs of nuclear waste management, TVO makes contributions to the Finnish State Nuclear Waste Management Fund. In December 2014, MEE set TVO's liability for nuclear waste management at EUR 1,349.1 (1,317.8) million to the end of 2014 and the Company's funding target for 2015 at EUR 1,345.4 (1,310.4) million.
In March 2014 the Finnish State Nuclear Management Fund confirmed TVO's nuclear waste management fee for 2013 at EUR 56.1 (43.1) million, which was paid into the Fund on March 31, 2014 (April 2, 2013). The nuclear waste management fee for 2014 will be confirmed in March 2015.
A total of 6,214 (6,118) m³ of low- and medium-level radioactive waste has accumulated from the OL1 and OL2 plant units during their operation. During 2014, the amount of waste increased by 96.5 m3. The waste is disposed of in the final repository for low- and medium-level waste (VLJ repository) in Olkiluoto.
The total amount of spent nuclear fuel by the end of the year was 1,397 (1,362) tons, of which 34 (36) tons accumulated in 2014. The spent fuel is stored in the fuel pools of the plant units and in an interim storage facility (the KPA storage facility) at Olkiluoto.
Coal Power
TVO has a 45 percent holding in the Meri-Pori coal-fired power plant owned and operated by Fortum Power and Heat Oy. The Meri-Pori power plant is located on the Tahkoluoto island in Pori, Finland.
Meri-Pori
The amount of electricity produced by TVO's share at the Meri-Pori coal-fired power plant was 399.7 (725.4) GWh requiring 144.9 (254.4) thousand tons of coal and 334.4 (592.0) thousand tons of carbon dioxide emission rights.
Research and Development
Research and development costs were EUR 18.4 (20.8) million, most of which was used for R&D activities related to nuclear waste management.
TVO is a major financier of Finnish public sector research programs for reactor safety and nuclear waste management. In 2014 TVO's contribution to the Finnish State Nuclear Waste Management Fund, which finances such programs, amounted to EUR 4.7 (4.6) million.
Acquisitions of Tangible and Intangible Assets and Shares
Investments during 2014 were EUR 338.5 (335.1) million. Investments of the parent company were EUR 339.4 (302.5) million, of which EUR 292.9 (260.8) million was allocated to the OL3 project.
TVO continued to carry out modernization projects in the existing plant units:
• In May 2013 TVO signed an agreement with Wärtsilä Finland Oy for the delivery of emergency diesel generators and associated auxiliary systems to Olkiluoto. A total of nine generators will be delivered, and TVO is in charge of the construction work required for the project as well as for the connection of the diesel generators to TVO's other systems. The project will start in 2016 and is estimated to continue until 2020. The replacement of the generators will be carried out as far as possible during normal power operation at the OL1 and OL2 plant units.
• In July 2014 TVO made a contract with Westinghouse Electric Sweden (WSE) for the replacement of the main circulation pumps in OL1 and OL2. The contract covers 12 main circulation pumps. The replacement of the circulation pumps will take place on a turnkey basis. WSE will be responsible for installing the pumps and manufacturing of special tools as well as for design and engineering of the pumps in collaboration with their manufacturer. TVO will be responsible for organizing support services during the installation phase as specified in the contract. The main circulation pumps will be replaced during the annual outages in 2016–2018.
Carbon dioxide emission rights acquired for the Company's share of the Meri-Pori coal-fired power plant have been relinquished to the Energy Market Authority worth of EUR 2.7 (0.9) million. In 2014 emission rights were acquired worth 1.9 (2.7) million. The Company's need for carbon dioxide emission rights for the period under review was covered by acquired emission rights.
Safety and Environmental Issues
The Olkiluoto nuclear power plant units operated safely during the year. No incidents with a major impact on nuclear safety occurred. In 2014, three special reports were prepared for the Radiation and Nuclear Safety Authority (STUK). Two events were classified on the international INES scale (0–7) at level 0 (No safety significance), and one was classified at level 1 (Minor problem, significant safety margin remaining).
TVO's operations were in accordance with the Company's environmental policy, environmental permits, and environmental management system. Its environmental management system, which also covers the construction phase of the OL3 unit, complies with the international ISO 14001 Standard and is EMAS registered.
The environmental load caused by the Olkiluoto nuclear power plant was minor. As in previous years, radioactive emissions into the atmosphere and water were extremely low, and significantly lower than the limits set by the authorities.
The operations were developed considering the requirements of the environmental permit and according to environmental management system. TVO has identified seven significant environmental aspects related to the Company's activities. For each these aspects, four long-term goals have been set. In order to achieve these goals, continuing or a few-year-long objectives are set. A total of 14 targets were set for the year 2014, and all of them were reached wholly or in part. Within the year, no significant environmental deviation occurred. Overall, 25 minor environmental observations or minor deviations were detected during the operating cycle. Those were related to chemicals or waste management. At the OL3 construction site, nine environmental observations were recorded.
TVO has a certified occupational health and safety system compliant with the OHSAS 18001 Standard, in which also the activities at the OL3 construction site are included. The occupational safety goal on the whole Olkiluoto island is zero accidents and common working methods. As in earlier years, actions to reach the zero-accident goal were continued, and the systems integration will provide a basis for common working methods.
More detailed information on the environmental issues and indicators as well as occupational safety indicators for 2014 will be reported in the Corporate Social Responsibility Report and Environmental Report which will be published on TVO's website www.tvo.fi. The contents of the reports will be verified by an outside body.
Group Personnel and Training
Personnel
At the year-end, the total number of personnel in the Group was 809 (857), and the average during the year was 863 (894). The year-end total number of personnel in the Company was 805 (852), and the average during the year was 858 (890). The year-end total for permanent personnel was 751 (762).
TVO recruited 33 (25) employees in 2014. During the year, 73 (65) employees changed jobs and 44 (36) permanent employees left the Company, including 25 (24) who retired.
The collective agreements for different groups of personnel in the energy industry will be in force in accordance with the so called framework agreement of labor confederations until January 31, 2017.
The human resource issues and indicators for 2014 will be reported in more detail in the Corporate Social Responsibility Report on TVO's website, www.tvo.fi. The contents of the report will be verified by an outside body.
Training
As in previous years, basic and supplementary training for TVO personnel was carried out in accordance with the training program for the year. The personnel was trained a total of 7,272 (7,892) days, on average of 8.5 (8.8) days per each TVO employee.
In accordance with their refresher training program, the OL1 and OL2 operators took part in operation training and advanced simulation training in spring and fall 2014. For the new operators who started their work in 2014, a basic course of nuclear engineering and system trainings were provided as planned.
The OL3 operators participated, in accordance with their refresher training program, in operation training in spring and fall 2014. Additionally, a simulation exercise was organized for the shift managers. At the same time, also TVO's operation trainers were trained and familiarized with the use and maintenance of the OL3 simulator. The OL3 operators work in shifts in the combined operation organization of the Supplier and TVO in the systems operation and control tasks. The OL3 operators and operation trainers have also participated in the I&C systems testing carried out by the Supplier.
Induction training is required from all those working at the Olkiluoto nuclear power plant area. The general training is meant for all persons working at the Olkiluoto site and the radiation protection training for those who work inside the controlled area. During 2014 a total of 2,238 persons took part in the general training and 900 in the radiation protection training (registered by January 13, 2015). Both trainings were given in Finnish and English.
More detailed information on the competence development of TVO's personnel and its indicators for 2014 will be reported in the Corporate Social Responsibility Report on TVO's website, www.tvo.fi. The contents of the report will be verified by an outside body.
Subsidiaries and Joint Ventures
TVO Nuclear Services Oy (TVONS) is a wholly-owned subsidiary of TVO. TVONS provides its customers with expertise and services related to high-level nuclear safety, cost-effective operations, and nuclear waste management. The special expertise of TVO personnel is at TVONS customers' disposal.
Posiva Oy, jointly owned by TVO and Fortum, is responsible for the research of the final disposal of spent nuclear fuel and implementation of the final repository of its shareholders' Olkiluoto and Loviisa NPPs. TVO owns 60 percent of Posiva. Posiva continued construction and equipment of the underground research facility for final disposal according to plan.
Major Events after the End of the Year
TVO and Posiva Oy agreed on a business transfer regarding the support functions of Posiva. The transfer came into force on January 8, 2015, and it concerned 30 employees. The business transfer is related to TVO Group's operations development project where centralized support functions and improved efficiency are planned and aimed at.
TVO announced on January 8, 2015 that it will commence an employee information and consultation process as of January 14, 2015 to find ways to improve its cost efficiency. The aim of the planned restructuring of the Company's functions is to ensure TVO's competitiveness in the challenging power generation market. The objective of TVO's plans is to achieve annual cost savings of EUR 15 million. Based on the preliminary assumptions the reduction need induced by the planned restructuring is 110 man working years at the most.
On January 21, 2015 Japan Credit Rating Agency affirmed to downgrade its rating for TVO from AA to AA- and to change the Company's outlook from negative to stable.
In February 2015 TVO issued a EUR 500 million ten-year bond with an annual coupon of 2.125 percent. The bond was issued under the Company's EMTN program, and listing on the Luxembourg Stock Exchange was applied.
In its statement submitted to the Ministry of Employment and the Economy (MEE) on February 11, 2015, the Radiation and Nuclear Safety Authority in Finland (STUK) noted that the encapsulation plant and final disposal facility for spent nuclear fuel designed by Posiva can be built to be safe. STUK's safety assessment is required for the decision on construction license that MEE will prepare and the Government will make.
Prospects for the Future
Electricity production is expected to continue as in previous years. The prerequisites for nuclear power production at Olkiluoto are good. Nuclear fuel availability is guaranteed by long-term agreements.
Realization of the OL3 nuclear power plant project and preparing the plant unit for production will be continued. TVO will continue to support the Supplier to complete the project.
The Meri-Pori coal-fired power plant capacity will be used in accordance with the former principles.
Posiva is preparing to start the construction projects of the encapsulation plant and final repository after the construction license has been granted.
Proposals to the Annual General Meeting
Teollisuuden Voima Oyj's distributable equity as of December 31, 2014 amounted to EUR 9,360,000. The Board of Directors proposes to the Annual General Meeting that no dividend shall be paid.
For more information, please contact:
Jarmo Tanhua, President and CEO, tel. +358 2 8381 2000
Anja Ussa, Senior Vice President, Finance, tel. +358 2 8381 6100
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