Teollisuuden Voima Oyj’s Interim Report January 1–June 30, 2015

​Stock Exchange Release July 17, 2015

Full TVO Interim Report January 1–June 30, 2015 (pdf)

Teollisuuden Voima’s electricity generation at Olkiluoto 1 and Olkiluoto 2 plant units continued safely during the first half of the year. A generator failure in OL2 had a negative effect on production in February. The Olkiluoto 3 I&C tests in the test bay in Erlangen, Germany, progressed. According to the Supplier, regular electricity production of OL3 unit will commence in late 2018. Co-operation negotiations were held in January–February. In June, Teollisuuden Voima’s General Meeting decided, as proposed by the Board of Directors, not to apply for a construction license for the Olkiluoto 4 nuclear power plant unit during the validity of the decision-in-principle made in 2010.

Operating Environment

During the first half of the year, the use of electricity in Finland decreased by 1.3 per cent compared to the corresponding period of the previous year.

The Program of Prime Minister Sipilä’s Government was finalized at the end of May. The Government’s objective included replacing imported fossil fuel-based energy and achieving the 2020 climate objectives during the government term. There is no mention of nuclear power in the program; however, there is plenty of space for nuclear power in relation to the Government’s target of 50 per cent of renewable energy in the 2020s.

In March, Parliament passed a bill to amend the Finnish Nuclear Energy Act and the Radiation Act. The Radiation and Nuclear Safety Authority in Finland (STUK) received a stronger mandate and the authority to issue binding regulations on the safe use of radiation. The nuclear safety research fee collected from nuclear plant holders and the fees charged to licensees under a waste management obligation will be increased for a fixed term. For TVO, the fees charged will increase by approximately EUR 2 million per year, over the period 2016–2020.

The European Commission released in February a communication on the proposed EU Energy Union. In the paper, the Commission draws up its future actions and considers which areas of energy policy will need increased EU-level actions. According to the communication, diversification of the supply of nuclear fuel is important to ensure supply security. The Energy Council approved the conclusions relating to the communication in June, and the European Parliament will discuss the communication during the summer and autumn.

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 on the price of electricity and thus in principle the profit/loss for the period under review 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. Key indicators based on financial performance will not be presented due to the Company’s operating principle.

The consolidated turnover for the period under review January 1–June 30, 2015 was EUR 155.9 (January 1–June 30, 2014: EUR 169.2 million). The amount of electricity delivered to shareholders was 6,587.1 (7,183.0) GWh. The drop in the amount of electricity delivered to shareholders was mainly caused by a near three-week shutdown of OL2 due to water leakage from the generator, and lower electricity supply of the Meri-Pori coal-fired power plant compared to the previous year.

The consolidated profit/loss was EUR -1.0 (-0.8) million.

Financing and Liquidity

TVO’s financial situation has developed as planned.

TVO’s liabilities (non-current and current) at the end of the period under review, excluding the loan from the Finnish State Nuclear Waste Management Fund relent to shareholders, totaled EUR 3,902.3 (December 31, 2014: 3,727.3) million, of which EUR 379.3 (439.3) million were subordinated shareholder loans. During the period under review, TVO raised a total of EUR 500.0 (626.0) million in non-current liabilities. Repayments during the period under review amounted to EUR 152.9 (554.5) million, of which EUR 60.0 (0.0) million were subordinated shareholder loans.

In January, Japan Credit Rating Agency (JCR) lowered its AA rating for TVO to AA- and deemed the outlook to be stable. In May, Fitch Ratings reinstated its rating to BBB/A-3 with a stable outlook. On the other hand, Standard & Poor’s lowered its rating for TVO in May from BBB/A-2 to BBB-/A-3 with a continued negative outlook.

In February, TVO issued a EUR 500 million 10-year bond with an annual coupon of 2.125 per cent under its Euro Medium Term Note (EMTN) Program. In June, the value of the EMTN Program was increased from EUR 3.5 billion to EUR 4 billion.

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 June 30, 2015, the amount of the loan was EUR 1,009.1 (December 31, 2014: 982.8) million, which has been re-lent to the Company’s A-series shareholders. The loan from the Finnish State Nuclear Waste Management Fund was increased by EUR 26.3 (51.1) million on March 31, 2015.

Nuclear Power

Olkiluoto 1 and Olkiluoto 2

The electricity production of the Olkiluoto power plant units Olkiluoto 1 (OL1) and Olkiluoto 2 (OL2) during the period under review was 6,560 (7,091) GWh. The total load factor was 86.0 (93.0) per cent.

The plant units operated safely during the period under review. OL1’s net production was 3,557 (3,430) GWh and the load factor 93.3 (90.0) %. OL2’s net production was 3,003 (3,661) GWh and the load factor 78.7 (90.1) %.


Olkiluoto 1
Average electrical power MW
July 1, 2014–June 30, 2015

Olkiluoto 2
Average electrical power MW
July 1, 2014–June 30, 2015

OL2 was out of production in February nearly three weeks. On February 4, a leakage was detected in the water-cooled generator of the plant unit, and the electricity generation was interrupted. After the problem was examined by the experts of TVO and the generator supplier, TVO decided to replace the rotor of the generator. The electricity generation was restarted on February 24.

Annual Outages

The annual outages of 2015 at the Olkiluoto nuclear power plant were carried out from May 3–June 5, 2015. OL1 underwent a refueling outage that lasted more than 10 days, and OL2 had a maintenance outage taking more than 17 days.

In addition to refueling, maintenance, repair work and tests were carried out in OL1, and a mixing unit in the feedwater system was replaced.

Apart from refueling, the major activities carried out in OL2 included equipment work in two subsystems, one of them comprising the replacement of low-voltage equipment. Both feedwater mixing units were also replaced.

Apart from TVO’s own personnel, up to 800 subcontractor employees were involved in the annual outage work.

Olkiluoto 3

Olkiluoto 3 (OL3), currently under construction, was procured as a fixed-price turnkey project from a consortium (referred to as the Supplier) formed by AREVA GmbH, AREVA NP SAS and Siemens AG. As stipulated in the plant contract, the consortium companies 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 considerably delayed. The Supplier’s installation works and the engineering of the plant unit have not progressed according to the Supplier’s schedules.

In December 2013, the Supplier announced that it would cut down the number of subcontractors and work staff at the OL3 site, one of the reasons for which being the unfinished state of the design process. Therefore, there has been little progress in the installation works at the site.

In September 2014, TVO received more information on the OL3 schedule from the Supplier. According to the Supplier, regular electricity production of the unit will commence in late 2018. At the moment, the proposed schedule is undergoing detailed scrutiny.

The civil construction work of the plant unit is mainly completed, although some cladding work on the exterior walls is to be carried out later.

Pipeline installation and welding works in the emergency power generating building continued. Works on the cabling, as well as preservation of the pipes and equipment, also continued. Testing of the instrumentation and control (I&C) systems in the test bay in Erlangen, Germany, progressed.

The first phase of the turbine plant commissioning has been completed. Some of the systems and components will be kept in operation; the rest will be preserved in accordance with a separate plan.

During the period under review, the workforce at the site has increased by approximately 300 people, amounting to approximately 1,100 at the end of the period. The occupational safety at the site remained at a good level.

The pending disputes concerning the plant unit are described in the paragraph named ‘Pending Court Cases and Disputes’.

All 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, Parliament approved the favorable decision-in-principle made by the Government on May 6, 2010 regarding TVO’s application to construct a fourth nuclear power plant unit (Olki-luoto 4) in Olkiluoto. According to the decision-in-principle, it will expire unless an application for a construction license is submitted a maximum of five years after the date of Parliament’s decision to approve the decision-in-principle.

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 a decision addressing the fact that despite changes to 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 rejected TVO’s application.

TVO’s Extraordinary General Meeting on June 24, 2015 decided as proposed by the Board of Directors of the Company not to apply for a construction license for OL4 during the validity of the decision-in-principle and not to carry out the project referred to in the contractual and promissory note which the shareholders and TVO signed earlier for the bidding and engineering phase.

The value of property, plant and equipment relating to the OL4 project, amounting to EUR 58.2 million, was recognized as an asset write-down in TVO’s balance sheet and recorded as impairment charge to the profit and loss statement. The impairment charge does not affect TVO’s consolidated profit/loss, as TVO has invoiced the impairment charge from the shareholders in proportion to their shareholder loans to OL4. The impairment charge invoiced from the shareholders is presented under other income. TVO has settled the invoices against the OL4 shareholder loans and has refunded EUR 1.8 million to the shareholders. On June 30, 2015, there are no remaining OL4 shareholder loans or shareholder loan commitments.

TVO will remain prepared for applying for a new decision-in-principle for OL4. The application is subject to a separate decision.

Nuclear Fuel

During the period under review, nuclear fuel purchases amounted to EUR 25.6 (15.4) million and the amount consumed to EUR 25.6 (23.9) million.

The nuclear fuel and uranium stock carrying value on June 30, 2015 was EUR 211.4 (December 31, 2014: 211.4).

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.

The Ministry of Employment and the Economy is currently preparing a draft resolution for the Government that will make the decision to grant a construction license for the Olkiluoto encapsulation plant and final repository.

Both overground and underground facilities of the plant project have progressed to the implementation planning stage. Construction of the second phase of the elevator and entrance building is progressing. Topping out was celebrated in May, 2015. After completion of tests in the testing facility above ground, tests on the machinery and equipment used for the final disposal of spent nuclear fuel are now carried out at the final deposition depth in the ONKALO facility. Tests with the bentonite buffer installation device were carried out successfully in ONKALO.

The liabilities in the consolidated financial statement show a provision related to nuclear waste management liability of EUR 945.7 (December 31, 2014: 930.3) 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 at the end of 2014 and the Company’s funding target for 2015 at EUR 1,345.4 (1,310.4) million.

In March 2015, the Finnish State Nuclear Management Fund confirmed TVO’s nuclear waste management fee for 2014 at EUR 20.8 (56.1) million, which was paid into the Fund on March 31, 2015 (March 31, 2014). The nuclear waste management fee for 2015 will be confirmed in March 2016.

Coal Power

Meri-Pori

The amount of electricity produced by TVO’s share at the Meri-Pori coal-fired power plant on January 1–June 30, 2015 was 43.6 (105.1) GWh requiring 15.7 (39.8) thousand tons of coal and 36.2 (89.2) thousand tons of carbon dioxide emission rights.

TVO’s share of Meri-Pori’s production
Average electrical power MW
July 1, 2014–June 30, 2015

Acquisitions of Tangible and Intangible Assets and Shares

Investments during the period under review were EUR 126,0 (181.8) million. Investments of the parent company were EUR 124,2 (182.4) million, of which EUR 98,6 (162.2) million was allocated to the OL3 project.

TVO continued to carry out modernization projects in the operating 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 emergency diesel generators of OL1 and OL2 are to be replaced by 2021. This is the largest plant modification project ever carried out in Olkiluoto.

In July 2014, TVO signed a contract with Westinghouse Electric Sweden (WSE) for the replacement of the main circulation pumps at OL1 and OL2. The contract covers 12 main circulation pumps. The replacement of the pumps takes place under a turnkey contract. WSE is responsible for the installing of the pumps and for the manufacture of special tools, as well as for the design and engineering of the pumps in collaboration with their manufacturer. TVO’s scope of the delivery covers the provision of the supporting services specified in the contract during the installation period. The main circulation pumps will be replaced during the annual outages of 2016–2018.

Carbon dioxide emission rights have been relinquished to the Energy Market authority worth EUR 1,9 (2.7) million. During the period under review, emission rights have been acquired worth EUR 0,3 (0.5) million. The Company’s need for carbon dioxide emission rights for the period under review will be covered by acquired emission rights.

Pending Court Cases and Disputes

In 2012, TVO submitted 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. In October 2014, TVO updated its quantification estimate of its costs and losses to amount to approximately EUR 2.3 billion by the end of 2018, which, according to the schedule submitted by the OL3 Supplier in September 2014, is the estimated start of regular electricity production of OL3.

The proceedings were initiated in December 2008 by the OL3 Supplier. The Supplier’s monetary claim, submitted in October 2014 and updated in November 2014, is in total approximately EUR 3.4 billion. The claim covers events that occurred during the construction period until the end of June 2011. The sum includes penalty interest (calculated until October 2014) and payments delayed by TVO under the plant contract amounting to a total of EUR 1.2 billion, as well as approximately EUR 150 million in alleged loss of profit. Having considered and found the earlier claims by the Supplier to be without merit, TVO will scrutinize the updated claim and respond to it in due course.

The Supplier consortium companies (AREVA GmbH, AREVA NP SAS and Siemens AG) 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.

Personnel

The total number of personnel in the Group at the end of the period under review was 813 (December 31, 2014: 809; June 30, 2014: 933). The number of permanent employees at the end of the period under review was 732 (December 31, 2014: 754; June 30, 2014: 765).

TVO’s co-operation negotiations initiated in the beginning of January 2015 concluded at the end of February. The negotiations focused on reorganizing functions and improving cost efficiency with the view to secure TVO’s competitive edge on the challenging electricity supply market. The aim was to generate savings of EUR 15 million per year. Prior to the negotiations, the estimated maximum need of personnel reductions was 110 man-years. Through the negotiations, the number of personnel was cut by 42 employees, including 11 terminated contracts. Other personnel reductions will be achieved through voluntary arrangements, amounting to approximately 100 man-years. According to estimates, the total reductions will be achieved by the end of the year. The co-operation negotiations concerned the near-entire TVO personnel of approximately 700 employees.

Annual General Meeting

TVO’s Annual General Meeting was held on March 20, 2015. The AGM approved the financial statements for the year 2014, confirmed the consolidated income statement and balance sheet and discharged the members of the Board of Directors, along with the President, CEO and his deputy from liability.

Nine Board members were re-elected. Markus Mannström was elected as a new member to replace Juha Taavila. At its organization meeting held on the same day as the AGM, the Board elected Lauri Virkkunen as Chairman and Matti Ruotsala as Deputy Chairman. The Board also chose the members and chairmen of the Board Committees from among its members.

Extraordinary General Meeting

TVO’s Extraordinary General Meeting was held on June 24, 2015. The EGM decided, as proposed by the Board of Directors, not to apply for a construction licence for the Olkiluoto 4 nuclear power plant unit during the validity of the decision-in-principle made in 2010.

Auditing

The Interim Report is unaudited.

Risks and Uncertainty Factors in the Near Future

The major risks and uncertainty factors in TVO’s operations have been presented in the 2014 Report of the Board of Directors.

During the period under review, no remarkable new risks connected with the Company’s operation have arisen.

Assessment of Year-End Developments

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 use will be continued. TVO continues to support the Supplier to finalize 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.

Events after the Period under Review

No major events have taken place after the end of the interim report period.

July 16, 2015

Teollisuuden Voima Oyj
Board of Directors

For more information, please contact:
Anja Ussa, Senior Vice President, Finance, tel. +358 2 8381 6100.