Teollisuuden Voima Oyj's Interim Report January–March 2016
21.4.2016
Full TVO Interim Report January 1–March 31, 2016 (pdf)
During the first quarter of the year, Teollisuuden Voima's electricity generation at Olkiluoto 1 and Olkiluoto 2 plant units continued safely and reliably. Testing of the process instrumentation and control systems of Olkiluoto 3 plant unit commenced in Olkiluoto, and the safety automation systems were transferred from Erlangen, Germany, to Olkiluoto. Posiva is preparing for the construction of the encapsulation plant and final repository for spent nuclear fuel.
Operating Environment
The energy sector is in the midst of a transition which may take several years. The economic stagnation has led to a drop in demand. On the other hand, the electricity supply has increased since different subsidy mechanisms promote investments in renewable energy, especially in wind power. As a result the market price of electricity has significantly fallen in the past few years.
During the first quarter of the year, the use of electricity in Finland increased by 5.9 percent compared to the corresponding period of the previous year.
In 2015, the Finnish Government launched the preparation of a new energy and climate strategy. In February 2016, the Ministry of Employment and the Economy (MEE) presented energy policy scenarios for assessing the need for energy and climate policy guidelines in Finland. The strategy will be submitted as a Government Report to Parliament by the end of 2016.
The European Commission’s proposal for redesigning the electricity market legislation as well as the European Parliament’s report on the electricity market progressed on schedule. The Parliament will vote on the draft report in June 2016, and the Commission will most likely give its proposal in December 2016.
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. Because of the Company's operating principle, key indicators based on financial performance will not be presented.
The consolidated turnover for the period under review January 1–March 31, 2016 was EUR 92.8 (January 1–March 31, 2015: EUR 79.0) million. The amount of electricity delivered to shareholders was 4,049.5 (3,434.7) GWh. The higher delivery volume of electricity to shareholders was due to increased delivery volumes of both OL2 and the Meri-Pori coal-fired power plant compared to the previous year.
The consolidated profit/loss was EUR 6.3 (0.3) 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 4,077.0 (December 31, 2015: 3,987.5) million, of which EUR 479.3 (479.3) million were subordinated shareholder loans. During the period under review, TVO raised a total of EUR 0.0 (500.0) million in non-current liabilities. Repayments during the period under review amounted to EUR 0.0 (58.2) million.
In February, Japan Credit Rating Agency (JCR) kept unchanged its AA- rating for TVO and evaluated the Company's future outlook as stable.
In February, TVO signed a new revolving credit facility (the "Facility") of EUR 1,300 million. The Facility refinances TVO's existing revolving credit facility signed in March 2011 and consists of two tranches: EUR 1,000 million 5-year tranche and EUR 300 million 3 year tranche. Both tranches include two one-year extension options. The Facility will be used for general corporate purposes.
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 March 31, 2016 the amount of the loan was EUR 1,027.1 (December 31, 2015: 1,009.1) million and it has been relent to the Company's A-series shareholders. On March 31, 2016 loan from the Finnish State Nuclear Waste Management Fund was increased by EUR 18.0 (26.3) million.
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 3,882 (3,404) GWh. The total load factor was 100.0 (89.7) per cent.
The plant units operated safely during the period under review. OL1's net production was 1,935 (1,903) GWh and the load factor 100.0 (100.0) %. OL2's net production was 1,947 (1,501) GWh and the load factor 100.0 (79.1) %.
Olkiluoto 1
Average electrical power MW
April 1, 2015–March 31, 2016
Olkiluoto 2
Average electrical power MW
April 1, 2015–March 31, 2016
Olkiluoto 3
Olkiluoto 3 (OL3), currently under construction, was procured as a fixed-price turnkey project from a consortium (Supplier) formed by AREVA GmbH, AREVA NP SAS and Siemens AG. As stipulated in the plant contract, the consortium companies have joint and several liability for the contractual obligations. Originally, commercial electricity production was scheduled to start at the end of April 2009.
According to the schedule updated by the Supplier in September 2014, regular electricity production in the unit will commence at the end of 2018.
Most of the construction works for the plant unit have been completed. The installation of the electrical systems, the instrumentation and control system (I&C), and mechanical systems is still in progress. Test runs with the I&C commenced in January 2016.
The first phase of the commissioning of the turbine plant 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.
The workforce at the site at the end of the period under review was about 2,400 persons. Occupational safety at the site remained at a good level.
The pending disputes concerning the plant unit are described in the paragraph ‘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.
Nuclear Fuel
During the period under review, nuclear fuel purchases amounted to EUR 19.9 (20.1) million and the amount consumed to EUR 13.6 (13.5) million.
The nuclear fuel and uranium stock carrying value on March 31, 2016 was EUR 230.5 (December 31, 2015: 224.2) 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.
An application for a building permit for the disposal facility for spent nuclear fuel was submitted to the municipality of Eurajoki in March. The application material was also submitted to the Satakunta Rescue Service and the Radiation and Nuclear Safety Authority for statements. Preparations for the construction of the encapsulation plant have started and the area is being cleared. The last excavation stage in the ONKALO research facility began in March. The contract covers the excavation work for both the driving tunnels to the final disposal area and the service and parking facility at the depth of 430–440 meters underground.
The liabilities in the consolidated financial statement show a provision related to nuclear waste management liability of EUR 978.4 (December 31, 2015: 971.2) 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 2015, MEE set TVO's liability for nuclear waste management at EUR 1,369.4 (1,349.1) million to the end of 2015 and the Company's funding target for 2016 at EUR 1,369.4 (1,345.4) million.
In March 2016, the Finnish State Nuclear Management Fund confirmed TVO's nuclear waste management fee for 2015 at EUR 11.4 (20.8) million, which was paid into the Fund on March 31, 2016 (March 31, 2015). The nuclear waste management fee for 2016 will be confirmed in March 2017.
Coal Power
Meri-Pori
The amount of electricity produced by TVO's share at the Meri-Pori coal-fired power plant on January 1–March 31, 2016 was 173.8 (39.3) GWh requiring 61.7 (14.1) thousand tons of coal and 147.4 (32.4) thousand tons of carbon dioxide emission rights.
TVO's share of Meri-Pori's production
Average electrical power MW
April 1, 2015–March 31, 2016
Acquisitions of Tangible and Intangible Assets and Shares
Investments during the period under review were EUR 63.4 (60.0) million. Investments of the parent company were EUR 61.8 (59.7) million, of which EUR 58.2 (49.2) million was allocated to the OL3 project.
At present, several plant modifications are planned and implemented in Olkiluoto to prepare the OL1 and OL2 plant units for the renewal of the operating license in 2018.
During the period under review, emission rights were acquired worth 0.8 (0.3) 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 July 2015, TVO updated its quantification estimate of its costs and losses to amount to approximately EUR 2.6 billion until December 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, updated in February 2016, is approximately EUR 3.52 billion in total. The sum is based on the Supplier’s updated analysis of events that occurred through September 2014, with certain claims quantified to December 31, 2014. The sum includes penalty interest (calculated to June 30, 2016) and payments allegedly delayed by TVO under the plant contract amounting to a combined total of approximately EUR 1.45 billion, as well as approximately EUR 135 million in alleged loss of profit. TVO has considered and found the earlier claims by the Supplier to be without merit, and will scrutinize the updated claim.
The Supplier consortium companies (AREVA GmbH, AREVA NP SAS and Siemens AG) are jointly and severally liable for the plant contract obligations.
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 753 (December 31, 2015: 749, March 31, 2015: 821). The number of permanent employees in the Group at the end of the period under review was 732 (December 31, 2015: 731, March 31, 2015: 772).
Based on the personnel survey 2015, TVO has initiated a new program Tulokselliset ja hyvinvoivat tekijät 2020 (“Productive and prospering experts”). The program will focus on the items identified in the personnel survey. As part of the program, among other things, a Well-being at work 2016 program was launched.
In early 2016, TVO also launched a company-wide competence survey project. The aim of the project is to ensure successful commissioning of OL3 and safe operations of all the Olkiluoto plant units, including Posiva's final disposal facility.
Annual General Meeting
TVO's Annual General Meeting was held on March 23, 2016. The AGM approved the financial statements for 2015, confirmed the consolidated income statement and balance sheet, and discharged the members of the Board of Directors and the President and CEO from liability.
All Board members were re-elected. At its organization meeting held on the same day as the AGM, the Board elected Matti Ruotsala as Chairman and Lauri Virkkunen as Deputy Chairman. The Board also chose from among its members the members and chairmen of the Board Committees.
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 Report of the Board of Directors 2015.
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 will be continued. Commissioning of the process systems is planned to start in the spring. At the same time, the operating license application addressed to the Government will be submitted to the Finnish Ministry of Employment and the Economy. TVO will continue to support the Supplier to complete the project.
The Meri-Pori coal-fired power plant capacity will be utilized in accordance with the former principles.
Posiva is preparing to start the construction projects of the encapsulation plant and final repository.
Events after the Period under Review
In early April, defective fuel rods were detected at OL1. Therefore, three fuel elements were removed from the reactor and replaced with new ones. The electricity generation at the plant unit was interrupted from April 11 to April 16.
On April 14, 2016, TVO submitted the Operating License application for OL3 to the Finnish Government. TVO expects to obtain the operating license towards the end of 2017. After the license has been granted, nuclear commissioning will commence.
April 22, 2016
Teollisuuden Voima Oyj
Board of Directors
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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