Teollisuuden Voima Oyj’s Interim Report January–September 2016
20.10.2016
Full TVO Interim Report January 1–September 30, 2016 (pdf)
Teollisuuden Voima's electricity generation at Olkiluoto 1 and Olkiluoto 2 plant units continued safely through the first three quarters of the year. At Olkiluoto 3, the installation works and process system tests continued. The operating license application of the plant unit was submitted to the Ministry of Employment and the Economy in April. Posiva's final disposal project entered the concept and cost optimization phase. Preparation works for the encapsulation plant excavations continued.
Operating Environment
From January to September, the use of electricity in Finland increased by 2.6 percent compared to the corresponding period of the previous year.
In 2015, the Finnish Government launched preparation of a new energy and climate strategy. Among other issues, the strategy answers the question of how to achieve the Government Program target regarding the share of renewable energy and phasing out the use of coal in energy production. In addition, the strategy looks for ways to achieve the EU 2030 climate and energy package objectives in Finland. The energy and climate strategy will be submitted as a Government Report to Parliament by the end of 2016.
The European Commission will issue new legislation in December 2016 for renewing the EU energy market design. In September 2016, the European Parliament gave a resolution on the legislation which, for example, points out the importance of making the emissions trading more efficient. It also stresses the Member States' right to decide on their own energy mixes. The legislative proposals to be published in December will be transferred to the Parliament and the Council in early 2017.
In October 2016, the European Commission will publish a more updated version of the Nuclear Illustrative Program (PINC). In its preliminary communication published in April 2016, the Commission estimated that nuclear energy will remain an important component of the EU's energy mix in the 2050 horizon. To improve cost-effectiveness of nuclear power plants, the Commission also highlighted the development of cooperation in standardization and licensing issues.
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, unless specific circumstances dictate otherwise. 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. See "TVO's cost-price principle" in the Notes to the interim financial statements.
The consolidated turnover for the period under review January 1–September 30, 2016 was EUR 252.4 (January 1–September 30, 2015: EUR 217.1 million). The amount of electricity delivered to shareholders was 10,774.1 (10,416.9) GWh. The higher delivery volume to shareholders was due to increased delivery volumes of both Olkiluoto 2 and Meri-Pori coal-fired power plant compared to the previous year.
The consolidated profit/loss was EUR -9.6 (18.3) 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 period under review.
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 4,080.0 (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 300.0 (500.0) million in non-current liabilities. Repayments during the period under review amounted to EUR 287.9 (152.9) 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 May, Fitch Ratings affirmed its previous rating BBB for TVO but changed the Company's outlook to negative. Standard & Poor's downgraded in May TVO's rating from BBB- to BB+ and assessed the 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.
In September, the European Investment Bank (EIB) granted TVO a loan of EUR 100 million for the ongoing modernization and safety improvement projects at Olkiluoto 1 and Olkiluoto 2 power plant units.
During the period under review, TVO has also signed bilateral bank loans totaling EUR 575 million, of which EUR 275 million are undrawn.
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 September 30, 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 10,550 (10,356) GWh. The total load factor was 91.4 (90.0) per cent.
The plant units operated safely during the period under review. OL1’s net production was 5,112 (5,451) GWh and the load factor 88.6 (94.8) %. OL2’s net production was 5,438 (4,905) GWh and the load factor 94.2 (85.3) %.
Olkiluoto 1
Average electrical power MW
October 1, 2015–September 30, 2016
Olkiluoto 2
Average electrical power MW
October 1, 2015–September 30, 2016
OL1 was out of production in April for less than a week. Electricity production at the plant unit was interrupted on April 11 for the replacement of damaged fuel elements. Back to electricity generation the plant unit was connected on April 16.
OL2 was shut down into a cold state on June 24 for the replacement of reactor internal recirculation pump motor. The unit was back online on June 27.
Annual Outages
The annual outages of 2016 at the Olkiluoto nuclear power plant were carried out from May 8 to June 9, 2016. OL1 had a more extensive maintenance outage taking more than 21 days, and OL2 underwent a refueling outage that lasted over 9 days. The annual outage period was about five days longer than expected. The schedule was affected e.g. by delays in work carried out on control rod actuators. In all other respects the annual outages were implemented according to plans.
At OL1, the main works carried out during the maintenance outage included replacement of one main circulation pump and the associated frequency converter, renewal of the neutron flux measurement calibration system, replacement of low-voltage switchgears as well as modernisation in one sub-system of the heating system that contributes to residual heat removal. A containment leak-tightness test was also carried out. In addition to TVO's own personnel, up to about one thousand employees of external contractors were involved in the outage works.
In addition to refueling, the OL2 outage included also annually recurring maintenance work.
Olkiluoto 3
Olkiluoto 3 EPR (OL3 EPR), 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. According to the schedule updated by the Supplier in September 2014, regular electricity production in the unit will commence at the end of 2018.
In 2016, Areva Group announced a restructuring of its business. The restructuring plan involves a transfer of the operations of Areva NP, excluding the OL3 project and resources necessary for its completion, to an ad hoc structure which is to be sold to a consortium led by EDF. The closing of the restructuring is envisaged during the second semester of 2017. The implementation of the restructuring plan is subject to decisions and clearances, such as those related to the contemplated state aid connected with the plan. TVO requires that the restructuring respects the completion of the OL3 project within the current schedule and that all liabilities of the plant contract are respected.
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. In April, testing of the process systems was started, and the operating license application was submitted to the Ministry of Employment and the Economy (MEE). The decision to grant a license will be made by the Finnish Government on the basis of MEE's proposal.
The first phase of the commissioning of the turbine plant is 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 42.4 (46.4) million and the amount consumed to EUR 40.2 (39.3) million.
The nuclear fuel and uranium stock carrying value on September 30, 2016 was EUR 226.4 (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.
Posiva's final disposal project has now entered the concept and cost optimization phase, which will last until the end of 2017.
The works of the last excavation stage of the underground bedrock research facility ONKALO started in March are progressing according to plan. Preparation works for the encapsulation plant excavations that were started in June have also progressed. The actual excavations will start in October.
Posiva Solutions Oy, a wholly-owned subsidiary of Posiva Oy, was founded on June 10, 2016. The company focuses on the sales of the know-how Posiva has accumulated from its design, research and development activities in the final disposal of spent nuclear fuel, as well as on associated consulting services. In June, Posiva Solutions made a service agreement on providing Fennovoima Oy with expert services related to the final disposal of spent nuclear fuel.
The nuclear waste management plan for 2016–2018 was submitted to the Ministry of Employment and the Economy (MEE) at the end of June. The waste management fee collected from those liable for nuclear waste management is based on the nuclear waste management plan to be updated every three years.
The liabilities in the consolidated financial statement show a provision related to nuclear waste management liability of EUR 961.9 (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 at 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 man-agement 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–September 30, 2016 was 242.2 (80.1) GWh requiring 86.6 (29.3) thousand tons of coal and 207.1 (66.5) thousand tons of carbon dioxide emission rights.
TVO’s share of Meri-Pori’s production
Average electrical power MW
October 1, 2015–September 30, 2016
Acquisitions of Tangible and Intangible Assets and Shares
Investments during the period under review were EUR 199.8 (186.9) million. Investments of the parent company were EUR 196.2 (184.8) million, of which EUR 157.7 (150.9) 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.
Carbon dioxide emission rights have been relinquished to the Energy Market authority worth EUR 1.2 (1.9) million. During the period under review, emission rights were acquired worth EUR 1.1 (0.5) million. The Company's need for carbon dioxide emission rights for the period under review are 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 and the updated claim by the Supplier to be without merit.
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.
TVO has sought to obtain more detailed information from Areva Group on its announced restructuring and its impacts on the OL3 project. As TVO has not received such information it has begun legal proceedings at the end of September 2016 before the Commercial Court of Nanterre in France. The aim of this is to urgently obtain this information with a view to securing the assurances that all the necessary financial and other resources, particularly in relation to the EPR technology capabilities, will be allocated for the completion and long-term operation of OL3 and that the Supplier Areva-Siemens will meet all their contractual obligations.
Personnel
The total number of personnel in the Group at the end of the period under review was 744 (December 31, 2015: 749, September 30, 2015: 760). The number of permanent employees in the Group at the end of the period under review was 720 (December 31, 2015: 731, September 30, 2015: 734).
Based on the personnel survey 2015, TVO has initiated a new program Hyvinvointi ja tulokselliset tekijät 2020 (“Wellbeing and profitability factors”). The program will focus on the items identified in the personnel survey. The project has progressed according to plan. As part of the program, among other things, a Well-being at work 2016 program was launched.
In early 2016, TVO also launched a Group 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.
In August, TVO agreed with Logistikas Oy on transferring TVO Group's storage and transport services to Logistikas. The transfer of business entered into force as of September 1, 2016 and concerned nine employees.
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 2015 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 will be going on. Testing of the process systems continue, and cleaning of the reactor primary circuit is scheduled to commence towards the end of the year. TVO continues 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.
The concept and cost optimization phase of Posiva's final disposal project will last until the end of 2017. The actual excavations for the encapsulation plant will start in October.
Events after the Period under Review
No major events have taken place after the end of the interim report period.
October 21, 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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