Mankala makes a move27 October 2009
At a cost of EUR4-6 billion, nuclear power plants are simply too expensive for many utilities. Some entrepreneurs have decided to shrink nuclear reactors, cutting costs proportionally. Finnish firm Fennovoima plans to split the massive cost of one or two reactors generating 1500MWe-2500MWe among members of a consortium, in exchange for a share of at-cost electricity scheduled to start from 2020.
This consortium-building is a typically Finnish practice called mankala. It is bidding for a planning nod from the Finnish government in early 2010. NEI spoke to Fennovoima chief financial officer Mika Alava and chief executive officer Tapio Saarenpää in separate interviews.
Q. Do you have a figure of the Fennovoima project’s general return-on-investment?
Mika Alava: “The shareholders of Fennovoima might have different return rates. It depends on how this nuclear generation fits into their needs and their existing generation portfolio. Fennovoima will not calculate ROI; that is up to each shareholder. Some shareholders now purchase all of their electricity that they need from the wholesale market; some of them already now generate part of it and purchase the rest from the market. It is up to their portfolio how this works.
Q. It is a credit to you that you have got so many investors.
“One of the main ideas of the Mankala principle is to mitigate electricity market risk. Shareholders are committed to pay the fixed and variable costs of nuclear generation, so Fennovoima is not exposed to electricity market risk. It is a fairly unique way to mitigate that risk. You need a strong portfolio of shareholders committed to the project. Today our shareholders use almost one-third of the electricity consumption in Finland, about 26TWh/year; with this investment, they will secure less than half of their needs. So it is really about security of supply.
Q. What is the smallest amount that investors are in for?
“Some small utilities have very small shares; 5-10MW, or even less. The smallest have far less than a EUR50 million commitment. But then with any share you have to divide financing between the equity and the debt part.”
Q. Do you have a minimum requirement of equity payment for shareholders?
“We have not agreed a minimum equity amount. Today we don’t have one.”
Q. Might it not be the case that shareholders are competing for the same electricity?
“We have almost 50 local and regional utilities as shareholders, and they more or less compete in the retail and also the wholesale market.”
Q. Isn’t that a weakness?
“On the contrary, it makes us transparent. All utilities need a portfolio to secure a good competitive electricity source operating on the retail market. If they were just to purchase power from the wholesale market and sell on the retail market, I don’t think that would be a strong business case. If they were to have hydro, nuclear, and coal generation in their own portfolios, it would make a better picture to be a competitive retail business.
Q. So you are saying that your shareholders have diversified generation assets.
“Yes. We have two direct shareholders. The first is Voimaosakeyhtio, a holding company of 63 companies. That company has 66% of Fennovoima, and EON Nordic has 34%. Out of Voimaosakeyhtio’s 66%, 55% are utilities, 45% are electricity users. It’s almost half and half. In total, one third is industrial users and two-thirds are utilities, if you take into account E.ON.
Q. How does that compare with TVO, which is also arranged in a similar way?
“The paper and pulp industry is dominant there. It takes some 40%. Then there is Fortum, the utility, which has a share of approximately 30%, and other industries and local utilities have far less of a share. There is more interest from utilities in our project. I would need to check the figures, but by heart I think that the shareholder base is more diverse than at TVO. In Fennovoima there is food, metal, chemical, trade and services. We have a diversified base of different industries.”
Fennovoima has selected Toshiba’s ABWR and Areva’s EPR and SWR-1000 as possible reactors for the project. Alava did not reveal the vendors’ estimates of overnight cost/kW or the expected load factor, although he did say that the station is estimated for a 60-year lifetime. He also did not specify how the consortium would hedge against construction cost increases. We asked, are cost increases not a concern, given the rises at Olkiluoto 3?
“Yes, obviously, we have to play the role of an intelligent buyer. We will work very closely with E.ON."
The German-based international utility was involved early on with the scheme, and brings lots of nuclear experience to the project, says CEO Tapio Saarenpää. He spent 19 years working at the TVO’s Olkiluoto site, at the end working on the environmental assessment for Olkiluoto 3, currently under construction. He left to become CEO of a neighbouring utility, Rauma Energy, which became an early Fennovoima shareholder.
Q. How does Fennovoima work financially?
Tapio Saarenpää: “The whole project is financed stepwise. The major investments are still ahead. What started in 2007 as a start-up firm is today a credible applicant for constructing and operating Fin 6. Fennovoima’s shareholders share a common problem: they have a deficit in supply. As to the utilities, there are about 70 in Finland, the deficit is real and severe. Two thirds of these local energy companies have decided to join Fennovoima’s project. Most of them are municipality-owned. One third of our shareholders represent that sector. One third of Fennovoima’s ownership are from Finnish industry, including metals, food, chemical and construction material industries, and retail business. And the last third, because we were starting greenfield, we needed a strong technical partner, and that is E.ON. E.ON is present in Finland already.”
The Fennovoima project has five stages: preparation, procurement, licensing, construction and commissioning, and operations, according to Fennovoima’s bidding document. It says that it will not use loans to finance the first three phases, and that binding construction funding agreements will not happen until the final plant implementation plan and final cost estimates are decided.
Q. How did you come up with the reactor shortlist?
“Mainly, we screened available technologies by carefully looking at licensability in Finland. The principle was to narrow down the choice to a reasonable number. I can say we are very happy with our design list and the talks with vendors proceed smoothly.
“The site selection is also a key issue. Now we have developed a greenfield site, which is naturally a demanding task. We wanted to narrow down to a reasonable number of sites, and today we have three greenfield sites [Hanhiviki in Oulo province; Gäddbergsö in Southern Finland; Karsikko in Lapland]. We have procured sufficient land, 300 hectares each. The land-use planning is in progress in all there locations. Most importantly, the local municipalities support Fennovoima and they hope that the plant will be constructed in their territories. This positive statement of the potential site municipality is mandatory in order to continue.
“What remains, and that is equally important, is that the nuclear regulator STUK has a longer deadline in their safety assessment. We expect their statement in October. STUK has a key role, since its positive assessment is a must for the project.”
Q. How will you narrow down to your final site?
“If it would be easy, it would have been done already. First of all, there are technical criteria, and STUK
is looking at safety criteria. Furthermore, there are environmental issues. In addition to these two key considerations, there are issues of land ownership and local relationships with the community. It is a comprehensive set of criteria. The law says that if we build a nuclear power station, it should be for the overall good of society, and that is what we are aiming at. We are keen to listen what the rest of society has say.”
Q. How will you narrow down to your final reactor type?
“Those criteria we are about to define. It is too early to look at that. It is not only technology nowadays that we look at. There is flexibility, safety comes first, and experience. We need to look carefully at the project itself, the planning and maturity of the whole project.”
Q. Are you following developments at Olkiluoto 3?
“Everybody in the industry is. But we are outsiders. We are following it, and are sad that it is not a complete success, which is in everybody’s interest.”
Q. What will happen if you fail to get the decision-in-principle?
“I wouldn’t be here if I didn’t believe in this project. Our case is really strong not only in our eyes. The need for this project will not disappear anywhere; there is a real need for the project from the shareholders’ and national points of view.”
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