A new unit for Finland

29 December 2001

TVO enters the first stage in what promises to be a long and tortuous process

Finland's overcapacity in electricity generation is transient. The demand for electricity is growing with increased industrial processing, and according to president and CEO of utility Teollisuuden Voima Oy (TVO) Mauno Paavola, it is not certain that there will be a continuous availability of reasonably priced electricity on the Scandinavian market for Finland to import.

In its 1998 energy programme, the Finnish government paved the way for a new nuclear plant by clearly stating that any new generating capacity must be based on less-polluting options, and that no options that were technically, economically or environmentally feasible should be ruled out.

The low variable costs that apply to a new nuclear plant meant that when the oldest coal-fired and oil-fired plants in Central Europe closed, Finland would be in a good position to export cheap electricity profitably, while at the same time carrying out emissions reductions in line with its Kyoto commitment.

Following completion of the site investigations at the existing nuclear plant sites Loviisa and Olkiluoto, Teollisuuden Voima Oy (TVO) has submitted its application for a decision in principle to build a new nuclear plant, that was based either on a pressurised water reactor or a boiling water reactor in Finland. The application is the first step in a licensing process that will take several years to complete and has many phases.

The Ministry of Trade and Industry has announced that it has received the application. It will now ask for statements and opinions from relevant bodies such as the Radiation and Nuclear Safety Authority, and to arrange a public hearing at Loviisa and Eurajoki. Once the ministry has compiled a summary of these findings, the Council of State will decide in principle on the application. If this is a positive application, it will have to be forwarded to parliament for ratification.

Only after this ratification of the decision in principle can TVO proceed to apply for a construction permit. This application will be made after the site has been chosen.

Alongside an environmental impact assessment procedure for both of the plant sites, TVO has undertaken an analysis of plant alternatives that includes feasibility studies, preliminary project implementation plans, an evaluation of investment and electricity production costs and preliminary financing plans.

Alternative feasibility studies

A financial study of the baseload power plant alternatives, which was undertaken at the Lappeenranta University of Technology, found that a new nuclear unit was clearly the lowest-cost option for a baseload electricity addition in Finland under the most likely operating conditions and circumstances. The study compared performance and cost data of a new nuclear unit in Finland with that estimated for:

•A combined cycle gas turbine plant.

•A coal-fired condensing plant.

•A peat-fired condensing plant.

The existing 560MWe Meri-Peri plant, in which TVO has a 45% share, which uses pulverised coal combustion, was used as the reference unit for the coal-fired plant. The peat-fired unit was based on typical figures for fluidised-bed combustion. The performance and cost data of the combined cycle gas turbine plant was based on the latest technology.

The gas and coal-fired units were assumed to be at their optimum sizes so that they would see some benefits of scale. It was assumed that the coal plant would be located near the coast. The size of the peat plant was restricted to 150MWe because the transport distance of peat fuel is too long for larger sizes.

The nuclear alternative was selected in the middle of the range of sizes under consideration. All investment and operational costs were calculated on the basis that it would be built on the site of an existing nuclear power plant. All the expenses of waste treatment and decommissioning were included.

Comparing costs

The annuity method was used to compare the generation costs of the four alternatives, using an interest rate of 5% per annum and the fixed price level of February 2000. The nuclear plant was found to have the lowest generation cost when the utilisation time exceeded 6100 hours, corresponding to a capacity factor of 70%.

The costs of these four alternatives with an annual full-load utilisation time of 8000 hours (which approximately corresponds to a capacity factor of 91%) were: nuclear - E22.3/MWh, coal - E24.4/MWh, and gas - E26.3/MWh.

When varying one input parameter at a time in order to gauge an impact, it was discovered that nuclear power was highly sensitive to changes in investment costs, but that this did not make it less competitive than the other alternatives. The production cost of gas-fired electricity rises significantly with rising fuel prices, and there is no guarantee of a natural gas supply to Finland. All the alternatives experienced a moderate reaction to changes in interest rate changes.

The study concluded that the nuclear alternative was the least-cost option for new baseload capacity in Finland under these conditions. The nuclear electricity would cost E22.3/MWh, with margins of E2 and E4 when compared to coal and gas-based electricity respectively.

In order to substantiate its findings, the study looked at the actual costs incurred of operating the existing Olkiluoto plant. Olkiluoto has a net capacity of 1680MWe, and is 20 years old.

Its two units have been upgraded from their original 660MWe to 840MWe each. Olkiluoto has permission to operate until 2018, on the condition that a full safety assessment of the plant is made by 2008.

A final shut-down date has not been defined and by partially renewing the plant it is possible to extend its lifetime further. The maintenance philosophy at the plant is to keep it in such a condition that the remaining lifetime is still 40 years. In the financial calculations for the study, two operating periods were used:

•1980-1999, which allows for the residual value of the investment at the end of the period.

•The planned operational period (1980-2018).

From the balance sheets and annual financial statements of Olkiluoto, the annual expenses of the plant could be followed from the beginning. The total liabilities of TVO, including its own share capital, amounted at the end of 1980 to r806 million. This was taken as being the initial investment cost, including the fuel loading and the interest that was paid during construction. A nominal interest rate of 9% per annum was used in the base case of the financial analysis.

The annual cash expenses during 1981-1999 varied between r85 and r170 million. These expenses comprise fuel costs, staff, spare parts and materials. The price of the electricity (ie the production cost) was the unknown factor that had to be calculated. This could either be defined to be constant every year or to be proportional to the typical electricity price development during the period.

By using the electricity price as an input, the internal rate of return (IRR) and payback time of the initial investment of r806 million could be calculated. This analysis was carried out as a net present value (NPV) calculation by discounting all annual expenses and revenues to 1980. By calculating the development of the cumulative discounted net cash flow a payback curve was created.

Payback curves

For the first period, a constant electricity price of r20.5 was calculated. This was deemed to be sufficient to be able to pay back the initial investment by the end of 1999.

For the planned period, the annual generation was assumed to be 14TWh, and inflation was assumed to be at 2%. The NPV calculation for the period 1980-2018 therefore resulted in a constant (1981-1999) electricity price of E18.0/MWh, rising by 2% per annum from 2000 onwards.

A residual value for 1680MWe of capacity with a future lifetime of 19 years amounted to E1346 million at the end of 1999 - a good match with the E18/MWh that had been calculated for the whole period.

Further calculations showed that the plant had been, and would continue to be, highly profitable.

Reactor choice

In the light of all of its preliminary economic analysis, TVO has applied for one 1000-1600MWe BWR or PWR unit, plus repositories for the storage of fresh fuel, for the interim storage of spent fuel and the handling, storage and final disposal of low and intermediate level waste. Both the Olkiluoto and Loviisa sites are suitable, and they are competing sites for the fifth unit.

The plant alternatives that were studied adhere to the latest safety guidelines and special attention has been paid to economy, and either of the proposed sites offers existing infrastructure that would reduce construction costs. The design has been simplified, and the time needed for construction has been reduced to approximately four years.

The new unit is expected to cost approximately 1.5 -2.5 billion euros. It will have a technical lifetime of 60 years. TVO plans to provide all the finance itself.

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