Rosatom signs contract to build nuclear plant for Fennovoima in Finland

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Interview with Chairman Pekka Ottavainen: “It was a very simple choice”.

Pekka OttavainenThe Finnish company Fennovoima has signed a contract with Rosatom to build a 1200 MW greenfield nuclear power plant, Hanhikivi I,  in Pyhäjoki in northern Finland. It is the first time in the post-Soviet era that the Russian company will be building a new nuclear power station in the EU. The plant will cost roughly €6 billion and will deliver electricity at “no more than €50 per MWh”, says Pekka Ottavainen, Chairman of Voimaosakeyhtiö, the cooperative of Finnish companies that own Fennovoima, in an interview with Energy Post. Although construction permits have yet to be granted, Ottavainen says he now has “very strong confidence” that the plant will be built as planned.

Fennovoima’s signing of the contract with Rosatom comes at a crucial time in the European nuclear power market. Several European countries, including the UK, the Czech Republic, Poland, Bulgaria, Lithuania, Slovakia, Romania and Turkey, are currently trying to find ways to get new nuclear power plants built. The UK government has recently announced it will offer EDF of France a 35-year guaranteed, inflation-indexed “strike price” of £92.50 (€110) per MWh  to build a new nuclear plant at Hinkley. The European Commission has subsequently announced that it will launch a state aid investigation into the Hinkley Point C project, which will consist of two 1600 MW EPR units (European Pressurised Reactors) which are expected to cost £8 (€9.55) billion each.

Fennovoima will be supplying its shareholders (which include utilities, manufacturing companies and municipalities) electricity at a substantially lower price than the UK strike price. The price “will not be higher than €50 per MWh”, says Ottavainen. “If it goes higher than that, there will be no deal.” The shareholders will jointly own the Hanhikivi plant and will be delivered power at cost price, according to the Finnish “mankala” cooperative business model. Ottavainen says the UK price is “very high”. He says he is not in favour of subsidising any kind of power production, including nuclear power. “Subsidies will drive prices up, as everyone will try to get as high a price as possible. Fennovoima will be built without any subsidies, now or ever.”

Beset by problems

Fennovoima’s choice for the Rosatom reactor is also highly significant. The Russians are offering their their AES-2006 pressurized water reactor, “the latest evolution in a long line of VVER plant designs”, in the words of a press release from Fennovoima. Ottavainen acknowledges that the choice for the Rosatom design is also a choice against the rival EPR design from French supplier Areva, which EDF wants to implement in the UK. The Finnish company TVO is currently building “the first EPR in the world”, but that project has been beset by problems. Started in 2005, the 1600 MW reactor was supposed to have been completed in 2009 but is now scheduled to start operating in 2016. Its cost estimate has gone up from €3 billion to €8.5 billion. The two partners, TVO and Areva-Siemens, are suing and countersuing each other in multibillion-euro arbitration proceedings. EDF has since started building a second 1650 MW EPR at Flamanville in France, but this has run into cost overruns and delays.

“We are a kind of island in Europe, we have take care of ourselves”

Ottavainen says we have “of course closely followed what has been going on at Olkiluoto” and this “has influenced our decision. Everyone is worried about what is happening with the EPR.”

“For us the Russian option was clearly the best”, says Ottavainen. “It was a very simple selection.” He says the size (1200 MW) of the Russian reactor suited Fennovoima better than the 1600 MW offer from Areva. It also helped that the Russians are offering proven technology. “Rosatom are very experienced. They have never stopped building reactors. Their design complies with Finnish standards and with the highest international safety standards.” Ottavainen points out that in Loviisa in Finland two VVER-440 units (the forerunner of the AES-2006 design) have been operating safely for decades.

Ottavainen is very positive about his cooperation with the Russians. “I am glad we are the first to sign up with them. We believe they have very capable engineers. Russia is an important trading partner for Finland and we like to do business with them.” The Finnish authorities have already carried out a preliminary check and Ottavainen does not expect to have problems getting the required licenses.

For Rosatom the deal with the Finns is an important victory. The huge state-owned company, which has 275,000 employees, has in recent years embarked on an ambitious international expansion program. It has a foreign orders portfolio worth $66.5 billion (2012) and is building 19 reactors outside of Russia (mostly in Asia), more than any other supplier. It has made a bid to build new reactors at Temelin in the Czech Republic and has partnered with Rolls Royce and Finnish energy company Fortum to become active in the UK, but the deal with Fennovoima is the first definitive order for the Russians in the EU in recent years.

Cold and dark

Although Finland already strongly depends on Russia for its energy supplies, Ottavainen does not worry that his project will incresae Finland’s dependency. On the contrary, he believes the new reactor will be a significant enhancement of the country’s security of supply. “Finland is a very cold and dark country. Electricity is very important to us. We are a kind of island in Europe, we have take care of ourselves. No one will help us if we run out of power.” The uranium for the reactor will be initially supplied from Russia, says Ottavainen, but in the long term Fennovoima will make sure it is not dependent on one source.

“We have to beat the market price”

The question is whether the Fennovoima  model could be replicated elsewhere in Europe. The Finns (not just Fennovoima but also e.g. TVO) have a unique business model called the mankala, a kind of cooperative. The participating companies are all entitled to a share in the power production proportional to their share in the mankala. The mankala is not run for profit, so the shareholders get their electricty at cost price. “We have to beat the market price”, says Ottavainen.

But the Fennovoima project has not been without its difficulties. Of the 60 shareholders of Voimaosakeyhtiö, the owner of Fennovoima, 15 have in the past decided to drop out of the nuclear project. The remaining shareholders have reserved just over half of the power production of Fennovoima. Rosatom itself will own 34% of Fennovoima and will have to find buyers for its share of the electricity.

Why did so many shareholders (including German energy giant Eon, which was an important backer but dropped out at the end of 2012) decide not to continue with the project? “They all had their own reasons”, says Ottavainen. “Sometimes they had other options that suited better their specific needs”, e.g. CHP plants. Or they had to make large grid investments. And Eon left because they left Finland altogether.” But, he adds, “my own feeling is that some will now want to increase their stakes. I am confident we will have strong support.”

€1 billion for storage

Fennovoima is also unlikely to run into much public opposition. The plant, which will be built on a greenfield site in Pyhäjoki in northern Finland, enjoys strong local support, says Ottavainen. 74% of the local population is said to be either positive or neutral about it. The municipality of Pyhäjoki volunteered to host the plant.

As to the long-term storage of nuclear waste, Ottavainen is confident that Fennovoima, once it starts operating in 2024, will have a solution for this. The Finnish company Posiva, a joint-venture of TVO and Fortum, which together have four nuclear reactors operating in Finland, is building an undergroud repository in Finland called Onkalo at Eurajoki on the west coast of Finland. Onkalo will become operative in 2020 and may become the world’s first permanent storage site for nuclear waste. The Finnish government has said Fennovoima should also be able to use Onkalo, but Onkalo’s owners claim there is not enough space for that. Onkalo will be able to store 9,000 tonnes of nuclear waste, which should stay 420 metres underground for 100,000 years.

But Ottavainen says it does not matter whether Fennovoima will be able to store its waste in Onkalo or not. “There are other places in Finland with the same characteristics where waste can be stored. If Onkalo does not have enough room, we will build another repository.” According to Ottavainen, the costs of long-term storage are accounted for in the project and already included in the price. “We have ensured that there will be over €1 billion available in 2070 to pay for storage costs.”

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