UPDATE 1-Plant problems, downturn hit Vattenfall

* Operating profit slides 20 percent

* Billions of crowns revenue lost through bizarre fire

* Impairment for German nuclear exit also weighs (Adds detail, background)

STOCKHOLM, Feb 9 (Reuters) - Sweden's Vattenfall said profit slipped by a fifth in 2011 as nuclear plant problems curbed output and the economic downturn hit electricity prices.

Warning of challenging times ahead, the state-owned company posted operating profit of 23.2 billion crowns ($3.5 billion) on a 15 percent drop in turnover.

The result included a 10.5 billion impairment charge for the decision by Germany, Vattenfall's biggest market, to phase out nuclear power.

"The economic slowdown in our markets dampened demand for electricity, and warm weather during the second half of the year led to lower sales of gas and heat," said Vattenfall, one of Europe's largest power groups.

"We also had problems at some of our production plants - mainly an extended outage of one of the reactors at the Ringhals nuclear power plant. Vattenfall's challenges remain great."

The outage at Ringhals, which followed a fire caused by a vacuum cleaner being left plugged in, cost Vattenfall billions of crowns when the reactor was idled for a months-long clean-up.

Last May's bizarre incident also hit Vattenfall's reputation with a recent opinion poll showing confidence in the plant at its lowest levels since measurements began in 1996.

Vattenfall said power generation at Ringhals was down 21 percent from the year before.

In the fourth quarter operating profit doubled year-on-year on the back of asset sales, while profit stripped of one-off items and fair valuation of energy derivatives and inventories fell 19 percent.

"The drop is mainly due to lower production volumes and average lower electricity prices received," Vattenfall said.

The group, which wants to get rid of "non-core" assets across Europe to focus on Germany, Netherlands and Sweden, booked the sale of its Polish power distributor GZE and that of its Belgian business, Nuon, in the quarter.

Chief Executive Oystein Loseth said a programme to cut costs by an annual 6 billion crowns by year-end 2013 was proceeding better than planned. ($1 = 6.6406 Swedish crowns) (Editing by David Cowell)