Decision time looms for Finland's Fennovoima reactor

Fri Feb 7, 2014 8:50am EST

Related Topics

* Rosatom agreed to take a 34-pct stake in the plant

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* Power price forecast, Olkiluoto problems raise doubts

By Jussi Rosendahl

HELSINKI, Feb 7 (Reuters) - A plan to build Finland's sixth nuclear reactor hangs in the balance as investors reassess its viability against a weaker economy and lower energy prices and a deadline for final commitments looms.

The Fennovoima project was intended to secure cheaper energy for its 46 investors, mainly Finnish industrials including steel companies Outokumpu and Rautaruukki, retailer Kesko and municipal utilities.

Last year Russian nuclear firm Rosatom extended a lifeline to the 1,200-megawatt Fennovoima plant after Germany's E.ON , originally a top investor, left the consortium after a strategic review of its operations.

State-owned Rosatom, which has been stepping up its overseas expansion, took E.ON's place with a 34 percent stake, along with a deal to be the plant's main supplier. However, some 20 smaller owners including Atria, Boliden and Componenta have also said they are dropping out and shifting investments elsewhere.

Analysts say more members may withdraw, possibly ahead of a final commitment deadline at the end of this month, putting at risk the project that is estimated to cost up to 6 billion euros ($8.1 billion) and to begin operating in 2024.

Part of the growing scepticism comes from delays at another planned Finnish reactor site, Olkiluoto-3, now 7 years behind schedule. Its owner Teollisuuden Voima and contractor Areva-Siemens have been fighting in court over cost overruns.

"If I was an owner, especially with financial challenges, I'd take a critical look at this project. Its risks are considerable anyway, as we have seen in Olkiluoto," said Inderes analyst Juha Kinnunen.

The caution is part of a trend in Europe, where costs have surged after regulators imposed stricter safety rules following the Fukushima disaster.

The British government in October offered 35-year state guarantees of a price clearly higher than the current market price to fund the Hinkley Point C plant in south-west England, showing the level of reassurance developers in the region now need for new reactor projects.

Fennovoima's reactor project in Pyhajoki, northern Finland, was the first new site announced after the Fukushima disaster in 2011, as the small Nordic country, which already covers 27 percent of its power consumption with nuclear, stayed the course to pursue cheap electricity for its energy-hungry industries and to curb carbon emissions.

But weak European growth has hit Finnish industries like pulp and paper and forecasts for lower energy prices are also raising doubts over whether investments will pay off.

"I am somewhat sceptical that this project would eventually be carried through. The financials seem challenging and many owners have already left," said Teemu Vainio, analyst at Pareto Securities in Helsinki.

Fennovoima CEO Juha Nurmi remained optimistic that new investors could still join the project, but some of the leaving owners such as Kuopion Energia and Atria recently told public broadcaster YLE they were having trouble selling their stakes.

CHEAPER ELECTRICITY?

A main turn-off for investors could be the outlook for energy prices. Nordic power consumption fell 1.6 percent last year along with the decline of energy-intensive industries such as pulp and paper. Meanwhile, the growth of renewable energy, expected to be boosted by government subsidies, is also seen pushing prices down.

The plant is expected to supply its owners with electricity at a price of less than 50 euros ($68) per megawatt-hour. Fennovoima says that is a good deal for the decades to come, although the Nordic system contract for a power delivery in the second quarter trades only at about 30 euros per MWh.

"News from the Finnish manufacturing industry indicate that the demand forecasts might have been too optimistic. It could be we wouldn't need all the nuclear reactors that are in the Nordic pipeline right now," said Kinnunen.

Along with Fennovoima, TVO is planning another reactor, Olkiluoto-4.

Oslo-based Thema Consulting Group recently forecast the Nordic system price to remain at a level around 30 euros a MWh until 2020 and increase towards 50 euros by 2040.

"Basically, Fennovoima owners should have a strong vision that electricity will get more expensive in the future, and that is naturally a challenging call to make," said Pareto's Vainio.

"There is little point in making the huge investment if you can buy cheap power from the Nordic exchange."

Outokumpu and Rautaruukki, with planned Fennovoima stakes of 11 percent and 3 percent respectively, have said they remain committed to the plan.

Outokumpu recently announced a recapitalisation plan while Rautaruukki has been offered a $1.6 takeover offer from SSAB -- moves which are seen helping them pay for Fennovoima.

But analysts say some of the tens of municipal utilities could be reconsidering as local governments' combined deficit doubled to 2.1 billion euros in 2012.

If Fennovoima secures commitments by the deadline and members stick to the plan, there are other potential obstacles. Rosatom's involvement wasn't included in original plans and the government is weighing the need to renew overall approval.

With a general election coming up next year there is a chance a new vote could trigger new opposition. Russian involvement is also likely to invoke references to the 1986 Chernobyl disaster.

Ville Niinisto, environmental minister and the head of Finland's Greens party which is opposed to the Fennovoima plant, is betting it won't even come to a vote.

"Fennovoima will likely collapse before any political consideration is even needed. The shareholder base will come apart," he predicted in September.

($1 = 0.6125 British pounds) ($1 = 0.7353 euros) (Reporting By Jussi Rosendahl; Editing by Elaine Hardcastle)

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