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Olkiluoto: Finlands new nuclear power plant

Finland’s Olkiluoto nuclear power plant: The Olkiluoto construction project in Finland is rapidly becoming an example of all that can go wrong in economic terms with nuclear new build. It demonstrates the key problems of construction delays, cost overruns and hidden subsidies.

A construction licence for Olkiluoto was issued in February 2005 and construction started that summer. As it was the first reactor ever built in a liberalised electricity market, it was seen as a demonstration that nuclear power orders are feasible in liberalised electricity markets and as a demonstration of the improvements offered by the new designs. To reduce the risk to the buyer, Areva offered the plant under ‘turnkey’ terms, which means that the price paid by the utility (TVO) is fixed before construction starts, regardless of what actually happens to costs. The contract allows for fines levied on the contractors if the plant is late. The schedule allows 48 months from pouring of first concrete to first criticality.


The financing details have not been published, but the European Renewable Energies Federation (EREF) and Greenpeace France made complaints to the European Commission in December 2004 that they contravened European State aid regulations. According to EREF, the Bayerische Landesbank (owned by the German state of Bavaria) led the syndicate that provided a loan of € 1.95bn, about 60% of the total cost, at an interest rate of 2.6%. Two export credit institutions are also involved: France’s Coface, with a € 610m export credit guarantee covering Areva supplies, and the Swedish Export Agency SEK for € 110m.

In October 2006, the European Commission finally announced it would be investigating the role of Coface. Export credit agencies normally involved in financially and politically risky countries in the developing world, hardly a category that Finland would fit into, and credits are not usually provided for use within the same internal market.
Regardless of the result of the Commission’s investigation, the arrangements for Olkiluoto are based on substantial state aid that will not be available to many plants. The interest rate on the loan is far below the levels that would be expected to apply for such an economically risky investment.

Construction problems

In August 2005, the first concrete was poured. Almost immediately, things began to go wrong. In September 2005 problems with the strength and porosity of the concrete delayed work. In February 2006, work was reported to be at least 6 months behind schedule, partly due to the concrete problems and partly to problems with qualifying pressure vessel welds and delays in detailed engineering design.

In July 2006, TVO admitted the project was delayed by about a year and the Finnish regulator, STUK, published a report which uncovered quality control problems. In September 2006, the impact of the problems on Areva started to emerge. In its results for the first six months of 2006, Areva attributed a € 300m fall in first-half 2006 operating income of its nuclear operations to a provision to cover past and anticipated costs at Olkiluoto. The scale of penalties for late completion was also made public. The contractual penalty for Areva is 0.2% of the total contract value per week of delay (past May 1, 2009) for the first 26 weeks, and 0.1% per week beyond that. The contract limits the penalty to 10%, about € 300m. In December 2006, after only 16 months of construction, Areva announced the reactor was already 18 months behind schedule, which seems to assure that the full penalty will be due. It now seems likely that the project will fall at least € 700m over budget.


The scale and immediacy of the problems at Olkiluoto have taken even sceptics by surprise. It remains to be seen how far these problems can be recovered, what the delays will be and how far these problems will be reflected in higher costs (whether borne by Areva or TVO). However, a number of lessons do emerge:

  • The contract value of € 2000/kW, which was never – due to the turnkey nature of the contract – a cost estimate, now appears likely to be a significant underestimate. Actual costs seem likely to be no lower than that forecast by EdF, € 2200/kW. This may yet turn out to be an underestimate.
  • Turnkey contracts may well be required by competitive tenders in liberalized electricity markets. Or regulators may impose caps on recoverable nuclear construction costs, which would have the same effect. The willingness of vendors to bear the risk of cost over-runs in the light of the Olkiluoto experience is subject to serious question.
  • The skills needed to successfully build a nuclear plant are considerable. Lack of recent experience of nuclear construction projects may mean this requirement is even more difficult to meet.
  • There are serious challenges to both safety and economic regulatory bodies. The Finnish safety regulator had not assessed a new reactor order for more than 30 years and had no experience of dealing with a ‘first-of-a-kind’ design.

The alternative

In contrast to the historical problems and future uncertainties of the economics of nuclear power there are energy sources and measures whose financial performance is more predictable.

There is a growing awareness of the need to move away from the predominant use of fossil fuels, for climate and security of supply reasons. Energy efficiency and renewable energy sources can supply this need.

Energy efficiency

Energy efficiency must be the cornerstone of future energy policies. The potential for energy efficiency is huge. According to the French Ministry of Economy, changes in the production, transmission and use of energy (including transport) could result in a halving of global energy consumption – from the business as usual scenario – resulting in the saving of 9,000 million tonnes of oil equivalent (Mtoe) per year by 2050. In 2005 global nuclear energy production was 627 Mtoe.

An energy efficiency action plan proposed by the European Commission in October 2006 called for a 20% increase in energy saving across the EU. If fully implemented, this would result in energy consumption in the EU being 1,500 Mtoe by 2020, instead of the 1,890 Mtoe in the ‘business-as-usual’ scenario and compared to 1,750 Mtoe in 2004. As a result, energy bills in the EU would fall by € 100 billion per year (over the business-as-usual scenario).

Some energy efficiency measures will come at little or no cost, but others will require significant investment. Already Germany has a highly efficient energy economy, but analysis suggests that the country’s energy consumption could be reduced by 27% by 2015 using 69 measures across the industrial, commercial and residential sectors at an average cost of € 69/MWh. This is an enormous energy saving programme to be introduced within a decade. The price of saving is below the likely cost of nuclear electricity.

Renewable electricity sources

The contribution of renewables is growing at a rapid rate with the annual investment growing from about $7bn (€ 5.3bn) in 1995 to $38bn (€ 29bn) in 2005. During 2005 the total installed capacity of non-large-hydro renewables increased by 22 GW, which compares to a 3.3 GW increase in nuclear, much of which relates to increased capacity from existing reactors rather than from the construction of new reactors.

Hydroelectricity and wind energy are expected to deliver the biggest increases in electricity production by 2020 – roughly 2000 TWh/year in each case. Both technologies are expected to deliver electricity at around € 40-50/MWh, which is likely to be competitive with nuclear, gas and coal – although this will depend on the prevailing price of carbon. The prospects for solar thermal electric, wave and tidal stream energy are less certain but their generation costs may also be competitive with the fossil fuel sources.

Source: Greenpeace: The economics of nuclear power, December 2007

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1 thought on “Olkiluoto: Finlands new nuclear power plant”

  1. Update: Olkiluoto nuclear power plant (June 2008)

    Meanwhile the delay has increased to more than 2 years for Finland’s new Olkiluoto nuclear power plant and the newest cost estimate is € 5.2bn instead of the projected € 3bn. This is a cost increase by almost 75%. (June 2008)

    But it comes even worse: There is a second nuclear power plant with similar technology from the same supplier Areva being built in Flamanville, France. From a recent Reuters press release: Concrete pouring at the site of the future EPR nuclear reactor in Flamanville was stopped May 21 after an inspection found "anomalies", France’s nuclear safety authority said. "The anomalies pose no safety problem, but they demonstrate an unacceptable lack of rigour at the construction site," said Thomas Houdre, head of the authority’s Caen office, said at a press conference.

    The authority, the ASN, requested that EDF stop new concrete work until internal controls are improved.

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