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Finland sneaking under the radar

by Starvid Mon Feb 25th, 2008 at 06:24:16 AM EST

I am sure you have all heard about the problems and delays at the construction site of Finlands fifth nuclear reactor, a 1600 MW EPR being built by Areva and Siemens which will increase the nuclear generation of Finland by 60 %.

What you probably haven't heard about is the other new reactors.

Diary rescue by Migeru


Almost a year ago TVO and Fortum made it clear that they were planning a sixth reactor at either Olkiluotu (site of the EPR) or at Lovisa, currently hosting two very small Soviet style PWR's. It is not clear at all that the next reactor will be an EPR. Indeed, in the environmental impact report filed by the companies February 15th, the new reactor is described as being either a PWR or a BWR with an output of 1000-1800 MW.

On top of this, last June the new consortium Fennovoima was formed, with a 2/3 ownership be 62 industrial and local energy companies and 1/3 being held by the big multinational power company E.On. This consortium is planning 1-2 new reactors with an output of 1500-2500 MW and a startup date at the latest in 2018. Four different sites are being considered, interestingly all being greenfield sites without any current reactors.

(The HTML is really screwy today, so instead of posting this map in the diary, go check out the link: http://www.nyteknik.se/multimedia/archive/00022/KarnkraftFennovoima_22125a.jpg )

This means that the Finnish nuclear push will add 4100-5900 MW of nuclear power to its grid, an effort that given Finland's size is fully comparable with the monumental French and Swedish programs of the 70's and 80's.

Furthermore, the fact that the new plants are financed primarily by big industrial consumers is another nail in the chest for deregulated power generation, showing that the power markets in general and the possibility to hedge power costs by buying power futures in particular is deeply flawed. It seems the only way to hedge your power costs is by actually owning a physical stake in a low marginal-cost power plant.

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Popular ownership of the means of production, remember? And furthermore, an investment in a nuclear reactor should be an optimal choice for pension investments, considering the time scales involved and the stable revenue the plants bring in.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Feb 19th, 2008 at 01:54:31 AM EST
Via what is called a "State-owned utility." You know, before it was a crime for anything to be "State-owned"...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Feb 19th, 2008 at 04:13:43 AM EST
[ Parent ]
Let's start calling it 'differently privatized'.
by GreatZamfir on Tue Feb 19th, 2008 at 06:22:59 AM EST
[ Parent ]
But let's say you have a special reason to hedge against power prices, ie you have a big house or a farm or something that consumes a lot of power. Then you might want a greater exposure to power generation than you have by just as a citizen having a stake in the state owned utility.

I have nothing against state utilities. Before deregulation we had the state utility Vattenfall (still state owned) and a multitude of other power companies, some owned by industrial companies, some by local authorities and some were private companies. It worked very well. You don't need a single state provider à la EdF, even if that works well too.

On interesting detail on these Finnish consortiums is that they are not for-profit companies, giving revenue to their owners. No, what they do is that they give the owners the right to buy a share of the electrical output at the cost of production equal to their ownership share of the consortium. This electricity they can then either consume in their paper mills and copper smelters or whatever, or sell to someone else.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Feb 19th, 2008 at 06:57:51 AM EST
[ Parent ]
What's the point? Why shouldn't everyone pay a competitive price, with the investors getting the profits back as dividend? This might be fine for now, but in 20 years time the investing companies will have different energy needs relative to each other, some might wabt more than their quotum, others less, new players might like to buy electricity at good rates.

In such a situation it is very easy to imagine a political game inside the plant and its board to define 'production cost' and 'market price' in ways that are more related to the influence of its owners than to some overall optimum.

Now, this doesn't have to happen, and I suppose they will have thought about this themselves. But this sounds as the sort of loosely coupled daughter company that can best be run relatively independent.

by GreatZamfir on Tue Feb 19th, 2008 at 10:37:57 AM EST
[ Parent ]
If they don't need the power in 20 years, they can either sell the power they produce to someone else (jut like they can now), or sell their share in the consortium to someone else. What's the problem with that?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 25th, 2008 at 07:12:02 AM EST
[ Parent ]
That kind of arrangement can only work when you have energy-intensive industries that know their power requirements for the long term and value the stability and predictability of the power price over the long term more than any short term gains on pricing.

There are very few such players around. Utilities are the entities that cna play that role, but then they bump agaisnt the fact that, under market conditions, gas fired plants are more flexible and less risky than nuclear power plants (not to mention that they immobilize smaller chunks of capital)

So nuclear is unlikely to happen on a grand scale if the private sector gets to decide (unless the State privdes hidden guarantees, which it sohuld not - it should all be out in the open and argued).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Feb 25th, 2008 at 09:39:19 AM EST
[ Parent ]
There seems to be enough of these kinds of companies in Finland anyway, as they are actually building nuclear and not gas...

A lot of Swedish industrial companies have their own power plants too, especially paper companies. And the miner Boliden is part of one of these Finnish nuke projects.

Still, it wouldn't matter very much if the companies just bought power the usual way and got dividends like GreatZamir says.

But the companies obviously feels this way is better.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Feb 25th, 2008 at 10:17:12 AM EST
[ Parent ]
But why do they think this is better? The only reason I can think of is that they are not so much concerned about cost, but more about availability of energy at all.

In that case, this set-up basically has a built-in energy futures contract for the lifetime of the plant. Still sounds way to rigid to make business sense. But I am clearly not a papermill operator...

by GreatZamfir on Mon Feb 25th, 2008 at 11:47:33 AM EST
[ Parent ]
Well, I don't know why they don't operate the plant like an ordinary company and own it that way. Tax or legal reasons maybe?

Or maybe it just works more smoothly their way. Instead of having money sloshing back and forth you just get your electricity at a very low price you know beforehand.

I guess I could mail and ask them.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Feb 25th, 2008 at 11:51:14 AM EST
[ Parent ]
Ummm....well here's Chris Cook to sound like Chris Cook ;-)

I don't see why the Public (not the State - I would use a "Custodian"/ Stewardship arrangement) shouldn't "own" such energy projects and raise money simply by selling future energy production for cash now.

They can simply do this by creating Units in an entity which has rights over the future energy production. ie "shares" redeemable in energy, not in Central Bank "fiat" money.

I call this "unitisation" as opposed to "securitisation": ie "asset-based" finance (based upon ownership), as distinct from "deficit-based" finance  (based upon a claim over someone else's ownership).

The outcome is not dissimilar to an "energy loan" repayable over the life of the asset.

Service providers formerly known as Bankers - such as Jerome - would do the necessary due diligence to ensure that the project "stacks up". ie produces more energy over its life than it costs to create, and, of course, costs to run and decommission.

Other service providers would manage the development and implementation, and operate the plant, and here is where the other type of "Unit" - ie proportional shares in an energy production partnership - would come in to play to align the interests of owners and managers (which both the Company legal form and the Trust legal form are structurally unable to do).

Such Redeemable Units would be sold at the current energy market price, or at a discount.

The outcome is a "Pool" of future production "wrapped" in a legal framework (I advocate forms of Partnership, but Trusts or even Companies could work, albeit clumsily and with managerial conflicts).

To all intents and purposes this "Pool" constitutes both a form of "Exchange Traded Fund" invested in energy - as opposed to (say) gold - and an "ungeared" and undated futures contract.

If a punter wants gearing (as exists in margined futures contracts) then he can borrow to buy "units" or buy options on them.

Industrial users can lock in price by buying units, which they can then use instead of cash to pay for their actual consumption. The actual "market price" would be based upon spot supply and demand of electricity, and by definition no "investors" would be involved in that market, only producers and consumers.  

Any excess energy from the asset after repayment of the energy investment would be available to fund future investments, or for use as an "energy dividend" to the Community.

Using this model renewables - whose inputs are free, and operating and decommissioning costs limited and known - will probably be self financing.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Feb 25th, 2008 at 09:36:30 PM EST
[ Parent ]
And this at a time when heat pumps sales for retrofitting and for new domestic building is skyrocketing.

You can't be me, I'm taken
by Sven Triloqvist on Tue Feb 19th, 2008 at 04:31:45 AM EST
Is there subsidies in place to promote heat pumps or is it just the increasing prices?

Sweden had (I believe it is finished now) a subsidy for heat pumps over a few years. It was a limited offer and not really a large part of the cost, but it pushed many to make the shift. That a heat pump was economically beneficial over time was never in question, it was just a matter of getting people to do the investment (cost to own vs. cost to buy). Guess the subsidy worked as planned.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Feb 19th, 2008 at 03:32:33 PM EST
[ Parent ]
The Finnish Heat Pump Association website is down, otherwise I'd get you the figures. I can't remember direct subsidies, but there are all sorts of home emergy improvement grants, tax relief etc.

All types of pumps are used: water/water heat, air/water heat, air/air heat, and exhaust heat.

There is also a relatively close-to-surface magma layer that runs down from Iceland under Norway, Sweden, S and SW Finland, and down into the Baltics. So there is quite hot rock if you are prepared to drill down. Not sure how much this has been exploited, but Finland has more experience than almost any country in drilling Pre-Cambrian rock.

Sandvik is the leading company.

You can't be me, I'm taken

by Sven Triloqvist on Tue Feb 19th, 2008 at 04:41:10 PM EST
[ Parent ]

Number 5 (EPR) under construction at Olkiluoto.

You can't be me, I'm taken

by Sven Triloqvist on Tue Feb 19th, 2008 at 05:09:09 AM EST
I find the investment in nuclear power to be a source of wonder at mysterious things. The things are massively expensive to build, never come in on budget, always seem to suffer niggling outages due to this, that or the other not having been installed correctly because of cost-cutting (by which time bugger all can be done about it).

They are then run far beyond their projected life time in order to recoup costs and then the poor public have to pay at least as much again as it cost to build and oiperate just to dismantle the stupid thing.

But then again, I never did understand economics and I'm sure putting your head in a guillotine makes an awful lot of sense as well.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Fri Feb 22nd, 2008 at 09:51:40 AM EST
Sure, they are expensive. That's in the nature of power plants. A little more expensive than coal plants, but still cheaper than wind power parks of the equivalent size. And it's the cost of the produced power that counts in the end, not the upfront price tag.

They almost always come in on budget. It's just that the media doesn't write about those projects. I guess it's a bit like the media myth "no nuclear reactors have been built in Europe since Chernobyl" until Olkiluoto 3.

They have the least outages and highest capacity factors of any power plant.

The fact that they were built to such extremely high standards you turn on its head and call "run far beyond their projected life time in order to recoup costs". If they recouped their costs in 5 years, should they be shut down then? Off course not. As long as they are safe and profitable you should run them.

The public doesn't have to pay for dismantling the plants. The power companies pay for that in all civilized countries.

I think you know all these things and are just being disenginious.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Feb 25th, 2008 at 07:08:35 AM EST
[ Parent ]
European Tribune - Finland sneaking under the radar
Furthermore, the fact that the new plants are financed primarily by big industrial consumers is another nail in the chest for deregulated power generation, showing that the power markets in general and the possibility to hedge power costs by buying power futures in particular is deeply flawed. It seems the only way to hedge your power costs is by actually owning a physical stake in a low marginal-cost power plant.
I'm surprised Chris Cook didn't jump on this observation. It seems to prove him right on his contention that ownership of energy generation assets is desirable for other investors than utilities.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Feb 25th, 2008 at 06:26:09 AM EST
See my comment above.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Feb 25th, 2008 at 09:36:09 AM EST
[ Parent ]
I am sure you have all heard about the problems and delays at the construction site of Finlands fifth nuclear reactor, a 1600 MW EPR being built by Areva and Siemens which will increase the nuclear generation of Finland by 60 %.

You mean, build by France and Germany?

Sorry, can't get over the fact that the debt is partially backed by both state's export agency. Not picking a fight, I promise.

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

by UnEstranAvecVueSurMer (holopherne ahem gmail) on Mon Feb 25th, 2008 at 08:03:03 AM EST
Nothing wrong with that, and as we all know, the profitability of capital intensive projects to a high degree depends on the rates on the loans.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 25th, 2008 at 09:06:04 AM EST
[ Parent ]
I agree with Jerome above: government intervention should be clear and transparent. Such a thing makes a mockery of the 'private-industry' theme.

At the end of the day I agree that these are the things that make nuclear power possible, more profitable and safer.

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

by UnEstranAvecVueSurMer (holopherne ahem gmail) on Mon Feb 25th, 2008 at 11:03:00 AM EST
[ Parent ]
The Danish export credit agency is also participating to the financing of one my offshore windfarms in the Netherlands. They get a market rate for their participation, but that still probably disqualifies my industry as well, right?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Feb 25th, 2008 at 09:40:44 AM EST
[ Parent ]
Was that a question for me?

If it was, I have no problems with the Danish export credit agency handing out Danish export credits.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Feb 25th, 2008 at 10:12:42 AM EST
[ Parent ]
I understand that export credit agencies work as guarantors of loans in case the debtors defaults. Such an agency is usually needed when there are political risks.

But are you saying that they are investing in your windfarm?

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

by UnEstranAvecVueSurMer (holopherne ahem gmail) on Mon Feb 25th, 2008 at 10:59:08 AM EST
[ Parent ]
There are several things going on here:

Pros
=

  1. Finland is 100% dependent on Russian gas (we all know the issues with that)

  2. Even if district heat consumption might start to shrink, electricity consumption (industrial, service and domestic) is rising the standard 2% p.a.

  3. Due to various factors, but mainly due to EU climate regulations, the base of the Finnish power generation will change radically in the coming 15 years. That means replacement to the base power production is needed.

  4. If the EU electricity market deregulation finally moves forward (like it or not), Finland could actually export electricity to CE. Now the avg pot price @ Nordpool for electricity is clearly lower than the price in CE (coal condense). Everybody knows the energy crunch coming to CE if climate cuts are to be met. Many CE & Finnish players want to get piece of this pie.

  5. Everybody keeps saying: if not nuclear, then what (for base power)? Surely wind and bio will be built, but many are saying it's not enough (and match is not 100% for base power). Solar is not such hot stuff at Finnish latitudes all-year-around.

  6. The rush for more Ux has started. French companies are trying to make claims even in Finland. It could be, at least in theory, that Finland could become partially self-sufficient in energy in the future, if Fin could also mine part of their own uranium (a long shot at this point, imho).

Cons
=
==
  1. Who is even going to build all the extra 3-4 new reactors? In which timeframe? Build where? Financed by who (if they all get built)? Many questions are unanswered...

  2. Big industry is being downsized or threatened to be downsized, off-shored or just basically on borrowed time. Who is going to use up all the electricity (hint: export).

  3. There are talks that this is also being used politically to open up the controversial Finnish hydro-power decision restrictions in the area of Vuotos. The argument would go something like this: everybody needs to cut emissions, difficult to expand Natgas, bio-fuels do not scale yet, Fin is currently very coal dependent (and CSS is not here yet) - so it's either nuclear or more hydro. If not nuclear, then hydro. This is a special interest issue here in Finland with a lot of regional political wrangling in it. Too complex to go into here.

  4. The public opinion (which has been turning more positive since the days of Chernobyl, btw)

That's my quick take. I'm not pro or con. I just see that FIN will need more new base power, unless it starts a huge electricity saving project that beats the Jevon's paradox.

Time will tell, but currently the political message is this:

"One more new unit will get a permit for now, not 2, not 3 and not 4." - Mauri Pekkarinen, Minister of Economic Affairs

BTW, And I don't think ground source heat pumps or other heat pumps are going to change this: they may cut down on district heat need, but they do very little to electricity consumption (or may even increase it, on the whole, if we don't look at direct electricity heating houses alone).

Would love to hear other people's take on this.

by SamuM on Mon Feb 25th, 2008 at 12:43:45 PM EST


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