Risk management
The objective of risk management is to support the realization of TVO’s strategy and business objectives and to ensure that TVO's operational preconditions maintain. Risk management is carried out comprehensively according to the strategic objectives set by the board of directors, company-level policies and good governance.
Risk management is supervised by the Company’s Board of Directors that also verifies the Company’s principles of risk management. The President and CEO, with the help of the Company's Management Group, is in charge of risk management in accordance with TVO’s objectives and strategy. Under the Management Group operates a risk management group, which is in charge of ensuring adequate risk treatment in the Company and also for confirming the implementation of risk management measures.
Each organization unit is responsible for the identification, analysis and treatment of risks connected to its operations, as well as the follow-up of measures. Risk identification is carried out as part of TVO’s strategic and operational planning and follow-up and also as part of project management.
Risk management process
TVO has a group-wide risk management process, used to ensure that risks facing the Company’s operations are systematically identified and each risk is treated according to its severity. The objective of the risk management process is to either prevent the risk from materializing or to reduce its likelihood or consequences. The acknowledged risks are gathered to a company level risk register, where all the risks and their significance are displayed in accordance of each risk’s consequence and likelihood. All risks are reported to the company’s Management Group and the Board of Directors in accordance with the annual schedule of management.
The comprehensive development of risk management is evaluated with the help of the annually prepared risk management evaluation, which is used to set the goals for the development of risk management. Risk management evaluation is implemented in accordance with a model based on risk maturity levels.
In 2018, TVO’s management and operational planning process continued to increase the integration of risk management. Risk management is a part of the Group’s strategy and, as such, it is being developed to help meet the Group’s objectives with an acceptable risk level. TVO Group’s project management processes and risk management’s role were increased during the year 2018 as part of investment process.
Major risks and uncertainties
The risks connected to safety and electricity production are reduced by keeping the plant units in good condition. Safe and reliable production is ensured by efficient life-cycle management of the plant units and high-quality planning and implementation of the annual outages.
Fuel used in the electricity production , uranium and coal, is bought on the global market. Risks connected with nuclear fuel have been reduced by purchasing the fuel from a variety of suppliers and by making long-term contracts.
At OL3 EPR project, risk management is primarily a question of overseeing and guiding the work of the Supplier according to the terms of the turnkey contract and the settlement agreement.
Indemnity and property risks are covered with insurances. The aim of insurance management is to keep the scope, cover and cost of insurance at an acceptable level. TVO is a member of European mutual associations for nuclear insurance. Statutory liability insurance is in force for nuclear liability.
There are no major risks or uncertainties in view concerning electricity production at OL1 and OL2 plant units.
Financial risk management and fuel price risks are dealt with in the notes to the consolidated financial statements, note 27: Financial Risk Management.
Risks related to OL3 EPR project
Schedule and planned completion
TVO’s major risks are related to the schedule and profit-yielding capacity of the OL3 EPR project. Under the plant contract, electricity production was scheduled to start at the end of April 2009. The completion of the project, however, has been delayed. According to the schedule last updated by the Supplier in November 2018, regular electricity production in the unit will commence in January 2020.
The risk related to the planned completion refers to a situation in which commercial use cannot be launched as planned, which leads to additional costs.
During 2018, several risk management measures related to the OL3 EPR project have been executed to improve TVO’s readiness to commission the OL3 EPR unit as well as operate three nuclear power plant units. The settlement agreement that entered into force in March 2018 was one of the most important risk management actions. TVO monitors closely the compliance of the conditions set in the settlement agreement and that the commissioning of OL3 EPR plant unit is executed according the schedule provided by the Supplier.
Profit-yielding capacity of OL3
If the OL3 EPR project fails to reach the projected output level, load factor or operating cost structure or the output level is restricted by the main grid, there is a risk that the production cost will rise in comparison to the objective. This risk has been analyzed with the help of various scenarios influencing OL3’s profit-yielding capacity.
As risk management measures, TVO as a licensee ensures, among other things, that the OL3 EPR plant unit has undergone extensive functional testing before nuclear test operations are launched. TVO will ensure that the experiences from the Taishan sister plant are fully utilized during nuclear commissioning of the OL3 EPR plant unit.
Major plant modifications and their implementation
Increase of production costs and deterioration of profitability may be consequences of failed implementation of plant modifications. In major large-scale plant modification projects, it is vitally important to establish and assign responsibility for requirements related to nuclear safety and to ensure that the project parties meet these requirements in advance to avoid unexpected costs during the project.
In risk assessment analysis, increased project costs are viewed to arise either from inadequate preparation and requirement specifications, major unpredicted technical issues, challenges in the execution of the licensing process or deficiencies in project management and control.
As risk management measures, TVO has in 2018 continued to prioritize projects and measures that are most vital in view of the schedule and costs to secure adequate resourcing for them. Furthermore, TVO aims to ensure that project suppliers have the readiness and interests to complete the projects they are involved in.
Organization's capabilities
An organization’s competence and ability to function as a licensee may be compromised by dysfunctional management, failed reaction to changes in the operational environment or negative atmosphere of the work community. In addition to the rise of immediate costs, this may also lead to an increased likelihood of other risks being realized.
In order to maintain its capability to function as a licensee, TVO has prepared for the operation phase of the Olkiluoto 3 EPR plant and for future retirements by recruiting 134 new staff members in 2018 and by maintaining comprehensive supplier chain. Furthermore, TVO has also executed a competence survey project, the results of which are used for personnel planning. OL3 EPR trainings and the qualification of licensed personnel have progressed during 2018 and the first operator licences were granted by the Radiation and Nuclear Safety Authority in December 2018. TVO has also undertaken measures to further develop its work community culture and to strengthen its safety culture. TVO implements a personnel survey approximately every 18 months and in 2018 the results were showing remarkable improvement in every section.
Financial and liquidity risks
The financing risks of TVO's business include liquidity, market and credit risks. By diversifying sources of finance, and with long-term credit commitments and liquid funds, financing risks are reduced. The financial position has been strengthened by issuing long term private placements and bonds. TVO has reduced market risks by making use of interest rate and currency derivatives. According to the Company’s financing policy, the loans denominated in foreign currencies will be hedged to the euro until the maturity date by using derivatives.
Financing costs are impacted by the changes in TVO’s credit rating and outlooks as well as market changes to interest rates and corporate loan margins. There is a risk of significant rise in financing costs from their current level. This risk has been analyzed through various scenarios based on the changes in the average interest rate and margin of TVO’s loan portfolio. If the risk is realized, the consequences include increased cost of financing and thus increase in production costs.
TVO’s financing situation has developed as planned as the Company utilizes a variety of financing sources in diverse ways. In addition to the international capital market, the Company also acquires long-term financing from banks and other financial institutions. Credit ratings play a major role in capital market financing.
Financing is used to secure TVO’s liquidity under all circumstances. For this purpose, the Company maintains significant liquidity buffers in form of various revolving credit facilities and liquid assets. It is TVO’s basic principle to acquire about three quarters of its financing from the financial market and one quarter from its shareholders. TVO aims to maintain long-term financial arrangements and financing is arranged for the Company, not for separate projects.
TVO’s shareholders, banks and investors have a solid trust in the Company’s operations. This is reflected in the shareholder loan commitments to complete the OL3 project, significant revolving credit facilities, and successful bond issues.
Increase in the cost of final disposal of spent nuclear fuel
If Posiva’s final disposal project is not implemented according to plan, project costs rise or the completion of the project is delayed, the cost estimate of final disposal will rise, which in turn will influence the amount of the existing nuclear waste management liability of spent fuel.
As a risk management measure, the cost estimate was specified during 2018 and the most significant industrialization measures related to final disposal were defined.
Risks related to social and personnel matters, respect of human rights and risks related to corruption and bribery
Risks related to social and personnel matters, respect of human rights and risks related to corruption and bribery constitute one area of the Company’s risk assessment. No significant risks affecting the Company’s operations have detected on forementioned matters. The possible risks detected on these areas are addressed according Company’s ordinary risk management process.
Continuous risk management in these matters is executed according to TVO’s Code of Conduct. Internal auditor, assigned by the Board of Directors, supervises that the Code of Conduct is carried out in the Company’s operations. The possible risks are evaluated in projects and investments as necessary. In addition, these matters are evaluated in reviewing suppliers in accordance to a separate supplier-review procedure. TVO’s principles and results of ethical business are described more specifically in Chapter 16) Responsibility.
