On group boundaries and cooperation: Economic viability of new nuclear power in Finland

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School of Business | Master's thesis
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Date
2015
Major/Subject
Economics
Kansantaloustiede
Mcode
Degree programme
Language
en
Pages
78
Series
Abstract
Recent nuclear power projects in Europe have turned out to be problematic due to construction delays and cost overruns. Despite the problems, several Finnish municipal energy companies and industrial companies are willing to participate in new nuclear power projects in accordance with the so-called "Mankala-principle". The Finnish Government has recently granted a positive decision-in-principle for the sixth nuclear power unit Fennovoima Hanhikivi 1 (FH1). The aim of this study is to shed light on the Finnish nuclear power investments and the related questions about risks, uncertainties and benefits. This is done by carefully reviewing the existing literature. Furthermore I attempt to find out the potential reasons for the participation of different types of companies in nuclear power investments in Finland and discuss whether the participation makes economic sense. I find that the participation can be risky especially for non-for-profit (municipal energy) companies that tend to set their electricity retail prices according to the average electricity acquisition costs rather than the market price of electricity. I also employ a sensitivity analysis for assessing the effects that a change in construction costs, discount rate and construction delay can have on the FH1 project's levelized cost of electricity. I find that the project may be at risk of not being economically viable even if there are no large changes in the parameters that are subject to sensitivity analysis. Moreover the project is rather sensitive to these changes and its economic viability is seriously threatened if the project faces problems in the construction phase. Furthermore I present an extensive literature review on the Finnish electricity situation.
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Keywords
energy economics, electricity markets, sensitivity analysis, levelized cost, nuclear power, risk analysis
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