S&P cuts Finland's TVO debt to junk as nuclear struggles to compete

* Nuclear operating costs below electricity market prices

* Third nuclear reactor will increase TVOs costs

* TVO downgrade comes on heels of EDF (Paris: FR0010242511 - news) , RWE (LSE: 0FUZ.L - news) downgrades (Adds detail on nuclear operating costs, utilities ratings)

By Geert De Clercq

PARIS, May 23 (Reuters) - Ratings agency S&P pushed Finland-based Teollisuuden Voima Oyj's (TVO) long-term debt into non-investment grade as the nuclear power producer's reactors struggle to cover their costs.

Standard & Poor's downgraded TVO, an unlisted non-profit cooperative owned by several Finnish companies, by one notch to BB+ from BBB- with a stable outlook, pushing the company's debt into non-investment grade.

Ratings agencies have downgraded several European power producers in the past week, especially those that rely heavily on nuclear power, which is being priced out of the market by a flood of subsidised renewable energy.

Earlier this month, S&P downgraded the hybrid debt of France's EDF, the world's largest operator of nuclear plants, to junk while Moody's cut the senior debt of Germany's RWE to just one notch above non-investment grade.

S&P said the ongoing decline in Finnish power prices over the past year will weigh on TVO's cost competitiveness, particularly once its long-delayed third reactor starts up.

"Future (Other OTC: FRNWF - news) prices are currently predicted by the market to be below TVO's expected costs of production when the third nuclear power plant Olkiluoto 3 (OL3) is commissioned in 2018/2019," S&P said in a statement.

S&P expects TVO's average production cost will increase from around 20 euros per megawatt hour currently to slightly below 30 euros per MWh in 2019 once OL3 is commissioned.

TVO, whose owners include paper companies UPM (Taiwan OTC: 4752.TWO - news) and Stora Enso (LSE: 0CX9.L - news) and utility Fortum (LSE: 0HAH.L - news) , could cover its cash costs by selling residual output on the Nordic power market, but may not be able to cover depreciation and debt amortization if prices remain low, S&P said.

An EDF executive said last week the state-owned utility's cash operating costs were between 30 and 40 euros per MWh, excluding initial investment costs and future decommissioning costs - and about 55 euros including all costs.

French forward wholesale power prices trade around 30 euros per MWH after falling as low as 26 euros in February-March.

EDF plans to spend 50 billion euros on extending the lifespan of its ageing French nuclear fleet and plans an 18 billion pound ($26 billion) nuclear investment in Hinkley Point, Britain, based on the assumption that power prices will recover in coming years.

In the United States, several nuclear power stations have been permanently closed in recent years as they are no longer able to compete with cheap shale gas and renewable energy. ($1 = 0.6920 pounds) (Reporting by Geert De Clercq, editing by David Evans and Susan Thomas)