- a leading energy company in the nordic area...price developments in q1 2007 2 price of eu emission...
TRANSCRIPT
- a leading energy companyin the Nordic area
Mikael LiliusPresident and CEO, Fortum Corporation
Helsinki25 April 2007
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• Fortum's first quarter 2007• Russia• Energy demand and climate change
3
• The highest ever quarterly result, despite warm weather and low spot prices
• Good hedging
• Strong cash flow
• Markets' result a disappointment
• Investment programme proceeding
Solid performance continued
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• Comparable operating profit EUR 512 (486) million , + 5% • Earnings per share EUR 0.59 (0.39), + 51%• Net cash from operating activities EUR 497 (303) million
• Fortum’s net debt decreased to EUR 3,932 (4,345 at year end) million
• A gain from the Hafslund sale of its REC shares in Q1 result
– EUR 180 million booked in share of profit of associates
– Fortum's share of the proposed special dividend approximately EUR 120 million
Strong financial performance
Comparison: I/2006 financial results
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MEUR I/2007 I/2006 2006 LTMPower Generation 328 293 985 1 020Heat 137 126 253 264Distribution 78 81 250 247Markets -14 0 -4 -18Other -17 -14 -47 -50Comparable operating profit 512 486 1 437 1 463Non-recurring items 1 0 61 62Other items effecting comparability -23 -14 -43 -52Operating profit 490 472 1 455 1 473
Comparable operating profit
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• 41% decrease in Nord Pool whole sale price to26.7 EUR/MWh
• Power Generation's achieved Nordic power price increased by 6% to 39.2 EUR/MWh
• Average CO2 price decreased clearly to2.1 EUR/tonne
Price developments in Q1 2007
2
Price of EU emission allowances
0
5
10
15
20
25
30
35
Q4Q1 Q42005
Q2 Q3 Q12006
Q2 Q3 Q12007
€/tCO2
Source: Nord Pool
2007
2008
4
Nord Pool power price
Source:
2003 2004 2005Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006Q2 Q3 Q4
€/MWh
0
10
20
30
40
50
60
70
80
Q12007
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Nordic water reservoirs
Source: Nord Pool
0
20
40
60
80
100
120
1 5 9 13 17 21 25 29 33 37 41 45 49week
2005 200620001996 2007 reference level
rese
rvoi
r con
tent
(TW
h)
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• Water reservoirs about 3 TWh above the average at mid April 2007. The combined snow and water reservoir level is generally estimated to be clearly higher than the average.
• Annual Nordic electricity consumption to increase about 1%
• Forward power prices at mid April 2007:
– rest of 2007 ~ 28-29 EUR/MWh
– 2008 ~ 42-43 EUR/MWh
• CO2 prices at mid April 2007:
– for 2007 ~ EUR 1 per tonne
– for 2008 ~ EUR 17-18 per tonne
Market fundamentals
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Wholesale prices for electricity
Source:
UK
German
Nordic
EUR/MWh Spot prices Forward prices
0
10
20
30
40
50
60
70
80
90
100
2005 2006 2007 2008 2009April 20, 2007
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Hedging of Power Generation's Nordic sales
Hedge ratio Hedge price
Rest of 2007 ~ 70 % ~ EUR 40 per MWh
Calendar year 2008 ~ 40 % ~ EUR 42 per MWh
Status at the beginning of April 2007:
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• Fortum's first quarter 2007• Russia• Energy demand and climate change
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Fortum's current operations in Russia
TGC-1• Electricity production capacity
~6,070 MW(of which hydro 2,874 MW)
• Production volume of electricity ~22 TWh and heat ~29TWh
• Third largest TGC• Started operation on 1
October 2005 based on a leasing model
• Merger on 1 November 2006• On TGC-1's Board of Directors
Fortum has 3 representatives out of a total of 11 members
Other operations:• Operation & maintenance services• Electricity imports• Nuclear fuel and coal imports Owners of TGC-1:
RAO UES ~56%Fortum ~25%Norilsk Nickel ~7%Others ~12%
Fortum's holdings in Russia:TGC-1, Lenenergo and WGC-5- Invested amount ~300 MEUR- MCAP at 24 Apr 2007 ~1,200 MEUR
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Reform impacts industry structure
Competitive businesses
14 territorial
generation companies
(TGCs)
6 thermal wholesale generation companies
(WGCs)
1 hydro wholesale generation company (WGC)
<49% 65 -100%
System operator
0% 75 -100%
Holdings of guaranteeing
suppliers, isolated energos
48%
Federal Grid
Company (FGC)
4-5 inter-regional
distribution companies
(IDCs)
<25% 48%
49%
Holding of
IDCs
Regulated monopolies
Share of private ownership
Target structure planned to emerge in
2008
49 - 100%
Sales companies
Privatised companiesState-controlled companies
Ownership share
RAO UES restructuring
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• Fortum's first quarter 2007• Russia• Energy demand and climate change
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A huge foreseen increase in energy demand...
Source: IEA World Energy Outlook 2006 (the Reference Scenario)
0 2,000 4,000 6,000 8,000
Total
Coal
Oil
Gas
Nuclear
Hydro
Biomassand waste
Other RES
10,000 14,000 18,000
200420152030
* million tons oil equivalent
Mtoe*
+420%
+40%
+69%
+21%
+68%
+42%
+60%
+53%
• By 2030, globally, it is estimated that
– demand for primary energy grows 50% +
– demand for power more or less doubles
– power sector share of primary energy demand grows from 37% to 41%
Primary energy demand until 2030
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... and a need for significant investments in...
... Europe ...
Existing/remaining capacityDemand
Source: Eurprog 2005; Europe: EU25
0500
1,0001,5002,0002,5003,0003,500
2000 2005 2010E2015E2020E
TWh
900 TWh
... the Nordic market... ... and in Russia
Source: Ministry of Energy; Russian Energy Strategy 2020
Demand growth~300-400+ TWh by2020(lately, also higher estimates presented)
80 TWh
Committed new capacityExisting/remaining capacity
Demand
TWh
0
100
200
300
400
500
2000 2005 2010E2015E2020E
Source: Fortum
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New capacity will require an EUR 40+ power price
Source: IEA "World Energy Outlook 2006"; Elforsk "El från nya anläggningar", 2003 and Fortum
Adjusted to indicate nominal costs year 2011.Large variations in cost of new hydro and wind due to location and conditions
1995 -97 -99 -01 -03 -05 -07 -09 -11
Fuel costsFixed costs( variation)
CO2 cost 15 €/ton
EUR/MWh
0
10
20
30
40
50
60
70
80
Cleancoal
Coal Gas Nuclear Hydro Wind
Source: Nord Pool
0
10
20
30
40
50
60
70
80EUR/MWh
Futures23 April 2007
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Increasing use of energy will impact emissions dramatically
Greenhouse gases
Energy emissions 65%
Other emissions 35%
Source: Stern: Review on the economics on climate change, 2006; data from World Resources Institute Climate Analysis Indicators Tool (CAIT), 2000; IEA World Energy Outlook 2006 (the Reference Scenario)
Energy related CO2 emissions estimated to grow 55% by 2030Mill. tonnes CO2 2004 2030Power generation 10,587 17,680Industry 4,742 7,255Transport 5,289 8,246Resid. & services 3,297 4,298Other 2,165 2,942
Total 26,079 40,420
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Fortum's carbon exposure among the lowest in Europe
Source: PWC and Enerpresse 2005
Carbon exposure – European power companies
g/kWh
0
200
400
600
800
1000
1200
DE
I
Dra
x
RW
E
Ener
gi E
2
ED
P
Uni
on F
enos
a
CE
Z
Edis
on
Ende
sa
Scot
tish&
Sout
hern
Esse
nt
EN
EL
E.O
N
Els
am
Vatte
nfal
l
Elec
trabe
l
Hel
sink
i
PVO
Iber
drol
a
Verb
und
Fort
um
Briti
sh E
nerg
y
ED
F
Sta
tkra
ft
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Some EU objectives by 2020
Competitiveness Environment
Security of supply
• Implementation of internal energy markets
• Energy efficiency +20% (2020)
• Increased resources for technology development
• Development of cross-border transmission• Increase in own production• Enhancement of external energy relations
• Minimum reduction of EU C02 emissions 20% (2020)
• Renewables 20% (2020)
• Development of CO2capture and storage
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• Olkiluoto 3• Swedish nuclear• Suomenoja• Värtan• Refurbishing of existing hydro assets• Peak load gas turbine
In addition• Automated meter management (EUR 240 million)• Security of supply in distribution (EUR 700 million)
Fortum's accelerated investment programme
Value of the investment programme around EUR 2,800* million of which 90% CO2-free
Total~ 1,500 MW
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Other(peat, gas, coal, other)
CO2 -free production(nuclear power, hydro power, bio fuels)
• ~9 TWh increase in CO2 -free production*
• ~10 TWh increase in total production*
Continued increase in CO2 -free power production
0
10
20
30
40
50
60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
TWh
2006 After theinvestmentprogramme
Fortum's power production
* compared to 2006;with normal utilisation
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• Järvenpää (CHP), Finland - bio-fuels (80%) and peat (20%).The power plant will replace a number of heat boilers based on heavy fuel oil and natural gas
• Wind power, Sweden
New environmentally benign investments
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Other(peat, gas, coal, other)
CO2 -free production(nuclear power, hydro power, bio fuels)
• ~9 TWh increase in CO2 -free production*
• ~10 TWh increase in total production*
Continued increase in CO2 -free power production
* compared to 2006;with normal utilisation
0
10
20
30
40
50
60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
TWh
2006 After theinvestmentprogramme
Fortum's power production
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• Olkiluoto 3• Swedish nuclear• Suomenoja• Värtan• Refurbishing of existing hydro assets• Peak load gas turbine
In addition• Automated meter management (EUR 240 million)• Security of supply in distribution (EUR 700 million)
Fortum's accelerated investment programme
Value of the investment programme around EUR 2,800* million of which 90% CO2-free
Total~ 1,500 MW
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• Continued focus on the Nordic and Baltic Rim countries
• Competitive corporate and cost structure
• Flexible and climate-benign production portfolio
• Strong financial position
• Promising opportunities in Russia
Fortum is well positioned
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