tapio kuula, president and ceo - fortum...new csa capacity commissioning 2011-2014 •additional...
TRANSCRIPT
Tapio Kuula, President and CEO
Next generation energy company Capital Markets Day 2012
Disclaimer
This presentation does not constitute an invitation to underwrite,
subscribe for, or otherwise acquire or dispose of any Fortum shares.
Past performance is no guide to future performance, and persons needing
advice should consult an independent financial adviser.
• Business environment
– Drivers
– Market in the future
– Fortum’s portfolio
• Power
– Nuclear position
• Russia
– Market
– CSA agreement
• Conclusions
Agenda
Global economic performance slowing; emerging nations still leading, uncertainty of the Eurozone recession duration
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•Emerging nations growth
cautiously slowing down
Source: IMF (World Economic Outlook Oct 2012)
•Sovereign debt crisis
and fiscal consolidation
•Retrenchment of European
banks affects credit availability
Demand in Fortum market areas: uncertainty and slow growth
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Source: IMF (World Economic Outlook Oct 2012), SCB, Finnish Energy Industries, ENTSO-E, APBE
•Slower growth prospects
than pre-crisis 2008
•Flattish power demand – Nordic markets to grow
0.5% on average
•Slow decision making around
EU emission trading and CO2
emission allowances
Volatile markets, weakened power prices
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Source: Source: Nord Pool Spot, NASDAQ OMX Commodities Europe, EEX, ATS, Mosenex, Fortum
* Russia prices not including capacity component for old assets
Capacity tariff estimate: 2010 9.4 €/MWh, 2011 6.8 €/MWh, 2012 5.9 €/MWh
Nordic system
Finland
Sweden
Germany
Russia*
Number of fundamental issues are impacting the energy supply and demand
Consumption Infrastructure Production Sourcing
Energy efficiency,
Tariffs
Market model,
Transmission
Subsidies,
Taxes
CO2 cost,
Licensing
European &
global economy Capital available and capital cost Fuel prices
Population growth,
Values/preferences
NIMBY,
Mistrust on markets Nuclear acceptability
Electric cars,
Demand side mgmt
Smart grids,
Storage,
Super grids
RES (solar, wind),
CCS Unconventional gas
Major physical impacts of climate change Fuel availability
Alternatives
DES,
New entrants,
New business models
Biomass availability
Political/
regulatory
Economic
Social
Technological
Environmental
Competition
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EU Energy Policy Objectives
EU 20-20-20 political targets
Other (national) political targets
Policy tools
RES generation is still today driven by political will and subsidies - but most likely within a decade especially solar power will be competitive without subsidies
• Competitiveness • Security of Supply • Environment
• Reduce greenhouse gas emissions • Increase renewable energy production • Reduce primary energy use through efficiency
• Decrease energy import dependence • Stimulate (domestic) industries • Stimulate (domestic) employment
• EU internal energy markets • EU ETS • RES subsidies • Energy efficiency legislation • Capacity remuneration schemes • Emission & biofuel legislation in transportation • Various energy-related taxation schemes
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Other costs ( variation)
CO2 cost
Coal Gas Nuclear Hydro Wind Clean coal
EUR/MWh
Estimated lifetime average cost in nominal 2014 terms.
Large variations in cost of new hydro and wind due to location and conditions.
0
10
20
30
40
50
60
70
80
90
100
110
Eventually somebody will have to pay the full cost
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Fortum's strategy – Hydro and nuclear
Hydro
• Solid and low risk in the existing environment
• Refurbishment investments to further improve efficiency, capacity and flexibility
• Opportunities for growth limited
• France and possibly some other selected markets
Nuclear
• Current nuclear assets still to carry and deliver
• Focus on safety, availability and Swedish upgrades
• Investment on new nuclear challenging
• Loviisa as CHP-nuclear could become an attractive option
• Strategic partnership models in lifetime extension and upgrades
Current fleet & fundaments Our growth potential
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Fortum's strategy – CHP and Russia
CHP
• Mostly district heating (DH) related business
• Future dependent on how markets/regulation and alternatives to DH develop
• Competitiveness of DH to remain, at least with existing infra structure
• Competitiveness and growth in CHP through bio/waste and bio-oil in Europe
• Industrial CHP in India
Russia
• CHP mostly DH, but also industrial CHP
• CHP risks very limited in Chelyabinsk and Tyumen
• Substantial investment programme ongoing until 2014
Current fleet & fundaments Our growth potential
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Power Divison
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Fortum's European power (and heat production)
Nuclear power
45%
Coal 9%
Other 1%
Hydro power 38%
Biomass 3%
European generation 55.3 TWh
(Generation capacity 11,422 MW)
Fortum's European
power generation in 2011
Natural gas 4%
European production 22.0 TWh
(Production capacity 10,625 MW)
Fortum's European
heat production in 2011
Waste 4%
Peat 3%
Heat pumps, electricity
12%
Oil 5%
Biomass fuels
24%
Natural gas
22%
Other 4%
Coal 26%
Power division’s business areas
Power Division
Renewable Energy
Power Solutions
Nuclear Competence
Center Co-owned Nuclear & Thermal
Physical Operations &
Trading • More than 244 hydro power
plants
• 10 wind power plants
• Expert services for
power producers
• Loviisa power plant, 2 units
• Technical support
• 8 co-owned nuclear power units
• 2 coal-fired power plants
• 1 CHP plant (UK)
• Power trading and delivery
process
• Power production and
margin optimisation
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Overview of Fortum’s nuclear fleet
LOVIISA OLKILUOTO OSKARSHAMN FORSMARK
Commercial operation started
Unit 1: 1977
Unit 2: 1981
Unit 1: 1978
Unit 2: 1980
Unit 3: (Under construction)
Unit 1: 1972
Unit 2: 1974
Unit 3: 1985
Unit 1: 1980
Unit 2: 1981
Unit 3: 1985
Generation Capacity
Fortum’s share
Unit 1: 496 MW
Unit 2: 496 MW
Total: 992 MW
Unit 1: 880 MW
Unit 2: 880 MW
(Unit 3: 1600 MW)
Total: 1760 MW (3360)
27% 468 MW
Unit 1: 473 MW
Unit 2: 638 MW
Unit 3: 1400 MW
Total: 2511 MW
43% 1089 MW
Unit 1: 984 MW
Unit 2: 996 MW
Unit 3: 1170 MW
Total: 3150 MW
22% 699 MW
Yearly production
Fortum’s share of production
8 TWh
8 TWh
14 TWh
4 TWh
17 TWh
7 TWh
25 TWh
5.5 TWh
Share of Fortums Nordic production
18% 9% 16% 13%
Majority owner
Fortum’s share
Fortum
Pohjolan Voima
26.6%
E.ON
43.4%
Vattenfall
22.2%
Operated by Fortum Teollisuuden Voima (TVO)
OKG Aktiebolag Forsmarks Kraftgrupp
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Olkiluoto
Loviisa Forsmark
Oskarshamn
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Fortum's nuclear power in the Nordics
• Finnish units world class in availability
• Availability has improved in Swedish units but
modernisations and upgrades still to be done
Source: IAEA, rounded numbers.
Load factor (%) 2005 2006 2007 2008 2009 2010 2011
Oskarshamn 1 80 51 63 85 68 77 72
Oskarshamn 2 90 78 76 86 75 90 77
Oskarshamn 3 85 95 88 70 17 31 75
Forsmark 1 85 76 81 81 88 93 79
Forsmark 2 94 72 85 79 64 39 94
Forsmark 3 95 92 88 69 86 81 85
Loviisa 1 95 93 94 86 96 93 94
Loviisa 2 95 88 96 93 95 89 94
Olkiluoto 1 98 94 97 94 97 92 94
Olkiluoto 2 94 97 94 97 95 95 90
Well functioning power markets are important
The Nordic market is well functioning
- the fact that prices have been going down prove this
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Russia Divison
OAO Fortum
Tyumen
Tobolsk Moscow
St. Petersburg
Chelyabinsk
Nyagan
TGC-1 Efficiency improvement programme 2008-2011
• Increasing heat production profitability
•Fuel efficiency improvement
•Cost savings
New CSA capacity commissioning 2011-2014
•Additional capacity 2,388 MW; +85%
•Capacity is sold at CSA (Capacity Supply Agreement)
– contracts with guaranteed higher price
Russia is the World’s 4th largest power market
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Noviy Urengoy
Kemerovo
Chelyabinsk
St.Petersburg
Helsinki
Gas: 7.7 Eur/MWh
Coal: 7.6 Eur/MWh
Gas: 8.7 Eur/MWh
Coal: 9.8 Eur/MWh
Gas: 4.9 Eur/MWh
Coal: 4.3 Eur/MWh
Gas: 32.3 Eur/Mwh
Coal: 13.8 Eur/MWh
~ 400 km,
+ 3.96 Eur/MWh • According to current
regulation the
transportation costs of rail
roads are more expensive
than gas transportation
especially to the distant
regions
• Some cross-subsidies in
transportation between
regions exist.
Source: Metal expert, FTS, Alta-Soft online rail tariff calculation, , Russian PMT
Both fuel prices and transportation costs matter for the competitiveness of generation forms in various parts of Russia
Fuel prices do not include VAT and
local transportation costs. Coal price
are calculated for coal with 5000
kcal/kg
Gas price is average gas tariff for
2012, calorific value 7900 kcal/m3
Coal transportation cost is tariffs of
Russia's national railways company
Nyagan
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Capacity Supply Agreement (CSA)
• Fortum’s investment programme in Russia is
subjected to possible penalties if the new capacity is
substantially delayed or agreed major terms of the
CSA are not otherwise fulfilled
• CSA provisions made in 2008 in case of possible
penalties
• Provision made by unit, taking into account size, complexity etc.
of the unit
• The reversable provision is released after the unit is
comissioned
• A possible provision release is booked in the
comparable operating profit,
but not in comparable EBITDA
• Released provisions during 2011-2012
• Q2/2011 (22 MEUR)
• Q4/2011 (12 MEUR)
• Q1-Q3/2012 (0 MEUR)
•At the end of Q3/2012 the balance for
possible CSA penalty provisions was EUR
185 million
•The CSA provisions are reported in the Notes
(15) of the financial statement in every quarter
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Background: Generation built after 2007
under government CSA receive
quaranteed payments for a period of 10
years – in order to ensure a sufficient
return on investments
CSA • 10 years contracts for “new”
capacity
Financial market • 3-months ahead futures for
energy
Capacity auction • free prices, regulated prices
for “forced mode” capacity
Regulated bilateral capacity and energy
agreements • regulated prices & volumes
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Current structure of the Russian wholesale market - from the generators' point of view
Day ahead market Free bilateral energy agreements
Balancing market
• free prices & volumes
• determination of hourly planned production for the following day
• 'market' for deviations between actual and planned volumes
Main differences to the Nordic market model
• Power market and electricity price split into two components
• energy
• capacity
• Nodal energy pricing – about 6,600 nodes where prices differ due to losses and transmission bottlenecks
• Central dispatching
• No separate after-spot bids
Determination of actual total price according to
all sectors
Long-term Day-ahead Intra-day After operative day
Russia
The new capacity will be the key
driver for earnings growth –
operating profit level of about
EUR 500 million to be achieved
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Market will most probably not help us during
the next few years
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•Economic uncertainty, volatile markets
•Political/regulatory environment to be more volatile and not driven by energy-only market
•RES is expected to continue growth driven by markets
•Climate change is real: 3-5 °C temperature increase likely by 2100
•Nordic power supply/demand outlook
•Positive Russia power sector development
•We are gradually moving towards Solar Economy (i.e. hydro, solar, wind, wave etc.)
Summary of the key external issues relevant to Fortum
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Fortum in 2020 and beyond
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•Value, profitability, dividends and appreciation by all stakeholders
•Growth in competitive and sustainable energy production
•Geographical presence
•High technological competences within selected focus areas
•Strong strategic position, including value adding partnerships
Short term - Fortum's efficiency programme 2013-2014
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SPEED - Cash flow improved by EUR 1 billion - FLEXIBILITY
CAPEX EUR 250-350 million
DIVESTMENTS EUR 500 million
WORKING CAPITAL
Reduction
FIXED COSTS
Reduce EUR 150 million compared to 2012
WHY WHAT WHEN
2013-2014
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Strategy
Fortum’s purpose is to create energy that improves life for present and future
generations. We provide sustainable solutions to the society and deliver
excellent value to our shareholders.
Mission
Build on the strong
Nordic core
Create solid earnings
growth in Russia
Build platform for
future growth
Competence in CO2-free hydro and nuclear, efficient CHP
production and energy markets
Fortum’s Mission and Strategy
Fortum a forerunner in sustainability
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•Dow Jones Sustainability World Index
• Included for ten consecutive years
• Fortum the only Nordic power and heat company
•Carbon Disclosure Leadership Index
• Fortum globally third best company in the utility sector 2012
• Fortum the only Nordic power and heat company
•SAM Sustainability Yearbook
•STOXX® Global ESG Leaders indices
•oekom
•OMX GES Sustainability Finland Index
•Storebrand SRI
•Fortum continues to believe in its CO2-free strategy also going forward
•We will not build a business model relying on subsidies
•Market and pricing might be changing
•The efficiency programme will strengthen our balance sheet
•More flexible and fast in the future
•We will be more competitive than before
Conclusion
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