Fortum and Nordic power markets€¦ · Fortum and Nordic power markets Mikael Lilius President and...
Transcript of Fortum and Nordic power markets€¦ · Fortum and Nordic power markets Mikael Lilius President and...
Fortum and Nordic power markets
Mikael LiliusPresident and CEO, Fortum Corporation
Enskilda Securities, Finnish Blue Chip Seminar 2005Helsinki, 22 September 2005
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Fortum's strategy
Fortum focuses on the Nordic and Baltic rim marketsas a platform for profitable growth
Become the leading Power and Heat
company
Become the energy supplier
of choice
Benchmark business performance
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Strengthened position in the Nordic market• increased CO2 -free hydro and nuclear
power generation• strengthened position in electricity
distribution and retail• foothold in Norway, NW Russia and Poland
Disposal of non-core businesses• power and heat businesses outside the
Nordic and Baltic Rim focus market• power plant and transmission engineering
businesses • gas retail and trading businesses• oil businesses separated
Consistent delivery of strategy Restructuring worth 14 billion in 2000-2005
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Electricitydistribution
Powergeneration
Retail sales of electricityHeat
# 1 # 2
Leading market positions in the Nordic area
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0.55 0.57
0.79
0.91
2001 200320022000 2004
1.44EPS, EUR
Good financial performance
1999
0.41
6
0.230.26
0.31
0.42
2001 200320022000 2004
0.58*Dividends, EUR
Good returns to shareholders - dividends
Dividend policy
Fortum Corporation's dividend policy states that the company aims at paying a dividend which corresponds to a payout ratio of 50% to 60% on the average
1999
0.18
CAGR: 26%
* Cash dividend, Neste Oil shares not included
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Good returns to shareholders - share price
Quotation of Fortum shares and Dow Jones 600 utilities index volume weighted weekly averageweekly averages, 2001 week 1 = 100
Divident payout:• 0,58 eur cash• Neste Oil shares
507090
110130150170190210230250270290310330350370390
Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05
Fortum volume weighted index DJ600 index
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National Nordic European1990's 2000 - 2010 -
Towards open European power markets
• Increasing competition• Increasing efficiency
Lowest possible prices - gradual price convergence in Europe
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Nordic market is a forerunner
• The Nordic market is the only regional market in the EU today
• Recognized functionality of the market design
* European Commission strategy paper 2003
Iberian market(2005?)
W. European market(2005-2008?)
SE Europe market(2005-2008?)
Nordic market
Baltic market(2008?)
GB/IRL market(2005?)
Italian zonal market(2004?)
E. European market(2005-2008?)
from "Nordic today 2000 -" to "Europe tomorrow 2010 -"
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FortumVattenfall
Elsam
others
StatkraftE.ON
EONVattenfall
Steag
others
British Energy
E.ONRWE
Scottish&Southern
EdF
others
Source: Eurelectric, Nordel, Fortum estimates, Company data
A large Nordic power generation marketGeneration, 2004
379 TWh
385 TWh
570 TWhEnBW
RWE
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A fragmented Nordic power market
Distribution14 million customers
Retail14 million customers
Generation379 TWh
2004 figures
Source: Fortum, Company data
FinlandSweden
NorwayDenmark
>350 companies >500 companies120
702*
160
90
18080**
160
~450 companies70
12040
220* 2 major generators; in addition hundreds of
small CHP and wind generators
Fortum
Vattenfall
Nesa
others
Hafslund
E.ON
FortumVattenfall
Hafslund
others
E.ON
Fortum
Vattenfall
Elsam
others
Statkraft
45%
E.ON
64% 66%
** excl. 40 minor transformer associations
Nesa
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New capacity will be required
• Generation capacity is needed– to cover increasing
demand– to replace old capacity
• Stable and predictable investment environment is required to guarantee– security of supply– efficient capacity also in
the future0
100
200
300
400
500
1990 2000 2004 2005E 2010E 2015E 2020E
CommittedRemainingExisting
TWh/a
Demand
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• Investments are made on rational financial basis
• Price signals and confidence in regulatory framework are necessary for investment decisions
• New capacity requires a long-term price of at least 35-40+ €/MWh
Price signals guide new capacity investments
Source: Nord Pool, Fortum
€/MWh
0
10
20
30
40
50
60
-94 -04-02-00-98-96 -06 -08
ForwardsSep 2, 2005
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Prices are higher in central Europe
0
10
20
30
40
50
60
70
80
90
100
110
2002 2003 2004
EUR/MWh
2005 2006 2007German Spot Nordpool SystemGerman futures Nordpool futures
UK SpotUK futures
German Spot Nordpool SystemGerman futures Nordpool futures
UK SpotUK futures
German Spot Nordpool SystemGerman futures Nordpool futures
UK SpotUK futures
German Spot Nordpool SystemGerman futures Nordpool futures
UK SpotUK futures
20 Sep 2005 15
Price of EU emission allowances
€/tCO2
2003 2004 2005Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
0
5
10
15
20
25
30
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Power and heat sector reformStrong growth potentialNeed for investmentsEfficiency improvement potential
Russia is an emerging opportunity
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Population in key geographicalmarketsMillion
• Largest utility in north-western Russia
• 10 thermal and 6 hydro plants
• Power generation capacity ~3,245 MW and production ~13.5 TWh/a
• Heat generation capacity ~13,900 MW and production ~26.9 TWh/a
• Personnel ~12,500• Fortum's share 32,8% of
voting shares
1 2 7
3
Lenenergo – a strong foothold for Fortum in NW Russia
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Source: Fortum, company web pages
Kolenergo1 593
Karelenergo915
Lenenergo3 245
Finland 13 400
NW Russia TGC-1total 5 753 MW*(of which hydro 2874 MW)
* Capacity to be finally included in TGCs may be different. Kolenergo thermal capacity 335 MW probably not to be included into TGC-1. NW Russia total generation capacity 14 354 MW including also generation outside the reform (e.g. nuclear).
Capacity(MW)
Norway 23 000
Sweden 27 500
Denmark 7 900
TGC-1 established in NW Russia
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Fortum in the Baltics and Poland
Fortum today in the Baltic countries– Strong heat market position
established in Estonia– Distribution business in Estonia– Heat platform established in
Lithuania
Fortum today in Poland– Heat has established a platform
for growth– Ongoing privatization of district
heating– Privatization of electricity
generation and distribution
Estonia
Latvia
Lithuania
VilniusKaunas
VentspilsRiga
Tartu
Tallinn
Klaipeda
Jelgava
SiauliaiPanevezys
Kohtla-Jarve
Estonia
Latvia
Lithuania
VilniusKaunas
VentspilsRiga
Tartu
Tallinn
Klaipeda
Jelgava
SiauliaiPanevezys
Kohtla-Jarve
Existing Fortum DZT operationsPESC Cz ęstochowa
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Forward power prices in NordPool
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Solid business performance in the first half of the year
• Solid business performance in the first half of 2005
• Net debt decreased due to strong cash flow - strong financial position
• At the beginning of July, Fortum had hedged approximately two-thirds of its Nordic Power Generation sales volume for the next 12 months
• Market fundamentals support further good performance
608 654
1148 1194
I-II/04 I-II/05 2004 LTM
Fortum's comparable operating profitEURm, continuing operations
LTM = Last twelve months III/03-II/05
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