FORTUM a Leading Power and Heat Company in the Nordic Area
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FORTUM A leading power and heat company in the Nordic area Investor/Analyst material June 2010 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. 2 Content Fortum today European power markets Russia Financials and outlook Our geographical presence today Nr 1 Heat Nordic countries Nr 1 Distribution Generation 48.1 TWh Electricity sales 54.9 TWh Nr 2 Electricity Heat sales 18.0 TWh sales Distribution cust. 1.6 million Nr 3 Power Electricity cust. 1.2 million generation Russia TGC-1 (~25%) Power generation ~6 TWh Heat sales ~8 TWh Poland Heat sales 3.7 TWh OAO Fortum Electricity sales 20 GWh Power generation 16.0 TWh Heat sales 25.6 TWh Baltic countries Heat sales 1.3 TWh Electricity sales 0.1 TWh Distribution cust. 24,100 4 Capital returns Dividend per share EUR 1.35 1.26 Total ~ 6,853 MEUR 1.12 1.00 1.00 • Dividend 2009 EUR 1.00 per 0.58 0.53 share, in total ~EUR 0.9 billion 0.54 0.58 • Dividend policy of 50-60% 0.42 payout of previous year's 0.26 0.31 0.23 0.77 0.73 results on the average 0.13 0.18 0.58 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 72% 103% 78% 58% 68% 5 Fortum’s strategic route Separation of Länsivoima Länsivoima Elnova oil businesses E.ON Finland 45% → 65% →100% 50% → 100% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Neste IVO Divestment of Lenenergo Stora Birka Energi Gullspång Birka Energi Østfold shares 50% Fortum Kraft 50% → 100% Starting 50% Stockholm Shares in TGC-10 Skandinaviska TGC-1 Elverk Hafslund District heat Gullspång Shares in in Poland Stockholm Lenenergo 2003 → Energi 6 Organisational structure as of 1 October 2009 President and CEO Business Staff Functions Divisions Tapio Kuula Power (Espoo) Finance Executive Vice President Executive Vice President and Matti Ruotsala Chief Financial Officer Juha Laaksonen Heat (Stockholm) Corporate Relations Executive Vice President and Sustainability Per Langer Executive Vice President Anne Brunila Russia (Chelyabinsk) Corporate Human Resources Executive Vice President Senior Vice President Alexander Chuvaev Mikael Frisk Electricity Solutions and Corporate Strategy and R&D Distribution (Espoo) Senior Vice President Executive Vice President Maria Paatero-Kaarnakari Timo Karttinen Country responsibles: Timo Karttinen / Finland, Norway; Per Langer / Sweden, Poland, Baltics; Alexander Chuvaev / Russia Improved efficiency, accountability, simplicity 7 A leading Nordic power and heat company • Leading power and heat company in Nordic countries • Listed at the Helsinki Stock Exchange 1998 • Approximately 95,000 shareholders • Among the most traded shares in Helsinki stock exchange • Market cap ~17 billion euros Households 7.4% Financial and insurance institutions 2.7% Other Finnish investors 9.1% Finnish State 50.8% Foreign investors 30.0% 31 May 2010 8 Fortum in the Nordic electricity value chain Fortum Markets Large NordicNordic customers wholesalewholesale Fortum Small marketmarket Power customers Nord Pool and bilateral Other retail companies Deregulated Regulated Transmission and system Fortum services Distribution 9 Fortum mid-sized European power generation player, Global #4 in heat Power generation Heat production Largest producers in Europe and Russia, 2008 TWh Largest global producers, 2008 TWh EDF *) IES E.ON Gazprom Enel **) Dalkia RWE+Essent Fortum Gazprom Vattenfall Vattenfall+Nuon RAO ES East Rosenergoatom ***) SUEK GDF SUEZ Tatenergo Iberdrola Bashkirenergo NNEGC Energoat. Onexim RusHydro Irkutskenergo Fortum TGC-2 IES Lukoil CEZ Kievenergo EnBW Minsk Energo Statkraft Irkutskenergo TGC-11 PGE Dong DEI KDHC, Korea WGC-1 Beijing DH Edison TGC-14 Scottish&Southern ELCEN, Rom. 0 100 200 300 400 500 600 0 20 40 60 80 100 120 140 * incl. TGC-5, TGC-6, TGC-7, TGC-9, *** incl. TGC-12, TGC-13 Source Company information, Fortum analyses, 2008 figures pro forma, ** 2007 10 Fortum's European power and heat production Fortum's European Fortum's European power generation in 2009 heat production in 2009 Hydro power 45% Biomass fuels 22% Coal 22% Other 2% Natural gas Peat 1% Biomass 2% Other 7% 20% Natural gas 3% Coal 4% Peat 4% Oil 5% Waste 6% Nuclear power 43% Heat pumps,electricity 14% European generation 49.3 TWh European production 23.2 TWh (Generation capacity 11,155 MW) (Production capacity 10,534 MW) 11 Fortum's carbon exposure among the lowest in Europe g CO2/kWh electricity, 2008 1200 1000 800 600 Average 350 g/kWh 400 200 41 0 DEI Enel CEZ EDF EDP Drax PVO RWE Nuon E.ON Fortum Statkraft Verbund Iberdrola Vattenfall Dong Energy Union Fenosa Union British Energy GDF Suez Europe Scottish&Southern Source: PWC & Enerpresse, 2009 Changement climatique et Électricité 12 Fortum’s investment programme – Nordic region, Poland and Baltic countries Project Electricity, MW Heat, MW Commissioned Olkiluoto 3, Finland 400 2012 Swedish nuclear upgrades 260 by 2013 - Forsmark 3 upgrade (to be decided) 30 post 2013 Refurbishing of hydro power 20-30 annually Częstochowa, Poland 65 120 Q3/2010 (coal/biomass CHP) Pärnu, Estonia 20 45 Q4/2010 (coal/biomass CHP) Brista, Sweden (to be decided) 20 60 2013? (waste CHP) Klaipeda, Lithuania 20 50 2013 (biofuel/waste CHP) Total by ~2013 >900 ~300 Electricity capacity over 900 MW ~95% CO2-free 13 Fortum today European power markets Russia Financials and outlook Key EU objectives by 2020 • Minimum reduction of EU • Implementation of CO2 emissions 20% (2020) internal energy markets • Renewables 20% (2020) • Energy efficiency +20% • Development of CO2 (2020) Competitiveness Sustainability capture and storage • Increased resources for technology development Security of supply • Development of cross-border transmission • Increase in own production • Enhancement of external energy relations 15 New capacity, except nuclear, will require over 60 EUR/MWh power price EUR/MWh EUR/MWh 110 110 CO2 cost 100 100 Other costs( variation) 90 90 80 80 70 70 60 60 Futures 50 27 May 2010 50 40 40 30 30 20 20 10 10 0 0 1995 -97 -99 -01 -03 -05 -07 -09 -11 -13 -15 Coal Gas Nuclear Hydro Wind Clean coal Source: Nord Pool Estimated lifetime average cost in nominal 2014 terms. Large variations in cost of new hydro and wind due to location and conditions. 16 Market coupling milestones • Market coupling between Netherlands (APX), Belgium (Belpex) and France (Powernext) since 2006 2011 • Market coupling Germany (EPEX Spot) – Denmark (Nord Pool) started on 9 November 2009. Baltic Cable (Germany – Sweden) and NorNed (Norway – NL) will possibly be included later. • Market coupling for Central Western Europe (DE, FR, BeNeLux) due to start during spring 2010 2010 2010- 2013 • CWE and Nordic TSOs agreed in October 2009 to develop a Nov single market coupling mechanism across their whole area 2009 6 0 0 • NL-UK coupling planned trough the BritNed cable from 2011 2 • Estonian price area to Nord Pool to be set up in April 2010 with full integration of the Baltic States during 2011-2013 • EU’s European Target Model for cross-border power trading sets 2015 as deadline for an EU-wide market coupling 17 Current transmission capacity from Nordic area to Continental Europe is ~4000 MW Transmission Countries capacity MW From Nordel To Nordel Denmark - Germany 2 100 1 550 Sweden - Germany 600 600 Sweden - Poland 600 600 Norway - Netherlands 700 700 350 Total 4 000 3 450 700 • Theoretical maximum in transmission capacity ~35 TWh per annum 2100 600 600 • Net export from Nordic area to Continental Europe in 2008 was ~15 TWh and in 2009 ~5 TWh • Approximately 20 TWh net export fairly easily reachable 18 Nordic and Continental markets are integrating – interconnection capacity could double by 2020 1400 MW link to the UK could connect offshore New interconnections could wind, too; North Seas Countries’ Offshore Grid double the capacity to over Initiative launched for supergrid development 8000 MW by 2020 Additional 700 MW cable New internal Nordic grid NO-NL, as well 1400 MW investments provide for NO-DE links studied increased available capacity for export to the Continent and Baltics EU financial support for 700 MW DK-NL link to EU’s European Energy connect offshore wind, too Programme for Recovery to cofinance to Estlink 2 Jylland – DE capacity to be and NordBalt increased by 500 MW in 2012 LitPol Link of 1000 MW and by further 500 MW by 2018 to connect the Baltic In the EU's Second Strategic Energy market to Poland by EU support to connect Review the Commission focuses 2015/18. It would open Kriegers Flak offshore wind strongly on interconnecting the Baltic a new transmission area to DK&DE; new 400 kV states and Poland to form an electricity route from the Nordic AC cable SE-DK by 2017 market around the Baltic Sea market to the Continent 19 Nordic water reservoirs 120 100 80 60 40 reservoir content (TWh) reservoir 20 2003 2008 2009 2010 reference level 0 Q1 Q2 Q3 Q4 Source: Nord Pool 20 Demand picking up Tyumen Russia Chelyabinsk Russia Urals area Norway Nordic Sweden Denmark Finland 15 % 15 % 10 % 10 % 5 % 5 % 0 % 0 % -5 % -5 % -10 % -10 % Q2 2009 vs Q2 2008 Q2 2009 vs Q2 2008 -15 % Q3 2009 vs Q3 2008 -15 % Q3 2009 vs Q3 2008 Q4 2009 vs Q4 2008 Q4 2009 vs Q4 2008 Q1 2010 vs Q1 2009 Q1 2010 vs Q1 2009 -20 % -20 % Q1/10 consumption increased +7%in the Nordic area Q1/10 consumption increased +6% in Russia (Year-on-year) (Year-on-year) Tyumen +2%, Chelyabinsk +13% • Fortum currently expects Nordic power demand to recover back to the 2008 level by 2012-2014 21 Wholesale price for electricity EUR/MWh Nord Pool System Price Forwards 110 100 90 80 70 60 50 40 30 20 10 27 May 2010 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Nord Pool 22 Nord Pool year forwards €/MWh Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 75 27 May 2010 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 2009 2010 23 Wholesale prices for electricity EUR/MWh Spot prices Forward prices 110 100 90 80 70 Dutch 60 German 50 40 Nordic 30 Russian* 20 10 0 26 May 2010 2007 2008 2009 2010 2011 * Including capacity tariff estimate.