Capital Markets Day The value of nuclear and hydro capacity in the future energy system
Tiina Tuomela / Executive Vice President Generation / 16 November 2016
Loviisa nuclear power plant, Finland Agenda • Generation asset portfolio • Key priorities – Value drivers • Nordic power market • Hedging • Productivity • Nuclear liabilities • New revenue streams • Summary
Imatra hydro power plant, Finland
Xxx, Xxx
2 Generation – balanced portfolio of hydro and nuclear
2015 figures Total Sweden Finland (share of total) (share of total) Hydro plants Nuclear reactors Capacity Thermal plant Hydro 4,623 MW 67% 33% Nuclear 3,004 MW 51% 49% Thermal 376 MW - 100%
Production Hydro 25.0 TWh 66% 34% Nuclear 22.7 TWh 48% 52% Thermal 0.3 TWh - 100% Meri-Pori TPP
Net assets* 5,913 M€ Olkiluoto NPP
Investments* 203 M€ Loviisa NPP
Personnel* 1,341 Forsmark NPP
*Power and Technology segment
Oskarshamn NPP
3 Generation’s key priorities
• Drive industry transformation and Productivity consolidation
• Drive productivity: cost and capex People performance Fleet flexibility efficiency and safety • Increase value creation and find further fleet flexibility Fortum Generation – Most competitive • Enhance fair regulation and flexible clean power generator • New revenue streams from nuclear New revenue Fair regulation service and origination business streams
Industry transformation
4 Generation value drivers
Revenue drivers Cost drivers
• Power price • Production cost • Production volumes and availabilities • Investment level • Trading and optimisation • Taxes and transmission fees • New revenue streams
5 Price drivers in Nordic power market Nordic power price setters
• Nordic power price is determined by the Scandinavian hydro supply and demand balance availability NO3 SE1
Russian • Supply is driven by hydrological variation, FI SE2 condense available RES, Nordic & Baltic coal NO3 Scandinavian condense prices as well as Continental wind NO5 NO1 and Russian imports Nordic NO2 condense EE • Demand is driven by industrial activity, SE3 SE4 LV household electrification and export DK1 Danish LT wind DK2 Baltic condense PL Continental condense Polish condense Continental Continental nuclear Wind and solar availability
CO2, coal prices Fortum Generation division assets
Fortum other divisions’ assets under Generation trading operations
6 Nordic power prices and hydro reservoir levels 2005–2016 Nordic prices driven by weather (hydrology and temperatures), coal SRMC and Continental prices
30 100
90
) 20
80 TWh
70 10
60
/MWh)
€ Surplus/Deficit Surplus/Deficit ( 0 50
40
-10 System Price (
30 Hydro Hydro Reservoir
20
-20 Nordic 10
-30 0
Nordic hydro reservoir balance SYS price Source: Nord Pool Spot
7 Weather has turned drier lately and dry outlook continues for the near term Norwegian reservoirs currently close to normal levels, while a clear deficit in Swedish reservoirs NO reservoir content SE reservoir content 90 35
80 30
70 25 60
50 20 TWh 40 TWh 15
30 10 20
5 10
0 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Week Week
5 - 95% Average 2016 2015 5 - 95% Average 2016 2015 Source: MKOnline
8 Electricity demand is seasonal Flexible production is valuable, in the Nordics it is primary hydro
Demand seasonality of selected markets in 2015 Production mix in 2015 105 100% 100 90%
95 80%
90 70%
60% 85 Other renewables Germany 50% 80 Nordic Fossil fuels
France 40% Hydro 75 30% Nuclear
Jan indexed to 100 indexedJanto 70 20% 65 10% 60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0% Germany Nordic France
Source: ENTSO-E Statistics
9 Nuclear fleet availability improved
• Natural variance on annual availabilities due to varying outage scopes • Loviisa and Olkiluoto located in Finland, are consistently among top NPPs globally in terms of availability • In recent years good development in Swedish plants
10 Nordic power market, several trading places – base load generation hedged long prior to delivery, while reservoir based hydro has optional value closer to delivery
Derivatives market Physical deliveries Balancing Nasdaq Commodities OMX/OTC Nord Pool markets
System responsible: 2008:Futures: ~2,500 TWh days, weeks Elspot (day-ahead) Elbas (intraday) Svenska Kraftnät Balancing Energinet.dk Market Balancing 2015: ~1,260 GWh Market 2015: ~280 GWh 2014:Forwards ~1,500: TWh months, Nord Pool quarters and day-ahead market Nasdaqyears financial 2015: ~374 TWh Nord Pool trades intraday
market deliveries Power 2015:~5 TWh Fingrid Balancing Statnett Market Balancing 2015: ~230 GWh Market 2015: ~1,230 GWh
Time before delivery: 10 y… 1 d 12 h…36 h 36 h…1 h 1 h…
11 Wide toolbox for hedging but liquidity limits usability of some products
YR-15 product traded volume per year* - Market liquidity on the market grows towards Nord Pool system Electricity Price Area delivery forwards and options Differences (EPADs) 60% Helsinki (26 TWh)
Stockholm (30 TWh) • Cash-settled, cleared • Forwards used for hedging area 50% instruments against system price price difference vs. system Sundsvall (3 TWh) • The main instruments for • Cash-settled System (725 TWh) hedging • Liquidity decreases quickly with 40% • Good liquidity in the front end time 30%
20% Forwards for variable cost items 10%
• Variable cost components are mainly in coal and CO2 • Used for securing price premium against cost of coal fired power plants (%) volume total ofyear per volume Traded Very liquid 0% Y-4 Y-3 Y-2 Y-1 delivery year
*OTC trades not included.
12 For Fortum’s hydro and nuclear dominated fleet the hedge ratios have been around 60–80% Average hedge ratio (and 20% and 80% percentiles) before delivery 100%
The blue pipeline consists of Fortum reported historical hedge levels (20-80% range) 80%
60%
40% Fortum Reported Hedge Ratios 2008-2016 Interim report Q3/16 20%
0% Q3-2 years Q4-2 years Q1-1 year Q2-1 year Q3-1 year Q4-1 year Q1-Current Q2-Current Q3-Current ahead ahead ahead ahead ahead ahead
Reported hedge ratios in Interim reports 2008-2016. Q3/16 current year 80%, next year 2017 50% and two years ahead 2018 30%. 13 Fortum’s hedging has reduced volatility and increased achieved power price over time Achieved power price vs Spot area price (SYS+FI&SE) 2005-2015 60
55
50
45
40
35
30
25
20 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Achieved power price Spot area price (SYS+FI&SE) AverageAverage achivedachieved powerpower priceprice Average spot area price (SYS+FI&SE)
Spot area price = SYS + (40 % FI + 40 % SE3 + 20 % SE2)
14 Focus on productivity – Operative fixed cost trend downwards
• Outsourcing of O&M -12% – Hydro – Thermal • Constant portfolio optimisation • Procurement savings • Flexible use of resources
*Operative fixed costs excluding taxes
15 Positive progress in taxation but still need for active influencing
• Swedish energy policy agreement in June 2016 – Nuclear capacity tax will be reduced to 1,500 MEUR Real estate and capacity taxes SEK/MW per month from 1 July 2017 and 300 abolished on 1 January 2018. – Decrease the hydropower real-estate tax rate over 250 a four-year period beginning in 2017, from todays 2.8% to 0.5%. 200
• Real estate taxation in Finland 150 – Power plants subject to higher real estate tax rate (3.1%) than other properties (~1%) 100 • Water framework directive 50 – Possibly could mean additional costs in Sweden
• Nuclear waste management 0 2012 2013 2014 2015 2016 FC2017 FC2018 FC2019 FC2020
16 Nuclear waste management
In Finland and Sweden • Infrastructure for waste management well-established Nuclear assets Available Liability, Coverage from IFRS • Cost estimates based on detailed technical plans, & total liabilities MEUR funds, status 30 Sep 2016 MEUR perspective experience, scientific findings and tenders received from suppliers • Funds transparently accumulated in segregated external funds Loviisa 836 1,094 131% EUR +258 million
• Liabilities based on annual cost estimates and technical plans updated every third year TVO 962 1,369 142% • Finland: Plan & estimates updated Jun 2016, +407 M€ Government decision by the end of 2016 Fortum’s net share EUR +108 million • Sweden: Plan & estimates to be submitted Jan 2017, Government decision Dec 2017
– Impact of Oskarshamn unit 1 and 2 closures OKG and Forsmark 3,125 2,976 95% -149 M€ – Calculation period likely to increase from 40 to 50 years Fortum’s net share EUR -61 million
17 New revenue streams and growth
Nuclear services Origination
• Continue building a strong new leg in addition to • Provide commodity market products and services to nuclear generation business B-to-B customers • Focus on scalable offerings in selected niche • Expand existing origination offering in home markets areas where strong nuclear expertise is a necessity • Green products • Several orders received and significant additional • Virtual power plants sales pipeline built • Asset management • Increased scalability through strategic • Demand response partnerships, potential acquisitions • Risk management tools and support for customers’ investments
18 For more information, please visit www.fortum.com/investors