Operating environment and market position
Market conditions (January-September 2017)
According to preliminary statistics, electricity consumption in the Nordic countries was 82 (80) terawatt-hours (TWh) during the third quarter of 2017. In January-September 2017, electricity consumption was 283 (283) TWh.
At the beginning of 2017, the Nordic water reservoirs were at 75 TWh, which is 8 TWh below the long-term average and 23 TWh lower than a year earlier. By the end of September, reservoirs were 2 TWh below the long-term average and 1 TWh higher than a year earlier. The Nordic precipitation during the third quarter was close to normal after a wetter-than-average first half of 2017.
In the third quarter of 2017, the average system spot price in Nord Pool was EUR 28.5 (25.2) per MWh. The main driver for the price increase during 2017 has been the clearly higher marginal cost of coal condensing power than a year earlier, which has contributed to stronger continental prices and increased exports from the Nordics. The average area price in Finland was EUR 35.9 (31.6) per MWh and in Sweden SE3 (Stockholm) EUR 33.6 (29.6) per MWh. In addition to the nuclear maintenances, the limitations in transmission capacity from Norway to Sweden contributed to the higher area prices in Finland and Sweden.
During January-September 2017, the average system spot price in Nord Pool was EUR 29.0 (24.4) per MWh, and the average area price in Finland was EUR 33.3 (30.8) per MWh and in Sweden SE3 (Stockholm) EUR 31.3 (26.7) per MWh.
In Germany, the average spot price during the third quarter of 2017 was EUR 32.7 (28.3) per MWh and during January-September 2017 EUR 34.6 (26.1) per MWh.
The market price of CO2 emission allowances (EUA) was EUR 6.5 per tonne at the beginning of the year and EUR 7.0 per tonne at the end of September 2017.
Fortum operates both in the Tyumen and Khanty-Mansiysk area of Western Siberia, where industrial production is dominated by the oil and gas industries, and in the Chelyabinsk area of the Urals, which is dominated by the metal industry.
According to preliminary statistics, Russian electricity consumption was 235 (231) TWh during the third quarter of 2017. The corresponding figure for the First price zone (European and Urals part of Russia), where Fortum operates, was 182 (179) TWh. In January-September 2017, Russian electricity consumption was 756 (740) TWh and the corresponding figure for the First price zone was 587 (567) TWh.
In the third quarter of 2017, the average electricity spot price, excluding capacity price, decreased by 2.2% to RUB 1,269 (1,298) per MWh in the First price zone. In January-September 2017, the average electricity spot price, excluding capacity price, decreased by 0.5% to RUB 1,198 (1,204) per MWh in the First price zone.
More detailed information about the market fundamentals is included in the tables seciton at the end of the Interim report (pages 60-62).
European business environment and carbon market
Swedish corporate tax
The proposal for a revised corporate tax covers implementation of the EU and OECD regulation, and it proposes changes to e.g. rules concerning interest deduction, compensation for non-deductibility of interest costs in the form of lowering the general corporate tax rate from 22 to 20 percent. The proposal includes some revisions to the current rules and the introduction of a profitability test. This would have a negative impact on capital-intensive businesses. Also the proposed targeted interest deduction limitation rule has been criticised, as the treatment of interest deductions would be unclear.
Fortum's response emphasises the need to reform the proposal to ensure more predictable rules and to harmonise the rules with other countries.
Swedish hydropower legislation
The proposal for revised hydro legislation covers changes in the Environmental Act. This is a follow-up to the Swedish energy agreement in June 2016 and includes adjustments to meet requirements based on the EU Water Framework Directive. The aim is to mitigate environmental impacts and facilitate a more efficient power production. According to the proposal, environmental permits for hydropower should be revised during a 20-year period in accordance with a national plan for prioritisation. The ministry aims at having the revisions in place by 1 March 2018.
Fortum's response emphasises the need to reform the Swedish system for hydro management. The proposal fails in ensuring a fair balance between environmental improvements and power production.
Swedish nuclear waste fund fee
In December 2017, the Swedish Government will decide on the waste fund fees for the years 2018-2020. The fees will be based on the new structure with a calculated lifetime of 50 years and on parts of the funds capital being invested in shares. On 20 October 2017 the Swedish Radiation Safety Authority (SSM) published their proposal. The Parliament will decide on a new regulatory framework for the fund at the end of 2017.
Finnish renewable electricity tendering scheme
In September 2017, a draft proposal for a new renewable electricity support scheme was released for consultation. According to the proposal, Finland will arrange auctions for 2 TWh of renewable electricity during 2018-2020. Tendering will be based on a premium that is paid for a maximum of 12 years. The first auction will be organised in autumn 2018 at the earliest. The scheme is open to new installations of all renewables technologies, excluding hydropower.
Fortum views the proposed scheme as fairly market-based, but would prefer a fully fixed premium. Also the duration of the scheme should be shorter. After this transitional phase, renewable electricity investments should be fully market-based.
Market position (year end 2016)
Fortum is the 3rd largest power generator and the largest electricity retailer in the Nordic countries. Globally, we are one of the leading heat producers. As two thirds of our power production is hydro and nuclear, Fortum is also among the lowest-emitting generators in Europe.