Business group Central Europe
Business Group Central Europe comprises operations in Germany and Poland. In Germany, Vattenfall produces, distributes and sells electricity and heat and is currently the country’s third-largest producer of electricity and the largest supplier of heat. Generation is based primarily on lignite. Operations include open-cast lignite mines in Lausitz, power plants in eastern and northern Germany, the transmission grid in eastern Germany, and local networks in Berlin, Hamburg and Mecklenburg Vorpommern.
In Poland, heat production and heat sales are the largest part of operations, where Vattenfall has a market share of approximately 12%. Electricity and heat production are based primarily on coal. Vattenfall also owns and operates its own electricity network, and distributes and sells electricity, mainly in southwest Poland.
1) In the German operations, Vattenfall normall generates electricity also from nuclear power. However, in 2008 two of the German nuclear power plants were off-line.
| 2008 | 2007 | Change, % | ||
| 1 | Net sales, SEK million | 142,260 | 122,256 | 16.4 |
| External net sales1, SEK million | 99,182 | 86,736 | 14.3 | |
| 2 | Operating profit, SEK million | 15,140 | 16,430 | -7.9 |
| Net assets, SEK million | 92,344 | 78,714 | 17.3 | |
| Return on net assets, % | 16.4 | 20.9 | n.a. | |
| Installed capacity electricity, MW | 15,951 | 15,951 | 0.0 | |
| Installed capacity heat, MW | 13,518 | 13.483 | 0.3 | |
| 3 | Electricity generation, TWh | 72.4 | 76.6 | -5.5 |
| 3 | Heat production, TWh | 25.3 | 25.5 | -0.8 |
| Number of electricity customers2 | 3,673,000 | 3,668,000 | 0.1 | |
| Number of network customers | 4,290,000 | 4,427,000 | -3.1 | |
| Average number of employees, full-time equivalents | 22,387 | 22,396 | -0.0 |
1) Excluding intra-Group transactions.
2) Retail customers and small and medium-sized corporate customers.
1 Net sales
External net sales increased by SEK 12,446 million, of which nearly 90% is attributable to Germany. The increase is mainly attributable to higher prices received in both Germany and Poland, but also to currency effects.
2 Operating profit
The drop in operating profit is entirely attributable to the German operations, and almost exclusively to the Mining and Generation business unit. This is mainly due to higher costs for CO2 emission allowances (SEK 5,255 million) and lower volumes resulting from lower availability of coal-fired plants, and planned maintenance work. The impact on 2008 earnings of the continued outages of the Krümmel and Brunsbüttel nuclear power plants is estimated to have amounted to EUR 573 million (SEK 5,540 million). The earnings impact in 2007 was EUR 201 million (SEK 1,900 million). The Heat business unit reported a drop in operating profit due to higher fuel costs.
Factors that affected the change in operating profit (EBIT)
The Polish operation showed an improvement in its operating profit, mainly attributable to the Distribution business unit, due to higher tariffs and slightly higher volumes in 2008, among other things. Operating profit for the Heat business unit decreased, largely due to higher fuel costs. However, these could be partly compensated by slightly higher prices received for sales of electricity.
3 Electricity and heat generation
Total electricity generation decreased by 5.5% to 72.4 TWh (76.6), which is attributable to the outage of the Brunsbüttel nuclear power plant in Germany and to lower fossil-based generation as a result of lower availability and planned outages at coal-fired plants in Germany. The outage at the half-owned Krümmel nuclear power plant has not affected generation volumes, since the plant is not consolidated in Vattenfall’s accounts. Fossil-based generation in Poland was unchanged during the year. Heat sales decreased slightly due to warmer weather.
Wholesale price trend
Germany
The average spot price (base load) on the European Energy Exchange (EEX) in Germany was 73% higher than in 2007 - EUR 65.75/MWh, compared with EUR 38.00/MWh. The higher price is attributable to considerably higher electricity generation costs, with (average) higher fuel prices in 2008 than in 2007.
Forward prices for the 2009 and 2010 contracts in Germany closed on 30 December 2008 at EUR 56.21/MWh and EUR 58.02/MWh, respectively, compared with EUR 61.50/MWh and EUR 59.39/MWh, respectively, at year-end 2007. The annual average value of closing prices for the 2009 contract was EUR 70.10/MWh, which is EUR 14.23/MWh higher than in 2007, when the corresponding figure was EUR 55.85/MWh.
Poland
The average spot price (base load) on the Polish electricity exchange (POLPX) was 69% higher than in 2007 - PLN 194.7/MWh (115.3). The average spot price in Poland (peak load) was even higher - PLN 229.0/MWh (125.7).
Trading on the Polish electricity exchange, especially in the futures market, is still low compared with Nord Pool and the EEX. However, liquidity improved compared with 2007. Forward prices for the 2009 and 2010 contracts in Poland closed on 30 December 2008 at PLN 16.1/MWh and PLN 16.6/MWh, respectively, which was 29% lower than the prices quoted for the same contracts at year-end 2007.
The annual average value for the 2009 forward contract was EUR 57.90/MWh, with a top quotation of EUR 67.78/MWh in October and a low quotation of EUR 42.90/MWh at the beginning of the year.
Polish electricity prices 2006-2008, monthly averages
Market conditions
Germany
Competition in the German electricity market, especially in the retail market, has risen sharply. After losing customers and market shares in Germany in 2007, in 2008 Vattenfall achieved sales successes and increased its customer numbers. To counteract customers’ increasing propensity to switch electricity suppliers, Vattenfall refrained from price increases in 2008. Vattenfall also introduced an online product for retail customers, called Easy, which was a success and generated 50,000 new customers. An independent survey institution, “Deutsche Institut für Service-Qualität”, named Vattenfall Europe as a Best in Class Supplier in 2008.
Poland
During the autumn the Polish regulatory authority (URE) decided not to deregulate tariffs for the retail segment, as previously indicated. In late December the tariff level was set far below the market price for this segment. Neither Vattenfall’s nor RWE’s tariffs for the retail segment have been approved by URE.
Investments
Germany
The following major investment projects are in progress or are currently in the planning stages:
- In Hamburg (Moorburg), the Hamburg State Ministry of Urban Development and the Environment (BSU) granted Vattenfall approval to build a 1,640 MW coal-fired combined heat and power station.
- Together with external parties, Vattenfall is building the Alpha Ventus offshore wind power test facility, which is scheduled to be operating in 2009. A total of twelve 5 MW turbines are being erected.
- In May Vattenfall announced its plans to build a CCS demonstration plant at the Jänschwalde power plant in Brandenburg. However, the investment decision is dependent on support from the authorities in Germany and the EU. It is expected that the plant can be commissioned in 2015 at the earliest.
- The Boxberg lignite-fired power plant in Sachsen is being expanded with a new 675 MW station. In addition, lignite mining operations will be restarted at the nearby Reichwalde open-cast mine.
Poland
- In November, Vattenfall acquired 18.7% of the Polish energy company ENEA S.A. (Read more on "Important events 2008".)
Organisational changes
Vattenfall adopted a new company management structure in Germany, with effect on 1 July 2008. The executive management (Vorstand) has been reduced from six to three persons. At the same time, the business unit managers have been given greater responsibility for their respective opeations. The organisational change has brought the operating activities closer to management.
Price development of oil, coal, gas and CO2 emission allowances
German and Nordic electricity future prices
