Business group Nordic

Vattenfall is the leading energy group in the Nordic region, with a market share of approximately 20% in electricity generation. Operations in 2008 covered Sweden, Finland and Denmark as well as Vattenfall’s wind power investments in the UK. Vattenfall produces, distributes and sells both electricity and heat. Hydro and nuclear power are the base of electricity generation, while wind power, biomass, waste and fossil fuels are also used. Vattenfall sells district heating and has a substantial volume of heat production, largely based on biomass, and is the fourth-largest supplier of heat in the Nordic countries. Vattenfall also conducts consulting and contracting activities, mainly in the energy sector.

 

		2008	2007	Change%
1	Net sales, SEK million	48,851	46,713	4.6
	External net sales1 , SEK million	54,732	44,429	23.2
2	Operating profit, SEK million	16,760	12,591	33.1
	Net assets, SEK million	111,263	91,122	22.1
	Return on net assets, %	15.1	13.7	n.a.
	Installed capacity electricity, MW	18,621	18,902	-1.5
	Installed capacity heat, MW	4,354	4,987	-12.7
3	Electricity generation, TWh	90.7	91.1	-0.4
3	Heat production, TWh	10.4	10.7	-2.8
	Number of electricity customers2	1,120,000	1,034,000	8.3
	Number of network customers	1,299,000	1,302,000	-0.2
	Average number of employees, full-time equivalents	9,507	9,489	0.1

1) Excluding intra-Group transactions.

2) Retail customers and small and medium-sized corporate customers.

1 Net sales

External net sales increased by SEK 10,303 million, mainly due to higher prices on the spot market and for hedged volumes.

2 Operating profit

The improvement in operating profit is mainly attributable to higher electricity prices. The Generation business unit accounted for most of the increase (85%), with an improvement in operating profit by SEK 3,535 million. This improvement is mainly attributable to higher prices received on the spot market and hedged volumes (SEK 5,721 million). Excluding the preceding year’s restructuring costs and costs for the storm “Per”, operating profit for the Distribution business unit improved by SEK 209 million, mainly due to improved tariffs. Operating profit for the Heat business unit improved by SEK 173 million. This is mainly explained by the effect on 2007 profit of a large impairment charge for a combined heat and power plant in Finland.

Factors that affected the change in operating profit (EBIT)

 

3 Electricity and heat generation

Despite the increase in hydro and wind power generation, total electricity generation was slightly lower than in 2007. This is due to a decrease in nuclear power generation caused by shutdowns and planned outages at the end of the year and to lower fossil-based generation in Denmark. The problems with control rods at the Forsmark 3 reactor were corrected, and the reactor was restarted on 1 January 2009. Wind power generation increased by 25% to 1.5 TWh (1.2), mainly due to the new Lillgrund wind farm and favourable wind conditions. Biomass-based generation amounted to 0.5 TWh (0.4). Heat production decreased slightly compared with 2007, which is attributable to warm weather and the divestment of a number of small production units in 2007.

Wholesale price trend

The average spot price (EURSYS base load) on Nord Pool was approximately 60% higher than a year ago - EUR 44.73/MWh, compared with EUR 27.93/MWh. The higher price is mainly attributable to higher prices for CO² emission allowances and a weaker hydrological balance. The average hydrological balance in the Nordic region showed a surplus of 5.8 TWh in 2008, compared with a surplus of 12.7 TWh in 2007.

Sharply rising oil and coal prices characterised the price trend for forward contracts during the first part of the year, with a top quotation of EUR 69.75/MWh reached on 1 July for the 2009 contract. During the second half of the year, commodity prices showed a sharply falling trend as a result of the generally mounting financial anxiety, which had a dramatic effect on Nordic financial contracts. The 2009 contract hit its lowest point on 18 December, at EUR 36.3/MWh, which was nearly a halving compared with the top quotation a few months earlier. Nordic forward contracts for 2009 and 2010 closed on 30 December 2008 at EUR 30.60/MWh and 37.90/MWh, respectively, compared with EUR 51.70/MWh and EUR 50.88/MWh, respectively at year-end 2007. The closing price for the 2009 contract was EUR 54.70/MWh, which is nearly EUR 9/MWh higher than in 2007, when the corresponding figure was EUR 45.72/MWh.

German and Nordic electricity spot prices, monthly averages 

 

Network regulation

In Sweden, regulation of network tariffs has historically been conducted retroactively (ex post). In 2003, the so-called network performance assessment model was adopted for this ex post assessment. In June 2003 the European Parliament’s electricity market directive was adopted, which stipulates that network tariffs are to be set in advance (ex ante). Based on this, the Swedish government has proposed in a bill that, starting in 2012, the distribution operators’ revenues should be set in advance for four-year oversight periods. In addition, it has been proposed that the current network performance assessment model, which is based on a fictive electricity network, be replaced by regulations that are based on the distribution operators’ actual electricity networks.

In 2006 the network regulator decided to demand repayment of SEK 236.4 million, pertaining to the former Vattenfall Sveanät for the 2003 tariff year. Following an appeal made by Vattenfall to the county administrative court, the network regulator decided in December 2008 to withdraw its demand for repayment. For the 2004-2008 tariff years, Vattenfall shall repay a combined sum of SEK 0.5 million. A planned increase in electricity network prices for 2009 will be reduced by this amount.

Long-term electricity contracts with energy-intensive industrial companies

Several major, long-term contracts were signed during the year with industrial companies in the Nordic region, including Stora Enso, Smurfit Kappa, Vargön Alloy, Outokumpu, Hydro and Borealis. Vattenfall has a good working relationship with electricity-intensive industries, and the newly signed contracts are a testimony to the confidence that companies have in Vattenfall as an electricity provider.

Greater number of customers

Vattenfall’s focus on improved offerings and attractive contract terms has yielded results. Vattenfall continues to win market shares in the Nordic countries, and Vattenfall’s market share in the Swedish retail market grew from 15.1% to 16.7%. Customer Satisfaction Index (CSI) scores improved compared with 2007, from 62 to 69. Growing numbers of customers are choosing to purchase their electricity contracts online. Online sales have increased from fewer than 1,000 in 2006 to approximately 20,000 new customers in 2008. Among the contract forms that has gained the most appreciation among customers is “Trygghetsavtalet” - a fixed-price three-year contract that gives customers the right to take out a new contract if electricity prices fall. As a result of an agreement with Göteborg Energi AB on the takeover of part of the customer base of the jointly owned electricity trading company Plusenergi AB, Vattenfall will gain approximately 150,000 new customers, which will further boost its market share in 2009.

Investments

The following major investment projects are in progress or in the planning stages:

• Vattenfall is co-operating with Sveaskog on a project that aims to build more than 500 wind power turbines with combined capacity of 1,500 MW, which is enough electricity to the meet the needs of 800,000 homes. Upon completion this would be the largest wind power investment in Sweden to date.
• In Denmark, work is under way on repowering older wind power plants with larger, more efficient plants. Approximately 30 new plants with combined capacity of 100 MW will replace 120 older plants with combined capacity of approximately 40 MW.
• At Midfynsværket in Odense, Denmark, a straw-fired combined heat and power boiler is being installed, with 35 MW of electricity and 84 MW of heat.
• At Amagerværket in Copenhagen, conversion is under way of a coal-fired combined heat and power plant to co-combustion using straw.
• Implementation of the major investment programmes in hydro power, nuclear power and the network operations continues. Since 2003 Vattenfall - together with the other owners - has invested approximately SEK 10 billion in major, long-term investment programmes in the Swedish nuclear power facilities. These include measures to improve the level of safety, extend useful life and raise capacity.
• In September Vattenfall began construction of a new hydro power plant - Abelvattnet, in the municipality of Storuman - with capacity of 4.6 MW. This will be Vattenfall’s first newly built hydro power plant in more than 15 years.
• In Finland, an investment of EUR 29.9 million (approx. SEK 283 million) is being made to increase the use of biomass at the Vanaja power plant in Tavastehus.

Nuclear power

In mid-October the Forsmark 3 reactor was shut down after an inspection of Oskarshamn 3 - which is the same type of reactor - showed a fracture in a control rod. After corrective measures and controls, the reactor was restarted on 1 January 2009.

In connection with the restart following the annual overhaul outages, both Ringhals 1 and Ringhals 2 were affected by operating problems that led to loss of generation. After corrective measures were taken, the reactor was restarted on 6 January 2009. At the Ringhals 2 reactor, it was found that two water pumps in the cooling system had insufficient flow, entailing that the reactor will have to be run at a slightly reduced capacity until the overhaul shutdown in 2010.

In early 2008 the UN’s International Atomic Energy Agency (IAEA) performed a three-week review of the Forsmark nuclear power plant. The IAEA concluded that Forsmark maintains a good international level in its safety standards. A number of suggested improvements were identified, which Forsmark will be implementing.