Non-financial disclosures

Following are material non-financial disclosures that are judged to be of importance for Vattenfall’s earnings, position and development.

Research and development (R&D)

Research & Development (R&D) is an important part of the work on meeting the demands and expectations of customers and others in Vattenfall’s business environment.

Vattenfall’s governance model entails that responsibility for operative activities is fully delegated to the Business Groups and business units. Responsibility for specific R&D and matters that are directly coupled to the Group’s own operations rests with the operative business units. R&D is also conducted in such areas that are long-term and visionary as well as in areas that are of importance to the Group as a whole.

Vattenfall’s R&D is clearly focused on supporting the Group’s plans with respect to reducing CO₂ emissions and increasing the share of renewable energy in the production mix. The company’s R&D also encompasses energy efficiency-improvements in the entire value chain for energy supply, from fuel extraction to consumers’ use of electricity, heat, gas and vehicle fuel. A key part of the company’s R&D encompasses activities that are intended to meet previously made obligations, such as the final storage of spent nuclear fuel from the company’s nuclear power plants in Sweden.

Growing R&D budget in support of the company’s strategic ambitions

In support of the company’s strategic ambitions, the R&D budget has been expanded in recent years at the same time that the content of R&D programmes has been refined to cover six main areas: renewable sources of energy, Carbon Capture and Storage (CCS), nuclear power, operational efficiency improvement, more efficient use of energy, and new energy transformation technologies. In 2008 Vattenfall invested a total of SEK 1,529 million (1,015) in R&D in the Group. Of this, SEK 352 million (336) pertains to Vattenfall’s share of the work on developing a safe and approved method for final storage of spent nuclear fuel, which is conducted by the subsidiary SKB. SEK 143 million (77) pertains to R&D on renewable energy, and SEK 687 million (280) pertains to development of technology to capture and store carbon dioxide from fossil-based generation.

Calculated in proportion to the Group’s sales, costs for joint-Group R&D amounted to 0.9% (0.7%), which is in parity with Vattenfall’s competitors. This share is reasonable considering that Vattenfall is a technology-using, rather than product-developing company.

Development projects for renewable electricity generation

Vattenfall is investing heavily to increase the share of renewable sources in its generation. Investment in renewable energy sources is a vital part of the strategy to dramatically lower the company’s CO₂ emissions. Parallel with these activities, R&D is being conducted on how existing hydro power plants can be further developed.

Vattenfall plans to invest major sums in new wind power plants. Increasing the value and reducing the risks associated with these are important objectives in Vattenfall’s R&D work. In preparation for future investments in major offshore wind farms, several development projects are currently in progress in which new technologies are being tested. Parallel with this, investments are being made in both commercial wind farms and demonstration plants in the operative activities (read more on "Renewable energy").

In 2008 Vattenfall increased its investment in ocean energy, mainly focusing on wave power. Wave power has immense potential, but the technology is a number of years behind wind power in terms of development. Vattenfall is actively involved in two pilot plants in Ireland and Sweden and has acquired exploration rights in several locations in the UK and Ireland. In addition, Vattenfall is monitoring developments in other countries, including Norway and Portugal. Based on an evaluation of more than ten different technologies, Vattenfall has given priority to four and is actively supporting two.

Continued greater investment in CCS technology

Vattenfall’s large-scale Carbon Capture and Storage (CCS) project has grown to become the largest programme area in 2009. The programme, which stretches over many years, is based on developing, scaling up and demonstrating cost effective technology for capturing and permanently storing the carbon dioxide that is produced in the combustion of lignite, among other things. The project has direct importance for Vattenfall’s ability to achieve its goal of reducing CO₂ emissions by 2030 and the climate vision that Vattenfall’s operations will be climate-neutral by 2050. Vattenfall is aiming to have a fully developed commercial concept for CCS by 2020.

In 2008 a CCS pilot plant based on oxyfuel technology was put in operation at Schwarze Pumpe, Germany. The plant is an important link in the upscaling of this technology from test to commercial scale.

Parallel with the planning work for a demonstration plant at Nordjyllandsværket in Denmark, in 2008 pre-planning work was also started for a second demonstration plant in Jänschwalde, Germany. This plant can be operating by 2015 at the earliest.

During the year, seismic surveys were conducted for CO₂ storage in an aquifer outside Aalborg, Denmark. The facility can be put in operation by 2013 at the earliest.

In 2007 Vattenfall signed an agreement with the German company EEG (a subsidiary of Gaz de France) on co-operation surrounding the storage of carbon dioxide in the depleted gas field in Altmark. Preparatory activities were conducted in 2008. Test storage of carbon dioxide from the pilot plant in Schwarze Pumpe can begin in spring 2009 at the earliest (read more on "CCS").

More efficient use of energy

Vattenfall’s R&D has been assigned a clearer focus on projects concerning more efficient uses of energy.

Co-operation with Volvo on plug-in cars continues. Since late 2008 Vattenfall has also been participating together with BMW on an electric car project in Berlin. Vattenfall’s role is to provide the electricity via a network of electricity stations. Most activities in the area of energy systems analysis are continuing in the aim of determining how the roles of various installations in major, connected energy systems can be changed in order to improve total energy efficiency.

Impact of environmental issues on the Group

The importance of environmental issues in society today has such an impact that the Group’s earnings and financial position are affected or can be affected depending on how the company chooses to act. The strong stance taken by European politicians for a sound environment, the shift to long-term sustainable development in society and limitations posed by climate change have affected and will continue to affect the conditions for Vattenfall’s future operations.

As a result of new environmental findings, customers and other stakeholders have an expectation that the company will act. Initially the impact of this on Vattenfall’s position and earnings is indirect. In pace with ever-stronger demands on environmental considerations and a growing sentiment by the general public in favour of an aggressive environmental stance, environmental standards are evolving to become statutory requirements that must be met. In recent years, economic policy instruments have also been introduced which have a direct coupling to the company’s cash flow.

Vattenfall therefore works proactively in its efforts to stay abreast of new environmental findings at an early stage in order to be able to formulate its own conclusions to the problems and thereby be in a position to predict tomorrow’s customer demands, laws and economic environmental policy instruments.

The European system for trading in CO₂ emission allowances, sulphur taxes imposed in certain countries and the fee system for emissions of nitrogen oxides in Sweden are examples of economic environmental policy instruments that affect the Group’s operations. Most other environmental issues are regulated through bans or restrictions. Many more stringent demands are being implemented within the framework of the permit-issuing process in environmental legislation in the respective countries.

Economic environmental policy instruments and the issuance of permits for operations subject to a permit requirement are the factors that have the greatest bearing on Vattenfall’s earnings and position. Vattenfall believes that the trading system for CO₂ emission allowances is the environmental policy issue that has the greatest impact on the company’s position in both the long and short term.

Operations requiring permits

The Group conducts operations that require permits pursuant to national legislation in Sweden, Finland, Denmark, Germany, Poland and the UK. A considerable level of such activity involves the generation of electricity and heat, and in Germany also lignite mining at four open-cast mines.

The Group conducts considerable network activities, including distribution of electricity under concessions held in Sweden, Finland, Germany and Poland, and transmission via the high voltage grid in Germany. The Group also conducts its own rail operations in association with lignite mining in Germany.

The Parent Company conducts operations that require permits in accordance with the Swedish Environmental Code. These consist primarily of combustion plants for electricity and heat generation, and wind power plants. The Parent Company has electricity and heat generation plants that require permits and/or registration. The Parent Company also has wind power turbines that are located separately as well as in groups; all of these require permits and/or registration. Further, the Parent Company has hydro power plants with associated water regulation facilities that are subject to review outside of the jurisdiction of the Swedish Environmental Code. The Parent Company conducts fish farming requiring permits.

The terms for a few of the Parent Company’s small heat plants were subject to review in 2008. The company’s earnings and financial position are not dependent on the outcome of these reviews.

The Group’s Swedish subsidiaries also conduct operations requiring permits in accordance with the Swedish Environmental Code. Forsmarks Kraftgrupp AB and Ringhals AB generate electricity in nuclear power plants. SKB operates an installation for the final storage of low- and medium-level nuclear waste in Forsmark and an installation of intermediate storage of spent fuel in Oskarshamn. In several subsidiaries, electricity and heat are generated primarily in combustion plants. The Group conducts network activities via Swedish subsidiaries for the distribution of electricity, in accordance with concessions.

Along with the network activities, generation of electricity in hydro and nuclear power plants constitutes a central part of the Parent Company’s and the Swedish operations. Generation of electricity in hydro power plants is conducted primarily by the Parent Company. Other significant operations are conducted primarily by subsidiaries.

CO₂ emissions

 

Electricity and heat generation affect the environment

The greatest environmental impact of the Vattenfall Group’s operations is made by the generation of electricity and heat and, in Germany, by coal mining in open-cast mines. The main environmental impact of Vattenfall’s nuclear power plants is the creation of radioactive waste, while for combustion plants the main environmental impact is from emissions of climate-affecting carbon dioxide and acidic compounds. The main environmental impact of hydro power, wind power and the network activities, as well as of open-cast lignite mines, is land use. Other environmental impact includes the production of waste and solid residuals, and the use of water for cooling at power plants.

National and European goals for the changeover of energy supply, with a higher share of renewable energy, affect the Group. The same applies for goals for reducing CO₂ emissions.

The aggregate environmental impact of operations in 2008 was essentially unchanged compared with a year earlier, since the scope and character of operations did not change significantly. For a more detailed account of the environment impact of Vattenfall’s operations, see the 2008 CSR report, Environmental performance (new window) . Trends in environmental impact between two years are overshadowed by fluctuating energy demand caused primarily by outdoor temperatures and socioeconomic conditions. Viewed over longer periods of time, the trends become clearer. Specific emissions of carbon dioxide (per kWh) from plants currently owned by Vattenfall are 25% lower today than in 1990 for both electricity and heat. Emissions of other compounds have decreased even more. Vattenfall’s ambition is to continuing reducing its emissions. In 2008 the Group adopted the climate vision of becoming climate-neutral by 2050. The previous goal according to which Vattenfall shall cut its CO₂ emissions in half by 2030, compared with 1990 levels, remains.

Electricity generation is conducted in numerous large and small hydro power plants, nuclear power facilities, wind power plants and in combustion facilities. Some of the hydro power plants are pumped storage plants. The Group also has an ownership stake in the Stade nuclear power plant in Germany, which was decommissioned in 2003.

Heat production is conducted in numerous large and medium-sized combustion plants primarily in Germany, Denmark and Poland, but also in Sweden and Finland. In Germany, construction continued in 2008 of a new lignite-fired power plant for electricity generation (Boxberg) at an existing power plant. This new lignite-fired power station will entail resumed lignite mining in a nearby open-cast mine. The necessary permits to resume mining have been obtained. In Hamburg, a new coal-fired CHP plant, Moorburg, is being built to replace existing and previously decommissioned power plants.

In 2008 the Schwarze Pumpe pilot plant that employs the capture of fossil-based CO₂ was inaugurated in Germany. The intention is to permanently store the captured carbon dioxide in bedrock. The power station, CHP plant and pilot plant have all been granted permits under German legislation.

In Denmark, construction of a new biomass-fired boiler in Odense continued. The plant is expected to be commissioned in 2009. Test operation of a previously coal-fired boiler in Copenhagen that has been converted to coal and biomass co-combustion was begun in December 2008. Both of these plants have been granted permits under Danish legislation.

In 2008 Vattenfall acquired the UK-based companies AMEC Wind Energy Ltd, Eclipse Energy UK Plc and Thanet Offshore Wind Ltd. These acquisitions are part of Vattenfall’s ambition to increase the share of wind power. Additional offshore wind farms are planned at the Kriegers Flak site in the southern Baltic Sea and at the Trolleboda and Taggen sites in the south-east part of the Baltic Sea.

Also in 2008, Vattenfall acquired 18.7% of the shares in ENEA S.A., a Polish company that operates a large coal-fired plant but which also has hydro power assets and a programme for developing new wind power.

Poland’s accession to the EU in 2004 has entailed the adaptation of the country’s national environmental laws to EU legislation. As a result, Vattenfall’s plants in Warsaw that require permits will become subject to review in the years ahead in accordance with transitional rules for existing plants. Preparations are currently in progress to ensure compliance with the new regulations on time.

Human resources

Talent management

Vattenfall works according to a yearly, strategic competence succession process to ensure that the company will continue to have access to the competence that is needed for its operations. This annual process, which is used throughout the organisation, couples business plans with future competency needs. Deviations are analysed and action plans are drawn up. Talent management is conducted primarily in the day-to-day activities and through participation in various projects. In addition to this, development activities are conducted at both the Group and local levels. At the Group level, Vattenfall has a Group-wide leadership development programme. The aim of this programme is to spread knowledge about the Group’s strategies and values, and to promote a shared understanding of Vattenfall’s company philosophy and leadership criteria. The goal is to support managers in their role as leaders and in their personal development, and to stimulate network-building in an international environment. These programmes are offered to managers at various levels. In addition, managers are offered a Group-wide function-focused programme.

Employee turnover

Employee turnover in 2008, defined as the number of employees who have left their positions within the Group on their own initiative or due to lack of work in relation to the total number of employees, was 3.3% (3.9%).

Collective agreements

The right to co-determination is regulated primarily at the country level and is based on the respective countries’ labour market laws. In all Business Groups and at the Group level, Vattenfall works with employee representatives and local unions. At the Group level this work is conducted primarily via the European Works Council (EWC-Vattenfall). Collective bargaining agreements are entered into locally in the respective countries as needed.

The work of the Board of Directors in 2008

The Board’s Rules of Procedure stipulate that seven regular meetings shall be held every year. In addition to the regular meetings, board meetings can be summoned if the need arises.

The Rules of Procedure also stipulate that the following items of business shall be included on the agenda of at least one board meeting per year:

• The Group’s strategic plan
• The Group’s total risk exposure
• Safety and environmental issues within the Group’s nuclear power operations.
• Review of strategic human resource matters, including competence succession
• Research and Development activities within the Group.

In addition, reports are presented at every meeting on important business events since the last meeting, as is a monthly report and a report on the financing situation. Investments are followed up and analysed by the Board three years after they have been decided on by the Board.

The Board also holds a number of board seminars each year. At these seminars the Board receives more detailed information about and discusses Vattenfall’s long-term development, strategy, competitive scenario and risk management.

In 2008 the Board adhered to the meeting plan as stipulated in the Rules of Procedure. In all the Board met 17 times, including the statutory meeting. According to the Rules of Procedure, at least one meeting each year is to be held at a place other than the head office. In 2008 a meeting was held in Cottbus, Germany. This meeting was combined with a visit to the open-cast mine in Jänschwalde and the plant Schwarze Pumpe, including the pilot CCS plant. For further information on the work of the Board, see "Corporate Governance Report".