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Fortum's energy market reviewKeilaniemi 18.11.2008
Lotta ForssellVice President, Communications
Fortum Portfolio Management and Trading
Timo LiiriCustomer Manager
Fortum Markets
18/11/2008 2
Background of the Energy Market Review
• The goal of Fortum's energy market review is to give information about the Nordic electricity market and factors behind price development
• Information in this review is based on data from Nord Pool, Nordel, SMHI, Reuters and Fortum's own data
• Similar review is held 2-4 times a year both in Finland and Sweden
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• EU energy policy news from Brussels
• Price development since spring 2008
• Financial market crisis effect to energy markets • fuel price development
• Development of the fundamentals• hydro reservoirs• CO2 emission allowance price development• electricity production
• Nordic and European wholesale price development• spot prices and forward prices• Nord Pool annual product quotations
• Consumer price development for different contracts
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EU's role in energy policy making increases...
• Third energy market liberalisation package• agreement among the Member States (10/10/2008)• final approval expected Q2 2009
• Climate package: renewable energy sources, emissions trading, burden sharing outside the ETS sectors, carbon capture and storage
• financial crisis has created disagreements between the Member States - European Council nevertheless kept the basis of the package unchanged (14/10/2008)
• disagreements also within the Parliament• pressure to approve the package before the EU elections in June 2009 in order to be ready
for Copenhagen in Nov - Dec 2009
• Strategic Energy Review (13/11/2008) concentrates on security of energy supply• finalisation of the internal energy market number one target also for security of supply -
interconnecting the Baltic States into EU electricity market one priority• when internal market becomes a reality, energy policies must be harmonised• EU ready to take a bigger role in energy policy making in order to ensure necessary
harmonisation
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...which should be visible in national policy making
• Finnish government's climate and energy strategy• aims to ensure competitiveness of energy intensive industries also in the future • encourages investments in non-emitting energy production; renewables and nuclear• lifts energy efficiency as one of the primary targets
• Tools to be used are purely national• demand and supply is considered as a domestic issues despite the internal electricity market • national feed-in tariff to promote investments in renewable electricity production; makes
exposure to subsidy competition a real threat• joint support scheme with other countries is considered problematic because it would direct the
investments to the lowest cost regions...
• Better energy efficiency via electric vehicles and heat pumps• when used cleverly, electricity promotes energy efficiency• electric vehicles using renewable electricity help to achieve the renewables targets of
transportation in an environmentally sound and cost-efficient manner
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• EU energy policy news from Brussels
• Price development since spring 2008
• Financial market crisis effect to energy markets
• Development of the fundamentals
• Nordic and European wholesale price development
• Consumer price development for different contracts
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Development of prices since last March -Prices on 14 November 2008
2007 2008 2009
€/M
Wh
Source: Nord Pool
0
10
20
30
40
50
60
70
80
System Spot Futures 14.11.2008System Spot Futures 17.3.2008
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Development of prices since last March -Prices on 14 November 2008 and 23 September 2008
2007 2008 2009
€/M
Wh
Source: Nord Pool
0
10
20
30
40
50
60
70
80
System Spot
Futures 14.11.2008
Futures 23.9.2008
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• EU energy policy news from Brussels
• Price development since spring 2008
• Financial market crisis effect to energy markets
• Development of the fundamentals
• Nordic and European wholesale price development
• Consumer price development for different contracts
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The global economic slow-down and monetary indicators
• Higher volatility than a year ago in global stock markets
• Lowered GDP 2009 forecasts for the largestcountries
• US, European and Asian financial rescuepackages are improving capital market conditions
• Weak global outlook for 2009• Central banks are proactive and cutting
benchmark interest rates boosting the global economy
• Activities are made to support consumer spending
• Strengthened USD vs. EUR• Commodity prices have plunged in H2 2008
in line with monetary indicators• Credit spreads show how the price of risk
has increased heavily during H2 2008
Source: IMF
IMF GDP forecast, %
-1,5
0,5
2,5
4,5
6,5
8,5
10,5
12,5
2006 2007 2008 2009e
US
EZ
UK
Russia
China
India
Germany
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Fuel price development
Source: ; market prices November 2008; 2008-2009 future quotations
Crude oil price (Brent)
020406080
100120140160
USD
/ bb
l
2005 2006 20092007 2008
Coal price (API2)
04080
120160200240
USD
/ t
2005 2006 20092007 2008
Gas price (NBP)
020406080
100120
GB
p/ t
herm
2005 2006 20092007 2008
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• EU energy policy news from Brussels
• Price development since spring 2008
• Financial market crisis effect to energy markets
• Development of the fundamentals
• Nordic and European wholesale price development
• Consumer price development for different contracts
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Temperature and consumption in the Nordic
• Fairly normal temperatures after a warm winter • Precipitation slightly lower than in 2007
Nordic average temperatures and historical averages Nordic electricity consumption
Source SMHI and Nordel
-25
-20
-15
-10
-5
0
5
10
15
20
25
Week
°C
W armer than average
Colder than average
2008
2007
2006
0
2
4
6
8
10
1 5 9 13 17 21 25 29 33 37 41 45 49 53
Wee
kly
Dem
and
(TW
h/w
k)
0
100
200
300
400
500
Cum
Dem
and
(TW
h)
2006 2007 2008cum. 2006 cum. 2007 cum. 2008
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Nordic hydro reservoirs slightly below average- temperature and snow development are key factors
Source: Nord Pool
0
20
40
60
80
100
120
1 5 9 13 17 21 25 29 33 37 41 45 49 53week
rese
rvoi
r con
tent
(TW
h)
2000 2003 2006 2007 2008 reference level
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Price development for emission allowances
Source Nord Pool
2005 2006 2007 20080
5
10
15
20
25
30
35
Pric
e, €
/tCO
2
2005 2006 2007 2008 2009 2010 2011 2012 2008 CER
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• EU energy policy news from Brussels
• Price development since spring 2008
• Financial market crisis effect to energy markets
• Development of the fundamentals
• Nordic and European wholesale price development
• Consumer price development for different contracts
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Nordic system spot-price development
Source: Nord Pool
0
10
20
30
40
50
60
70
80
90
1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12.
Day
Avg
Pric
e EU
R /
MW
h
2005 2006 2007 2008
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Large area price differences during 2008
Source: Nord Pool
• Differences due to malfunctions in transmission connections • connection between Southern Norway and Sweden will be fully functional earliest spring 2009
System and area price development in the Nordic market
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
2006 2007 2008
EUR
/ MW
h
system Oslo Stockholm Helsinki Odense Copenhagen
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Source:
Continental wholesale prices for electricity currently clearly above the Nordic prices
Spot prices Forward pricesEUR/MWh
Dutch
German
Nordic
Russian*
* Including capacity tariff estimate. E.g 2008 10 €/MWh
13 November 20080
10
20
30
40
50
60
70
80
90
100
110
2005 2006 2007 2008 2009 2010
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Nord Pool forward prices and historical spot average
Forward prices 14 November 2008Source Nord Pool
0
10
20
30
40
50
60
70
1 / 2006 1 / 2007 1 / 2008
Dai
ly c
losi
ng p
rice
EUR
/MW
h
Year 07 Year 08 Year 09Year 10 Year 11 Year 12Year 13 Avg spot 2007 Avg spot 2008
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Nordic price history and future quotations until 2013
Source: Nord Pool, Forward prices 14 November 2008
0
10
20
30
40
50
60
70
80
90
100
110
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
EUR
/MW
h
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Nord Pool has launched indexed forward price for 1 year
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• EU energy policy news from Brussels
• Price development since spring 2008
• Financial market crisis effect to energy markets
• Development of the fundamentals
• Nordic and European wholesale price development
• Consumer price development for different contracts
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Contract prices are based on different periods
Fortum KestoEasy and flexible
Fortum TakuuStable and secure
Fortum TarkkaAlways up to date
Price updated every month
Price updated every calendar quarter
Price guarantee for the whole contract period
(1 or 2 years)
1 month price periods 3 month price periods 1-2 year price periods
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Price development for different consumer contract types in Finland since 2004
2004 2005 2006 2008
Average price for a consumer type L1, house with 18 000 kWh/a. Prices VAT 22%.
20070
2
4
6
8
10
c/kW
h
Kesto Takuu Tarkka
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Nord Pool Q1/2009 price quotation in mid November ~ 6,65 c/kWh
Nord Pool Q1/2009 hintanoteeraus 1.10.2008 ~8,7 c/kWh
Eri sähkönmyyjien keskimääräinen myyntihinta
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Market quotations compared to sales prices - public electricity prices of sales companies for a customer with 18 000 kWh/a consumption and Nord Pool Q1 2009 quotations in Finland includin 22 % VAT
Nord Pool Q1/2009 price quotation in early October (1.10.2008) ~8,7 c/kWh
Average electricity price of different sales companies
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Energy Market Review, 18 November 2008
Fortum publishes a current energy market review two to four times a year. Topics covered in the review include fuel price development, electricity price development on the Nordic power market and factors influencing the development.
Summary:• The global economic slow-down has had an impact on the fuel and electricity prices and Fortum's
way of analysing the energy situation. The economic slow-down will also have an impact on the global energy demand – at least on a short term.
• Fuel prices increased during 2007 and the increase continued even more dramatically the first half of 2008. Since mid July the fuel prices have decreased dramatically but are still above the price level of early 2007.
• After a steep increase Nordic wholesale electricity prices have decreased during the past two months. The future price quotations are now on the same level as before summer being around 50 €/MWh for the next year.
• The Nordic water reservoirs are slightly below the long term average, and there is less snow compared to historical levels.
• Higher continental prices and increased transmission connections have resulted in increased exports from Nordic to Continental Europe where the prices are 15-25 €/MWh higher compared to Nordic.
• Consumer prices in Finland have not fully reflected to wholesale price increase and therefore the consumer price levels are in general below the wholesale prices.
Further information:Lotta Forssell, +358 50 45 36128, [email protected] Liiri, +358 50 45 36461, [email protected]
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