fortum's energy market review keilaniemi 18.11mb.cision.com/main/15253/2212558/641986.pdf ·...

18/11/2008 1

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

18/11/2008 3

• 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

18/11/2008 4

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

18/11/2008 5

...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

18/11/2008 6



• Financial market crisis effect to energy markets

• Development of the fundamentals

• Nordic and European wholesale price development


18/11/2008 7

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

18/11/2008 8

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

18/11/2008 9







18/11/2008 10

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

18/11/2008 11

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

18/11/2008 12







18/11/2008 13

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

18/11/2008 14

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

18/11/2008 15

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

18/11/2008 16







18/11/2008 17

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

18/11/2008 18

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

18/11/2008 19

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

18/11/2008 20

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

18/11/2008 21

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

18/11/2008 22

Nord Pool has launched indexed forward price for 1 year

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18/11/2008 24

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

18/11/2008 25

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

18/11/2008 26

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

26

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

18/11/2008 27

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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