The value of nuclear and hydro capacity in the future energy system
Capital Markets Day
Tiina Tuomela / Executive Vice President Generation / 16 November 2016
Loviisa nuclear power plant, Finland
2
Agenda• Generation asset portfolio
• Key priorities
– Value drivers
• Nordic power market
• Hedging
• Productivity
• Nuclear liabilities
• New revenue streams
• Summary
Xxx, Xxx
Imatra hydro power plant, Finland
3
Generation – balanced portfolio of hydro and nuclear
2015 figures Total Sweden (share of total)
Finland (share of total)
Capacity
Hydro
Nuclear
Thermal
4,623 MW
3,004 MW
376 MW
67%
51%
-
33%
49%
100%
Production
Hydro
Nuclear
Thermal
25.0 TWh
22.7 TWh
0.3 TWh
66%
48%
-
34%
52%
100%
Net assets* 5,913 M€
Investments* 203 M€
Personnel* 1,341
*Power and Technology segment
Olkiluoto NPP
Loviisa NPP
Forsmark NPP
Oskarshamn NPP
Meri-Pori TPP
Hydro plants
Nuclear reactors
Thermal plant
Productivity
Fleet flexibility
New revenue streams
Industry transformation
Fair regulation
People performance
and safety
4
Generation’s key priorities
• Drive industry transformation and consolidation
• Drive productivity: cost and capex efficiency
• Increase value creation and find further fleet flexibility
• Enhance fair regulation
• New revenue streams from nuclear service and origination business
Fortum Generation – Most competitive and flexible clean power generator
Revenue drivers
• Power price
• Production volumes and availabilities
• Trading and optimisation
• New revenue streams
Cost drivers
• Production cost
• Investment level
• Taxes and transmission fees
5
Generation value drivers
• Nordic power price is determined by the supply and demand balance
• Supply is driven by hydrological variation, available RES, Nordic & Baltic coal condense prices as well as Continental and Russian imports
• Demand is driven by industrial activity, household electrification and export
6
Price drivers in Nordic power marketNordic power price setters
SE1
SE4
EE
LV
LT
PL
FI
SE3
Continentalcondense
DK1
DK2
Russiancondense
NO2
NO5 NO1
NO3
NO3
SE2
Fortum Generation division assets
Fortum other divisions’ assets under
Generation trading operations
Scandinavianhydro
availability
Scandinavian wind
Baltic condense
Nordiccondense
Continental nuclear
availability
Continental Wind and solar
Danish wind
Polish condense
CO2, coal prices
Nordic power prices and hydro reservoir levels 2005–2016
0
10
20
30
40
50
60
70
80
90
100
-30
-20
-10
0
10
20
30
Syste
m P
rice (
€/M
Wh
)
No
rdic
Hyd
ro R
eserv
oir
Su
rplu
s/D
efi
cit
(T
Wh
)
Nordic hydro reservoir balance SYS price
7
Nordic prices driven by weather (hydrology and temperatures), coal SRMC and Continental prices
Source: Nord Pool Spot
Weather has turned drier lately and dry outlook continues for the near term
0
10
20
30
40
50
60
70
80
90
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
TWh
Week
NO reservoir content
5 - 95% Average 2016 2015
0
5
10
15
20
25
30
35
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
TWh
Week
SE reservoir content
5 - 95% Average 2016 2015
8
Norwegian reservoirs currently close to normal levels, while a clear deficit in Swedish reservoirs
Source: MKOnline
9
Electricity demand is seasonalFlexible production is valuable, in the Nordics it is primary hydro
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Germany Nordic France
Production mix in 2015
Other renewables
Fossil fuels
Hydro
Nuclear
60
65
70
75
80
85
90
95
100
105
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Demand seasonality of selected markets in 2015
Germany
Nordic
France
Source: ENTSO-E Statistics
Jan indexed t
o 1
00
• Natural variance on annual availabilities
due to varying outage scopes
• Loviisa and Olkiluoto located in Finland,
are consistently among top NPPs globally
in terms of availability
• In recent years good development in
Swedish plants
10
Nuclear fleet availability improved
Futures:
days, weeks
Forwards:
months,
quarters and
years
2008: ~2,500 TWh
Nasdaq financial
trades
2014: ~1,500 TWh
Nordic power market, several trading places– base load generation hedged long prior to delivery, while reservoir based hydro has optional value closer to delivery
11
Elspot (day-ahead) Elbas (intraday)
System
responsible:
Derivatives market
Nasdaq Commodities OMX/OTC
Physical deliveries
Nord Pool
Balancing
markets
Po
wer
deli
veri
es
Nord Pool
intraday
market
2015:~5 TWh
Statnett
Balancing
Market
2015: ~1,230 GWh
Svenska Kraftnät
Balancing
Market
2015: ~1,260 GWh
Fingrid
Balancing
Market
2015: ~230 GWh
Energinet.dk
Balancing
Market
2015: ~280 GWh
Time before
delivery: 10 y… 1 d 12 h…36 h 36 h…1 h 1 h…
Nord Pool
day-ahead market
2015: ~374 TWh
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Wide toolbox for hedging but liquidity limits usability of some products
Nord Pool system
forwards and options
• Cash-settled, cleared
instruments against system price
• The main instruments for
hedging
• Good liquidity in the front end
Electricity Price Area
Differences (EPADs)
• Forwards used for hedging area
price difference vs. system
• Cash-settled
• Liquidity decreases quickly with
time
Forwards for variable cost items
• Variable cost components are mainly in coal and CO2
• Used for securing price premium against cost of coal fired power plants
Very liquid
*OTC trades not included.
0%
10%
20%
30%
40%
50%
60%
deliveryyear
Y-1Y-2Y-3Y-4
Tra
de
d v
olu
me
per
ye
ar
of to
tal vo
lum
e (
%)
YR-15 product traded volume per year*- Market liquidity on the market grows towards
delivery
Helsinki (26 TWh)
Stockholm (30 TWh)
Sundsvall (3 TWh)
System (725 TWh)
0%
20%
40%
60%
80%
100%
Q3-2 yearsahead
Q4-2 yearsahead
Q1-1 yearahead
Q2-1 yearahead
Q3-1 yearahead
Q4-1 yearahead
Q1-Current Q2-Current Q3-Current
Average hedge ratio (and 20% and 80% percentiles) before delivery
Fortum Reported Hedge Ratios 2008-2016
Interim report Q3/16
The blue pipeline consists of Fortum reported historical hedge levels (20-80% range)
13
For Fortum’s hydro and nuclear dominated fleet the hedge ratios have been around 60–80%
Reported hedge ratios in Interim reports 2008-2016.
Q3/16 current year 80%, next year 2017 50% and two years ahead 2018 30%.
20
25
30
35
40
45
50
55
60
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Achieved power price vs Spot area price (SYS+FI&SE) 2005-2015
Achieved power price Spot area price (SYS+FI&SE) Average achived power price Average spot area price (SYS+FI&SE)
14
Fortum’s hedging has reduced volatility and increased achieved power price over time
Spot area price = SYS + (40 % FI + 40 % SE3 + 20 % SE2)
Average achieved power price
• Outsourcing of O&M
– Hydro
– Thermal
• Constant portfolio optimisation
• Procurement savings
• Flexible use of resources
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Focus on productivity – Operative fixed cost trend downwards
-12%
*Operative fixed costs excluding taxes
• Swedish energy policy agreement in June 2016
– Nuclear capacity tax will be reduced to 1,500
SEK/MW per month from 1 July 2017 and
abolished on 1 January 2018.
– Decrease the hydropower real-estate tax rate over
a four-year period beginning in 2017, from todays
2.8% to 0.5%.
• Real estate taxation in Finland
– Power plants subject to higher real estate tax rate
(3.1%) than other properties (~1%)
• Water framework directive
– Possibly could mean additional costs in Sweden
• Nuclear waste management
16
Positive progress in taxation but still need for active influencing
0
50
100
150
200
250
300
2012 2013 2014 2015 2016 FC2017 FC2018 FC2019 FC2020
Real estate and capacity taxesMEUR
In Finland and Sweden
• Infrastructure for waste management well-established
• Cost estimates based on detailed technical plans,
experience, scientific findings and tenders received
from suppliers
• Funds transparently accumulated in segregated
external funds
• Liabilities based on annual cost estimates and
technical plans updated every third year
• Finland: Plan & estimates updated Jun 2016,
Government decision by the end of 2016
• Sweden: Plan & estimates to be submitted Jan 2017,
Government decision Dec 2017
– Impact of Oskarshamn unit 1 and 2 closures
– Calculation period likely to increase from 40 to 50 years
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Nuclear waste management
Nuclear assets
& total liabilitiesstatus 30 Sep 2016
Liability,MEUR
Available
funds,MEUR
Coveragefrom IFRS
perspective
Loviisa 836 1,094 131%EUR +258 million
TVO 962 1,369 142%+407 M€
Fortum’s net share
EUR +108 million
OKG and Forsmark 3,125 2,976 95%-149 M€
Fortum’s net share
EUR -61 million
New revenue streams and growth
Nuclear services
• Continue building a strong new leg in addition to
nuclear generation business
• Focus on scalable offerings in selected niche
areas where strong nuclear expertise is a
necessity
• Several orders received and significant additional
sales pipeline built
• Increased scalability through strategic
partnerships, potential acquisitions
Origination
• Provide commodity market products and services to
B-to-B customers
• Expand existing origination offering in home markets
• Green products
• Virtual power plants
• Asset management
• Demand response
• Risk management tools and support for customers’
investments
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For more information, please visit
www.fortum.com/investors