HYDROELECTRIC OUTLOOK: DEVELOPMENTS, OPPORTUNITIES & CHALLENGES

Transcription

1 PLATTS 7 TH ANNUAL EUROPEAN POWER SUMMIT HYDROELECTRIC OUTLOOK: DEVELOPMENTS, OPPORTUNITIES & CHALLENGES Marcus Bokermann, Director Market Strategy, Vattenfall 2016/04/25 Amsterdam 1

2 AGENDA 1 Developments 2 Opportunities 3 Challenges 4 Conclusions

3 MEGATRENDS SINCE LIBERALIZATION Utilities Golden Age Utilities Struggle for survival Capacity gap expected Growing power and gas demand Rising liquidity and volatility ETS instrument to tackle climate change Oversupply in Europe Demand destruction Liquidity and volatility cycles Overlapping policies Globalization and markets more interlinked Ongoing regulatory changes Liberalization Targets Financial crisis Chinese crisis? EU-ETS Fukushima

4 DEVELOPMENTS THAT SHAPED THE MARKET Weak demand And no real growth foreseeable in the near future Supply overhang - due to growth in conventional and renewable capacity In combination leading 20 to: abundance of CO 2 -Certificates and 10 thus low prices 0 Demand (TWh) Nordics Germany RES & Hydro Production (TWh) (Nordics & Germany) CO 2 ( /t) RES Hydro Power Year-Ahead Base ( /MWh) Nordics Germany Sources: ENTSO-E, ICE, EEX, NASDAQ

5 RENEWABLES ALSO SHAPING PRICE PATTERN /MWh 150 Hourly spot prices & residual load Germany MWh 90' ' ' ' ' ' Price Preis Residual load Residuallast Residual load = Demand Wind & PV production '000 20'000 10'000 Sources: EPEX Spot, Meteogroup, Vattenfall

6 THAT ALREADY LEAD TO INTERESTING SPREADS Hourly vs. quarter hourly prices in Germany min prices Hourly prices Wind PV Power trading firms are the leading wind marketers 86% 88% TSOs are the leading PV marketers Sources: EPEX Spot, 50Hz

7 AND MORE TO COME IN A RENEWABLE SYSTEM Residual load 2015 vs A transformation towards a more renewable energy system comes with challenges Increased need for flexibility and security of supply More volatile prices and changed price pattern Puts pressure on prices Increased volatility puts higher pressure on the power system Growth in renewables according to EU 2030 targets (% of total consumption) EU target But the world will benefit Renewable growth leads to reduced GHG emissions Helps keeping the temperature according to COP21 goal of 2 degrees Opens up for new business opportunities Sources: ENTSO-E, Meteogroup, EU, Vattenfall

8 AGENDA 1 Developments 2 Opportunities 3 Challenges 4 Conclusions

9 Hydro in the Nordic Region HYDRO REMAINS BACKBONE IN THE NORDICS Hydro power delivers important functions: Renewable electricity as base load production Regulating power to manage electricity usage and RES power fluctuations IEA Scenarios: Sources: IEA, Vattenfall

10 Hydro in the Nordic Region PUMP STORAGE TO ENSURE ENERGIEWENDE Pump-storage plants delivers important functions: High ramping capabilities Switch from production to consumption Black start ability Currently only available big size storage Regulating power to ensure frequency Reactive power to keep voltage Flood protection through water flow regulation Coalition agreement: Wir wollen, dass Pumpspeicherwerke auch künftig ihren Beitrag zur Netzstabilität wirtschaftlich leisten können. Aufgrund der zukünftigen Systemfunktionen sollen die Letztverbraucher-Pflichten der Speicher überprüft werden. (Page 41) Sources: Vattenfall, German Government

11 AGENDA 1 Developments 2 Opportunities 3 Challenges 4 Conclusions

12 Consultant fees Comp. local comm. Wear and tear Poperty tax Grid fees Personnel costs Upgrade Gen. & Turb. Total mid-term costs Dam security Grid investment Total long-term costs Dam works Underground work Ifrastructure Total Hydro in the Nordic Region NORDIC PRICE LEVEL NOT SUSTAINABLE TODAY 100 Average production costs vs. prices [ /MWh] 100 Cost components hydro power (Case study [ /MWh]) Spot 2014, 2015 & YtD 2016 Capital Operating Taxes & Fees Nuclear (13 ) Hydro (9 ) Wind (0.5 ) Ø Cal Sources: Sweco, IVA, EY, Energikommissionen, Nordpool, NASDAQ

13 Hydro in the Nordic Region CURRENT GERMAN LAW AN OBSTACLE FOR PSP Traditional income stream deteriorates Balancing market quite important Double burden amid: Grid fees No level playing field Only new plants are exempted for 20a Existing plants only with significant upgrade Change in German law necessary: Treat pump storage plants like in the European Transmission Code as power plants and not as end consumers!

14 AGENDA 1 Developments 2 Opportunities 3 Challenges 4 Conclusions

15 Hydro in the Nordic Region ENSURE LEVEL PLAYING FIELD & LET MARKET WORK Full market integration of new/all technologies necessary The market will resolve the issue of oversupply, innovation will take place and business opportunities as well as investment signals will eventually occur Hydro power will remain an important pillar of the energy system in Germany and in the Nordics in a continuously changing environment

16 APPENDIX

17 VATTENFALL: A MAJOR EUROPEAN UTILITY 100% owned by the Swedish state and operations across the value chain Key figures 2015 Net sales (MSEK) 164,510 Underlying operating profit (MSEK) 1 20,541 Operating cash flow (MSEK) 40,934 Installed capacity, electricity (MW) 2 38,806 Installed capacity, heat (MW) 13,455 Length of electricity distribution networks (km) 259,000 CO 2 emissions (Mtonnes) 3 83,4 Number of electricity customers ~ 6,200,000 Number of electricity network customers ~3,200,000 Number of gas customers ~2,100,000 1) Underlying operating profit, excluding items affecting comparability 2) Consolidated figure 3) Pro rata basis, corresponding to Vattenfall s share of ownership

18 A BRIEF HISTORY OF VATTENFALL 1992 Vattenfall is commercialized 1996 Deregulation of the Swedish energy market 2006 Decision to invest in Moorburg plant, Hamburg 2008 EU 2020 targets decided RES targets and ETS Gas should be increasingly necessary and profitable 2014 Looking into the opportunities of divesting lignite operations in Germany, transform to more renewable production, and invest in wind power Sweden joins the EU 1999 Vattenfall acquires 25.1% of HEW. Expansion in Germany, Denmark and Poland until Lehman Brothers defaults. Worst financial crisis since 1930 begins 2009 Vattenfall acquires Nuon 2011 Germany decides to stop Nuclear by Krümmel and Brunsbüttel will not reopen

19 OUR STRATEGY Customer focus Growth in renewables drives decentralization Heat as a strong business opportunity Energy you want Partnering becomes more important Climate friendly large-scale production with high efficiency Lean and agile organization From a traditional utility Large-scale, centralized production Wholesale-focus 50% fossil power..to capturing the business opportunities in the transformation 19

20 OUR VISION AND STRATEGIC OBJECTIVES Vattenfall s vision is to be a dedicated partner to its customers and society at large, providing convenient and innovative energy solutions. Vattenfall aims to be a leader in sustainable production, ensuring reliable and costefficient energy supply. Vattenfall is committed to be climate neutral by We call this Energy You Want

21 SELECTED KEY ACTIONS Group-wide BA specific Increase customer centricity Increase cost and maintenance efficiency Grow in digitalized customer businesses Improved quality of networks & regulatory optimization Actively pursue partnering Increase efforts in Business development Capture value in new energy markets Develop wind pipeline and execute on new projects Promote a sustainable energy market design Divest lignite Develop community partnerships Secure nuclear and invest in hydro flexibility

22 NEW STRATEGIC TARGETS 2016 Six strategic targets to year 2020 better reflect Vattenfall s strategic objectives Three sustainability targets are integrated in the new strategic targets Four financial targets are set by the owner (ROCE; FFO/adjusted net debt; Debt/equity ratio; Dividend policy) of which ROCE is included below Strategic objectives Strategic targets to 2020 Leading towards Sustainable consumption Leading towards Sustainable production 1. Customer engagement, NPS (Net Promoter Score): +2 NPS relative 2. Commissioned renewables capacity: 2,300 MW 3. Absolute CO 2 emissions: 21 Mtonnes* High performing operations Empowered and engaged organisation 4. ROCE: 9% 5. Safety as LTIF (Lost Time Injury Frequency): 1,25 6. Employee Engagement Index: 70% *Assumes significant structural changes

23 KEY FINANCIAL DEVELOPMENTS Sales and underlying EBIT SEK billion Debt evolution SEK billion Sales (LHS) Underlying operating profit (RHS) SEK billion Total interest-bearing liabilities Net debt Adjusted net debt Note: * Divestments heat and electricity network operations in Poland, electricity network operations in Finland and Hamburg, operations in Hamburg, combined heat and power assets in Denmark, facility services in Germany, and other assets and operations. ** Cost from growth and other effects - include cost due to growth, FX effects, Restructuring costs, etc Earnings and return SEK billion Profit for the year attributable to owners of the Parent Company Return on capital employed (%) Significant cost reductions SEK billion Cost base Divestments* Cost reductions of SEK 15.2bn on a yearly basis. Corresponds to 30% compared with the cost base in 2010 Cost reductions Costs due to growth, and other effects** 46.5 % Cost base 2015

24 QUESTIONS?