Fortum Origination Electricity market: The value of flexibility in the future DIGITICE Vaasa 17th March 2015 16th December 2014 Aleksi Nordlund Ann Boije af Gennäs, Portfolio Manager Origination Fortum Origination services TRADING IN SEVERAL MARKETS Secure Optimize electricity consumption financial result PPA 80 70 60 Structured products 50 40 30 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 20 2005 Decrease volatility in sales result 2004 Increase cash flow with GO trading Role of Wind production Wind and solar plays a major role in Germany today Wind will play a major role in Nordics tomorrow MW Source: Eurelectric Power Statistics & Trends 2013, Entso-E 10 year plan & Bundesministerium für Wirtschaft und Energie, Statistisches Bundesamt, Arbeitsgruppe Erneuerbare Energien-Statistik (AGEE-Stat) 3 News on Bloomberg 25th July 2014 July 25 2014 (Bloomberg) -- Germany’s push toward renewable energy is causing so many drops and surges from wind and solar power that more utilities than ever are receiving money from the grids to help stabilize the country’s electricity network. … Twenty power companies including Germany’s biggest utilities, EON SE and RWE AG, now get fees for pledging to add or cut electricity within seconds to keep the power system stable… …Utilities that sign up to the 800 million-euro ($1.1 billion) balancing market. ... “At the beginning, this market counted for only a small portion of our earnings,” said Hartmuth Fenn, the head of intraday, market access and dispatch at Vattenfall AB, Sweden’s biggest utility. “Today, we earn 10 percent of our plant profits in the balancing market” in Germany, he said by phone from Hamburg July 22… Source: Bloomberg: http://www.bloomberg.com/news/articles/2014-07-24/german-utilities-bail-out-electric-grid-at-wind-s-mercy 4 Balancing market turnover increasing ? Source: EPEX SPOT http://www.epexspot.com/dib/ & Fingrid Oyj annual reports 5 Transmission enhancements supports balancing Transmission network companies’ cross-border grid plans by 2020: New internal Nordic grid investments provide for increased available capacity for transmission to the Continent and Baltics Two 1,400 MW NO-UK links as EU Projects of Common Interest: NSN link to England agreed to be built by 2020, NorthConnect to Scotland still requiring Norwegian permission 320 MW of transmission capacity available on the 1,300 MW RU-FI link since December 2014 First direct 1,400 MW NO-DE link agreed to be built by 2018 EU’s Connecting Europe Facility co-financing 3rd EE-LV transmission line, due to be ready by 2020 EU financial support for a 700 MW DK-NL link, due to be built by 2019 EU’s European Energy Programme for Recovery co-financing 700 MW NordBalt (ready 12/2015) Jutland – DE capacity planned to grow by 860 MW by 2019, with further 500 MW increase by 2022 LitPol link (500+500 MW) to connect the Baltic market to Poland by end -2015/20. It will open a new transmission route from the Nrodic market to the Continent Svenska Kraftnät agreed 3/2014 with 50Hertz to study a new Hansa PowerBridge DC link between Sweden and Germany Existing connections Future connections Future cross-border connections Nordic internal grid enhancement plans are modest – interconnections must be improved 6 Source: ENTSO-E 10-year plan, Fortum Capacity remuneration mechanism is one option to secure production flexibility SE&FI: Capacity reserves for spot market deficits only. SE reserves to be gradually phased out by 2020. FI reserves reduced for 2014-15 RU: Capacity market with price restrictions. Long-term capacity supply agreements for obligatory investments GB: Full-scale capacity auctions, approved by EU. First auction in Dec 2014 for delivery year 2018/19 IE&NI: Capacity payments since 2005 BE: Strategic reserve from 2014/15 PT: Capacity payments for new units. Wider payments on hold ES: Capacity payments for new units and to existing coal, gas, oil and hydro capacity. Payments reduced in 2013 Source: Fortum 7 Partial capacity mechanisms LT: Condensing units as reserve. Lower needs from 2016 due to NordBalt PL: Strategic reserves contracted for 20162017/19. Capacity market under discussion FR: Capacity purchase obligations due to be implemented by winter 2016/2017. Capacity certification and trade to start in 2015 Energy-only market *) DE: Grid reserves in southern DE since 2011. Discussion and studies on further wider mechanisms GR: Capacity obligation mechanism since 2005 IT: Minor payments. New zonal reliability option mechanism to be implemented by 2018, with only part of the capacity included Proposals for new capacity elements Major capacity mechanism Regulated market restrictions *) No capacity payments to power plants in the day-ahead and intraday markets, but balancing market reserve capacity is contracted in advance. The value of flexibility in the future Summary • Increasing demand for flexibility – Increasing renewable production – Condensing capacity closures • Increasing regulation is a threat on hydro flexibility • Transmission enhancements supports power market balancing • Capacity remuneration mechanism is one option to secure production capacity / flexibility 8 Your Fortum Contacts Aleksi Nordlund Manager Origination + 358 50 453 62 90 [email protected] 9 Confidential Saara Rantanen Originator +358 40 552 2244 [email protected] Juha Ruokonen Manager Environmental Values + 358 40 091 83 22 [email protected] Thank You! 10
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