The EU energy and climate
policy framework 2030
A way forward to harmonisation?
College d´Europe, Brugge, Belgien 10th Mar...
Our geographical presence today
2
TGC-1 (~25%)
Power generation ~7 TWh
Heat sales ~8 TWh
OAO Fortum
Power generation 20.0 ...
Fortum’s strategic route
3
Divestment of
non-strategic
heat business
Länsivoima
→100%
E.ON Finland
Separation of
oil busin...
Hydro power
47%
Coal 4%
Other 1%
Nuclear power 43%
Biomass 2%
European generation 53.9 TWh
(Generation capacity 11,271 MW)...
Utility sector still has some way to go to meet the decarbonisation target:
Big gap overall - Fortum still some way to go
...
EU 2050 energy roadmap emission targets:
Starting point - we target 20gCO2/kWh by 2050*
6
0
50
100
150
200
250
300
350
400...
Transition towards Solar Economy Solar Economy
Solar based production with
high overall system efficiency
Resource&systeme...
Levelized cost of electricity (LCOE) in Europe
Current market prices hardly justify any investments into new generation, b...
9
Production optimisation:
Success in production optimization requires mastering the complexity of the power market
Global...
Today EU Emission Trading System (ETS) does not steer
decarbonisation due to multiple environmental targets
• The current ...
Competiveness; European prices increasing compared to US:
We need to study the underlying price components
11
0
20
40
60
8...
Wholesale prices in real term tells something different:
Europe is in parity with the US and wholesale electricity prices ...
0
50
100
150
200
250
300
EUR/MWh
EEG, KWKG, Article 19
levy, offshore liability
charge, electricity tax,
concession fee, V...
Comparing market based and regulated way to promote non-hydro RES:
Sweden vs Germany - striking differences in end-user co...
Decarbonisation is expensive in all scenarios:
We should seriously discuss the most cost efficient alternative
15
0
1
2
3
...
16
Decarbonisation requires European energy markets integration
Source: Fortum
Wave energy
Wind energy
Bioenergy
Solar ene...
Towards a functioning European power market
17
• Wider market area - more competition - increased service level
• Increase...
European internal energy market is fragmenting:
Diverse RES-support schemes and capacity market proposals distort the ener...
Commission proposal for 2030 energy and climate framework
Targets of the 2030 package compared to 2020 in a nutshell;
19
Y...
Milestones of the international and EU climate policies
20
202020152010
International
EU
Kyoto period
Target to reach a ne...
Fortum a forerunner in sustainability
• Dow Jones Sustainability World Index
– Included for ten consecutive years
– Fortum...
Challenges
Overall;
• The big challenge: Target 20gCO2/kWh by 2050,
• The cost efficiency; Decarbonisation requires enormo...
Next generation energy company
23
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Eu brugge

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Eu brugge

  1. 1. The EU energy and climate policy framework 2030 A way forward to harmonisation? College d´Europe, Brugge, Belgien 10th March 2014 Birgitta Resvik, Vice President Corporate Relations Fortum
  2. 2. Our geographical presence today 2 TGC-1 (~25%) Power generation ~7 TWh Heat sales ~8 TWh OAO Fortum Power generation 20.0 TWh Heat sales 24.2 TWh Russia Poland Power generation 0.6 TWh Heat sales 4.0 TWh Baltic countries Power generation 0.5 TWh Heat sales 1.1 TWh Nordic countries Power generation 46.5 TWh Heat sales 13.9 TWh Distribution customers 1.6 million Electricity customers 1.2 million Nr 3 Power generation Electricity sales Nr 2 Nr 1 Heat DistributionNr 1 Key figures 2013 Sales EUR 6.1 bn Operating profit EUR 1.7 bn Balance sheet EUR 24 bn Personnel 9,900 Great Britain Power generation 1.0 TWh Heat sales 1.8 TWh Listed at the Helsinki Stock Exchange since 1998 More than 130,000 shareholders Market cap ~14 billion euros
  3. 3. Fortum’s strategic route 3 Divestment of non-strategic heat business Länsivoima →100% E.ON Finland Separation of oil businesses Elnova 50%→100% District heat in Poland 2003 → Østfold Shares in Hafslund Shares in Lenenergo Starting TGC-1 Divestment of Lenenergo shares TGC-10 Divestment of Fingrid shares Divestment of heat operations outside of Stockholm 20082005 2006 20072002 2003 20041999 2000 20011996 1998 2009 2010 2011 Länsivoima 45% → 65% 2012 Stockholm Energi Gullspång Birka Energi 50% Fortum 50% Stockholm Gullspång Skandinaviska Elverk Birka Energi 50% → 100% Stora Kraft Lenenergo shares 1998→ IVO 1997 Neste Divestment of small scale hydro
  4. 4. Hydro power 47% Coal 4% Other 1% Nuclear power 43% Biomass 2% European generation 53.9 TWh (Generation capacity 11,271 MW) Fortum's European power generation in 2012 Natural gas 3% European production 18.5 TWh (Production capacity 9,035 MW) Fortum's European heat production in 2012 Peat 2% Oil 2% Heat pumps, electricity 18% Waste 10% Natural gas 21% Coal 20% Biomass 27% Fortum's European power generation based on hydro and nuclear power – wide flexibility in heat production 4
  5. 5. Utility sector still has some way to go to meet the decarbonisation target: Big gap overall - Fortum still some way to go 5 0 200 400 600 800 1000 1200 DEI Drax RWE CEZ SSE Edipower Vattenfall Enel EDP E.ON GDFSUEZ Dong UnionFenosa EnBW Iberdrola Fortumtotal Verbund PVO FortumEU EDF Statkraft 88 g CO2/kWh electricity, 2012 2012 68% of Fortum's total power generation CO2-free 93% of Fortum’s power generation in the EU CO2-free Close to 100% of the ongoing investment programme in the EU CO2-free Average 338 g/kWh 192 Note: Fortum’s specific emission of the power generation in 2012 in the EU were 42 g/kWh and in total 171 g/kWh. Only European generation except “Fortum total“ which includes Russia. Source: PWC & Enerpresse, Novembre 2012 Changement climatique et Électricité, Fortum Industrial Intelligence EU2050 target at 20gCO2/kWh by 2050 -~95 %
  6. 6. EU 2050 energy roadmap emission targets: Starting point - we target 20gCO2/kWh by 2050* 6 0 50 100 150 200 250 300 350 400 450 500 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 CO2IntensityEURoadMapScenarios (gCO2/kWh) 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Scenario 1: Reference Scenario 1bis: Current Policy Initiatives Scenario 2: High energy efficiency Scenario 3: Diversified technologies Scenario 4: High RES Scenario 5: Delayed CCS Scenario 6: Low nuclear CO2 Intensity, ~80-90 gCO2/kWh CO2 Intensity, ~5-20 gCO2/kWh Source: EU Commission 2050 roadmap impact assessment 2012 *Power sector target a 93-99 % reduction in CO2 emissions from 1990 level by 2050
  7. 7. Transition towards Solar Economy Solar Economy Solar based production with high overall system efficiency Resource&systemefficiency Finite fuel resources Large CO2 emissions Infinite fuel resources Emissions free production HighLow Geothermal Hydro Wind Sun Ocean Bio Coal Gas Oil Nuclear today Nuclear tomorrow CHP CCS Traditional energy production Exhaustible fuels that burden the environment Advanced energy production Energy efficient and/or low-emission production Copyright © Fortum Corporation All rights reserved by Fortum Corporation and shall be deemed the sole property of Fortum Corporation and nothing in this slide or otherwise shall be construed as granting or conferring any rights, in particular any intellectual property rights 7
  8. 8. Levelized cost of electricity (LCOE) in Europe Current market prices hardly justify any investments into new generation, but still we over- subsidise renewables 8 LCOE (=CAPEX+OPEX) shows the achieved price required for an investment into a power plant to break even over the lifetime of the project. Disclaimer: The presented figures do not represent Fortum’s own view on the levelized costs of electricity. The figures are based on recent external publications. Key assumptions: real discount rate 5%, corporate tax 20% (irrelative to country for comparability reason). Overnight costs, €/kW 5330 for nuclear, 1840 for gas, 1390 for coal, 1130 for onshore wind, 1880 offshore wind, 2770 for hydro, 1220 for ground mounted solar, 1700 for rooftop solar. Peak load factor for ground mounted solar in Italy 18.5%; for rooftop in Germany 11.4%. Economical lifetime: 30 years for solar, 40 years for nuclear and hydro, 25 years for others. Fuel price prices are the market forward prices as of October 2013 extended by applying inflation of 2% as well as cost of carry for coal and CO2 2%. Note, there are large variations in cost of hydro, wind and solar depending on location and conditions. Sources: Sähkön tuotantokustannusvertailu. Vakkilainen Esa, Kivistö Aija, Tarjanne Risto. Lappeenrannan teknillinen yliopisto. 2012. Re-considering the Economics of Photovoltaic Power. Bloomberg New Energy Finance. 2012. PV Status Report 2013. Arnulf Jäger-Waldau. EC, DG Joint Research Centre, Institute for Energy and Transport. 2013. Connecting the sun. Solar photovoltaics on the road to large-scale grid integration. EPIA. 2012. Projected Costs of Generating Electricity: 2010 Edition. International Energy Agency. 2010. * Lessons learnt from the current energy and climate framework. Frontier Economics. May 2013. 0 20 40 60 80 100 120 140 160 Coal condensing Onshore wind Nuclear Gas Solar PV, ground mounted in Italy Large hydro Offshore wind Solar PV, rooftop in Germany €/MWh Projected levelized cost of electricity (including taxes) LCOE without CO2 cost CO2 cost with EUA annual average price of €9/t in 2014- 2040 Additional CO2 cost if EUA annual average price was €25/t in 2014-2040 Nordic forward for 2014 (17.10.2013) Nordic forward for 2023 (17.10.2013) Average achieved price per MWh of RES-E generated in 2011*
  9. 9. 9 Production optimisation: Success in production optimization requires mastering the complexity of the power market Global factors European factors Nordic factors Mainly Commodity Commodity and weather Transmission salesHeating salesElectricity sales Nordic elec. price Nordic weather European weather European elec. markets Industrial activity Coal market CO2 market Biofuel & peat market Oil market European gas market Fuel costs Shipping market Emission rights Subsidy - certificate market Power costs Transmission costs Mainly Weather Dependency Source: Fortum Industrial Intelligence
  10. 10. Today EU Emission Trading System (ETS) does not steer decarbonisation due to multiple environmental targets • The current low CO2 EUA prices do not provide incentives for – Low emitting generation to run – Market based RES investments • There is currently a considerable oversupply of EUAs – Oversupply is seen in the price level • Four factors explaining the oversupply: 1. Overlapping policy instruments 2. Economic recession / lack of growth 3. International credits 4. Distribution of allowances by member states • In phase 2 (2008-2012) lack of growth and use of international credits were found to be the main reasons; I • In phase 3 (2013-2020) overlapping policy instruments have become the main reason for the oversupply 10 Share of factors behind the oversupply Source: GreenStream: Oversupply and structural measures in the EU ETS, September 24, 2013 * efficient coal to gas switching 0 5 10 15 20 25 30 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 EUA Price Economic Recession Overlapping instruments International credits Distribution of allowances by member states Source: GreenStream, Bloomberg, Fortum Industrial Intelligence
  11. 11. Competiveness; European prices increasing compared to US: We need to study the underlying price components 11 0 20 40 60 80 100 120 140 160 2003 2005 2007 2009 2011 2013 €/MWh Industrial energy prices* (nominal) Germany USA Source: BDEW, U.S. Energy Information Administration, Bank of Finland, Fortum Industrial Intelligence *For industrial consumer of 0.6 - 20 GWh/a
  12. 12. Wholesale prices in real term tells something different: Europe is in parity with the US and wholesale electricity prices have decreased over time in real terms 12 Sources: Eurostat, U.S. Energy Information Administration, Bank of Finland, Fortum Industrial Intelligence • Wholesale energy prices in the US (including both electricity and capacity components) are close to the European prices. • Clearly higher end-user electricity prices in Europe are explained by other factors than costs of generation, in particular, higher taxes which include RES support mechanisms GE: y = -1,9031x + 58,846 SE: y = -0,2412x + 45,305 30 40 50 60 70 80 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD €/MWh Annual average wholesale electricity prices (real 2012) GE FI SE FR US Linear (GE) Linear (SE)
  13. 13. 0 50 100 150 200 250 300 EUR/MWh EEG, KWKG, Article 19 levy, offshore liability charge, electricity tax, concession fee, VAT Other generation, transmission, sales Average wholesale price Case Germany: Energiewende leads to increasing costs for the end consumer energy bill: although wholesale prices are decreasing, end-user costs go up Source: BDEW, Fortum Industrial Intelligence, October 2013 13 Cost of electricity has increased despite lower wholesale prices Cost of electricity for a three person household with consumption at 3500 kWh/annum Source: BDEW, May 2013; 2013 wholesale price calculated as weighted average from spot and forwards 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Electr. Tax Offshore levy §19 levy KWKG EEG Concession fee VAT 5,28 6.30 **) 0 1 2 3 4 5 6 7 2008 2009 2010 2011 2012 2013 2014 2015 c/kWh RES levy EEX spot + fwd Renewables levy up nearly +20% for '14
  14. 14. Comparing market based and regulated way to promote non-hydro RES: Sweden vs Germany - striking differences in end-user costs 14 0 10 20 30 40 50 60 70 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sweden Germany Consumer cost for RES support** €/MWh *2013 and 2014 figures are the German government plan **Grid cost excluded * * Source: BDEW, Swedish energy agency, Fortum Industrial Intelligence
  15. 15. Decarbonisation is expensive in all scenarios: We should seriously discuss the most cost efficient alternative 15 0 1 2 3 4 5 6 2010-2020 2020-2050 Trillioneuros(2012prices) Required investments in power generation to meet the EU decarbonisation agenda Source: Fortum Industrial Intelligence ILLUSTRATIVE Figures are sums of needed CAPEX for new generation in various scenarios in Europe needed to reach the EU2050 targets.
  16. 16. 16 Decarbonisation requires European energy markets integration Source: Fortum Wave energy Wind energy Bioenergy Solar energy Hydro energy Transmission Needs: Natural production areas of renewables:
  17. 17. Towards a functioning European power market 17 • Wider market area - more competition - increased service level • Increased utilisation of existing power production capacity • Increased security of supply and less volatile price development • Environmental targets reached in a most efficient way (CO2, renewables etc.) National Nordic European Today / Tomorrow Earlier Yesterday
  18. 18. European internal energy market is fragmenting: Diverse RES-support schemes and capacity market proposals distort the energy market integration Capacity mechanisms in Europe RES-support schemes in Europe 18 Quota obligation Feed-in tariff Feed-in premium Energy Only Proposal for new capacity elements Partial capacity mechanisms Major capacity mechanism Source: Fraunhofer ISI, Ecofys, Fortum Industrial Intelligence
  19. 19. Commission proposal for 2030 energy and climate framework Targets of the 2030 package compared to 2020 in a nutshell; 19 Year GHG – greenhouse gas RES – renewable energy EE - energy efficiency 2020 -20% (ref 1990) 20% binding – Shared to member states -20% from BAU Divided in two sectors (ref 2005); ETS -21% Non-ETS -10% 2030 -40% (ref 1990) but no international offsets ETS -43% Non-ETS -30% 27% binding – Not to be shared No targets yet, to be assessed
  20. 20. Milestones of the international and EU climate policies 20 202020152010 International EU Kyoto period Target to reach a new international agreement The new international agreement into force 2011 2012 2013 2. trading period - free allocation 3. trading period - auctioning (a default for power generation) - free allocation (a default for industries) Early auctions Full linking of EU and Australian ETS Partial linking of EU and Australian ETS Doha COP Durban COP 2014 Kyoto target -8% for EU 2016 2017 2018 2019 EU target -20% Warsaw COP Kyoto 2 period Revision of ETS - Backloading ? - Structural changes - Re-definition of carbon leakage sectors 2030 target setting – will have a direct effect on prices and measures EU target for Kyoto 2 to be fixed IPCC-reports media & political attention California ETS linking with Quebec During 2013-2014 the parties (incl. USA and China) decide their emission pledges for the global negotiations CDM to continue, JI only for the Kyoto 2 countries
  21. 21. Fortum a forerunner in sustainability • Dow Jones Sustainability World Index – Included for ten consecutive years – Fortum the only Nordic power and heat company • Carbon Disclosure Leadership Index – Fortum globally the first company in the utility sector 2013 – Fortum the only Nordic power and heat company • SAM Sustainability Yearbook • STOXX® Global ESG Leaders indices • oekom • OMX GES Sustainability Finland Index • Storebrand SRI 21
  22. 22. Challenges Overall; • The big challenge: Target 20gCO2/kWh by 2050, • The cost efficiency; Decarbonisation requires enormous investments Technical; • Cut the cost of different technologies, • Find the sustainable resources, Policies; • The market development: European internal energy market is fragmenting, • The competitiveness - EU towards US and other regions, • The most cost effective measures – more globally and harmonised, • The interaction and the complexity of the market: requires having a systemic approach and a consumer perpespective • The transparency – how to work to get confidence among society 22
  23. 23. Next generation energy company 23

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