Leppikoski power plant in Finland

Market development

Nordic countries

According to preliminary statistics, electricity consumption in the Nordic countries was 103 (104) terawatt-hours (TWh) during the fourth quarter of 2015. In January-December 2015, it was 381 (378) TWh. The full-year increase was mainly driven by higher industrial consumption in Sweden and Norway.

At the beginning of 2015, the Nordic water reservoirs were at 80 TWh, which is 3 TWh below the long-term average and 2 TWh lower than a year earlier. By the end 2015, reservoirs were at 98 TWh, which is 15 TWh above the long-term average and 18 TWh higher than at the end of 2014. Reservoir surplus compared to the long-term average increased further during the fourth quarter due to high precipitation and mild weather, which delayed snow accumulation. Snow reservoirs were approximately normal at year-end.

In the fourth quarter of 2015, the average system spot price of electricity in Nord Pool was EUR 21.9 (30.7) per megawatt-hour (MWh). Mild weather reduced consumption and high water reservoirs put pressure on prices. In Finland, the average area price was EUR 30.6 (36.4) per MWh and in Sweden SE3 (Stockholm) EUR 23.0 (31.3) per MWh.

During January–December 2015, the average system spot price was EUR 21.0 (29.6). The decline was due to the highest annual inflow ever reported and correspondingly very high hydro production volumes as well as mild weather and low commodity prices. In addition, wind power production increased during the year, impacting spot prices negatively. The average area price in Finland was EUR 29.7 (36.0) and in Sweden SE3 (Stockholm) EUR 22.0 (31.6).

In Germany the average spot price during the fourth quarter of 2015 was EUR 33.2 (34.8) per MWh and during January-December 2015 EUR 31.6 (32.8) per MWh.

The market price of CO2 emission allowances (EUA) was at approximately EUR 7.1 per tonne at the beginning of the year and EUR 8.3 at the end of 2015.

Russia

Fortum operates in the Tyumen and Khanty-Mansiysk area of Western Siberia, where industrial production is dominated by the oil and gas industries, and in the Chelyabinsk area of the Urals, which is dominated by the metal industry.

According to preliminary statistics, Russia consumed 275 (282) TWh of electricity during the fourth quarter of 2015. The corresponding figure in Fortum’s operating area in the First price zone (European and Urals part of Russia) was 211 (214) TWh. In January-December 2015, Russia consumed 1,007 (1,021) TWh of electricity. The corresponding figure in Fortum’s operating area in the First price zone was 772 (777) TWh.

In the fourth quarter of 2015, the average electricity spot price, excluding capacity price, increased by 5% to RUB (Russian rouble) 1,178 (1,120) per MWh in the First price zone. In January-December 2015, the average electricity spot price, excluding capacity price, decreased by 0.8% to RUB 1,154 (1,163) per MWh in the First price zone.

European business environment and carbon market

Paris Agreement

In December 2015, a global climate agreement for the post-2020 period was adopted. All countries are obligated to prepare national contributions, including mitigation, adaptation and financing, to be reviewed every five years. The long-term goal is to keep the temperature increase well below 2°C above pre-industrial levels with efforts to limit it to 1.5°C.

The agreement increases long-term stability and predictability, encourages market-driven actions and reduces the risk of carbon leakage. Potentially, it can result in an accelerated low-carbon energy transition and new business opportunities. However, there will be no direct impact on CO2 price unless the EU decides to increase its 2030 target. The EU Heads of States will discuss the results of Paris and the possible consequences on EU targets and policies in March 2016.

EU emissions trading reform

In 2015, the EU Council formally adopted the European Commission’s proposal to create a reserve to hold surplus CO2 permits under the EU Emissions Trading System. This means that the proposed Market Stability Reserve will become operational in January 2019 and will remove 12% of the net surplus each year, as long as it remains above 833 million tonnes. The EU Environment Council adopted the legislation on behalf of the wider EU Council.

EU power market development

The public consultation on the new EU electricity market design was closed in 2015. Although the aim of the consultation is to collect input from different stakeholders, the European Commission has already stated quite clearly that its preference is to focus on further development of the current energy-only market design rather than going towards capacity markets. In particular, fixed capacity payments are not favoured because of their highly distortive nature. The Commission will put forward proposals for a comprehensive revision of the energy market-related legislation in the autumn 2016.

State of the Energy Union Report

In November 2015, the European Commission published the first edition of the annual “State of the EU Energy Union” report. It included reports on each member states’ progress in implementing the EU energy and climate targets, and the key principles for the governance system to ensure implementation of the Energy Union in a transparent and predictable way. The report also underlines the EU’s ambition to continue the EU leadership in the transition to a low-carbon economy after COP21, and to ensure that the transition is socially fair and consumer-centred. Continuing geopolitical challenges are also noted in the report.

Circular Economy Package

In December 2015, the EU Commission also proposed a Circular Economy package aiming at better resource efficiency and high-quality reuse of products and recycling of waste. The proposal includes amendments to several waste-related directives and ambitious EU targets for reuse and recycling of all waste streams. The Commission is proposing a ban on the landfilling of separately collected waste and limiting the share of landfilled municipal waste to a maximum of 10% by 2030.

When waste cannot be prevented or recycled, using it for energy is preferred to landfilling. ‘Waste to energy’ can therefore play a bigger role in the EU energy and climate policy. The Commission will examine how the energy potential can best be exploited and will adopt a waste-to-energy initiative in the framework of the Energy Union during 2016.

2/25/2016