Energy is a critical commodity for modern society and its development. Global megatrends, such as globalisation, population growth, scarcity of natural resources, climate change, environmental problems, technology advances and consumer needs, are changing the energy system and will lead to an increasing demand for sustainable energy solutions.
Energy consumption is growing - significance of energy sources will be highlighted
The overall consumption of energy is growing and the relative share of electricity in energy consumption is increasing along with efficiency demands in the use of resources. If the current trend in the world’s energy production and consumption continues, by 2030 consumption will have increase by more than 1.5 fold and carbon dioxide emissions by even more.
The significance of emissions-free and low emissions energy sources as well as the effi ciency of energy use will be highlighted in the future. Fortum’s business is primarily based on carbon dioxide free hydro and nuclear power production and on the strong know-how in energy-effi cient combined heat and power (CHP) production. Our research and development activities focus strongly on developing future energy solutions and businesses.
Binding climate targets in the EU
In Fortum’s opinion, a global market for carbon dioxide emissions would be the most effective way to steer energy production in a more sustainable direction. Of Fortum’s market areas, the EuropeanUnion is making determined advances in the implementation of its own climate policy. The EU has set binding targets for emissions reductions and has drafted its legislation to 2020. The EU’s goal is to reduce greenhouse gas emissions by 20% from 1990 to 2020.
Emissions trading is the key mechanism steering climate policy in the EU. The emissions trading rules in the next trading period, 2013 – 2020, will be much different from the current rules. The amount of free emissions allowances will decrease considerably and the emission trading scheme will be based on harmonised EU wide rules. Climate policy and regulations steer our operations in all our market areas, including outside the EU.
Pursuing an integrated European electricity market
Fortum sells all of the electricity it produces in the Nordic countries to the Nordic electricity exchange (Nord Pool Spot); about three quarters of the electricity produced in the Nordic countries is traded on this exchange. The balance of supply and demand, the price of fuel and emissions allowances and the hydrological situation affect the wholesale price of electricity in the Nordic countries. The number of players in the Nordic electricity markets is big and there is very little consolidation. The competition in the electricity wholesale markets will increase when targeted EU wide electricity wholesale markets are operating by 2014. In district heat operations a gradual trend towards more market-oriented price regulatory regimes is foreseen, and also encouraged in the new EU energy strategy.
Investments needed in distribution
Electricity transmission and distribution companies operate regionally because it is not cost-effi cient to build multiple electricity networks in the same area. Authorities monitor electricity transmission and distribution, its costs and the business practices of the companies. During the past years, several steps have been taken towards a harmonisation of the regulatory frameworks. Consumers and the society at large demand a higher reliability of electricity supply and new smart grids. Fulfilling these requirements calls for substantial investments and, consequently, shaping of the regulation models in order to provide incentives for the investments. In Sweden, work with the new regulatory model to be implemented in 2012 is underway. Also in Finland, the parameters to be included in the third regulation period (2012-2015) are being reviewed. Fortum has distribution network in Finland, Sweden, Estonia and Norway.
In the Nordic countries electricity retailers buy their electricity mainly from the exchange and sell it to households and companies. Fortum is the leading seller of eco-labelled and CO2-free electricity in the Nordic region. The electricity retail markets still play by national game rules. The Nordic countries, however, have agreed to develop retail market operations together, and the goal is for a common Nordic electricity retail market by the middle of this decade.
New opportunities in the East
Fortum has operations, in addition to Nordic countries, in Russia, Baltic countries, Poland and Great Britain. The integrating European electricity markets, the relative increase in the importance of Fortum’s Russian businesses, and growth in the Baltic Sea region will gradually decrease the role of Nordic electricity wholesale price as the main driver of Fortum’s earnings. Electricity distribution and sales will continue to have a central role in the Nordic countries, but in other market areas power and heat production offer more attractive growth opportunities. The growing demand for CO2-free and energy-efficient solutions and the increasing consumption in the liberalising energy markets offer Fortum new opportunities for growth. The energy demand growth is fastest in Asian markets, but there are also opportunities in Europe and Russia.
Core industry beliefs
New capacity globally needed for increasing demand and retiring capacity replacements, but main demand growth moving to emerging markets
Globally, power market liberalisation will advance driven by increasing need for private capital
Climate issue will continue to drive policy making, but there is no global solution of price for CO2
Renewable energy sources, competition and security of supply interests will drive the EU power market integration forward
Gradual move from a "Carnot world" towards a "solar economy" to meet global needs for efficiency and reduced emissions
In the power and heat value chain, earnings and growth prospects are most attractive in upstream
We updated our strategy in 2010 on the basis of our core industry beliefs.