The significance of energy issues continues to grow in our society: climate change, security of energy supply and energy prices are part of the everyday public discussion. For this reason, collaboration with authorities, decision makers and energy sector organisations is important. At the EU level, and in our countries of operation, we are directly and indirectly involved in the activities of over 62 sector associations and organisations.
We engage in an active dialogue to develop the energy sector. We present our views and offer our expertise to decision makers and organisations in the sector. We annually publish position papers on key topics and participate in stakeholder consultations. Our goal is to offer constructive suggestions for policies and legislation.
Public affairs themes in 2016
The international climate agreement adopted in Paris and its impact on the EU climate policy were lively debated early 2016. Although no changes in the EU targetsetting are expected during the next few years, the whole EU climate legislation (emissions trading and non-ETS sectors) is currently being revised. In addition, the EU will publish a number of other legislative proposals during 2016 in order to implement the 2030 targets and the Energy Union.
The economic troubles in the EU, increased uncertainty in security policy and the UK’s decision to exit the Union increase uncertainty in the preparation of the EU legislation. Brexit negotiations may slow down the processes and at the same time the polarization of the EU member states in climate policy brings additional challenge to the energy industry’s public affairs and lobbying.
Discussion around the EU power market design continues. The expected proposals from the Commission towards the end of the year on the market design, renewable energy directive and sustainability criteria for biomass will substantially impact energy prices and operational preconditions and profitability of energy companies.
Energy taxation is subject to a continuous change, in Fortum’s countries of operation especially in Sweden and Finland. Early summer, a positive solution was achieved in Swedish nuclear and hydro taxation as the parliamentary energy commission proposed a significant decrease of the tax rate. In Finland, a total review of energy taxation and taxation of CHP in particular are of special interest. Tax issues related to energy storage are increasingly debated both at national and EU level.
Preparations of national climate and energy strategies and support schemes of renewable energy continue in Finland and Sweden. Other important public affairs themes for Fortum in 2016 include among others EU heating and cooling strategy, circular economy programme and legislative proposals on energy efficiency and sustainability of bioenergy.
Public affairs themes in 2015
Year 2015 was a year of an intense energy debate as the Energy Union concept was launched and concerns were raised about the EU’s energy dependence, security of supply and internal energy market functioning. Electricity market design and the role of capacity mechanisms sparked broad debate. The trend of increasing fixed costs through taxation coincided with declining wholesale electricity market price development in the Nordic power market.
Ahead of the international climate conference in Paris, the discussion on the EU climate and energy policy was high on the agenda. In addition, resource efficiency and the circular economy were raised into the political debate. Other themes important for us were taxation of nuclear and hydro power, especially in Sweden.
The international climate negotiations culminated in Paris with the adoption of an ambitious global agreement. While the agreement is likely to accelerate low-carbon transition and create new business opportunities, it will have no direct impact on, e.g., the EU carbon price unless the climate targets are revised.
During the year Fortum highlighted the importance of carbon pricing and markets in combating climate change. As the outcome of Paris was better than expected, the EU should, in Fortum’s view, consider increasing its future climate ambition.
The Energy Union – a high-level and comprehensive energy strategy covering five dimensions (decarbonisation, energy efficiency, internal energy market, energy security, and research & innovation) – was launched in 2015 aiming at a low-carbon, secure and competitive economy.
The first ‘State of the Energy Union Report’ in November 2015 pointed out the major legislative work ahead, including a market design proposal, revised RES and Energy Efficiency Directives, and the first European strategy on heating and cooling.
Fortum welcomed the Energy Union approach and supported the Commission’s efforts in developing a holistic energy strategy and in laying the groundwork for stronger policy coordination.
EU power market
The wholesale price of electricity continued to decline in 2015. The profitability of electricity production and the investability of the sector raised increasing concern and discussion.
Fortum participated actively in the European discussion on wholesale market design and the future of subsidies for renewable energy. Capacity mechanisms that an increasing number of member states are either planning or already implementing as a response to distortions created by subsidies have been debated. The EU Commission launched a public consultation on the new electricity market design and a separate sector inquiry assessing capacity mechanisms in use in various member states.
Fortum responded to the consultation highlighting the energy only market as the main principle for further development of the electricity market design and further market developing and the need for a pan-European, competitive internal energy market with robust transmission connections and market-driven renewable energy integrated into the market.
EU climate policy
Preparations for the international climate negotiations dominated the discussion in climate policy. The EU was among the first parties to submit its commitment and, at the same time, continued preparation of its own legislation. The EU carbon market continued to suffer from huge oversupply and low prices. Legislation for the Market Stability Reserve was approved and the Commission gave a proposal for the revision of the Emissions Trading Directive.
Fortum welcomed the measures to improve the functioning of emissions trading, but emphasised the need to remove the overlapping policies and measures that lead to inefficient and costly carbon reduction and create market distortions.
The taxation environment in our key operating countries continued to develop negatively.
In Finland, the new Government decided to increase the real-estate tax rate of power plants, which already have a higher rate than other industrial real estate. The tax puts a heavier tax burden on hydro and nuclear power plants in particular. In addition, the Government decided to increase the CO2 tax on CHP generation from 2017 onwards; the final decision, however, is still pending.
In Sweden, the new Government decided to increase the capacity tax on nuclear by 17% from mid-August. Combined with the significant investments resulting from post-Fukushima requirements and the current electricity market situation, this has led to a decision of early decommissioning of four reactors so far. Taxation of hydropower was also broadly debated. The tax rate applicable to hydro plants is manifold compared to the tax rate applicable to other energy sources, both fossil and renewable.
Fortum calls for a level playing field in taxation. For example, all non-emitting energy technology should be treated similarly in order to provide for a fair competition.
The EU Commission’s revised Circular Economy Package together with the legislative proposals for waste were topics for wide discussion. The package enhances recycling and re-use of all waste with the aim of substantially reducing the landfilling of municipal waste. Fortum continued highlighting the essential role of energy recovery of non-recyclable waste as one of most cost-optimal solutions to reduce landfilling; in our opinion, energy recovery of waste should always be preferred to landfilling.
National energy policies
In Sweden, the Energy Commission started its work to propose a long-term broad political agreement on energy issues with focus on 2025 and onwards, including taxes and subsidies. The politicians have been under increased pressure to come to an agreement, as companies have already decided to close down four nuclear reactors and further shutdowns are being discussed. This has led to an intense debate about the taxation of nuclear, and the industry is requesting the capacity tax to be abolished before the decisions on the required safety investments (so-called Fukushima investments) can be made.
The discussion on hydropower as part of the renewable energy system was intensified and politicians have started to articulate more positively on hydropower as investments in intermittent renewables, especially wind, are increasing. The national strategy for hydropower and the amendment of environmental legislation were debated in dialogue meetings between authorities, several NGOs and hydropower companies. Fortum highlighted hydropower as an indispensable part of a low-carbon energy system.
In Finland, Posiva (a company co-owned by Teollisuuden Voima and Fortum) was granted a construction licence for the final repository of spent nuclear fuel – the first licence of its kind in the world. Fortum’s announcement to participate in Fennovoima’s project and the Russian ownership in Fennovoima were subject to intense debate.
National parliamentary elections were held in 2015 in two of Fortum’s operating countries: Finland and Poland. The new Finnish non-socialist Government of three political parties aims at replacing imported fossil energy with domestic energy and raised the bioeconomy as one of its policy priorities. In Poland, the new Government formed by the conservative PiS (Law and Justice) party highlights the competitiveness of the domestic coal industry, preserving coal as a base fuel for energy production.
Heating costs for end-customers was a significant issue in all Baltic countries. We focused on questions concerning the competitiveness and liberalisation of district heating as well as on energy subsidies and waste management issues.
In Russia, Fortum brought up views on the ongoing heat reform. Fortum introduced the ‘alternative heat only boiler’ model that is currently considered within the government’s roadmap towards the heating sector reform. We were also an active participant in the discussions on the long-term development of municipal heating plans in our key operating areas in Russia. Our aim is to ensure efficient and economically sensible heat supply to our customers in Chelyabinsk and Tyumen areas.
In April 2015, Fortum updated the company’s information in the Transparency Register maintained jointly by the European Parliament and European Commission. The register offers information about organisations that aim to influence EU decision making. We follow the Code of Conduct of the Transparency Register in all our lobbying activities.
Fortum’s Corporate Relations function reports to the President and CEO, who is responsible for all public affairs activities. The Group does not use third parties for lobbying purposes. We publish our position papers and commentaries on our web pages.