Risks and sensitives

Financial risk management

Risk management objectives, principles, and framework including governance, organisation and processes as well as description of risks i.e. strategic, financial and operational risks are described in Operating and Financial Review (OFR)

Financial risks

Fortum defines financial risk as the negative effects of market price movements, volume changes, liquidity events or counterpart events. A number of different methods, such as Value-at-Risk and Profit-at-Risk, are used throughout Fortum to quantify financial risks. In particular, the potential impact of price and volume risks of electricity, weather, CO2 and main fuels are assessed taking into account their interdependencies. Stress-testing is carried out in order to assess the effects of extreme electricity price movements on Fortum’s earnings.

Financial risk taking in business units aims to capture potential upside by optimising hedging or by trading in the markets. Risk taking is limited by risk mandates. Risk mandates include minimum EBIT levels for the business units that are set by the President and CEO. Volumetric limits, Value-at-Risk limits, Stop-Loss limits and counterpart exposure limits are also in place.

Electricity price risks

Strategies for hedging the electricity price are developed and executed by the business units within set mandates approved by the Fortum Management Team. In the Nordic markets, the hedging strategies are executed by entering into electricity derivatives contracts. In Russia, there is currently no existing financial market for electricity as the majority of electricity sales are regulated. Hedging strategies for Russia will be developed in line with the deregulation of the electricity market. Risk in the hedging strategies and their execution are continuously evaluated in accordance with models approved by the CRO and mandates approved by CEO.

Volume risks

Power and heat generation, customer sales, and electricity distribution volumes have significant variations that depend on the nature of the business. These volumes are subject to changes in, for example, hydrological conditions, economic situation and temperature.

Changes in volumes are closely monitored so that hedges can be adjusted accordingly. In addition, volume risks in power and heat generation are partly mitigated through generation flexibility.


The hedge price for Fortum Power Division's Nordic generation excludes hedging of condensing power margin, i.e. hedging of Meri-Pori and Inkoo coal-condensing power plants. In addition, the hedge ratio now excludes the financial hedges and physical volume of Fortum's coal-condensing generation as well as imports from Russia.

At the end of December 2013, approximately 60% of the Power Division's estimated Nordic power sales volume was hedged at approximately EUR 43 per MWh for the rest of the calendar year 2014. The corresponding figures for the calendar year 2015 are approximately 20% at approximately EUR 41 per MWh.

The reported hedge ratios may vary significantly, depending on Fortum's actions on the electricity derivatives markets. Hedges are mainly financial contracts, most of them Nord Pool forwards.