“During the first quarter of 2024, the mild winter in Continental Europe together with healthy LNG supply and steadily increasing renewable power generation further contributed to the downward trend in the European gas and power prices. In the Nordics, January was cold and lead to higher spot prices especially in Finland and the Baltics, but February and March were somewhat milder than usual. Driven by decreased Continental European power futures and above normal precipitation levels, Nordic power futures declined during the quarter.
The lower Nordic spot power price is reflected in our first-quarter results. The achieved power price was at a good level but significantly lower than a year ago. The first-quarter achieved price was supported by a strong, double-digit, optimisation premium above the annual guidance of 6–8 EUR/MWh. The lower achieved price is reflected in the Generation segment’s result which, however, was supported by higher hydro volumes and commissioning volumes from the Pjelax wind farm. After a difficult year in 2023, the Consumer Solutions segment had a strong first quarter with normalised results, mainly driven by higher electricity sales margins in more stable market conditions.
S&P Global Ratings (S&P) upgraded Fortum’s current long-term credit rating to BBB+ with Stable Outlook, while Fitch Ratings affirmed our long-term rating of BBB with Stable Outlook. We are extremely satisfied with S&P’s upgrade as it reflects our systematic efforts to strengthen our financial position and our strategic focus on clean energy. Our financial position is very strong, and this supports our objective to maintain a credit rating of at least BBB. At the end of March, our leverage was at a low level of 0.3 times, and we continue to have sufficient liquidity and credit lines. To finance potential future investments in clean energy, we launched our Green Finance Framework in January.
In February, we clarified our strategy by specifying our business portfolio and capital allocation priorities as well as setting new strategic targets with measurable key performance indicators. Our renewed strategy, launched in March 2023, remains unchanged, and we continue to implement it determinedly.
One of our strategic priorities is to deliver reliable and clean energy. Electrification of district heating not only provides clean heating but is also a source of flexibility for the whole energy system. Our Espoo Clean Heat programme is based on the same priorities, and we started to build more emission-free and flexible district heating in Espoo. In addition, we decided to close down our last coal-fired district heat unit in Espoo, Finland in late April. Hence, our heating and cooling business will phase out coal one year earlier than expected. Further, Finland’s last coal-fired condensing plant, Meri-Pori, was transferred to the national production reserve aimed for emergency situations as of 1 April. Fortum’s biggest and Finland’s third largest wind farm, the 380-MW Pjelax in Ostrobothnia, has been gradually commissioned and will start commercial operations through the power purchase agreement (PPA) with the Finnish company Helen in July.
Our second strategic priority is to drive decarbonisation of industries for which we are building preparedness for an electrification and growth phase longer term. Our aim is to actively facilitate such industry projects and offer clean and stable power to enable industrial customers to meet their decarbonisation targets. As decarbonisation drives power demand, this provides us with growth opportunities longer term through investments in new clean energy production. As one example, in April we announced a new five-year, progressive-priced PPA contract with the Swedish ferroalloys producer Vargön Alloys.
Within the scope of our third strategic priority to transform and develop, we continued our efficiency improvement programme with the target to gradually lower annual fixed costs by EUR 100 million (excluding inflation) by the end of 2025 with a full run-rate from the beginning of 2026. The Consumer Solutions business and our IT unit concluded their change negotiations, resulting in redundancies of approximately 70 people. Fortum expects to reduce its recurring fixed cost base by more than EUR 50 million by the end of 2024.
Geopolitical tensions remained high during the beginning of the year. In February, Fortum initiated arbitration proceedings against the Russian Federation and will claim compensation for the unlawful expropriation of its Russian assets in order to protect its legal position and shareholder rights. The economic environment in Fortum’s geographical areas is still soft with elevated inflation, but interest rate cuts are expected to start during the summer. The political strikes in Finland did not have any significant direct impacts on Fortum’s financial result.
As one of the cleanest power generators in Europe and with a unique ability to deliver clean energy at a large scale, we want to drive the energy transition by setting ambitious climate targets in line with the Science Based Targets initiative (SBTi) Net-Zero Standard. As we announced in April, Fortum has gone through the SBTi due diligence process after having submitted its official commitment letter last year. We have already started to set near- and long-term company-wide emissions reduction targets in line with climate science to reduce greenhouse gas emissions both in our own operations and in the value chain, to enable the transition to a low-carbon economy.”