"Our operating environment in the third quarter has been marked by exceptional market dynamics and extreme commodity price movements. At the end of September, the forward price for 2022 delivery of natural gas in Europe (TTF hub) was 270% higher compared to a year ago. The factors behind the development are manyfold – ranging from the strong economic recovery which has boosted energy consumption globally, to the cold weather in the first half of the year in Europe, Western Russia and Asia, which left gas storages depleted. At the same time Europe’s domestic gas production is dwindling, LNG cargos are finding more lucrative destinations on other continents and one-off events have to an extent limited also pipeline imports. The increased gas prices reflect a tight supply-demand balance for the winter, but forward prices indicate gradually normalising conditions thereafter.
The Continental and UK power prices have mirrored the high commodity prices, mainly the gas price. At the same time, spot power prices have also increased considerably in the Nordics following high prices in Continental Europe, very low hydro reservoir levels and below normal wind power production.
Overall we can be satisfied by the resilience of our Group in the third quarter. Our Uniper segment’s gas midstream business recorded a significant earnings improvement that prompted Uniper to update its guidance for full-year 2021. Considering the exceptional liquidity and funding requirements due to the turbulent market and high prices, Uniper fared well as part of our large and financially solid Group.
The main drivers of the clear increase in the comparable operating profit of the Generation segment were the higher power prices and higher volumes although the effect was somewhat offset by the fairly high hedge levels. The Russia segment’s earnings grew due to the economy recovery and strong commodity markets. In City Solutions, almost all business areas improved, while Consumer Solutions’ earnings decreased following as a result of intensified competition in the Nordic market.
We have made good progress in our strategy execution and have delivered on our deleveraging. During the reporting period, we completed the divestment of our Baltic district heating business for a total consideration of approximately EUR 710 million, followed by the closing of the sale of our 50% ownership in Stockholm Exergi Holding AB for approximately EUR 2.9 billion. These brought our financial net debt-to-comparable EBITDA to 0.6 times, significantly below our set target level of <2 times.
Our position as the largest renewable energy power producer in Russia strengthened further as the Fortum-Rusnano wind investment fund was awarded remuneration for new wind power generation in the recent wind CSA (Capacity Supply Agreement) auction, further expanding our wind and solar power portfolio in Russia further to 3.4 GW.
We have also continued the decarbonisation of our portfolio with the handover of Fortum Russia’s Argayash coal-fired combined heat and power plant (CHP) and Uniper’s Schkopau power plant to their new owners. With Schkopau, the Group’s lignite chapter in Germany came to an end.
In recent weeks, all eyes have been on Glasgow. The parties of the UNFCCC have been convening for their 26th conference to discuss the global mitigation efforts on climate change and the increasing expectations on climate ambition, financing, and finalising the rules of the Paris Agreement. While the EU is committed to reaching climate neutrality by 2050 in line with the Paris ambition, the high energy prices in Europe have understandably sparked a lot of public discussion. This debate should not result in interventions that slow down decarbonisation or complicate the negotiations on the execution of the EU’s Fit for 55 package. For the industry making investments to reach the climate targets, it is crucial to get clarity of the regulatory framework going forward.
Climate neutrality requires a fast and controlled phase-out of CO2-intensive energy sources and a rapid increase of CO2-free power generation to decarbonise also other sectors. In order to achieve this in Europe, the existing carbon-free generation should remain online and the permitting processes for new renewable investments should become faster. The price surge and market volatility experienced this fall have also highlighted how important natural gas is for the energy transition and how crucial it is to maintain security of supply and affordability of energy during the transition. Alongside renewable energy sources, the role of gas and nuclear power in the energy transition is central in our Group strategy.
From this perspective, we consider it crucial that both nuclear and gas be included in the scope of the EU sustainable finance taxonomy. All CO2-free technologies should be treated equally, in line with the scientific analysis of the Commission research centre (JRC), while natural gas should be given a transitionary role. Nuclear power is a clean, safe, and competitive source of energy in climate change mitigation. In Finland, it contributes today to one third of the Finnish generation mix and will presumably grow further. We are currently assessing the lifetime extension of our Loviisa Nuclear Power plant and see nuclear being a crucial solution for decarbonisation and an enabler for a carbon-neutral world."