Financial outlook

Nordic market

Despite macroeconomic uncertainty, electricity is expected to continue to gain a higher share of total energy consumption. Electricity demand in the Nordic countries is expected to grow by approximately 0.5% on average, while the growth rate for the next few years will largely be determined by macroeconomic developments in Europe, and especially in the Nordic countries. 

During January-June 2017, the oil price decreased, whereas the coal price continued increasing and is at a clearly higher level than the second quarter of 2016. The price of CO2 emission allowances (EUA) remained on the same level. The price of electricity for the upcoming twelve months increased both in the Nordic area and in Germany.

In mid-July 2017, the quotation for coal (ICE Rotterdam) for the remainder of 2017 was around USD 80 per tonne and for CO2 emission allowances for 2017 around EUR 5.5 per tonne. The Nordic system electricity forward price in Nasdaq Commodities for the rest of 2017 was around EUR 30 per MWh and for 2018 around EUR 26 per MWh. In Germany, the electricity forward price for the rest of 2017 was around EUR 35 per MWh and for 2018 around EUR 31 per MWh. Nordic water reservoirs were about 2 TWh below the long-term average, close to the levels one year ago.


The Generation segment’s achieved Nordic power price typically depends on such factors as the hedge ratios, hedge prices, spot prices, availability and utilisation of Fortum's flexible production portfolio, and currency fluctuations. Excluding the potential effects from changes in the power generation mix, a 1 EUR/MWh change in the Generation segment’s Nordic power sales achieved price will result in an approximately EUR 45 million change in Fortum's annual comparable operating profit.

As a result of the nuclear stress tests in the EU, the Swedish Radiation Safety Authority (SSM) has decided on new regulations for Swedish nuclear reactors. For the operators, this means safety investments that should be in place no later than 2020.

The process to review the Swedish nuclear waste fees is done in a three-year cycle. The Swedish Nuclear Fuel and Waste Management Co (SKB) has updated the new technical plan for the SSM to review. The final decision on the new nuclear waste fees will be made by the Swedish government in December 2017. However, as a result of the decision on early closure of nuclear power plants, SSM recalculated the waste fees for the Oskarshamn and Ringhals power plants.

On 1 June 2017, the Swedish government submitted a proposal to the parliament regarding the calculations of nuclear waste fees and the investment of the nuclear waste fund. According to the proposal the operating time for calculating the waste fee will be 50 years, as opposed to the current 40 years. The fund would also be allowed to invest in other financial instruments than government bonds. The proposed changes and the legislation are expected to be effective from 1 December 2017.

In September 2016, the Swedish government presented the budget proposal for the coming years. One of the key elements was the proposal that taxation of different energy production forms should be more equal and the tax burden of nuclear and hydro should be taken to the level of other production technologies. The budget states that the nuclear capacity tax will be reduced to 1,500 SEK/MW per month from 1 July 2017 and abolished on 1 January 2018. In 2017, the tax for Fortum is estimated to decrease by approximately EUR 32 million to EUR 52 million due to the tax decrease and by another EUR 5 million due to the premature closure of Oskarshamn 1 in the middle of the year. In 2018, there is no capacity tax.

The hydropower real-estate tax will decrease over a four-year period beginning in 2017, from todays 2.8% to 0.5%. The real-estate tax on hydro will, as stated in the government’s budget, be reduced in four steps: in January 2017 to 2.2%; in January 2018 to 1.6%; in January 2019 to 1.0%; and in January 2020 to 0.5%. In 2017, the tax for Fortum is estimated to decrease by approximately EUR 20 million to approximately EUR 95 million.

In addition to the decrease in the tax rate, the hydropower real-estate tax values, which are linked to electricity prices, will be updated in 2019. The real-estate tax values are updated every six years. With the current low electricity prices, the tax values in 2019 will be clearly lower than today. The process for renewing existing hydro permits will also be reformed.

In October 2016, the Swedish Energy Agency presented a concrete proposal on how to increase the production of renewable electricity by 18 TWh in 2020-2030 within the electricity certificate system, as part of the Energy Agreement. In April 2017, the Swedish government decided that the increase will be carried out in a linear manner.

In 2015, Swedish OKG AB decided to permanently discontinue electricity production at Oskarshamn’s nuclear plant units 1 and 2. Unit 1 was shut down on 17 June 2017, approximately 2 weeks earlier than planned, and unit 2 has been out of operation since June 2013. The closing processes for both units are estimated to take several years.

City Solutions

In City Solutions, steady growth, cash flow and earnings are achieved through investments in new plants and through acquisitions. Fuel cost, availability, flexibility and efficiency as well as gate fees are key drivers in profitability, but also the power supply/demand balance, electricity price and the weather affect profitability.

In May 2016, the Finnish government decided to increase the tax on heating fuels by EUR 90 million annually from 2017 onwards. The negative impact on Fortum is estimated to be approximately EUR 5 million per year.

Consumer Solutions

In Consumer Solutions, profitability is achieved through competitive product and service offerings, efficient operations, scale benefits in systems and operations as well as prudent risk management. As the Consumer Solutions segment hedges most of the market risk exposure, it is typically more exposed to short-term variations in power prices and demand than to long-term price trends. Short-term volatility, often caused by temperature, can have a substantial impact on power prices as well as on power demand.

The competitive environment affects the Consumer Solutions segment both through the sales margins of the products sold as well as the size of the customer base. The competition in the Nordic electricity retail market is expected to remain challenging, putting pressure on sales margins.


The Russia segment's new capacity generation built after 2007 under the Russian Capacity Supply Agreement (CSA) is a key driver for earnings growth in Russia, as it is expected to bring income from new volumes sold and also to receive considerably higher capacity payments than the old capacity. Fortum will receive guaranteed capacity payments for a period of 10 years from the commissioning of a plant. The received CSA payment will vary depending on the age, location, size and type of the plants, as well as on seasonality and availability. CSA payments can vary somewhat annually because they are linked to Russian Government long-term bonds with 8 to 10 years maturity. In addition, the regulator will review the earnings from the electricity-only market three years and six years after the commissioning of a unit and could revise the CSA payments accordingly.

In June, 1,000 MW of the bids of the 50/50 owned Fortum-RUSNANO wind investment fund were selected in the Russian wind auction. The bids are for projects to be commissioned during the years 2018-2022 with a price corresponding to approximately EUR 115-135 per MWh. The projects will be covered by Capacity Supply Agreements (CSA) for a period of 15 years.

The long-term Competitive Capacity Selection (CCS) for the years 2017-2019 was held at the end of 2015, and the long-term CCS for year 2020 was held in September 2016. All Fortum’s plants were selected. For the volume of Fortum’s installed "old" capacity, 195 MW (out of 2,214 MW), Fortum has obtained forced mode status, i.e. it receives payments for the capacity at a higher rate.

The Russian annual average gas price growth was 3.6% in 2016. Fortum estimates the Russian annual average gas price growth to be 2.0% in 2017.

(Text from Fortum's January-June 2017 Half-Year Financial Report)