Operating environment in Q4 2023
European power markets
In Continental Europe, autumn was milder than normal, which helped the gas and power markets to continue on the downward development that characterised the whole year 2023. In the Nordics, however, the weather turned cold and dry in the fourth quarter. This, together with below normal wind conditions, led to a rapidly decreasing reservoir balance; Nordic spot prices consequently recovered by the end of the year from the lower levels seen in the previous quarter.
According to preliminary statistics, power consumption in the Nordic countries was 113 (103) TWh during the fourth quarter of 2023. Power demand was clearly above the five-year average, due to cold weather and continuing recovery of the Nordic power demand. In 2023, power consumption in the Nordics was 386 (386) TWh.
In Central Western Europe (Germany, France, Austria, Switzerland, Belgium and the Netherlands), power consumption in the fourth quarter of 2023 was 335 (329) TWh, according to preliminary statistics. In 2023, power consumption in Central Western Europe was 1,272 (1,322) TWh. Power demand in Continental Europe continued to be clearly below the five-year average, affected by energy conservation measures and mild winter quarters.
At the beginning of the fourth quarter of 2023, the Nordic hydro reservoirs were at 106 TWh, which was 5 TWh above the long-term average and 17 TWh above the level of the previous year. Inflow was clearly below normal and hydro generation was above the normal level, especially during October and November. At the end of 2023, the reservoir levels were at 77 TWh, which is 7 TWh below the long-term average and 2 TWh lower than in the previous year.
During the fourth quarter of 2023, power prices recovered significantly throughout the Nordics on a quarter-to-quarter basis but remained clearly below the corresponding price levels compared to one year earlier. The average system spot price at Nord Pool was EUR 58 (136) per MWh. The average area price in Finland was EUR 61 (185) per MWh. In Sweden, the average area price in the SE3 area (Stockholm) was EUR 56 (147) per MWh, and the price in the SE2 area (Sundsvall) was EUR 44 (116) per MWh. In Germany, the average spot price in the fourth quarter was EUR 82 (193) per MWh.
For 2023, the average system spot price in Nord Pool was EUR 56 (136) per MWh. The average area price in Finland was EUR 56 (154) per MWh, in the SE3 area in Sweden (Stockholm) EUR 52 (129) per MWh, and in the SE2 area in Sweden (Sundsvall) EUR 40 (62) per MWh. In Germany, the average spot price during 2023 was EUR 95 (235) per MWh.
In early February, the Nordic system electricity forward price on Nasdaq Commodities for the remainder of 2024 was around EUR 45 per MWh and for 2025 around EUR 41 per MWh. The Nordic water reservoirs were at 63 TWh, which is about 9 TWh below the long-term average and 5 TWh lower than one year earlier. The German electricity forward price for the remainder of 2024 was around EUR 74 per MWh and for 2025 around EUR 81 per MWh.
European commodity markets
Gas demand in Central Western Europe was 512 (524) TWh in the fourth quarter and 1,715 (1,867) TWh in full-year 2023. The Central Western European gas storage levels decreased from 607 TWh at the beginning of the quarter to 559 TWh at the end of the quarter, which is 27 TWh higher than one year ago and 101 TWh higher than the five-year average (2018–2022).
The average gas front-month price (TTF) in the fourth quarter of 2023 was EUR 43 (124) per MWh. The average gas front-month price (TTF) for full-year 2023 was EUR 41 (133) per MWh. The 2024 forward price decreased from EUR 46 per MWh at the beginning of the fourth quarter to EUR 34 per MWh at the end of the year. At the beginning of 2023, the TTF forward price for 2024 delivery was at EUR 78 per MWh.
The EUA (EU Allowance) price decreased from EUR 81 per tonne at the beginning of the fourth quarter of 2023 to EUR 80 per tonne at the end of the year. The average EUA price for full-year 2023 was EUR 85 per tonne.
The forward quotation for coal (ICE Rotterdam) for 2024 decreased from USD 126 per tonne at the beginning of the fourth quarter of 2023 to USD 98 per tonne at the end of the year. At the beginning of 2023, the forward quotation for coal (ICE Rotterdam) for 2024 delivery was at EUR 173 per tonne.
In early February, the TTF forward price for gas for the remainder of 2024 was EUR 31 per MWh. The forward quotation for EUAs for 2024 was at the level of EUR 63 per tonne. The forward price for coal (ICE Rotterdam) for the remainder of 2024 was USD 95 per tonne.
EU institutions reached an agreement on the revised EU electricity market design
On 13 December 2023, the European Council and the Parliament reached a final agreement on the European market design legislation at a record speed of nine months of negotiations. The revised market design framework is putting forth a large array of de-risking instruments ranging from state-backed power purchase agreements, two-way contracts for difference (CfD) or equivalent, capacity remuneration mechanisms (CRMs) to other forms of support including targeted investment aid to counter-balance the volatility of energy prices. Fortum welcomes the revised framework which is expected to facilitate clean energy investments needed for the energy transition whilst providing more predictable prices to electricity consumers.
The majority of the provisions contained in this regulation will be applicable six months after its entry into force.
Agreement reached on the decarbonised gas market package
In December 2023, the European Parliament and the Council reached a final agreement on the hydrogen and decarbonised gas market package which establishes internal market rules and enables conditions for renewable and natural gas, including hydrogen.
A general definition for low-carbon hydrogen is introduced, but the detailed methodology for calculating the emission reduction will not be presented until 2025. Until this secondary legislation is available, labelling or certifying low-carbon hydrogen, in particular based on nuclear power, will not be possible, and public funding instruments will not be available for projects producing low-carbon hydrogen, thus leaving mainly renewable fuels of non-biogenic origin (RFNBO) eligible for public funding.
The official endorsement of the regulation is expected in March 2024, and it will enter into force six months after the official publication.
Nature restoration regulation trilogues finalised
In November 2023, the European Parliament and Council reached a provisional political agreement on the EU nature restoration regulation. The regulation combines an overarching restoration objective for the long-term recovery of nature in the EU’s land and sea areas with binding restoration targets for specific habitats and species. EU countries will be obliged to submit National Restoration Plans to the Commission on how they will deliver on the targets.
The impacts of the regulation on Fortum’s hydropower assets will depend on the national implementation.
Swedish nuclear waste fund fees to be recalculated
On 21 December 2023, the Swedish Government decided on the nuclear waste fund fees for a one-year period covering 2024 instead of the earlier three-year period.
Swedish roadmap for new nuclear investments published
On 16 November 2023, the Swedish Government published its roadmap for new nuclear. The aim is to promote investments to provide long-term predictability especially through credit guarantees totalling EUR 35 billion and a long-term risk-sharing model between the Swedish state and companies. According to the roadmap, new nuclear capacity equivalent to two large-scale reactors (totalling 2,500 MW) shall be commissioned by 2035 and new capacity equivalent to ten reactors by 2045. A specific nuclear coordinator from the energy industry has been appointed to identify needed actions and to summon all relevant stakeholders.