Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Day (June 2004)
15 slides from Fortum Oyj's investor day presentation, Jun 17, 2004
Slide 1: Fundamentals of the Nordic electricity market
Fundamentals of the Nordic electricity market Timo Karttinen President, Portfolio Management and Trading Capital Markets Day June 17, 2004
Slide 2: Nordic market is hydro driven
Nordic market is hydro driven 450 40 Net import 400 Condensing power 35 350 CHP Wind power 30 300 25 EUR/MWh Nuclear power TWh/a 250 20 200 15 150 Nordic spot price 10 100 Hydro power 50 5 0 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2
Slide 3: Weekly Nordic electricity generation
Weekly Nordic electricity generation 2002 10 90 9 Net import 80 Nordic spot price [EUR/MWh] Weekly production [TWh] 8 CHP Condensing power 70 7 60 6 Wind power 50 5 40 4 Nuclear power 30 3 Nordic spot price 2 20 1 Hydro power 10 0 0 1 5 9 13 17 21 25 29 33 37 41 45 49 3
Slide 4: Spot price is based on supply and demand balance
Spot price is based on supply and demand balance DEMAND • Seasonal variation, hourly profile Demand • Temperature dependence Price Supply • Price elasticity Oil condense SUPPLY Hydro production • Uncertain future volumes • Long term profit maximisation sets the Coal value condense • Storable and run
Slide 5: Components of hydro fundamentals
Components of hydro fundamentals Precipitation (rain and snow) Snow reservoir 8 80 6 60 TWh TWh 4 40 2 20 0 0 1 5 9 13 17 21 25 29 33 37 41 45 49 1 5 9 13 17 21 25 29 33 37 41 45 49 Water reservoir Water and snow reservoir 120 120 2000 90 100 TWh TWh 60 80 30 60 2003 0 40 1 5 9 13 17 21 25 29 33 37
Slide 6: Changes in the water and snow balance drive the spot price
Changes in the water and snow balance drive the spot price 30 50 45 20 Water + snow compared to reference [TWh] Nordic spot price 40 10 Nordic spot price [EUR/MWh] 35 0 30 -10 25 20 -20 15 -30 10 Water + snow balance -40 5 -50 0 2000 2001 2002 2003 6
Slide 7: Higher seasonal and lower short term variation in the Nordic spot price because of hydro power
Higher seasonal and lower short term variation in the Nordic spot price because of hydro power Rolling annual average price Weekly average price 50 50 45 45 Holland Spain Nordic Germany 40 40 35 35 30 30 EUR/MWh EUR/MWh 25 25 20 UK 20 15 Germany 15 10 Nordic 10 5 5 0 0 2001 2002 2003 2004 2002 2003
Slide 8: Varying fuel and emissions prices are reflected into variable costs for thermal power
Varying fuel and emissions prices are reflected into variable costs for thermal power Coal price* 60 50 Average variable costs EUR/t 40 for coal condense 30 40 20 30 The effect of EUR/MWh 2000 2001 2002 2003 2004 2005 2006 20 emissions Emission price* trading 10 15 0 10 2000 2001 2002 2003 2004 2005
Slide 9: Price difference between Nordic and European markets determines the direction of trade
Price difference between Nordic and European markets determines the direction of trade 50 200 2 10 Nordic price - Nordic price - German price [EUR/MWh] 40 German price Nordic price - German price [EUR/MWh] 150 1 8 Net import to Net import to Nordic area [TWh/a] Net import to Nordic area [GWh] 30 100
Slide 10: From market analysis to business decisions
From market analysis to business decisions From • Knowledge of fundamentals • Understanding of market drivers • Flexible and efficient production portfolio To • Physical production optimisation that creates value on top of average spot price Power • Hedging decisions that reduce risks and help to ma
Slide 11: Physical optimisation to create value on top of spot price
Physical optimisation to create value on top of spot price Fortum has a flexible production Prices portfolio (MW) EUR/MWh • Hydro power 41% • Nuclear power 28% Fortum weighted • Condensing power 19% average spot price • CHP 11% Industry weighted Fortum • Other 1% value average spot price creation Ef
Slide 12: Hedge strategy to reduce risk
Hedge strategy to reduce risk Hedging targets based on EBIT corporate risk policy EBIT without hedging • Reduce risk • Help to achieve financial EBIT with targets hedging Hedge strategy based on • Corporate risk policy • Future production possibilities • Market view Target hedge level 12
Slide 13: Operative hedging decisions to add value
Operative hedging decisions to add value Operative hedging decisions are Forward price made based on • Target hedge level • Spot and forward market analysis • Available instruments and their liquidity Value added Time • Good timing of hedging decisions and right choice of instruments can add value o
Slide 14: Dynamic market information into excellent production and hedging decisions
Dynamic market information into excellent production and hedging decisions Generation assets Spot and other Production short term sales Spot and planning forward market Power analysis Hedge Hedging and market planning contract sales 14
Slide 15: Disclaimer
Disclaimer This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Fortum shares. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. 15