Vattenfall continuously hedges its future electricity generation through sales in the forward and futures markets. Spot prices therefore have only a limited impact on Vattenfall's earnings in the near term.
With the current portfolio structure, the dominant risk exposure is coupled to Nordic nuclear and hydro power baseload generation. Vattenfall’s price hedging strategy is therefore focused on the Nordic generation assets.
While Vattenfall has some price exposure between electricity and used fuel/emissions on the Continent (Germany, the Netherlands and the UK), Vattenfall’s operations in the region generate a substantial share of regulated revenue from distribution, heat and tendered wind power, which reduces the total risk exposure and has a lower risk profile than the outright power exposure in the Nordic countries.
The market price risk of Vattenfall’s production assets and hedges for electricity, fuel prices and emissions as well as the ancillary trading market price risks are monitored daily.
Indicative Nordic1 hedge prices and hedge ratio as per 30 June 2019
|Hedge ratio (%)||69||49||28|
1). Sweden, Denmark, Norway, Finland
Vattenfall's estimated Nordic hedge ratio (%) as per 30 June 2019
Sensitivity analysis – Continental portfolio (DE, NL, UK)
|+/- 10% price impact on future profit before tax, MSEK2
|Market quoted||2020||2021||2022||Observed yearly volatiliy3|
|Electricity||+/- 1,921||+/- 1,950||+/- 1,776||19%-25%|
|Coal||-/+ 188||-/+ 170||-/+ 166||21%-26%|
|Gas||-/+ 885||-/+ 822||-/+ 778||18%-21%|
|CO2||-/+ 557||-/+ 610||-/+ 532||46%-50%|
1) Vattenfall has stopped its price hedging activity on the Continent as a result of changed risk exposure following the divestment of the German lignite operations.
2) The denotation +/- entails that a higher price affects operating profit favourably, and -/+ vice versa.
3) Observed yearly volatility for daily price movements for each commodity, based on forward contracts. Volatility normally declines the further ahead in time the contracts pertain to.