First half of 2020: Difficult market conditions but stable operations
Vattenfall’s report for the first six months shows stable operations through the pandemic. However a challenging market and write-downs give a negative result for the period.
Vattenfall’s President and CEO Magnus Hall comments on the report:
Electricity, gas and heat have been delivered to Vattenfall’s customers with a high level of service and without major disruptions, despite the pandemic. Our employees have dealt with the situation in an exemplary way and have adapted their ways of working and routines to ensure safe and reliable operation of our facilities. On the other hand, we are seeing strained market conditions in many respects, especially for fossil-fired power generation. While this is not surprising, it is now resulting in large write-downs. Vattenfall is thus reporting a loss for the second quarter and first half of 2020.
Volatile electricity market
Development of the Nordic electricity market (which has the single-largest impact on Vattenfall’s earnings) has been volatile, with large fluctuations. During the first half of the year the system price peaked at around EUR 30/MWh, but fell recently to under EUR 1/MWh – an historically low level. This is mainly explained by large runoff into reservoirs and a high level of wind power generation. Extreme price differences have arisen between price areas in Sweden, partly due to transfer challenges in the transmission grid. After reaching an agreement with Svenska Kraftnät, Ringhals 1 was brought online earlier than planned following its maintenance outage, to stabilise the frequency.
Stable underlying result but impairments
For understandable reasons, fossil-fired power generation is especially exposed in today’s challenging market. Germany’s parliament has adopted a law calling for the phase-out of coal, which is in line with the international trend and Vattenfall’s strategy to phase out fossil fuels. However, a natural consequence of this is that the value of fossil-fired plants is decreasing.
The value of Vattenfall’s coal-fired power plant in Hamburg, Moorburg, has been written down by SEK 9.1 billion due to low margins and this trend. Falling electricity prices are having a substantial and negative impact on Vattenfall. Assets particularly in Swedish wind power have been written down by SEK 1.5 billion as a result of this. The combined effect of these write-downs is that profit for the first half of the year and second quarter amounted to SEK -1.6 billion and SEK -8.5 billion, respectively.
In recent years we have seen a positive trend for Vattenfall, and operationally we are showing a relatively stable result for the first half of the year. However, during the second quarter we were affected very negatively by low electricity prices. Underlying operating profit was SEK 13.0 billion for the first half of the year and SEK 2.8 billion for the second quarter. This represents a decrease of SEK 0.3 billion and SEK 0.8 billion, respectively, for the two periods.
Despite a tumultuous market development in many respects, the future direction is clear. We see continued support for investments in fossil-free energy solutions. Among other measures, during the quarter we took the decision to invest in what will be the world’s largest offshore wind farm, Hollandse Kust Zuid 1-4 in the Netherlands (1.5 GW, equivalent to the annual electricity consumption of approximately 2 million households).
Business highlights, April–June 2020
• Large price declines and changed market conditions,
especially for coal-fired power, resulting in large impairment
• Investment decision on Hollandse Kust Zuid 1-4 offshore
wind farm in the Netherlands
• Investment decision and agreement on future sale of the
South Kyle onshore wind farm in Scotland
• Agreement with Svenska Kraftnät on earlier restart of
Ringhals 1 for the period 1 July–15 September
• Government decision on national plan for modern
environmental requirements for hydro power in Sweden
• Inauguration of Marzahn CHP plant in Berlin
• Decision on reduced electricity network tariffs for 870,000
customers in Sweden starting 1 July
Events after the balance sheet date
• Vattenfall’s President and CEO Magnus Hall has decided to
leave Vattenfall. The Board of Directors will initiate the
recruitment process for a successor
Financial highlights, January–June 2020
• Net sales decreased by 6% (-7% excluding currency effects)
to SEK 79,440 million (84,243)
• Underlying operating profit1 of SEK 12,982 million (13,295)
• Operating profit1 of SEK 5,287 million (11,038)
• Profit for the period of SEK -1,594 million (7,673)
• Impairment losses of SEK -10,601 million (0) related to
assets in operating segment Heat and Wind
Financial highlights, April–June 2020
• Net sales decreased by 10% (-9% excluding currency effects)
to SEK 31,280 million (34,691)
• Underlying operating profit1 of SEK 2,792 million (3,622)
• Operating profit1 of SEK -7,027 million (2,869)
• Profit for the period of SEK -8,495 million (1,253)
• Impairment losses of SEK -10,599 million (0) related to
assets in operating segment Heat and Wind