CEO's message – A fossil-free future unites us
For more than 100 years Vattenfall has been a driver of electrification of society, which has contributed to a higher living standard, economic growth and modern life. We can be proud of our heritage and our leading role in this development.
Much has changed through the years, but the benefits of electrification remain. Today we view it not only as a driving force behind further technological and economic progress. We are also convinced that continued electrification based on fossil-free electricity is a basic precondition for Vattenfall’s customers to be fossil free within one generation. During 2018 we consciously implemented our strategy with the purpose of making this possible.
Profit for the year amounted to SEK 12 billion, an increase of SEK 2.5 billion. The Board of Directors proposes a dividend of SEK 2 billion. The underlying operating profit decreased by SEK 3.3 billion to SEK 19.9 billion. Vattenfall made important progress during the year, but we also faced a number of challenges. We had very good production in both our nuclear and hydro power operations, but the high electricity prices did not have a corresponding impact on our earnings. This is because of the hedges we take out to ensure price stability over time. Last year they made a positive contribution, but not this year. Earnings from our heat operations were significantly lower due to higher prices of fuel and CO2 emission allowances. This was partially offset by a profit increase in our wind operations.
The market is moving towards a fossil-free future
Despite sharp swings in the markets for fuel and CO2 in 2018, structurally there is no doubt about the future direction. The Paris Agreement and the EU’s climate goals are driving the shift towards more fossil-free power generation and lower carbon emissions. The Swedish energy agreement, which ensures that we make optimal use of our nuclear and hydro power generation resources, and the future ban on coal-fired power generation in the Netherlands, are further examples of initiatives that have been taken at the national level. Another is the coal phaseout proposal in Germany. Parallel with this, plans are being drawn for new renewable electricity generation with significant capacity entirely without government support. Vattenfall’s winning bid for the Hollandse Kust Zuid 1 & 2 offshore wind farm (~700 MW) in the Netherlands is a prime example. The project has excellent prospects and is very attractive for Vattenfall at the same time that it supports the energy shift in the Netherlands.
In the energy industry we have thus already achieved a strong level of competitiveness for renewable energy sources, and growth has also exceeded many expectations. The challenges we see looking at tomorrow’s energy system are now mainly a matter of meeting the demands that renewable energy sources inherently give rise to. The energy system must be made more flexible to be able to handle a large share of weather-dependent generation. This will require more energy storage, the ability to steer demand, higher transmission capacities between markets, and an adaptation of the electricity grids. Vattenfall has strength through its largescale and flexible hydro power generation in Sweden, but from a system perspective, major investments are needed in our electricity networks to accommodate the transition. We regret the Swedish government’s decision on regulated revenues for Swedish electricity grid operators that will begin to take effect in 2020. This new regulation chokes the willingness to invest at a time when it is needed most.
At Vattenfall we continue to operate our hydro and nuclear power plants with ever-greater efficiency. Nuclear power generation achieved a record year, with 55 TWh of generation and 88.9% availability. Hydro power generation was stable at 35.5 TWh, in spite of volatile inflows following a very warm summer which was later compensated by a rainy autumn. We are dismantling our nuclear power plants in Germany in accordance with political decisions, and we are preparing for the responsible closure of Ringhals 1 and 2 at the end of 2020 and 2019, respectively. Sweden’s climate goal of zero net emissions by 2045 is a challenging but possible mission. Our remaining reactors in Ringhals and Forsmark, together with our hydro power assets, are key to making this a reality.
Collaboration for change
No one alone can meet the challenges presented by climate change. Nations, cities, politicians, civil society and companies must all work together to achieve results. Over time Vattenfall has built up very strong ties and partnerships in society. We have a long-standing productive and rewarding partnership with the City of Berlin, for example. Together we set a target in 2009 to halve our carbon emissions by 2020 compared with 1990. We were happy to note earlier in 2018 that we had already achieved this goal three years earlier than promised. In Hamburg we would have preferred to continue as a partner, but now respect the city’s decision to buy back Vattenfall’s majority stake in the city’s district heating network.
The list of Vattenfall’s strategic partnerships today is long. Our vision of a life free from fossil fuels within one generation guides us in our active search for new partnerships. At the same time we see that these clearly strengthen our customer offerings. A superb example is InCharge, the European charging network for e-vehicles and plug-in hybrids, which today has more than 10,500 charging points. The initiative is owned by Vattenfall, but is now growing with participation by new partners. During the year, we expanded together with car maker Volvo Cars, the car-sharing service aimo, and the property companies Klövern and Diös, among others. Vattenfall has also entered into an agreement with McDonald’s to install fast EV chargers in the Netherlands.
Vattenfall is also a driver in a number of industrial collaborations with great potential to reduce carbon emissions. Last summer we broke ground on a pilot plant for fossil-free steel production in Luleå, Sweden. Conducted under the name HYBRIT, the collaboration is a joint venture we are engaged in together with the mining company LKAB and the steel maker SSAB. With support from the Swedish Energy Agency, Vattenfall is also conducting project planning together with Preem on a large hydrogen gas plant in Gothenburg to enable fossil-free production of biofuels.
In March we formed an alliance in France to participate in a tendering process for offshore wind power in Dunkirk. This is being conducted together with the financial institution Caisse des Dépôts and the development company WPD. We are now also taking a step into the French end customer market. In Scotland I had the honour in September, together with First Minister Nicola Sturgeon, to inaugurate Vattenfall’s European Offshore Wind Development Centre (97 MW), a testing and development centre in Aberdeen Bay. The project is supported by the Aberdeen Renewable Energy Group with co-financing from the EU. The wind turbines have an impressive size and feature what is today the world’s highest commercial turbine capacity (8.8 MW).
Our employees and their safety first
In September a tragic accident took place outside Kungsbacka, Sweden, in which an employee lost his life while attending to a downed power line during a storm. In October we received additional, tragic news that an employee died in connection with a routine work matter in Kiruna. My thoughts go out to these individuals’ families and loved ones. Every workplace accident is an accident too many and requires both reflection and an exhaustive investigation to make sure it never happens again. A safe and sound work environment shall always be a matter of fact in our company, and together with suppliers and subcontractors, we must now work even harder to sharpen our focus on safety.
Responsibility to respect human rights
Vattenfall supports the UN’s 17 Sustainable Development Goals and respects human rights, which is an important component of these goals. We are continuing our work to manage the most critical risks related to human rights, including work conditions in our supply chain in high-risk countries. For example, we have further elaborated upon the questions we use in our third-party audits of products and services in order to more thoroughly cover all human rights. The work coupled to our own fuel supply has also been made more in-depth. Among other things, we paid a follow-up visit related to our supply of coal from Colombia in order to continue the dialogue surrounding the measures we recommended in connection with our visit in 2017. We also conducted an evaluation and dialogue on human rights in connection with our audit of a Russian uranium supplier. This served as a pilot that will form the foundation for our continued work.
Well-positioned for a fossil-free life within one generation
It is clear and gratifying that our vision of a fossil-free future unites us all as employees, partners and customers. With continued stable production of district heating and fossil-free electricity from nuclear and hydro power, the expansion of renewable generation, digitalisation of our entire value chain, the phase-out of fossil fuels and increasingly attractive and competitive customer offerings, Vattenfall is well-positioned for the future. We welcome new collaborations along our journey that will make it possible to live free from fossil fuels within one generation. In closing I would like to extend great thanks to all our employees, customers and other stakeholders, who share in Vattenfall’s successes.
President and CEO