Vattenfall fossil fuel generation, CO2 emissions up in Q3 but hedging remains muted

Published 12:17 on October 27, 2015  /  Last updated at 13:03 on October 27, 2015  /  EMEA, EU ETS  /  No Comments

Swedish-owned utility Vattenfall generated 14% more fossil fuel-based power and 18% more CO2 in Q3 compared to last year, but its year-on-year forward hedging rates remain down, the company said in its earnings report on Tuesday.

Swedish-owned utility Vattenfall generated 14% more fossil fuel-based power and 18% more CO2 in Q3 compared to last year, but its year-on-year forward hedging rates remain down, the company said in its earnings report on Tuesday.

Vattenfall has hedged 93% of its Y+1 and 74% of its Y+2 continental European power, compared to 98% and 80% respectively as of the end of Q3 last year.

This output includes the bulk of the company’s EU ETS-regulated coal and gas generation in the Netherlands and Germany, and the decline extends the slowdown reported in the company’s previous 2015 quarterly results.

Vattenfall may have slowed its forward hedging this year as it awaited confirmation of how much of a role it would play in Germany’s increased efforts to reach the national 2020 emissions reduction target, which calls for GHG output to be cut by 40% below 1990 levels.

The firm confirmed that it had agreed with the government to mothball two of its 500-MW lignite-fired units at its Janschwalde plant and transfer them to a capacity reserve in 2018 and 2019, before fully decommissioning them within four years from those dates.

This will cut the company’s annual CO2 output by an estimated 8 million tonnes.

Vattenfall was the second largest emitter under the EU ETS in 2014, spewing out 95.6 million tonnes of CO2e while receiving 8.4 million free EUAs.

HEDGING

Profitability levels for coal-burning utilities may also have affected Vattenfall’s hedging activities, which involve selling energy for future delivery while simultaneously buying the corresponding fuel and carbon allowances in order to lock in margins.

European wholesale power prices remain depressed, due in part to lower industrial production and the availability of more renewable energy.

German clean dark spreads for Y+2 generation were, on average, significantly higher in the first nine months of 2014 compared to this year, whereas the reverse is true for Y+3 spreads, according to Carbon Pulse calculations.

Vattenfall noted that power, gas and coal prices are lower year-on-year, whereas only EU carbon is higher.

Utility hedging rates are closely monitored by participants in the EU ETS because the data can provide a window into existing and future EUA demand from the bloc’s biggest allowance buyers.

NUMBERS

Other notable highlights from Vattenfall’s Q3 report included:

– Vattenfall generated 41.2 TWh of power in Q3, up 12% from last year, and 127.2 TWh in the first nine months of 2015, up 0.5% year-on-year.

– A sizable portion of the increase was covered by a rise in fossil fuel-based generation. Vattenfall boosted this type by 13.8% year-on-year to 21.4 TWh in Q3, but only by 3.6% in the first nine months of 2015 compared to Q1-3 2014.

– The firm also increased hydro generation, but this was partially offset by a drop in nuclear production, which has been affected by Germany’s decision to phase out its atomic energy plants.

– Vattenfall’s wind generation increased notably in percentage terms but remains at low levels compared to other sources, while its biomass- and waste-based power, also at comparably low levels, slipped slightly.

– Fossil fuels accounted for 52% of its total generation in Q3 (compared to 51% in Q3 2014), and for 49% in Q1-3 2015 (compared to 48% during the same period last year).

– The company emitted 20.6 million tonnes of CO2 in the third quarter, up 17.7% from Q3 2014.

– It emitted 61.4 million tonnes in the first nine months of 2015, versus 58.2 million tonnes in the same period last year, indicating it will require more EU carbon allowances this year compared to last.

– Vattenfall’s forward hedging rates for its Nordic generation as of Sep. 30, which is mainly hydro- and nuclear-based, were higher year-on-year at 72% for Y+0 (compared to 67% in Q3 2014), 83% for Y+1 (73%), and 77% for Y+2 (69%).

– Magnus Hall, Vattenfall CEO, said “The market conditions remain challenging, with a considerable capacity surplus and low electricity prices, especially in the Nordic countries, which is squeezing our production margins.”

– The company expects to reach agreement over the sale of its lignite units in the first half of 2016, which it said could also include some hydro assets in order to balance the CO2-intensity of the entire fleet’s generation.  Bidders in the process are reported to include Czech utilities CEZ and EPH and climate campaigners Greenpeace, which wants to buy the units in order to shut them down and curb European coal production.

By Mike Szabo – mike@carbon-pulse.com

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