Vattenfall’s forward hedging levels down in 2015 after slower Q4

Published 15:26 on February 3, 2016  /  Last updated at 16:11 on February 3, 2016  /  EMEA, EU ETS  /  No Comments

Vattenfall, Europe’s second largest emitter, sold less forward power last year while hedging a smaller proportion of it, according to the Swedish state-owned utility’s annual financial results on Wednesday.

Vattenfall, Europe’s second largest emitter, sold less forward power last year while hedging a smaller proportion of it, according to the Swedish state-owned utility’s annual financial results on Wednesday.

It said it had hedged 95% of the current year’s expected generation in continental Europe, compared to 99% reported a year ago. Looking ahead, it said it had hedged 79% of Y+1 power and 57% of Y+2, which compared to respective levels of 87% and 55% announced in its full year 2014 earnings.

This output includes the bulk of the company’s EU ETS-regulated coal and gas generation in the Netherlands and Germany.

The decline came against a 0.9% fall in Vattenfall’s total power sales, which amounted to 197.2 TWh in 2015.

Vattenfall’s Y+1 hedging ratio has fallen substantially since the 95% level it reported two years ago, while its Y+2 levels have remained relatively steady.

The firm is one of the first utilities to report results in 2016, but last year’s quarterly results showed most large European power generators slightly reduced their hedging in 2015, though the biggest emitter RWE likely upped its rate based on published figures.

SLOWED IN Q4, MAY GET SLOWER

Vattenfall proportionally slowed its hedging marginally over Q4 2015, adding 7 percentage points to its continental European hedging levels for Y+0 and Y+1 combined, compared to a total 8 points added in Q3.

Carbon market participants have identified lower utility demand for EUAs since the new year as a contributing factor to the dramatic slide, which has seen front-year prices fall from €8.29 at the end of 2015 to below €6 currently.

Analysts at Energy Aspects said earlier this week that the mild winter, poor power spreads and uncertainty over upcoming MIFID 2 regulations were all playing a part in dampening utility EUA demand.

CO2 UP AS LOSSES MOUNT

Meanwhile, Vattenfall’s emissions rose 1.5% in 2015 to 83.5 million tonnes, up from 82.3 million the year before, with its ETS-regulated thermal-based power output up 2.1% to 84.4TWh from 82.7TWh, the results showed.

The firm said this was due to its new Moorburg coal-fired power plant in Germany coming online in the first quarter.

The increase was in line with an EU-wide trend of higher thermal power generation levels, which were up by 1% for the year to October, according to the most recent figures from ENTSO-E.

Vattenfall’s total power generation, including its main CO2-free hydro and nuclear output, nudged up 0.5 TWh to 173.4 TWh, but its net sales dipped 0.9% to SEK 164.5 billion ($19.4 billion) to push the company further into the red.

Its net losses more than doubled to SEK 19.8 billion in 2015 from SEK 8.2 billion a year earlier, as it took impairment charges last summer of SEK 36.4 billion against its coal generation and mining assets.

“The major challenge in 2015 continued to be the impact that today’s very low electricity prices have on Vattenfall’s profitability and on the valuation of our assets,” said Vattenfall’s CEO Magnus Hall in a statement accompanying the results.

FACTFILE

  • The hedging rates of major utilities are closely watched by the EU carbon market as utilities sell power forwards and simultaneously buy the required carbon allowances and fuel to lock in profit.
  • Hedging rates, along with outright generation rates, are indicators of the levels of CO2 purchasing of the major utilities, by far the biggest compliance buyers in the ETS.
  • Other big-emitting utilities to report earnings soon are: RWE (Mar. 8), Uniper (formerly E.ON) (Mar. 9), and Enel (Feb. 9).

By Ben Garside – ben@carbon-pulse.com

Comment