Vattenfall, Europe’s second largest GHG emitter, has sold less forward power in continental Europe while hedging a smaller proportion of it in the first half of 2015 compared to a year ago, it said in its Q2 results on Tuesday.
The utility said it had hedged 93% and 66% of its expected Y+1 and Y+2 continental European power generation respectively, versus 99% and 75% at the end of the first half of 2014.
This output includes the bulk of the company’s EU ETS-regulated coal and gas generation in the Netherlands and Germany.
Its mainly hydro and nuclear-based Nordic operations hedged 78% and 70% of expected Y+1 and Y+2 generation respectively, versus 72% and 64% at the end of the first half of 2014.
The entirety of the Swedish-state owned utility’s operations sold 45.9 TWh of power over the quarter, down 1.5% y/y from 46.6 TWh.
First half sales were down 3.7% y/y to 99.3 TWh.
The lower power sales and hedging rates were likely due to falling European power prices, which remain near multi-year lows due to sluggish demand that remains below pre-recession levels.
“The low electricity prices are having an ever-greater impact on Vattenfall’s earnings, as our forward contracts entered into in previous years at higher prices are gradually expiring,” said CEO Magnus Hall.
This, combined with growing renewable energy capacity and higher perceived risks to its business, forced the company to take impairment charges of SEK 36.4 billion (€3.88 bln, $4.21 bln), more than half of which were posted against its coal generation and mining assets.
This included write-downs of SEK 15 billion against its German lignite operations, which were also hit by low wholesale coal prices, and SEK 4 billion against its Moorburg coal power plant due to weaker margins.
“Naturally, this is a very negative development which unfortunately reflects the world we live in,” Hall added.
Vattenfall posted a net loss of SEK 25 billion in Q2, compared to a loss of SEK 1.8 billion a year earlier.
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.
EMISSIONS & GENERATION
The company said it emitted 20.3 million tonnes of CO2e in Q2, compared to 18.7 million in the same period last year.
It added that H1-2015 CO2 output levels were 40.8 million tonnes, which was equal to the first half of 2014.
Vattenfall’s thermal power generation dipped 1% over the quarter to 18.8 TWh y/y, while its overall generation was flat at 39.7 TWh.
This reversed a first-quarter trend to mean that Vattenfall’s H1 thermal output fell 0.7% y/y to 41.6 TWh, while overall power output was down 4.1% y/y to 89.8 TWh.
Analysts at Thomson Reuters Point Carbon said in May that Vattenfall, RWE and Enel, which collectively account for over 70% of central European ETS-regulated power emissions, had upped their hedging rates over Q1 and rates had returned to 2011-2013 levels following an easing in 2014.
Vattenfall is the second biggest corporate emitter in the EU ETS, with emissions of 95.6 million tonnes in 2014, according to Carbon Market Data, just under 5% of the entire ETS cap.
Of other major emitting European utilities, Enel’s first half results are due July 30, EON’s Aug. 12, RWE’s Aug. 13.
Separately, Vattenfall put a net value of SEK -6 million on its CDM project portfolio, compared to SEK -3 million last year, which it said remains in the red due to low CER prices.
“A change in the modelled price of CERs of +/- 5% would affect the total value by approximately SEK +/- 2 million,” the company added.
By Ben Garside and Mike Szabo – firstname.lastname@example.org