fortum in russia · 2020. 3. 30. · fortum in russia tapio kuula senior vice president fortum...
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Fortum in Russia
Tapio KuulaSenior Vice PresidentFortum Corporation
Capital Markets DayHelsinki, 30 October 2008
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Disclaimer
This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Fortum shares.
Past performance is no guide to future performance, and persons needing advice should consult an independent financial adviser.
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• Fortum in Russia• Russian power market• Heat market in TGC-10 area• TGC-10 – investment programme and integration
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Russia is the World’s 4th largest power market – and growing rapidly
Source: IEA, 2008, data 2006*) Ministry of Industry and Energy
8001,0001,2001,4001,6001,8002,0002,200
2000 2005 2010 2015 2020
1,700
2,000
0500
1,0001,5002,0002,5003,0003,5004,000
USChin
aJa
pan
Russia
India
Canad
a
German
y
France
Brazil
Nordic UK
South
Korea
TWh
Demand growth 700+ TWhbefore year 2020
• High scenario 2,000 TWh/a by 2020• Base scenario: 1,700 TWh/a by 2020
Russia is the 4th largest power market in the World
Demand for electricity in Russia to increase 50% by 2020 *)
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Russian power sector restructuring completed in July 2008
• National interests carefully considered
• The Russian electricity monopoly RAO UES ceased to exist 1 July 2008
• Liberalisation of the wholesale market by 2011
• Launch of capacity market 1 July 2008
FGC = Federal Grid CompanyWGC = Wholesale Generating CompanyTGC = Territorial Generating Company
Ownership structure after liberalisation
100%
6 WGC 14 TGC
Other shareholders
FGC
>75%
<25%
(52%)
(48%)100%
Hydro-WGC
>50%
<50%
System Operator
<25%
State
Other
>75%
Nuclear
100%
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TGC-10 - a unique investment opportunity
• Platform for growth in the World’s #4 power market
• Attractive asset portfolio with significant upside
• A financially attractive investment
Chelyabinsk 3 Chelyabinsk 2
Tobolsk
Chelyabinsk 1
Argayash Chelyabinsk Tyumen 1
Tyumen 2
TGC-10
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TGC-10
Surgut
Kurgan
Tyumen
TobolskMoscow
St. Petersburg
Chelyabinsk
NyaganKhanty-Mansisk
TGC-1
TGC-10
• EUR ~2.5 billion paid of which EUR 1.3 billion remainsin the company (share issue) and will be used for planned EUR 2.5 billion investment programme of TGC-10
• Fortum holding now ~94%• Income statement consolidated from April 1, 2008• Joint implementation projects with TGC-10 will lead to
approximately 1.5 million tonnes of emission reduction units (ERU) between 2008 and 2012
• TGC-10 operates in the heart of Russia’s oil and gas producing region
• TGC-10 adds to Fortum approximately 18 TWh/a electricity and approximately 27 TWh/a heat
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TGC-10 – significant growth in Fortum’s power generation
Source Company information, Fortum analyses
0 100 200
Fortum+TGC-10
Iberdrola
EnBW
Vattenfall
CEZ
Electrabel
RWE
DEIEdison
PGE
Scottish&Southern
Statkraft
Rosenergoatom
RusHydro
Irkutskenergo
WGC-1
Gazprom
IES
Energoatom (UA)
Enel+WGC-5E.ON+WGC-4
EDF
300 400 500 600Committed TGC-10 investments
17.5
10.913.9
5270
93
Fortum2007
Fortum+ TGC-10
Fortum + TGC-10 with new investments
Fortum2007
Fortum+ TGC-10
Fortum + TGC-10 withnew investments
Fortum’s Nordic capacity investment programme
Power generation, TWh
Capacity, GW
Annual power generation by largest producers, TWh
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TGC-10 doubles Fortum’s heat volumes
Industry 28%
Households 45%
State financed organisations 7%
Heat resale 15%
Others 5%
•Main heat supplier in the area, 27 TWh/a
•Mainly CHP, additionally heat boilers• From networks 1/3 owned and 2/3
operated•An area with large temperature
changes; average temperatures –16 °C to +18 °C
•Significant efficiency improvement potential in heat networks
•Heat pricing regulated, set by local authorities within the limits set at the state level
TGC-10 heat production and local network
Heat output by customer segment (2007)
Current ownership structure
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TGC-10
Surgut
Kurgan
Tyumen
TobolskMoscow
St. Petersburg
Chelyabinsk
NyaganKhanty-Mansisk
TGC-1
TGC-1
• Fortum holding 25.66% (associated company) • ~6,250 MW electricity production capacity (appr.50% hydro),
~24 TWh/a electricity, ~30 TWh/a heat• TGC-1 investment programme about EUR 5 billion
covering 3,900 MW and lasting until 2015- major part of investments in CHP and some in hydro
• Fortum will purchase appr. 5 million tonnes of emissionreduction units (ERU) from TGC-1 between 2008 and 2012
Gazprom46.3%
Fortum 25.7%
Norilsk Nickel 5.6%
Other 22.4%
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Summary – Fortum in Russia
• Russian power market is expected to grow 50% by 2020• Power sector reform has created a structure for competition in
power markets• Fortum is now holding 94% of TGC-10’s shares• TGC-10 brings significant growth in power generation (18 TWh/a)
and heat (27 TWh/a)• EUR 2.5 billion investment programme will increase power
generation further by ~70% • Joint implementation projects will lead to ~6.5 million tonnes of
emission reduction units by 2012 (TGC-1+TGC-10)
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• Fortum in Russia• Russian power market• Heat market in TGC-10 area• TGC-10 – investment programme and integration
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"Power industry law" approved 2003Establishment of Russian power exchange (ATS) 2001Launch of the free-trade sector of the wholesale market
in European & Urals 2003in Siberia 2005
Launch of balancing power segment 2006Launch of new wholesale market model 2006Restructuring of regional energos (P&H companies) completeFormation of new companies completeCapacity market 2008Competitive market of ancillary services 2009Financial derivatives market 2009Full liberalisation of the wholesale market 2011 onwards
Key steps in the reform
Russian power industry reform has progressed well
Time
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Reform – Recent and planned events for 2008-2009
• RAO UES ceased to exist in June 2008
• Market Council established to continue the power market development
• Interest promotion organisation for GenCos established
• Launch of Transitional Capacity Market
• Liberalisation rate increased to 25%
• First capacity auction held in July 2008
• Daily gas trading experiments
• Share issue completed in all TGC's and WGC's except WGC-1
• Increase of power market liberalisation rate to 50%
• Launch of Long Term Capacity Market rules in March 2009
• First long term capacity auction at the end of 2009
• Daily trading of gas
• Launch of exchange traded combined energy and capacity contracts
• Launch of Ancillary Services Market
• Launch of Financial Derivatives Market
Events taken place in 2008 Planned events during 2008-2009
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Currently 25% of electricity sold with liberalised prices
• Day-Ahead-Market for electricity well-functioning and competitive
• All volume sold to Day-Ahead-Market, but market based price formation for about 25% of the volume
1) In addition generators currently receive on average about 10 EUR/MWh capacity paymentUsed EUR/RUB exchange rate of 34.6
European and Urals part power price 1)
development; EUR/MWh
0
5
10
15
20
25
30
35
40
1.1.06 1.7.06 1.1.07 1.7.07 1.1.08 1.7.08
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Further power market liberalisation
5 %10 %
15 %25 %
30 %
50 %60 %
80 %100 %
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
1/1/
2007
7/1/
2007
1/1/
2008
7/1/
2008
1/1/
2009
7/1/
2009
1/1/
2010
7/1/
2010
1/1/
2011
100 %
• Further liberalisation of energy market to increase to 50% in July 2009
• The rate of liberalised volume is based on 2007 balance. All new capacity is sold with liberal prices
• The sales to households will remain regulated still after 2011
Share of liberalised trade for existing capacity
Gas need in the electricity sector of Russia
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Aim for market based pricing of fuels
• Regulated gas price will increase to reach netback pricing*. Annual increases are 19%, 27% and 40% in 2009, 2010 and 2011 respectively.
• Direct long term gas supply contracts available for GenCos
• Currently 10-day ahead trading is carried out at gas exchange. Traded volume is only15 billion m3, but there are plans to increase it.
• In 2008 experiments on daily trading of gas were carried out. Daily trading is planned to start on continuous basis in 2009.
*) equal profitability gas prices for the domestic market and export
0
50
100
150
200
2007 2008 2009 2010 2011 2012 2013 2014 2015
Billion m3 Limit gas volume Over-the-limit gas volume
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Summary – Russian power market
• Russian power industry reform has progressed well and according to plans
• All but one WGCs and TGCs privatised – the structure for competition is in place
• Currently, 25% of electricity sold with market based prices• Liberalisation rate of the day ahead market to increase to 50% in
July 2009• Russian government targets gas prices to reach netback pricing
through annual price increases
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• Fortum in Russia• Russian power market• Heat market in TGC-10 area• TGC-10 – investment programme and integration
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Heat market in TGC-10 area in 2008
TGC-10 share, 12 355 GWh
or 91% Other, 677 GWh or 5%
Municipal HoBs, 516 GWh or 4%
Chelyabinsk
TGC-10 share, 10 507 GWh
or 99%
Municipal HoBs,106 GWh or 1%
TGC-102 924 GWh
or 76%
Municipal HoBs,923 GWh or 24%
HoB – heat only boiler
Tyumen Surgut
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TGC-10 heat market outlook in 2008-2011
Surgut
Tyumen
Chelyabinsk
26 301 26 363 26 665 27 089
12871
10507
2924
12798
10776
2789
13155
11145
2789
30000
25000
20000
15000
10000
5000
0
2008 2009 2010 2011
12976
10901
2789
GWh
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• Fortum in Russia• Russian power market• Heat market in TGC-10 area• TGC-10 – investment programme and integration
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2007 2013
MW
+73%+2,270 MW
3,020
0
1,000
2,000
3,000
4,000
5,000
6,000
5,290
ChelyabinskKurgan
Tyumen
NyaganTobolsk
Moscow
Investment programme of TGC-10
Electricity capacity (MW)Plant Fuel type Existing Planned Total
Tyumen CHP-2 Gas 755 450 1,205Tyumen CHP-1 Gas 472 190 662Tobolsk CHP Gas 452 210 662Chelyabinsk CHP-3 Gas 360 220 580Chelyabinsk CHP-2 Coal, gas 320 320Argayash CHP Coal, gas 195 195Chelyabinsk CHP-1 Coal, gas 149 149Chelyabinsk GRES Gas 82 82Nyagan GRES Gas 1,200 1,200Boilers -
TGC-10 3,020 2,270 5,290Kurgan Generation (49%) Gas 235 235
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Investment programme
Type MWe CommissioningTobolsk CHP 200Tyumen 1 CHP/CCGT 170 2009-2010 Chelyabinsk CHP/CCGT 190Nyagan CCGT 3*400 2011-2013Tyumen 2 CCGT 400
Tobolsk, Tyumen 1 and Chelyabinsk•All main contracts have been madeNyagan• Contracts for Power Island including all main equipment have been signedTyumen 2Negotiations on main equipmentdeliveries ongoing. Reservation agreements done
Chelyabinsk 3
Tobolsk Tyumen 1
Tyumen 2
210 MW
450 MW
190 MW
220 MW
Greenfield
1,200 MW
Nyagan
Project information
Progress
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Overall integration status
• Integration• The integration process started in April 2008 with an integration team
headed by Tapio Kuula• In October, expatriates to power plants, heat networks and maintenance
companies• Now about 45 persons
• Integration process is in line with the original plan• All major processes understood, changes implemented• Service activities are speeding up, sites audited• New organization structure and Fortum's management model have been in
place since the beginning of September 2008
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Efficiency improvement to exceed 100 MEUR in 2011
• Purchasing
• Portfolio Management and Trading (PMT)
• Heat regulation
• Heat - technical and business improvements
• Generation - technical improvements
• Others
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