In the near term, the ongoing disruption of the energy sector is impacted by geopolitical tensions, the general negative economic outlook with high inflation and interest rates, tightening regulations and volatile commodity markets. In addition, in the short-term, price elasticity to counter high electricity prices has an impact on power consumption.
In the long-term, electricity is expected to continue to gain a significantly higher share of total energy consumption. The electricity demand growth rate will largely be determined by classic drivers, such as macroeconomic and demographic development, but also increasingly by decarbonisation of energy-intensive industrial, transport and heating sectors through direct electrification and green hydrogen.
Hedging
At the end of the first quarter of 2024, approximately 70% of the Generation segment’s estimated Nordic power sales volume was hedged at EUR 43 per MWh for the remainder of 2024 and approximately 50% at EUR 42 per MWh for 2025 (at the end of 2023: 40% at EUR 43 per MWh). Fortum’s hedge ratios and prices comprise its outright nuclear, hydro and, as of the first quarter of 2024, also the Group’s wind generation volumes. The current outright portfolio amounts to approximately 47 TWh.
In February 2024, Fortum set a strategic target to have a hedged share of rolling 10-year outright generation volume of more than 20% by end of 2026. The achievement of this target is updated once a year in connection with the Group’s full-year results.
The reported hedge ratios are based on the hedges and power generation forecasts of the Generation segment.
The reported hedge ratios may vary significantly, depending on Fortum’s actions on the electricity derivatives markets. Hedges are mainly financial contracts, most of which are electricity derivatives quoted on Nasdaq Commodities and traded either on Nasdaq Commodities or with bilateral counterparties. As an additional liquidity risk mitigation measure, Fortum has mainly been hedging with bilateral agreements, and the exposure on the Nasdaq Commodities exchange has been clearly lower during the past years.
Fortum continues to utilise dual channels for its hedging: trading on the Nasdaq Commodities exchange, depending on the market liquidity and financial optimisation, and also with bilateral arrangements.
Generation
The Generation segment’s achieved Nordic power price typically depends on factors such as hedge ratios, hedge prices, spot prices, availability and utilisation of Fortum’s flexible generation portfolio, as well as currency fluctuations. The annual outright portfolio in hydro, nuclear and wind generation amounts to approximately 47 TWh, an increase of approximately 2 TWh from the previously guided 45 TWh due to the new Olkiluoto nuclear power plant’s third unit and the new Pjelax wind farm in Finland.
The split of Fortum’s blended price based on its price area exposure of the normalised outright generation portfolio is approximately: Finland 46%, Sweden SE3 37% and Sweden SE2 17%. The volumes depend on various criteria such as outages, hydrology and other market dynamics.
Excluding the potential effects from changes in the power generation mix, a EUR 1 per MWh change in the Generation segment’s achieved Nordic power price will result in an approximately EUR 47 million change in the segment’s annual comparable operating profit.
Fortum’s achieved power price includes operations in the physical and financial commodity markets as well as the optimisation premium of Fortum’s outright generation portfolio. The annual optimisation premium included in the achieved power price is estimated to be in the range of EUR 6–8 per MWh, depending on the overall market conditions, level of volatility and market prices for electricity and environmental value products.
In Sweden, the regular update of the property tax values occurring every six years is ongoing; based on the preliminary estimates, this will likely result in an increase of the property taxes in Sweden for the years 2025-2030.
Efficiency Improvement Programme
Fortum targets to reduce its annual fixed costs by EUR 100 million (excluding inflation) gradually until the end of 2025 with a full run-rate from the beginning of 2026. The reduction of EUR 100 million corresponds to some 10% of the Group’s fixed costs for the year 2022. The programme is progressing according to plan and schedule. Fortum expects to reduce its recurring fixed cost base by more than EUR 50 million by the end of 2024.
The efficiency programme includes strategic prioritisation, rescoping of the Group’s focus areas and resources, turnaround actions for underperforming and loss-making businesses and personnel reductions.
During the first quarter, cost-saving initiatives were launched across all business units and enabling functions. Among the identified efficiency improvement measures are reduction in the use of external services, insourcing of certain activities, re-designing and optimising of IT services and improving internal processes to improve efficiency and streamline the organisation. Change negotiations initiated in January in the Consumer Solutions segment and the IT unit were concluded in March. These negotiations resulted in a total of 70 redundancies in these units.
Income taxation
The comparable effective income tax rate for Fortum is estimated to be in the range of 18–20% for 2024–2026. Fortum’s comparable effective tax rate is impacted by the weight of the profit in different jurisdictions and differences in standard nominal tax rates in these jurisdictions. The tax rate guidance excludes items affecting comparability.
Capital expenditure
Fortum estimates its capital expenditure, including maintenance but excluding acquisitions, to be approximately EUR 550 million in 2024, of which the share of maintenance capital expenditure is estimated to be approximately EUR 300 million, below the level of depreciation. For 2024–2026, Fortum’s capital expenditure is expected to be approximately EUR 1.7 billion (excluding acquisitions), of which the growth capital expenditure is expected to be EUR 800 million and the annual maintenance capital expenditure EUR 300 million. Of the growth capital expenditure of EUR 800 million, EUR 300 million is uncommitted.