New financial targets were set for Vattenfall at an extraordinary general meeting on 12 November, among them Vattenfall's profitability target. The updated financial targets reflect the strategy of increasing the volume of renewable energies, which lead to lower returns but entail a lower risk for the company.
Minister of Enterprise Mikael Damberg attended the extraordinary general meeting at Vattenfall's head office in Solna in his capacity as an owner representative, and explained the reasoning behind the new financial targets:
"We are altering the financial targets because we have seen how the company's investment plan has changed. Today, Vattenfall invests more in renewable energy and the electricity grid, which is resulting in lower returns and even lower risks. To realise these investment plans we have lowered our rate of return requirement by a conservative amount," states Damberg.
A change in market conditions
The change has been made as the result of changes in market conditions, with the renewable generation market having significantly matured. This leads to lower risk and a lower, more stable rate of return.
"The new targets are an adjustment that reflects the reality we live in. The new assets we are set to invest in the future – primarily renewable energy – have a lower rate of return than previously. Similarly, the targets are aligned with our strategy of continuously delivering energy solutions that are better for the climate. Of course, the goal is to still achieve a rate of return that is higher than the owner's requirements," states Vattenfall's CEO Magnus Hall.
The reason behind the strategy, which is summarised in Vattenfall's "Power Climate Smarter Living", is the energy sector’s transition to renewable energy sources to reduce its impact on the climate and, above all, its use of fossil fuels. One significant element in Vattenfall's strategy is to reduce fossil fuel dependency (primarily coal) and to continue investing heavily in renewable energy sources.
"Wind energy currently accounts for the largest share of Vattenfall's investment plan. Looking back to 2012, which is when Vattenfall's financial targets were last reviewed, wind energy investment totalled SEK 20 billion over a five-year period. Today, we are investing the same amount in wind and solar power within the space of two years, thereby more than doubling our rate of investment," explained Hall at the extraordinary general meeting.
"At the same time, costs for wind and solar power have dropped, which is also reflected in the potentially lower rate of return. This calls for an increase in grid investments to ensure power can be supplied where it is needed."
Better company structure
Chairman of the Board Lars G. Nordström had the follow to say in his speech:
"The attitude among some people in the company was, at least for a while, to blame global factors. However, something has changed in the last five years. The company structure has been improved and refined. The bottom line is much healthier, debt levels have dropped and the asset pool has been updated. The business model has been drastically altered and is now based on customer orientation. Even if much has been improved in recent years, I still wish to underline our objective for the coming years: we have shown that we are capable, and we can now safely say that 'Everything we do can be improved'."
The Swedish government, Vattenfall’s owner, presented the new target proposal on 20 November 2017. The new financial targets will replace the previous ones set in November 2012.