SWEDEN Vattenfall's results for the second quarter of the year were adversely affected by continued low electricity prices and significant write-downs, mainly as a result of reduced profitability and greater business risks in its lignite operations and the planned shutdown of two reactors at Ringhals. Over the same period, wind power generation increased significantly.

Write-downs of just over SEK 36 billion caused Vattenfall to report a significant loss for the second quarter. "The figures reflect the difficult situation on the energy market," says CEO Magnus Hall, who points out that wholesale electricity prices continued to fall in the second quarter. Low electricity prices will have an even greater impact on Vattenfall's results when old futures contracts which were concluded at higher prices than the current prices come to an end.

Tougher conditions
It was also the tougher conditions on the market that were behind Vattenfall's decision to write down the value of its assets by SEK 36.3 billion. It was decided that some of Vattenfall's generation assets had lost value due to a reduction in the profitability of energy generation, with ever lower market prices and significant excess capacity. Vattenfall's re-valuing of its assets is nothing unusual however. In fact it's in line with a European trend, with other large power companies also having made significant write-downs.

Vattenfall's largest write-down is on Ringhals 1 and 2, whose value has been written down by SEK 17 billion because Vattenfall has decided to shut the reactors down early due to poor profitability.

The second largest write-down, of SEK 15.2 billion, relates to lignite assets in Germany, where lower production margins and greater business risk are behind the decision. The German government has recently presented a proposal under which lignite plants would be transferred to a capacity reserve, with owners being paid to keep the plants on standby. This may affect some of Vattenfall's power plants.

"We believe that the proposal creates the right conditions for both a reduction in CO2 emissions and security of supply, and also gives greater clarity to the process of finding new owners for our lignite operations," says Magnus Hall.

New business opportunities
The major write-downs are a consequence of the ongoing transformation of the energy landscape, a transition which also brings with it new business opportunities.

"All our business areas are currently considering what opportunities the future will bring in their respective areas, and we will have an exciting autumn taking these ideas forward. We'll see a lot of new business opportunities in Sales, Wind and Distribution. At the same time, we must realise that the exceptional energy prices we saw for a while a few years ago will probably never be seen again," says Magnus Hall.

Wind on the up
Cash flow was not affected by the write-downs and energy generation has remained relatively stable for all types of energy. Nuclear has had lower availability though.

Vattenfall Wind has made significant progress since the German offshore wind farm Dan Tysk and the UK onshore wind farm Clashindarroch came into operation. Wind increased both its output and its income.

"Vattenfall's change in strategy towards greater customer focus and more renewable power generation is continuing apace. The business organisation we are currently implementing will be in a good position to up the pace of the transition. Cost-cutting is still an important part of this work," says Magnus Hall.

The full interim report


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