The Fortum sustainability themes that are most important to stakeholder groups are selected on the basis of the materiality assessment, the annual One Fortum survey, public discussion, media follow-up and the business value chain.
Key topics 2013
In 2013, the following issues important in terms of our company's operations were among the topics of public discussion in the company's market areas:
Reliability of electricity distribution:
- In Finland the new Electricity Market Act requires electricity companies to be better prepared to handle widespread power outages caused by natural phenomena. The new Act entered into force on 1 September 2013. The new law includes the national legislation changes required by the EU's third internal energy market package.
- Fortum’s preparedness to handle storm situations and their aftercare was better than in previous years. Fortum proactively informed customers through text messages and social media. Storm damage repairs were carried out more quickly than before.
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Divestment of Finnish electricity distribution business:
- The strategic assessment and divestment of Fortum’s Finnish distribution networks has sparked an active public dialogue. There was public suspicion that the security of energy supply would collapse if Fortum’s distribution
- networks were sold to foreigners. Additionally, it was assumed that divesting the networks would automatically lead to an increase in the electricity price for consumers. Distrust towards foreign owners emerged, and it was speculated that they lack the know-how and interest to invest in a grid in Finland.
- Fortum has communicated that the people who have taken care of the distribution network operations so far are the same ones who work in the new company. The new owner is governed by the laws of Finland and the Finnish authority oversees its operations.
- About 20% of Finland’s distribution network is within the scope of the sale, so there is no impact on the security of supply. The new foreign owners are among the world’s largest infrastructure investors and have experience also in electricity networks around the world.
- The authority’s oversight model determines the profit from the distribution business, and the new owner operates within this framework.
Change in electricity billing:
- With the installation of smart meters, there has been a switch to billing based on actual electricity consumption. In particular, switching to hourly-based metering, the correctness of billing after meter replacement, and discontinuing the instalment billing have caused uncertainty and discussion among customers. The bigger bill resulting from increased consumption during winter has come as a surprise to some people.
Energy market functioning and development:
- Energy and climate policy and energy market development were important topics in the dialogue with the authorities in our different operating countries and at the EU level. Fortum has actively participated in the preparation of the EU’s 2030 energy and climate package and in the related discussions.
- Fortum expects clarity and consistency from European energy policy in the face of the climate challenge. The company has emphasised setting ambitious and binding emissions target for 2030.
- Energy sector investments require a stable and long-term policy, because decisions are made for the long-term and require significant capital. Transitioning to a low-carbon system as cost efficiently as possible requires a well
- functioning, integrated internal energy market. To develop the internal energy market, Fortum also suggests consideration of a more binding target to develop a cross-border electricity distribution network.
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Increased use of coal:
- Fortum’s coal use increased in Finland, Sweden and Russia. There was an active discussion about the increased use of coal. The growth in the use of coal has increased local emissions in power plant municipalities, and the stakeholders’ concerns are warranted. On the other hand electricity production in Fortum's coal-fired Inkoo power plant in Finland ended in February 2014. This has sparked
- a discussion in Finland about energy self-sufficiency. The use of coal at Fortum’s Suomenoja CHP plant increased by nearly 90% from 2012. In 2013, coal’s share of the total heat production in Espoo was about 80%. The increase in coal use is due to the higher price for natural gas and the decreased price for emission allowances coupled with the natural gas tax changes and lower electricity prices. At the end of the last decade, Fortum invested in a new natural gas-fired power plant that was believed to be competitive in the electricity and heating markets. Unfortunately, in the current situation, the plant operation is not profitable.
- At the Värtan plant in Sweden, the use of coal increased by a quarter from the previous year, due to the better availability of the plant and the elimination of the CO2 tax overlapping with emissions trading.
- Fortum’s responses to the discussion emphasise expanding the focus area from the local level to the entire market area. Fortum operates in the Nordic electricity market and on the European emission allowance market. Many internal and external factors affect these markets.
- In the United States, the entry of shale gas into the markets has increased gas use and reduced coal consumption. Europe has received a stream of more economically priced coal, and its use has increased. The profitability of energy produced with natural gas has weakened, and new gas-fired power plants have been shut down due to unprofitability.
- In EU’s emissions trading, the emissions cap is set at the EU level. Even though, from a local perspective, the increase in a single power plant’s carbon emissions is unfortunate, the EU’s overall emissions target will be
- achieved. Conversely, if the use of fossil fuels were completely stopped in one EU country's electricity and heat production that is within the sphere of emissions trading, there would be no decrease in Europe’s emissions, because the decrease in emissions in that particular country would make room for emissions growth elsewhere in the EU.
- In Finland, the power plant tax (previously called the windfall tax) has been adopted as of 2014. It will be applied provided that the European Commission finds that it is in line with the general tax principles and regime in Finland and that it does not include forbidden state aid to power plants excluded from the tax. The tax would target hydro, wind and nuclear power plants built prior to 2004. Fortum would be the single biggest payer of the tax, and its share
- of the tax would be about half, i.e. an estimated 25 million euros a year. Fortum has submitted a complaint to the European Commission and has requested clarification whether the tax treats companies in a similar situation in an equal manner and whether the tax is prohibited State aid to plants excluded from the tax. In April, Fortum filed a complaint to the European Commission in order to find out whether the Swedish real estate tax on hydro-plants is in line with the EU regulations and whether the different tax levels of real estate on renewables, such as wind-, hydro- and bioplants, are to be considered as state aid or not. The real estate tax for hydro power plants in Sweden will be increased by nearly 50% during 2013-2018.
- In January 2014, the non-profit organisation Finnwatch published a report regarding the role of holding companies in the operation of Finnish companies. According to the report, the 20 biggest companies, based on turnover, have
- over 225 holding companies in countries that Finnwatch classifies as tax havens. Fortum is also included in the report. The report and the ensuing discussion was widely communicated in the media. Fortum was the first Finnish company to publish its tax footprint in the Sustainability Report 2012.
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Progress and earnings expectations of the Russian investment programme:
- Fortum’s investment programme and earnings expectations in Russia is regularly a source of interest for media and investors. Fortum has announced its target to achieve an operating profit level (EBIT) of about EUR 500
- million run-rate in its Russia Division during 2015 and to create positive economic value added in Russia.
- The completion of the last units in Fortum’s investment programme has been delayed by some months from the original timetable; the programme will be completed by the middle of 2015. The most significant part of Fortum’s Russian investment programme – two units at the Nyagan power plant – were inaugurated in September. The plant’s inauguration was widely reported in Russian and Nordic media.
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Hydropower’s future in Sweden:
- A report published in Sweden about the need for changes in hydropower-related legislation sparked a dialogue about the future of hydropower. Hydropower plants may be forced to apply for new operating permits, and, in conjunction with the processing of the permits, the production of the plants may be limited. The impact would target the small hydropower plants in particular. Fortum views the change as a risk and emphasises that the use of emissions-free hydropower is essential in climate change mitigation, and it is of critical importance as regulating power in the Nordic markets. Fortum has an ongoing hydropower refurbishment programme to modernise plants. Additionally, Fortum is involved in voluntary environmental conservation efforts to reduce the adverse effects of hydropower and to safeguard the other uses of water systems.
Impact of hydropower on fish:
- During the year the status of the migratory fish stocks evoked a lot of discussion in conjunction with, among others, the salmon and sea trout strategy work lead by the Ministry of Agriculture and Forestry.