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UPM Annual Report 2014
UPM Annual Report 2014
19
20
Top performance
continued
With its competencies and generation assets,
UPM Energy is well-positioned to generate
good profitability and create additional value
from the increased electricity price volatility in
the market, through optimal use of its hydro-
power assets. The share of weather-dependent
(wind and solar) power production in the mar-
ket is growing, increasing price volatility and
calling for flexible generation to balance out the
variations in the production and consumption
of electricity.
In 2014, UPM proceeded with efforts to
upgrade its hydropower production assets.
Through its ownership of Länsi-Suomen Voima
Oy, UPM is participating in the expansion of
the Harjavalta hydropower plant with provision
of a new machine unit and refurbishment of the
existing two turbines. When completed in 2017,
the project will improve the efficiency, control
and environmental safety of the plant, as well as
responding to the increasing demand for flexible
capacity. The total power output of the plant
will increase from 72 MW to 110 MW.
Business performance
Operating profit increased due to lower costs as
well as higher hydro and nuclear power produc-
tion, more than offsetting the negative impact
of lower average sales prices.
Business development
UPM Energy is a market-driven business and
the second largest electricity generator in Fin-
land. UPM Energy has developed wide compe-
tencies in physical and financial electricity
trading, supported by market analysis. Its own
hydropower plants and shares in energy compa-
nies provide UPM Energy with a versatile and
cost competitive power generation portfolio
with low emissions.
OUR STRENGTHS
•
Cost competitive, low-emission
electricity generation portfolio
•
Versatile asset base – nuclear
power as base load capacity,
hydropower as flexible capacity
and condensing power as
reliable peak load capacity
•
Strong competencies and value
creation track record in physical
and financial electricity trading
OUR DIRECTION
•
Create value in the Nordic
electricity market through
generation and physical and
financial trading
•
Profitable growth on the Nordic
CO
2
emission-free electricity
market
Markets and drivers
• Electricity consumption in the Nordic
countries is expected to remain stable.
• Demand is driven by household consump-
tion and industrial activity.
• In 2014, electricity consumption in the
Nordic countries decreased slightly, primar-
ily due to warmer than normal weather.
• New capacity investments are driven by
economics and influenced by regulatory
issues and support schemes; capacity is
mainly growing in renewables.
• Power markets across Europe are becoming
more integrated due to market coupling and
new transmission lines.
• Hydrological balance and wind in the Nor-
dic countries impacts electricity supply and
therefore electricity prices and price spreads
between different price areas.
• In the Nordic countries there are several
different price areas; UPM Energy is cur-
rently operating in the Finnish price area
only.
PHYSICAL POWER MARKET
o
o
Physical value creation
o
o
Mainly Nord Pool Spot market
for day-ahead and intraday
trading
o
o
Members (buyers and sellers)
agree on contracts for the
delivery of power
VERSATILE GENERATION
(from own hydropower plants and
shareholdings in energy companies)
HYDROPOWER
o
o
Flexible
o
o
Cost competitive
o
o
Low emissions
o
o
Renewable
CONDENSING POWER
o
o
Reliable peak load
NUCLEAR
o
o
Efficient base load
o
o
Cost competitive
o
o
Low emissions
UPM ENERGY VALUE CREATED
Capital intensive utility
business
Low-emission energy
sources, including
water rights
Fuels
Engaged high performing
people
Organisational experience
Energy trading platform
Regulation
Low-emission electricity
Work safety
Energy supply security
Flexible power supply
Risk mitigation
ROCE
TRANSMISSION
DISTRIBUTION
HOUSEHOLD
CONSUMPTION
SMALL AND MEDIUM
SIZED ENTERPRISES
INDUSTRIAL ELECTRICITY
CONSUMPTION
CAPITALS
OUTCOMES
FINANCIAL POWER MARKETS
Derivative power contracts traded on Nasdaq Commodities
o
o
Value protection and creation
Otsotuuli Oy, a wind power development
joint venture company established with Ele-
ment Power in 2013, continued to develop wind
power production possibilities at a number of
sites throughout Finland, primarily on land
leased from UPM. Based on wind measure-
ments, UPM has several land assets that are
well-suited to wind energy production.
The largest ongoing project is at Teolli-
suuden Voima Oyj (TVO), which is building a
third nuclear power reactor, OL3, at Olkiluoto,
Finland. The new unit will have an annual
nuclear power generation capacity of approxi-
mately 1,600 MW. Through Pohjolan Voima
Oy (PVO), UPM is entitled to approximately
500 MW of capacity.
The commissioning phase for the building
technology systems of the reactor and turbine
plants is ongoing. Testing and planning, as well
as documentation and licensing of the reactor
plant automation are continuing. The plant
supplier estimates that regular electricity gen-
eration at the power plant should start in late
2018.
In June 2013, UPM announced that it is
participating in the share issue from Pohjolan
Voima Oy to finance the Olkiluoto 3 nuclear
power plant project. UPM’s share of the issue
is EUR 119 million, of which EUR 31 million
was paid in Q2 2013 and another EUR 31
million was paid in Q4 2014. The remaining
part of the share issue will be implemented
during the coming years based on the financing
needs of the project.
In July 2010, the Finnish parliament ratified
the government’s favourable decision-in-princi-
ple concerning TVO’s application to construct
OL4, its fourth nuclear power plant unit. UPM
is participating in financing the bidding and
engineering phase for OL4.
In September 2014, TVO’s application for
an extension to submit a construction licence
application for OL4 plant unit was rejected by
the Finnish Government. The deadline for the
application is June 2015.
UPM Energy
RENEWABLE ENERGY FROM HARJAVALTA
The Harjavalta hydropower plant reburbishment project will significantly increase the production
of renewable and emission-free energy capacity, and it is scheduled for completion by the end
of 2017. The construction work has begun, and the main equipment purchases were made in
2014. The total value of the investment is approximately EUR 40 million.
The investment also provides new possibilities for managing the water flow rate in Kokemäen-
joki and, as a result, decreasing the risk of flooding. The renewed plant will let more water
flow through than before and enables minimum release more efficiently, which makes it easier
to manage the foreseeable winter discharge volumes. The single largest flood risk area in
Finland is located at the lower reaches of the river around the city of Pori, which has over
83,000 inhabitants.
The renovation of the Harjavalta
hydropower plant will increase
generation capacity and adjustabil-
ity, and improve the efficiency and
environmental safety.
300
240
180
120
60
0
2014
2013
2012
*)
excl. special items
Operating profit
*)
EUR million
KEY FIGURES
2014
2013
Sales, EURm
464
466
Operating profit excl. special items, EURm
202
186
Capital employed (average), EURm
2,903
2,882
ROCE excl. special items, %
7.0
6.5
Personnel on 31 Dec.
80
92
BUSINESSES 15–30
CONTENTS