President's comments Interim Report January-March 2013
The first quarter of the year was characterized by unusual weather for the season, with sustained cold temperatures, limited precipitation and weak winds in January and February. This contributed to low production in the Nordic wind-power sector, although the lack of water in the Nordic hydroelectric power dams also applied upward pressure on electricity prices compared with the low price levels during most of 2012.
However, in March, strong winds contributed to a production that was close to budget. Average winds, on which the sector’s profitability calculations are based, fluctuate substantially in the short-term perspective. However, periods with weak winds are offset in the long term by periods of strong winds.
Rabbalshede Kraft’s production totaled 34,833 (47,929) MWh. This had an impact on net sales, which amounted to KSEK 20,373 (27,703) and the quarter’s loss after tax, which was KSEK 3,064 (loss: 588).
As mentioned, the unusual weather also contributed to the preceding year’s healthy access to water in Nordic hydroelectric power instead turning into a hydrological deficit (water and snow). In the week commencing March 25, the deficit was 20.5 TWh, which is expected to generate weaker spring floods than normal. Low levels in the hydroelectric power dams and a lack of substantial precipitation in the forecasts for the coming months contribute to a higher price of electricity, which is also reflected in the electricity futures for the third and fourth quarters of 2013.
An aspect of uncertainty in the market is the fact that the EU parliament on April 16 voted against the proposal to make a temporary amendment to the European system for emission rights. Coal-based electricity production will be charged with the costs for emission rights, which will marginally raise the price of electricity in the Nordic region. The aim was to make fossil-based electricity production more expensive, thus benefitting fossil-free wind power. However, the price of emission rights is already so low that an additional decrease would hardly impact our calculations.
Conversely, the price trend of electricity certificates is a positive signal to producers of renewable electricity. From a low in the spring of 2012, when the spot price dropped down to SEK 140/MWh, the price subsequently rose to SEK 229/MWh in March 2013. This is a stronger trend than most analysts expected. The single most important reason is that those subject to Norwegian certificate requirements make purchases from the Swedish certificate surplus, since the supply of Norwegian certificates is low due to weak Norwegian renewable energy developments. The Swedish Energy Agency and the Norwegian Water Resources and Energy Directorate have been commissioned with proposing adjustments to the system that enable the countries to fulfill the established objectives. This will result in a price level for electricity certificates that promotes the continued build-out of wind, bio and hydroelectric power.
At the same time, the cost of each kilowatt hour produced in new wind farms has declined sharply since electricity certificates were introduced in 2003, and this is a development that has accelerated in recent years. The primary factors behind this are the development of turbines that are becoming increasingly efficient, combined with excessive production among manufacturers that has resulted in pricing pressure.
Despite declining costs, maintaining the expected revenue levels (for electricity and electricity certificates) in the coming years requires thorough project planning, credible calculations and cost control if profitability is to be achieved in the new farms. As we announced in the recently published 2012 Annual Report, we are reviewing all processes in the operation and assigning priority to those that add the most value to the continued advancement of Rabbalshede Kraft.
The key focus involves pursuing as many permit applications as possible until permit from the municipalities and county administrative boards come into legal effect. The most important addition is the Femstenaberg wind farm in the Municipality of Strömstad, which has a permit to construct up to 15 wind turbines. We have a total of 14 wind farms with nearly 200 wind turbines in the application phase. These applications generally require substantial financial and staffing resources, thus making it rational to prioritize the wind farms that are close to the construction phase and wind farms that have secured all of the permits and are ready to build.
Thomas Linnard, President, Rabbalshede, April 25, 2013
Thomas Linnard, CEO