It is a great paradox: while electricity prices are rising, Norwegian power producers are losing billions of kroner on low electricity prices. news has gone through the half-year accounts of the largest power companies in the country. They show large deficits and write-offs. What has happened? We can go the route of the power municipality Høyanger, which now has to pay 42 øre for every kilowatt hour they sell. The explanation is an agreement from 2021 to sell its concession power at a fixed price instead of at market price. It was an expensive decision. But not as expensive as Norwegian power producers’ move to sell “future electricity” at an agreed price. – We were declared geniuses in 2020. Now people think we are idiots, says the mayor of Høyanger, Petter Sortland (Ap). Photo: Oddmund Reisæter Haugen / news The higher the electricity price becomes, the more it burns The purpose of selling “future electricity” is basically to exchange risk for safety and predictability, but when the market makes a mistake, as now, they can have the opposite effect. Then the power company has to come up with cash to cover intermediate deposits, which become larger the higher the electricity price goes. Some of these agreements are still in time and “unrealized”, others state that everything has fallen into disrepair. This is part of the background for the Swedish Prime Minister announcing on Saturday that she is providing liquidity guarantees of several hundred billion Swedish kroner to Nordic energy companies – to prevent default and “a new financial crisis”. The Norwegian governing authorities announced on Sunday that there is as yet no need for Norwegian measures, but that “the Ministry of Finance, the Ministry of Oil and Energy, Norges Bank and Finanstilsynet are closely monitoring the development”. The Ministry of Finance at Vedum says on Sunday that “the current assessment is that the indictments announced in Sweden and Finland will reduce the risk of unrest in the financial system”. Photo: Beate Oma Dahle / NTB Statkraft posts a loss of 5.5 billion A review of the half-yearly reports shows that dealing with futures contracts has cost Norwegian power companies several billion kroner (see quote box below). The biggest loser is Statkraft, which records a loss of NOK 5.5 billion due to “financial hedges of production income”. – Historically, this policy has turned us on well. For the power company Glitre doing the “hedging trade” and selling futures, they have lost two out of three power kroner in the second quarter. – Historically, this policy has served us well, and it is important to evaluate such a strategy over several years instead of a short period of time where following a different strategy would have given better results. As an example, Glitre Energi delivered stable and good results after tax throughout 2020, even though the market had prices close to zero for long periods, says Håkon Levy, who is executive director of Glitre. Statkraft accounts for nearly half of Norwegian hydropower production, and is the largest supplier of renewable energy in Europe. In the quarterly report, the company explains that the market is “demanding” and that “locking in future power prices has led to an unrealized loss that is greater than the positive effect of increased power prices”. Corresponding wording is used in Hafslund’s quarterly report, which writes about “realized losses on financial hedging contracts”. – Hafslund secures the price of parts of the power production in order to achieve more stable results. Hedging takes place through bilateral agreements directly with industrial companies for the physical delivery of power and through financial power contracts. When the power price goes up, revenues will be lower than if all the production were sold at the spot price, and the opposite when the power price goes down, as he did in 2020. In 2022, there have been historically high power prices, and then the impact on the fuse will be correspondingly large, says Per Storm-Mathisen, who is communications manager in Hafslund. Stavanger-based Lyse is a power producer in the most “notorious” power area in southwest Norway (NO2). Here, the average price this year has been 162 øre per kilowatt hour. Nevertheless, or precisely because of this, the company can show a negative operating result for the retail business (minus NOK 118 million). “The negative result is mainly explained by losses on fixed price agreements”, they write in the quarterly report. – Lyse decided a number of years ago that we wanted to have a lower level of security than is common practice in the industry. We had this stress tested in 2020 when we paid stable dividends, despite very low power prices. The fact that we have chosen to have a lower degree of protection now seems to contribute to us coming out better financially than most other hydropower producers in southern Norway, says Atle Simonsen in Lyse AS. In the half-year accounts of Nord-Trøndelag Elektrisitetsverk (NTE), the value of the power contracts is recorded as minus 211 million. “High volatility (fluctuations, jou.anm.) in power prices is the main reason”, they write in the report. Porsgrunn-based Skagerak Energi, which produces 6 terawatt hours of electricity a year, has not yet published its half-yearly report. – We have no comments on other companies’ strategies, but we have chosen a different approach, something that will also emerge from the half-year results that will be presented shortly, says director of the company, Kristian Norheim. Losses that in turn hit the owners, which are you and me. Bergen, Sunnfjord, Alver, Askøy and Øygarden together own half of the power company Eviny. In the latest quarterly report, they refer to a loss of 2.15 billion as a result of “power protection”. – Despite the great improvement in insurance prices that has been made in the last year, there is an unrealized loss on these contracts, the company writes in the report. The company has today agreed to sell 4.4 TWh of future power, but will not comment on the price: – We do not publish details about the hedging contracts or when they will expire, but our hedging horizon is the next few years, says Anne Marit Steen, who is CFO in Eviny. – We do not give details about our insurance contracts, says Anne Marit Steen, who is CFO at Eviny. Photo: BKK Stavanger-based Lyse can by comparison show a more modest loss of NOK 118 million. – We decided a number of years ago that we wanted to have a lower level of security than is common practice in the industry. It seems to contribute to us coming out better than most of the other hydropower producers in southern Norway, says Atle Simonsen in Lyse AS. – Could develop into a small financial crisis The conservative journal Minerva has gone through the quarterly reports of Statkraft, Hafslund Eco and Agder Energi. In all three cases, agreements on future electricity mean that they have to book losses in the billions range. – I will not be too surprised if this develops into a small financial crisis, says Minerva editor Aksel Fridstrøm to news. He believes that no power company will go out of business, but says it will “quickly become a situation with a lack of money” because of the tax burden and because “hedging positions will be very expensive to hold”. He adds: – I think that some municipalities that own a power company do not fully understand the complexity and risk in the financial markets in which their companies now operate. – Historically, this policy has served us well, and it is important to evaluate such a strategy over several years instead of a short period of time, says Håkon Levy, who is executive director of Glitre. Photo: Glitre Bergen wants to have a meeting with Eviny – We had expected that we would be able to extract a large dividend that would benefit the residents. I think this is a strange effect of the agreements entered into, says Tom Georg Indrevik (H). He is mayor of Øygarden municipality, which owns part of Eviny. In the article “Energy billions disappear in financial loss sink”, Fridstrøm criticizes politicians who, due to the high electricity prices, fantasize about injecting record-breaking dividends from the energy companies back to the municipalities. For that, there simply isn’t a lot of power to supply yourself with. Per-Arne Hvidsten Larsen (V) is finance councilor in Bergen, which owns 38 percent of Eviny. – Our skepticism about the security strategy was reported at a meeting with all the owners before the summer, and there will now be a meeting during the autumn where Eviny is asked to ensure a good basis for discussion. I’m looking forward to it, he says to news. Bergen municipality budgeted NOK 260 million in dividends from the power producer this year. Because of the electricity crisis, they got 349 million instead. The Financial Supervisory Authority adds: – We understand that one of the fundamentals is more stable dividends to the owners, but for our part we will both accept and wish for greater fluctuations. It would help us when electricity prices are high, and we would toll a decrease when electricity prices are low. The companies write this in their reports Statkraft Statkraft has over the years entered into hedging positions to stabilize operating income. The contracts typically have fixed prices that are lower than today’s high forward prices. For some of these contracts, the price difference is booked as unrealized gain or loss for the current contract period in each quarter. During the second quarter, forward power prices increased significantly, which led to unrealized losses of NOK 8.7 billion, mainly from such contracts. Eviny Eviny continuously pre-sells part of expected hydropower production as part of a financial security strategy. Currency income linked to hydropower production will be secured accordingly. Contracts entered into are accounted for at fair value with changes in value above the result. When power prices rise, the value of concluded power contracts falls, while the value rises when power prices fall. The hedging strategy including a minor trading activity resulted in NOK -2,964 million in the second quarter. The group’s Hafslund power hedging strategy aims to stabilize income and cash flow over time, and then exploit market opportunities. The achieved power price of 113 øre/kWh in the half year is 2 per cent lower than the average system price and 24 per cent lower than the average spot price in Hafslund’s production area as a result of the sale of power at a fixed price (industrial and concession power) and subsequently realized losses on financial hedging contracts. Agder Energi Agder Energi uses financial agreements to secure the price of parts of future power production. The price protection applies for several years in the future. The purpose is to ensure stability in the company’s income and dividend capacity. The disadvantage is that you lose some of the upside at high power prices. When prices rise, the values of the financial hedging contracts fall. When prices rise as they have in the first half of the year, the fall in value will be significant. Lyse For Lyse, there is considerable volume and price risk in the production and trade of power. In the Nordic power market, rainfall conditions, demand and market prices for coal, gas, oil and CO₂ quotas have an impact on the market price of power. In the power market, the group uses active risk management to adapt to the current market situation. The aim is to achieve the maximum risk-adjusted return.
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Power companies lose billions on agreements made worse by high electricity prices – news Vestland
