Letter from the CEO

The development of supply and demand in the world’s energy markets has strongly affected prices through 2015. The oil price has plummeted from a level of around 100 USD per barrel in 2014 to below 40 USD per barrel at year-end 2015. This has impacted prices downwards on other fuels such as coal and gas, which contributed to pull down power prices in the continental power market. The development has also influenced the Nordic power market, already significantly affected by strong hydrology and a growing power surplus. Nordic power prices were as a result on their lowest level in 15 years.

The market development has led to declining revenues and impairments for many European energy companies, including Statkraft. Statkraft is nevertheless uniquely placed with a low cost position, world class assets and strong competence within energy management, operation and maintenance. In addition, we have a solid portfolio of long term contracts in the Nordics and an increasing share of contracted revenues in growth markets outside Europe that contributes to stabilize our cash flow.

New disruptive technologies drive the development within a wide range of industries, including the energy sector. Going forward we see deployment of more renewable capacity. There is also increased momentum in distributed energy. In order to benefit from this development, Statkraft will continue to explore and develop low capital business models in a transforming market.

In Paris, the world’s political leaders agreed to keep global temperature increase "well below" 2C° and to pursue efforts to limit the increase to 1.5C°. This ambition needs to be followed up with concrete actions all over the world. Norway has a better starting position than most countries, through political stability, a highly educated workforce, an advanced economy and an almost entirely renewable power system. Increased electrification and increased use of biofuels in the transport sector are central to further decarbonizing the Norwegian energy consumption. This will give opportunities for Statkraft.

 The Norwegian Parliament decided in December 2015 to increase its dividend expectations from Statkraft in the coming years. Together with the decline in market prices, this led to a revised strategy and a reduced investment plan. As a result, Statkraft is now entering a phase with consolidation and targeted growth. Statkraft will in the short term prioritize investments to refurbishments and maintenance of Nordic hydropower plants, 1000 MW onshore wind power in Central-Norway, some international hydropower projects, expansions of existing district heating systems and development of new low capital business models.

Statkraft is a robust company with a strong strategic position and a competent workforce. We will strengthen the focus on cost efficiency in all operations and continue to adapt the organization and activities to the market opportunities and our financial capacity. We will continue to deliver what the world needs: Pure energy.