Letter from the CEO
Powerful forces are changing and shaping the energy sector. There is a transition towards a low-carbon economy all around the world. The change is spurred by the climate agreement from Paris, with a commitment from all countries to contribute to reduce greenhouse gas emissions.
As a result, carbon pricing mechanisms and support schemes for renewable energy are being deployed in an increasing number of countries. Market designs are being changed, technology costs are falling, fuel prices are low, energy efficiency targets are increased and new business models are emerging.
Based on these factors the power prices have been trending downwards in recent years, reducing profitability for many energy companies. The Nordic power prices have stabilized somewhat and in the last few months of 2016 there was a recovery. This cautious increase was mainly driven by short term development in fuel prices, reduced nuclear availability and hydrology.
The operating result from the Statkraft group was on a solid level, due to effective operations and successful energy management. Statkraft’s updated long term price forecasts are nevertheless down compared to what was previously expected. This has led to impairments of asset values which have led to a negative result for Statkraft in 2016.
Statkraft needs to improve profitability in light of the external challenges, and is conducting a performance improvement programme with the target of strengthening competitiveness and reduce annual costs by NOK 800 million by the end of 2018. Based on a strong commitment among our employees I am confident that this target will be met. This will enable Statkraft to become one of the most competitive companies in our industry and lead to a strengthened position for further growth.
Statkraft has put two new power plants into operation in 2016: Nedre Røssåga in Norway and Banja in Albania. Both will contribute to strengthen Statkraft’s position as Europe’s largest generator of renewable energy. In 2016, Statkraft also decided together with partners to invest in the 1000 MW Fosen project consisting of six wind farms. These wind farms will gradually start production between 2018 and 2020.
Maximizing the long-term value of the Nordic hydropower assets through maintenance and upgrading remains core for Statkraft. Project execution and business development will be prioritized. Complying with the highest safety, security and integrity standards is of great importance and requires high management attention. Systematic work is needed in order to ensure continuous improvement within these areas.
Statkraft will remain in a consolidation phase through 2017, and will establish a solid platform for expansion. We have the people, experience and know-how to create value by investing in renewable energy. That is what the world needs to fight climate change and stimulate growth.
Christian Rynning-Tønnesen President and CEO