Market and production
Most of Statkraft's production is in the Nordic region, and 91% of the production took place in this market in 2013. In addition the Group directly owns production assets in Germany, the UK and Turkey. The Group is exposed in other countries through the subsidiary SN Power.
These power markets reflect the global economic trend towards a mature European market with low growth, and emerging markets with high growth. In spite of differences in the markets, all are influenced by global trends such as the prices of oil, gas and coal, climate change and associated policies, as well as falling production costs for renewable energy.
The European power market
Power markets in Europe are influenced by stagnating demand and the fact that the growth in renewable production capacity has resulted in less need for other power production. As a result of these two conditions, power prices in Continental Europe are moderate and the price for CO2 emissions has fallen to a low level.
Power prices in the Nordic region in 2013 were characterised by lower reservoir water levels than normal at the beginning of the year. Towards the end of the year, the water levels normalised, and was at 97% of normal at the end of 2013. The average system price on Nord Pool was 38.1 EUR/MWh, 22% lower than in 2012 and 10% lower than the average for the years 2008-12.
Power prices in Germany were characterised by good access to non-flexible power production (solar and wind power) as well as relatively low coal prices. The average spot price (base) was 37.8 EUR/MWh, 12% lower than in 2012 and 22% lower than the average for the years 2008-12.
Power prices in the UK are considerably influenced by gas prices, and the gas price increase resulted in somewhat higher power prices in 2013. The average spot price (base) was 59.1 EUR/MWh, 7% lower than in 2012 and 3% lower than the average for the years 2008-12.
Power consumption in the Nordic region is relatively high per capita compared with other European countries, as a result of the combination of cold winters, high percentage of electrical heating and a relatively large percentage of power intensive industry. The demand for power in 2013 was on a par with 2012 both in Norway and the Nordic region. Total production was 133.7 TWh in Norway and 379.8 TWh in the Nordic region, a decline of 8% and 5%, respectively, compared with 2012. Norway had a net export of power corresponding to about 4% of production, while the Nordic region overall had a marginal net import of about 1% of consumption.
Other power markets
Power prices in Turkey mainly determined by the gas price as gas contributes almost half the country's power production. Consumption is substantially lower per capita than the average for the EU countries, but continued to rise in 2013 to 246 TWh, an increase of 1.3% compared with 2012. The average spot price (base) was about 60 EUR/MWh, a decline of about 8% from the preceding year. In local currency, however, there was a marginal increase in the average price.
Power prices in the bilateral market (merchant price) in India remain relatively low, mainly due to rationing due to strained finances in the distribution companies and generally lower economic growth. In the Philippines, prices are stable at around USD 80/MWh, and the country is generally experiencing robust economic growth. In Peru, prices are low in the spot market, but SN Power has entered into several contracts with different maturities at prices above the spot prices. In Chile, power prices are at a high level of around USD 200/MWh as a result of dry years and low production from the country's hydropower plants. The same applies to Brazil, where low inflow over the last 18 months has resulted in average market prices around USD 125/MWh. In Nepal, power is sold through a power sales agreement with a fixed KPI-regulated price. In Zambia, power is sold through a long term power sales agreement which reflects production costs.
The Group is the largest power producer in Norway, and contributed 34% of the country's power production in 2013. The company is the Nordic region's third largest producer of electrical power, Europe's largest producer of renewable energy and the tenth largest producer of hydropower globally.
Statkraft's consolidated production capacity consists of 77% hydropower, 16% gas power, 4% district heating/biomass and 3% wind power. 71% of the capacity is in Norway, 9% in the Nordic region excluding Norway, 18% in Europe excluding the Nordic region and 2% outside of Europe.
Statkraft's production is determined by demand, production capacity, access to resources (hydrological balance and wind), spark spread (margin between power and gas price) and power optimisation. At the end of 2013, the consolidated installed capacity (the capacity of investments which Statkraft consolidates fully in the accounts) amounted to 16 715 MW, with hydropower contributing 12 886 MW, gas power 2600 MW, wind power 514 MW, district heating 674 MW and biopower 40 MW. Statkraft also has ownership interests in associated companies with production capacity, and the Group has ownership interests in power plants with a total installed capacity of 17 607 MW power production and 685 MW district heating.
The demand for power varies throughout the day and year, and the power markets are dependent on capacity that can be adjusted according to demand. Statkraft has a large percentage of flexible production capacity, and combined with extensive analysis and production expertise, this contributes to the Group generally managing its water resources in a sound manner. The Group has an advanced power optimisation process and plans to have available power plants in periods with high demand. Statkraft's large reservoir capacity with a combination of seasonal and multiple year reservoirs enables the Group to manage the water resources in a perspective spanning more than one year. Accordingly, production can be kept high in peak price periods, but can be kept lower in low price periods.
Following major fluctuations throughout the year, the overall water level in the Nordic region’s reservoirs was 97% of normal at the end of 2013. This corresponds to 82.1 TWh, which is 67.6% of the maximum reservoir capacity of 121.4 TWh.
In 2013, the Group's power production totalled 55.9 TWh (60 TWh), plus 1.1 TWh of district heating (1.1 TWh). Hydropower production fell 8% compared with 2012, which was a year with high hydropower production, but was somewhat higher than the Group's normal production. Wind power production increased by 77% from the preceding year as a result of new production capacity. The market situation in Europe resulted in only marginal power production at Statkraft's gas power plants.
Spot sales are trading of electric energy at market price with physical delivery the following day. The price is stipulated for briefer time intervals, for example for every hour of the day in the Nordic region. In 2013, the Group sold 32.5 TWh (37.8 TWh) in the spot market, corresponding 58% (63%) of the total production.
Statkraft is a major supplier to the power intensive industry. In 2013, the volume delivered under long term contracts amounted to 20.2 TWh, of which 17.5 TWh went to the industry in the Nordic region. The high contract coverage has a stabilising effect on Statkraft's revenues. Most of the contract volume to Nordic industry runs until 2020.
In Norway, Statkraft is required to cede a share of the power production to counties and municipalities where the power is produced, so called concessionary power. The price for this power corresponds to, explained briefly, the average production cost, and is thus significantly lower than the market price for power. The concessionary power volume amounted to about 6% of the Group's Nordic hydropower production in 2013.