Vattenfall Cuts Investments, to Enhance Focus on Wind Power

Vattenfall AB, Sweden’s biggest utility, will place more focus on wind power while limiting new renewable energy investments as Europe suffers from excess capacity, low prices and tight margins.

As part of cost-cutting measures, the company will limit investments in renewable energy while boosting the relative share spent on wind turbines, Eva Vitell, director of onshore wind power development at Vattenfall, said.

“We’re cutting overall investments into new plants, but will defend the relative share of wind power, which is set to increase, even as the available money bag shrinks,” Vitell said yesterday at an interview in Stockholm.

Vattenfall had planned to invest 147 billion kronor ($22 billion) in renewable energy through 2016, of which 138 billion kroner was for wind power, with the funds now set to decrease by an unspecified amount.

Together with Norway, Sweden intends boosting annual renewable electricity output by 13 to 14 terawatt-hours through 2020 in response to EU targets for cutting carbon emissions. In their latest earnings statements, the Nordic region’s three biggest utilities, Vattenfall, Statkraft SF and Fortum Oyj (FUM1V), announced cost-cutting plans to counter the impact of slumping power prices.

“The power market outlook is gloomy and challenging” in Europe for the years ahead, due to a capacity glut, low power prices and low profit margins, Vattenfall Chief Executive Officer Oeystein Loeseth said on an earnings call in October.

Until recently, the company had planned to produce 15 terawatt-hours a year from wind power and biomass sources by 2020. As of July, it got an annual 4.2 terawatt-hours from 1.3 gigawatts of installed wind turbines, with onshore capacity concentrated in Denmark, the Netherlands and Sweden, and offshore capacity in the U.K.

Liquidity

Vattenfall says its liquidity protects its wind power projects from the impact of subdued prices for power and tradable electricity certificate subsidies in Sweden, which have caused investors to retrench. As a result of lower earnings, the country may fall short of official renewable energy goals, the Swedish Wind Energy Association said on Oct. 23.

“We have an optimistic view on wind power. In some markets, building turbines is already quite competitive, and costs keep dropping very fast,” Vitell said.

The company bases its wind power investments on electricity price forecasts for the next 20 years. “Here, we maintain a stable view, although technological developments are so rapid that it could be worth delaying some projects to wait for new and better types of turbines,” Vitell said.

Finland’s biggest utility, Fortum said in October that it will no longer attempt to build wind turbines in Finland, due to cumbersome licensing that has thwarted its projects so far.

“Winning licensing approval is a huge challenge for us also, but it’s not a make-or-break obstacle,” Vitell said.

To contact the reporter on this story: Torsten Fagerholm in Helsinki at tfagerholm@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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