Vattenfall Considers Extended Cost Cuts Amid Low Power Prices

Vattenfall AB, the biggest Nordic utility, is looking at prolonging cost reductions beyond this year as power prices are expected to stay low through 2016.

“Prices are at a relatively low level, and forwards for 2014, 2015, 2016 are also at a stable, relatively low level,” Chief Executive Officer Oeystein Loeseth said in a Feb. 15 interview in Oslo. “I don’t expect this to change.”

The average Nordic power price for delivery around the clock fell 34 percent last year to a five-year low of 31.20 euros a megawatt-hour on the Nord Pool Spot exchange, after Europe’s debt crisis hurt energy-intensive businesses such as paper and metal producers. At the same time, the average surplus of water in reservoirs and as snowpack reached 12 terawatt-hours, the highest level since 2007. The region meets more than half its power needs by running water through turbines.

Electricity for baseload delivery has cost 40.63 euros a megawatt-hour in the first seven weeks of 2013, down 8.8 percent from a year earlier, according to Nord Pool data. Forward prices on the Nasdaq OMX Group Inc.’s derivatives exchange on Feb. 15 indicated power for delivery next year would cost 37.25 euros, followed by 36.07 euros for 2015 and to 35.95 euros for 2016.

“We need to reduce costs, we need to reduce our debt, we need to reduce investments and we must make operations more efficient,” Loeseth said. “We’ll continue to become more efficient in the years after” 2013, he said.

Job Cuts

Sweden’s state-owned Vattenfall will continue to cut costs in 2013 by 3 billion kronor ($473 million), after reductions of 6 billion kroner over the past three years, Loeseth said.

The company, which generates power using fossil fuels, hydro and nuclear assets and is expanding in wind farms, will cut as many as 2,000 jobs and is in talks with unions to determine how many of these result from departures.

Vattenfall is seeking to sell three Danish coal power plants, Loeseth said. He wouldn’t speculate on the sales price, saying only it would be “billions” of kronor.

Vattenfall, which said last week it misread energy markets when it bought fossil-fuel powered plants in the Netherlands from Nuon Energy NV for 89 billion kroner in 2009, isn’t looking to sell these assets at the moment, Loeseth said.

The company wrote down by 17 percent the value of Nuon’s generating assets, for which it paid 89 billion kronor ($14 billion). That’s because energy demand and carbon emission prices fell short of Vattenfall’s expectations since then, Loeseth said on Feb. 12.

“I don’t know if the timing is so good to sell gas-power plants,” he said.

The company is seeking to increase the utilization rate of its Ringhals and Forsmark nuclear reactors in Sweden to 90 percent on average by 2015 from 75 percent and 89 percent last year, respectively, Loeseth said.

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