Political Tinkering Stalls Fortum Spending $9 Billion Cash

  • Taxpayer aid for renewables stifles competition, CEO says
  • Finnish utility can't find large-scale green power investments

Clean-energy subsidies are standing in the way of Fortum Oyj’s mission to spend a $9 billion cash pile to transform it into a low-carbon electricity generator, according to the Finnish utility’s chief executive officer.

Government aid for wind turbines to solar power is stifling competition and making renewable power producers beholden to political interference on which energy technology to support, Pekka Lundmark said by phone. Since becoming CEO in September, he’s yet to make a large-scale investment in a market weakened by the lowest wholesale electricity prices since at least 2003.

“At these price levels there are no incentives at all to make any new investments unless they are subsidized by taxpayers, which we believe is a very unfortunate alternative,” Lundmark said. “Something needs to happen, the prices we have in the Nordic region right now are below production costs.”

Fortum has a long-term target to produce electricity only from carbon-free plants, compared with about 64 percent last year. Since boosting available cash by selling power grids from Norway to Sweden and Finland, Fortum is struggling to find assets with the same or better returns amid low prices, a glut of electricity, and a slide in European demand.

Investment is made even more difficult by inconsistent tax policies in the Nordic region, Lundmark said. In Sweden, a large-scale wind operator typically receives a net subsidy after taxes for every kilowatt-hour produced, while hydro and nuclear power operators end up with a net tax, according to energy consultants Sweco.

Hydropower would probably still be the main target of any potential acquisitions, Lundmark said, without providing details. The utility is also looking at district heating and end-user distribution, similar to its recent acquisition of Grupa Duon SA in Poland, he said. 

Wind Opportunities

Fortum unveiled last year plans for small-scale wind investments in Sweden and Russia. If current wind subsidies in the Nordic region are phased out by 2020 as planned, interest from financial investors will falter and provide more opportunities for utilities that can supplement the intermittent supply with other forms of generation, Lundmark said.

It will be hard to find profitable renewable energy acquisitions or to build up a big wind-power portfolio quickly, Markku Jaervinen, an analyst at Evli Pankki Oyj, said by phone on Tuesday.

“It is a lot of cash that isn’t yielding very much at the moment,” Jaervinen said. “Can they find targets at the right price that are attractive? It has proven to be a challenge so far.”

Fortum has plunged 35 percent in the past 12 months, compared with a 14-percent decline in the Stoxx 600 Utilities index. 

Lundmark has given himself about two years to find investments before paying shareholders the cash.

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