Vattenfall's President and CEO Anna Borg comments on the interim report for January-June 2023:
Compared to 2022, electricity prices in the Nordics have almost halved, while the difference between electricity price areas have decreased significantly. In northern Sweden, spot prices have nevertheless been higher, which together with the effects of price hedging has contributed to Vattenfall being paid more for its electricity in the Nordics.
On the continent, electricity prices have also been significantly lower, which affects the result from the Wind segment. This has an additional impact on the Power Generation segment where the results from our continental price hedges are reported. These have not been as effective as in the Nordics.
Higher costs, especially in offshore wind power
Although demand for fossil-free electricity is greater than ever, the market for offshore wind power is challenging. Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable. Overall, we see cost increases up to 40%.
This development affects future profitability and means that Vattenfall makes an impairment for wind power in Norfolk, UK, with a total impact on earnings of SEK 5.5 billion. We have decided to stop the development of Norfolk Boreas in its current form and not take an investment decision now due to mentioned factors, which triggers the impairment.
We will examine the best way forward for the entire Norfolk Zone, which in addition to Boreas also includes the Vanguard East and West projects. Over the past decade, Vattenfall has built up its wind operations which today is a valuable and profitable business generating an underlying profit of more than SEK 16 billion last year. We have attractive wind power projects in the pipeline, and investment decisions will always be based on profitability. We are convinced that offshore wind power is crucial for energy security and meeting the climate goals in Europe.
The profit for the period in the first half of the year amounted to SEK 6.9 billion, which is SEK 3.4 billion lower than in 2022. The impairment of Norfolk Boreas is partly offset by a positive financial net due to higher returns from the Nuclear Waste Fund.
A profitable and sustainable business model
Vattenfall reports higher contributions from both the heat and customer business. In Germany, we now have over 5 million customers, which makes Vattenfall one of the three largest energy suppliers for private customers in the country. However, lower contributions from Power Generation and Wind generate a lower underlying profit for the first half of 2023. The underlying profit for Vattenfall is SEK 14.6 billion, which is SEK 1.7 billion less compared to the same period in 2022.
Overall, Vattenfall has a continued stable capital structure with reassuring cash flow in relation to our financial commitments. The return on capital employed amounted to 0.5% and is affected by impairments and the valuation of electricity and fuel contracts at fair value. On an underlying basis, the figure however amounted to 10.7%, which demonstrates that our diversified and integrated business model is working.
Additional steps towards a fossil-free future
Vattenfall's goal is to enable fossil-free living. This permeates all of our operations and means we stand strong as a company. In June, Vattenfall was one of nine companies globally to have its net-zero emissions targets by 2040 verified by the Science Based Target Initiative (SBTI). We also recently inaugurated Vattenfall's largest onshore wind farm in the UK, South Kyle, and have completed the construction of the offshore wind farm Hollandse Kust Zuid in the Netherlands.
We continue to work on our preliminary study on the feasibility regarding new construction of small modular nuclear reactors (SMR) in Sweden, a study which is scheduled to be completed by the end of the year. New nuclear power, alongside other fossil-free energy sources, will be crucial in ensuring that Sweden will meet the increasing demand for electricity in the long-term.
