Managing Director's review: Eight remarks on 2013

Juhani Järvelä, the Managing Director of the Oulun Energia Group, reviews the past year's key events, decisions and news.

1 A major organisation restructuring was completed. I consider the restructuring that was completed towards the end of the year one of the most important changes the group has undergone in the new millennium. The new organisation helps us improve our customer service, product development and overall operation. It also makes us more prepared for the corporatisation of our public utility component in the beginning of 2015.

Functions that fall naturally under the same administrative whole have now been brought together under one management. The organisation update has been very successful. To many of us it has meant a great change, but overall satisfaction remains, nevertheless, high.

2 Turnover of the Oulun Energia Group increased slightly. In 2013, the company's turnover was approximately 238.7 million euros, while the previous year's figure was 233.4 million euros. Last year was the first full year of operation of the Laanila waste-to-energy/eco power plant, which largely explains the increased turnover.

Our operating result, however, decreased slightly. The group's 2013 operating result was 37.4 million euros, while our 2012 operating result was 38.7 million euros. This was primarily caused by business challenges faced by the Oulun Energia public utility, such as the prevailing low market price of electricity and increased production costs.

Year 2013 was also much warmer and drier than the previous year, reducing both the demand for district heat and the output of the Merikoski hydroelectric plant.

3 The corporatisation of the Oulun Energia public utility received the final seal as the new local government act was approved. The Oulun Energia public utility, the parent entity of the entire group, will become a limited company on the first day of 2015. The reason for this is the European Commission's view that public municipal utilities are not compliant with the EU competition neutrality regulations.

I firmly believe that the new corporate organisation will improve our operational focus and streamline our management in the future. To our customers, this means more efficiently produced, better services.

4 More hydroelectric generation capacity was acquired in a landmark deal. A new company called Voimapato Oy was formed together with the regional operator Oulun Seudun Sähkö and Porin Energia of Pori, and obtained three hydro power plants in the Kymijoki river from Pato Oy. Their total generation capacity is approximately equal to our Merikoski hydroelectric power plant in Oulu.

Acquiring this much hydroelectric generation capacity is not easy in Finland today. I am therefore very satisfied with the deal, which is also perfectly aligned with our strategy of increasing our use of renewable sources of energy.

5 Occupational safety improved further in the Oulun Energia Group. We have worked systematically to improve our standard of occupational safety for years, and have achieved good results. We must, however, aim even higher. Our objective is to turn Oulun Energia into the safest workplace in the energy sector in Finland by 2015.

Statistics show that our occupational safety has improved. In 2010, our LTA1 figure, which indicates the number of accidents resulting in more than one day of absence per million working hours, was 47, while by 2013 it had come down to just 11.9.

This is a quite an achievement – especially considering that a large team of technicians from Oulun Energia Urakointi assisted other electricity companies in storm damage repairs on several occasions during the year. The work was carried out in very demanding conditions without the first accident.

6 Domestic local energy lost its competition advantage to imported coal in 2013. What is especially strange here is that the competitive advantage of peat and wood was undermined by political decisions made in Finland. The taxation of peat was increased, while the state support for forest processed chips was decreased. Together with falling coal price, this resulted in coal becoming the more economical choice in applications such as generation of electricity using condensing power plants.

In practice, this means that using coal became a competitive advantage. Coal-fired condensing power plants across Finland used their full generation capacity, while our Toppila CHP plant, which uses peat and wood as fuel, produced very little electricity.

Despite this, 2013 was the first year that the Toppila CHP plant used more than one terawatt-hour's worth of wood-based energy sources. Equal to district heating of 50 000 customers and electricity of 110 000 customers, this is a considerable amount of renewable energy.

7 Pre-planning of the replacement investment of the Toppila CHP plant continued. Unit 1, one of the two units in our Toppila CHP plant, will soon reach the end of its service life. The unit must be replaced with a new power plant, which needs to be in production by winter 2019–2020. This means that final decisions concerning the new plant must be made in 2016.

Before this, the location of the new power plant, what kind of fuel it uses, possibilities for auxiliary output and several other important matters must be settled. The new power plant will cost 250–300 million euros, and is a very important decision with consequences reaching far into the future

What makes planning difficult is the lack of a clear national energy strategy in Finland. We have very little solid ground on which to base our forecasts and decisions as to what kind of power plant we should build for the next forty years.

8 The development of our new business activities gained momentum. We are looking for new growth in products and services based on locally produced energy, renewable energy and distributed generation. We also work to create new service packages for smart management of energy use in homes, companies and the entire community.

To achieve these objectives, Oulun Energia has several projects with numerous partners underway, and I don't hesitate to say we are now in the forefront of power companies in the development of new solutions.

*

I wish to thank the customers of the Oulun Energia Group for their continued trust in our products and services. For employees, partners and shareholders I wish to extend my thanks for their productive and straightforward collaboration.

Market price of electricity remains low

Although the average regional price increased approximately 12 per cent from the previous year, the market price of electricity remained relatively low in 2013, and was still much lower compared to 2011. This price trend is the result of the economical recession, which has decreased the overall demand for electricity, as well as the downward trend of coal price, which has continued for two years. The continued low price of emission rights is also a factor.

In Finland, the average regional price of electricity was 4.1 cents per kilowatt-hour, up approximately 12 per cent from 2012. The Finnish regional price was, at times, considerably higher than the system rate of the Nordic electricity market.

This established pattern is caused by high hydroelectric generating capacity in Sweden and Norway that affects Nordic prices. Due to capacity limitations of the transmission lines, however, full advantage of this capacity cannot be utilised in Finland. The Finnish regional rate was also increased by the impact of capacity surcharges on electricity imported from Russia.

Demand decreases slightly

Total consumption of electricity in Finland in 2013 was 83.9 terawatt-hours, down 1.5 per cent from the previous year. Industrial demand increased by one per cent, but other demand fell 3.5 per cent due to warm weather.

The total amount of district heating power sold in Finland last year was 31.6 terawatt-hours, down more than seven per cent from 2012 due to warmer weather. The average price of district heating power in Finland with tax, energy and power surcharges included was 7.4 cents per kilowatt-hour. Average price increased 8.7 per cent from the previous year due to increased taxation, such as the excise tax on peat and natural gas.

Great new steps forward in 2013

Oulun Energia Group aims to be Finland's number one

Oulun Energia Group continued the long-term development and streamlining of is operations in 2013. We want to be the best energy company in Finland in our class – number one for customers, personnel, partners and shareholders.

Many important steps were taken last year: a major organisational restructuring was completed, preparations for a major power plant investment were made and more hydroelectric generation capacity was acquired.

The organisational restructuring streamlines the company's operations, making it more efficient and improving the products and services provided to customers. The new power plant will supersede one of the two units in the Toppila CHP plant soon reaching the end of its service life. Final decisions about the new plant, which will cost approximately 250–300 million euros, will be made in 2016. Oulun Energia also acquired more hydroelectric power by purchasing three hydro power plants in Kymijoki river together with two other power companies.

Development of new products also advanced by leaps and bounds. Oulun Sähkönmyynti, part of the Oulun Energia Group, introduced two new products: a new, locally generated solar power solution to customers and the Farmivirta (‘Farm Power’) electricity generated by small producers using renewable sources of energy.

In terms of financial result, 2013 was on par with the previous year. Considering the challenging circumstances, this should be considered a satisfactory result.

The group's turnover, 238.7 million euros, saw a slight increase from the previous year's 233.4 million euros. Operating result, however, decreased slightly, from 38.7 million euros in 2012 to 37.4 million euros in 2013.

Last year was the first full year of operation of the Laanila waste incineration/eco power plant, which largely explains the increased turnover. Operating result was burdened, most of all, by the business challenges faced by the Oulun Energia public utility. The market price of electricity remained low while production costs increased. Dry and warm weather also reduced both the demand for district heating power and the output of the Merikoski hydro power plant.

From the beginning of 2015, the Oulun Energia public utility will become a limited company. The public utility has been in charge of power generation operations and forms the parent entity of the entire group. The new limited company, Oulun Energia Oy, will be wholly owned by the city of Oulu. Turning the public utility into an independent company streamlines the company's operations and organisation further and provides the group the keys for continued success in the highly competitive energy sector.

Key figures of the Oulun Energia Group*

  2012 2013
Net Sales (million EUR) 233,4 238,7
Operating profit (million EUR) 38,7 37,4
Investments (million EUR) 51,4 48,8
Net sales / person (million EUR) 0,65 0,67
Operating profit / person (million EUR) 0,11 0,11
Number of employees 358 355

*The figures are combined figures of Oulun Energia, Oulun Sähkönmyynti Oy, Oulun Energia Siirto ja Jakelu Oy, Oulun Energia Urakointi Oy, Turveruukki Oy, Haukiputaan Energia Oy and Yli-Iin Sähkö Oy. Internal transactions have been eliminated.

Number of customers

  2012 2013
Electricity sales 138,850 140,500
Electricity distribution in own network 93,451 95,274
District heat* 9,098 9,353
Steam 3 3

*Oulun Energia and Haukiputaan Energia combined.

Net sales* (million EUR)

Operating profit* (million EUR)

Investments* (million EUR)

Number of employees*

Distribution of sales proceeds* (million EUR)

Distribution of operating profit* (million EUR)

*The figures are combined figures of Oulun Energia, Oulun Sähkönmyynti Oy, Oulun Energia Siirto ja Jakelu Oy, Oulun Energia Urakointi Oy, Turveruukki Oy, Haukiputaan Energia Oy and Yli-Iin Sähkö Oy. Internal transactions have been eliminated.

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