Hafslund Eco Vannkraft
A word from the Managing Director
2022 will forever be a year characterised by energy shortages in Europe and record high energy and power prices. The primary reason for this is Russia’s use of gas as a strategic weapon both before and after the invasion of Ukraine. A very dry and hot summer, both in Norway and on the continent, aggravated the situation. Fortunately, the autumn was warm and we had relatively good rainfall, and the supply situation improved considerably despite prices remaining at a very high level.
This situation was demanding for consumers, including both households and businesses, and was also unfortunate for us as a power producer. The electricity support scheme has been important for reducing the worst effects suffered by households. The support scheme for the business sector came late and did not have as great an impact. It is pleasing that steps have been taken to make it easier for power producers to offer fixed-price agreements. However, fixed-price agreements do not solve the fundamental problem – we need more renewable energy.
The opening of Mork power plant in Lærdal in August was the sixth power plant to open in four years. Together, these new power plants increase the production of new renewable energy by more than 1 TWh. The tax package announced by the government in September is of importance to the profitability of new projects. In 2022, we engaged in the public debate concerning how taxes can be arranged in a manner that does not impact the further development of hydropower and investments in the supply of new renewable power that is in high demand.
The low inflow and responsible production planning for the winter meant that we had lower production than normal for the year as a whole. However, operations were excellent thanks to the efforts of our skilled employees. We have also implemented a number of important and demanding processes to improve the efficiency of our work and make even better use of the resources. Most importantly, no one was seriously injured at work. The HSE figures were better than in the previous years due to systematic efforts within all parts of the organisation.
I extend my thanks to all employees who contributed to us achieving good results for the company in 2022.
Kristin Lian
The Norwegian hydropower system
The Norwegian hydropower system has normal annual production of 138 TWh and total output capacity of 33 GW. In a normal year, hydropower production accounts for approximately 90 per cent of Norway’s total power production. A particular feature of Norwegian hydropower is the ability to store energy and to produce as needed. Norway has about half of Europe’s total reservoir capacity, and there are currently over 1,000 reservoirs in Norway. Most of the reservoirs in Norway were constructed before 1990, although upgrades and expansions of the power plants have increased the ability to utilise these.
Norway has both hydropower that can be regulated, in the form of hydropower plants with reservoirs, and non-adjustable hydropower, in the form of run-of-river hydropower plants. Flexible hydropower possesses features that no other renewable production technology presently has, and can adapt power production to demand, while production in non-flexible hydropower is determined by inflow. Most reservoirs are normally drawn down for the spring in order to be filled again during the melting season, and in this way, the reservoirs also have a flood-mitigating effect.
A particular feature of Norwegian hydropower is the ability to store energy and to produce as needed.
Hafslund's hydropower
Hafslund Eco Vannkraft is Norway’s second largest hydropower company, and Hafslund’s hydropower business area owns, operates and maintains hydropower plants, provides system services to the power system, and sells power in the wholesale market. The Group’s annual normal power production is approximately 18 TW (about 13 per cent of the total Norwegian hydropower production), and the company’s total normal production is approximately 21 TWh per year. That is enough electricity to supply more than 2.8 million people. Of Hafslund Eco Vannkraft’s annual normal production, about 60 per cent is adjustable (reservoir-based) and about 40 per cent non-adjustable (river power).
Hafslund wholly or partly owns 81 hydropower plants in Innlandet, Oslo, Viken and Vestland. Approximately 59 per cent of the annual power production is in price area NO1 (Southeast Norway), 36 per cent is in price area NO5 (Western Norway), and 5 per cent is in price area NO3 (Central Norway). The largest facility, Aurland 1, is Norway’s third largest power plant, with annual normal production of 2.1 TWh and total installed capacity of 840 MW. The plant covers the annual electricity consumption of approximately 110,000 households. The hydropower business area’s total installed capacity is approximately 5,200 MW. Further information about all of the power plants and their capacity is available at www.hafslund.no.
Norway and Europe have a strong need for new renewable energy, and Hafslund Eco Vannkraft has the goal of increasing renewable power production both organically and structurally. Over the past five years, Hafslund Eco Vannkraft has completed six new power plants that produce a total of over 1 TWh in new renewable power. The company has also upgraded and rehabilitated existing power plants, which has contributed about 38 GWh in increased power production.
Hafslund Eco Vannkraft is Norway’s second largest hydropower company.
The Norwegian power market in 2022
Price development
The trend from 2021, with persistent price differences between Northern and Southern Norway, and historically high power prices in the south, intensified in 2022. The average spot prices for the year in the southern price areas were 194 øre/kWh for NO1 (Southeast Norway), 193 øre/kWh for NO5 (Western Norway) and 213 øre/kWh for NO2 (Southwest Norway), while the average prices for the northern price areas were 43 øre/kWh for NO3 (Central Norway) and 25 øre/kWh for NO4 (Northern Norway). In 2021, the corresponding spot prices were 75 øre/kWh for NO1, NO5 and NO2, 41 øre/kWh for NO3 and 35 øre/kWh for NO4. With abnormal and continually high price differences between price areas, the Nordic system price lost much of its value as a reference price and delivered an average price of 137 øre/kWh. By comparison, the system price was 63 øre/kWh in 2021.
Price drivers
Hydrology
Southern Norway experienced extreme hydrology in 2022, with a very dry summer and very wet autumn. At the start of 2022, the reservoir level in southern Norway was 48 per cent, which was 21 percentage points below the median level for the past 20 years. Less snow than normal and little precipitation in southern Norway from March to September resulted in continued low reservoir levels throughout the year, despite reduced production. At the end of the first half of the year, the reservoir level in southern Norway was 51 per cent, which was a historically low level. A mild and rainy fourth quarter lifted the reservoir levels in Southern Norway to 65 per cent at the end of 2022, which is six percentage points below the median. For the year as a whole, precipitation and inflow in Southern Norway was generally normal, with a total inflow of 88 TWh, which is only two per cent lower than the average for the past 20 years.
In the northern price areas (NO3 and NO4), the reservoir situation in 2022 was relatively normal, with reservoir level at the median at the start of 2022, and one percentage point higher than the median at the end of the year. Total inflow in Central and Northern Norway ended at the normal figure of 47 TWh in 2022. Large amounts of snow, water and wind, combined with limited southwards transmission capacity, resulted in decoupling towards the high prices in the south and the stable, low prices in the north.
Continental prices and energy crisis in Europe
The European power and gas markets were under significant pressure in 2022. Most importantly, the war in Ukraine and the subsequent sanctions against Russia led to reduced imports of Russian gas into Europe. In 2022, gas imports from Russia fell by about 55 per cent in comparison with 2021, and have continued to fall in 2023. At the same time, France experienced problems with nuclear power production, which was 22 per cent lower in 2022 than the average for the previous three years. Furthermore, Germany shut down three nuclear power plants in January 2022 which had a capacity of 4,000 MW. To top it all off, drought in Europe resulted in low hydropower production and low water levels in some European rivers. The latter presented logistical challenges in connection with the transport of coal, which in turn resulted in reduced coal production. All in all, this contributed to an extensive energy crisis in Europe and record-high prices for European power, gas and coal. The average spot price for German power was EUR 235/MWh in 2022, an increase of EUR 139/MWh from 2021.
Internal transmission capacity
Low installed transmission capacity from north to south in Norway meant that the areas in the north were not as affected by the price drivers on the continent. There were also periods in which we saw internal restrictions in the transmission capacity in Southern Norway, which resulted in price differences between the areas in the south.
Statement of value creation
| NOK million | 2022 | 2021 | 2020 |
|---|---|---|---|
| Sales revenues | 23,776 | 12,647 | 2,271 |
| Other gains/losses | -3,334 | -1,899 | 857 |
| Other operating revenues | 91 | 87 | 57 |
| Operating revenues | 20,534 | 10,835 | 3,185 |
| Energy purchases and transmission | -96 | -385 | -305 |
| Payroll and other personnel costs | -526 | -479 | -450 |
| Property tax and other levied costs and compensation | -532 | -687 | -514 |
| Other operating expenses | -239 | -218 | -174 |
| Results from associates and joint ventures | 112 | 46 | -8 |
| EBITDA | 19,253 | 9,111 | 1,734 |
| Depreciation, amortisation and write-downs | -510 | -510 | -489 |
| Operating profit/loss (EBIT) | 18,743 | 8,601 | 1,245 |
| Net financial expenses | -144 | -661 | -577 |
| Profit before tax | 18,599 | 7,940 | 668 |
| Tax expense | -14,596 | -5,229 | -141 |
| Profit after tax | 4,003 | 2,711 | 527 |
| Other key figures | |||
| Underlying operating profit/loss (excluding changes in value) | 19,182 | 9,468 | 1,213 |
| Effective tax expense (as a % of pre-tax profit) | 78% | 66% | 21% |
| Investments in property, plant and equipment | 529 | 590 | 581 |
| Hydropower production (TWh) | 13.8 | 18.3 | 17.7 |
| Power price achieved (øre/kWh) | 150 | 62 | 16 |
| Nordic system price (øre/kWh) | 137 | 63 | 12 |
| Number of employees | 400 | 410 | 407 |
The hydropower business had operating revenues of NOK 20.5 billion in 2022 (NOK 10.8 billion). The operating profit (EBIT) of NOK 18.7 billion was an increase of NOK 10.1 billion from the previous year. The increase in operating revenues and operating profit was due to high power prices in Southern Norway, however this was tempered by low hydropower production and fixed-price sales to industry and the financial market. The operating profit includes a profit of NOK 112 million (NOK 46 million) from the 20 per cent ownership interests in the Austri Raskiftet DA and Austri Kjølberget DA wind farms.
The achieved power price was 150 øre per kWh in 2022. This is an increase of 88 øre per kWh from the previous year, and, in isolation, contributed to an increase of NOK 12.4 billion in the operating profit. The achieved power price was 18 per cent lower than the average spot prices in the hydropower business’ production areas, and in addition to the sale of concessionary power at prices determined by the government, must be viewed in connection with the hedging activity through the sale of power to the industry at fixed prices and realised losses from financial power hedging. The operating profit includes a change in value of NOK -0.4 billion (NOK -0.9 billion) related to financial power and currency positions and compensatory power appraised at market value in the result. The underlying operating profit (adjusted for changes in value) was NOK 19.2 billion in 2022 (NOK 9.5 billion).
Power production of 13.8 TWh in 2022 was 4.5 TWh lower than in 2021 and 3.9 TWh lower than normal production. Lower hydropower production contributed, in isolation, to reducing the operating profit by NOK 3.1 billion compared to 2021. Low hydrological balance throughout the year and security of supply, including responsible production planning, were the primary reasons for the reduction in produced volume. There were good operations and resource allocation, as well as a high level of availability at the power plants. There were no incidents involving significant operational disruptions in 2022.
Operating expenses including depreciation were NOK 1.9 billion (NOK 2.3 billion) in 2022. Lower transmission costs related to the energy component and a high actual change in value in 2021 for compensatory power that is recognised as fair value through profit or loss were the main reasons for reduced operating costs.
The tax expense of NOK 14.6 billion (NOK 5.2 billion) corresponds to an effective tax rate of 78 per cent relative to profit before tax. The high tax expense must be viewed in connection with a resource rent tax of NOK 9.5 billion and the new high-price contribution that came into effect from 27 September 2022 of NOK 1.0 billion. The increase in the resource rent tax from 37 per cent to 45 per cent effective from 1 January 2022 and the introduction of the high-price contribution have resulted in a total increase in the tax expense of NOK 3.6 billion for 2022, including a change in deferred tax liability of NOK 1.1 billion. The high effective tax rate in 2022 must also be seen in connection with the fact that losses from financial power hedging do not result in deductions from resource rent tax.
The profit after tax of NOK 4.0 billion (NOK 2.7 billion) for 2022 is an increase of 48 per cent from the previous year. The underlying profit after tax for the year (profit after tax, excluding changes in value and other non-recurring items) was NOK 4.1 billion (NOK 3.0 billion) in 2022.
Hafslund Oslo Celsio
Celsio supplies the residents of Oslo with district heating and cooling. Among other things, district heating is produced by utilising excess heat from the city's waste incineration, data centres and sewage. Celsio owns and operates two waste incineration plants in Oslo and ensures sustainable handling of waste that cannot be recycled. In the summer of 2022, construction commenced on the world's first full-scale carbon capture and storage facility at the Klemetsrud waste incineration plant.
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