Electricity Solutions and Distribution: Distribution in 2011

Fortum’s Distribution business area owns, operates and develops regional and local electricity networks and supplies electricity to a total of 1.6 million customers in Finland, Sweden and Norway. Fortum’s network has a total length of approximately 156,000 km, which is the equivalent of nearly four times around the globe.

In 2011, the total volume of electricity distributed in local and regional grids was 26.1 (2010: 27.9) terawatt hours (TWh) and 16.7 (2010: 17.6) TWh, respectively. The regional grids distributed 14.1 (2010: 14.8) TWh in Sweden and 2.6 (2010: 2.8) TWh in Finland. The market share of the volume distributed in the local grids with up to 20 kV was 20% (2010: 20) in Finland, 17% (2010: 15) in Sweden and 3.5% (2010: 3) in Norway. In Finland, a single company is allowed a maximum market share of 25% of electricity distributed in the 0.4 kV network. Fortum’s share was 20% in 2011.

Focus on the Nordic area

In December, Fortum signed a deal with Imatran Seudun Sähkö whereby the latter acquired Fortum’s Estonian subsidiary Fortum Elekter. In the same conjunction, Distribution also divested its ownership in Imatran Seudun Sähkö. This means more focus on the operations in the Nordic countries.

Network reliability is a top priority

Reliable electricity supply is increasingly important in society. Continuous investments are made to renew, maintain and further improve reliability in the networks. The reliability of Fortum’s grids is high, reaching 99.98% for a number of years. The strong storms during the last week of the year affected the reliability figure for 2011, which landed at 99.90%. In 2011, Fortum’s investment in new lines, replacing and isolating overhead lines, in underground cables, and in automation of critical parts of the grid in Finland, Sweden and Norway totalled EUR 289 million.

The storms at the end of 2011, the strongest in 30 years in Finland, caused damages to networks and resulted in large power outages. This put an additional focus on weather-proof networks. In the coming years, Fortum will increase investments to further meet the reliability demands of our customers.

Grid development is based on the needs of the consumer and society

Electricity grids evolve with society. An increased share of renewable energy, distributed energy systems and increased energy efficiency are all part of the future and exert new demands on the grid.

To meet future needs, Fortum continues to research smarter and more flexible grids. In 2011, Fortum finalised a pre-study for the research project Stockholm Royal Seaport in Sweden, a sustainable urban area under construction and ideal for testing smart grids, energy storage and smart-home solutions. Fortum also initiated a pilot project to create the first active house in the area. Fortum is also working on a joint project with Skanska, ABB and KONE to develop an eco-conscious urban living concept in Espoo, Finland.

Network regulation supporting society development

Electricity distribution is regulated by national authorities. Regulatory design should support the development of society. Consumer and society demands for high reliability and new, smarter grids require investments; consequently, regulatory models need to provide incentives for these investments.

In Finland, the decision regarding the third regulatory period (2012–2015) was made during the fourth quarter of 2011 and was in line with expectations. Changes to the past regulation were made in quality components, i.e. penalties in case of storms increased. However, the industry chose – through the industry organisation – to appeal certain parts and parameters of the model in the Market court.

A new regulation on network income for Swedish electricity distribution was passed in the fourth quarter, with the first regulatory period being 2012–2015. The decision introduced a transition rule over an 18-year period; Fortum believes the rule lacks legal ground. The decision was appealed by several distribution companies and the outcome is still unclear. In Fortum’s opinion, the Swedish model with the transition rule does not support the needed development of networks because of the lack of incentive for investments.

Smart metering for Fortum’s customers

The installation of smart meters in Finland continues. By the end of 2011, 160,000 customers had received a new meter; a total of 580,000 customers will receive new meters by the end of 2013. New services and invoicing based on real consumption are some of the benefits expected. The regulation on hourly meter reading will come into effect on 1 January 2014.

In Sweden, smart metering with monthly measurement was completed in 2009. During 2011, the Energy Market Inspectorate investigated the possibility of hourly measurement. A draft proposing hourly measurement to be introduced in 2012 was presented during the year, but no decision was made.

The installation of new meters in Norway will begin in 2013; altogether 100,000 customers in Fortum’s network area will be connected to the system by 2015. The regulation on hourly meter reading inNorwaywill come into effect on 1 January 2017.

For further information, please refer to the linked pdf below.