Energy plays a vital role in today’s society and has become a focus of much political and public attention during recent years. Economic growth, prosperity and population growth will inevitably boost energy needs over the coming decades. At the same time, political, ecological, geopolitical, economic and social requirements create a dynamic and complex environment for the energy business.
The energy sector inherently faces new uncertainties every year. By evaluating the overarching megatrends that affect the energy business and following a clear strategy driven from them, Fortum can overcome the challenges in the operating environment.
Sustainability integrated in Fortum’s strategy
Fortum’s mission captures our dedication to sustainability. For us, sustainability means balanced management of the economic, social and environmental responsibility in the company’s operations. Fortum’s values – accountability, creativity, respect and honesty – form the foundation for all our activities.
Fortum’s strategy is consistent with our vision of the future energy system, Solar Economy. Our strategy aims for continuous development of existing operations and growth in CO2-free hydro and nuclear power and in energy efficient combined heat and power (CHP) production. With our research and development we aim to contribute to the development of climate benign and efficient energy system in the society.
Fortum’s core competences
Hydro and nuclear power are CO2-free production forms, and competitive in terms of variable costs. Therefore, they both have a significant role in Fortum’s production portfolio. In 2011, 83% of Fortum’s power generation in Europe was based on hydro and nuclear power. As CO2 has an economic value in Europe, the high proportion of CO2-free production is a competitive advantage to Fortum. Hydropower also enables fast responses to market conditions and thus supports Fortum’s competitiveness in electricity markets, where increased price volatility is foreseen in the future.
Hydropower’s role in balancing production and consumption will be more important when an increasingly larger share of electricity is produced with, e.g., wind and solar energy. In terms of Solar Economy, hydropower is already today an important production form and the only proven CO2-free renewable energy source with a long history of use.
Combined heat and power (CHP) contributes to the growing demand for resource efficiency and to the increased utilisation of local biofuels. Fortum considers itself as a globally leading expert in energy- and resource-efficient CHP production technology. In terms of total production volume, Fortum is the world’s fourth-largest heat producer. Fortum’s high competence in fuel flexibility makes it possible to use a wide selection of fuels, including bio-based and local fuels such as waste.
Energy market expertise and the ability to anticipate market development have enabled Fortum’s success in the 2000s. They are also central when pursuing opportunities in the integrating European and fast-growing Asian energy markets.
Leveraging the strong Nordic core
The majority of Fortum’s earnings are generated by power and heat production in the Nordic countries. Our goal in the short-term is the successful implementation of the existing investment programme in new production capacity. Fortum also aims to create more added value from its electricity retail sales and distribution business. In the long-term, Fortum’s aim is to secure its competitive position in the Nordic markets.
Creating positive economic value added in Russia
Russia has the world’s fourth highest demand for electricity, and the country is a growth market for electricity production. In the long-term, Russia will have a bigger relative role in Fortum’s business than it does currently. For the time being, Fortum is pursuing positive economic value added in Russia. OAO Fortum’s sizable investment programme will increase the company’s electricity production capacity in Russia by 85%. It will also play a key role in terms of profitability, which is expected to grow as new capacity is commissioned and the efficiency of existing business is improved.
Building a platform for future growth
Fast population growth in developing nations is shifting the growth in electricity demand mainly to Asia. At the same time, climate change and local environmental problems create a need for sustainable, CO2-free and energy-efficient solutions. Also the liberalisation of power markets is advancing and the need for private capital is growing in the Asia’s rapidly growing and developing economies. For Fortum, this creates new growth opportunities also in Asia. Fortum’s vision of the future energy system – Solar Economy – is the driver for the company’s research and development.
Strategy realisation in 2011
2011 was unexceptionally turbulent for the energy sector. The Fukushima nuclear accident in Japan, the ongoing financial crisis in Europe and the unstable situation in the Middle East and North Africa, all have had implications to the energy sector, which is becoming more and more exposed to global phenomena. The slow progress towards a global climate deal has emphasised the need for clear long-term signals and predictability for energy investments.
Despite the circumstances, Fortum succeeded in the implementation of its strategy and in achieving operational enhancements. The company continued with investments in order to support its long-term goals. Key achievements in the strategic core areas have been presented on the right.