38FE Fingrid 29

FINGRID GROUP – MANAGEMENT’S REVIEW 1.1.−30.9.2023

FINGRID GROUP – MANAGEMENT’S REVIEW 1.1.−30.9.2023

Stock Exchange Release 26 October 2023 at 12:15 EET

Fingrid follows a six-month reporting period as referred to in the Securities Markets Act and publishes Management’s Reviews for the first three and nine months of the year; the Management’s Reviews contain key information illustrating the company’s financial and other development.

The information presented in the Management’s Review relates to Fingrid Group’s performance in January–September 2023 and the corresponding period of 2022, unless otherwise indicated. The figures presented here have been drawn up in accordance with the International Financial Reporting Standards (IFRS). The Management’s Review is not an interim report in accordance with the IAS 34 standard. The figures are unaudited.

• Turnover in January–September fell sharply as a result of the drop in the price of imbalance power. The mild winter and lower electricity prices, for their part, reduced the company’s expenses. Electricity consumption was 6.3% lower compared to the previous year.
• Profit before taxes was EUR -101.2 (376.9) million. Losses from the period under review were caused by the negative change in the market value of electricity derivatives hedging loss power procurement. The company’s profit before taxes, excluding changes in the fair value of derivatives, grew to EUR 111.8 (75.5) million.
• Grid service fees were waived in January, February, June and July. A total of EUR 259.6 (119.7) million in congestion income was recognized in the company’s result.
• The congestion in electricity transmission and area price differences in the Nordic countries were significantly lower than in the previous year. Fingrid accrued EUR 148.3 (741.3) million in congestion income.
• The company’s investment programme is moving forward as planned, and investments were higher than in the previous year. Fingrid’s liquidity remained strong.

Review by the President & CEO: “A price rollercoaster accompanied by maintenance breaks, disturbances and fluctuating wind power”

Following a winter of crisis, the price of electricity has behaved in line with expectations. The average price of electricity has fallen to a “normal” level, while the price variations have been great. The price variations have been driven by the maintenance breaks and disturbances in production plants and transmission connections, and by fluctuating wind power. July and September prices were over EUR 30 per megawatt hour, but the price of electricity in August was double in comparison, as a result of many of the aforementioned factors. As renewable energy production increases, price variations are here to stay.

We prepared an estimate of the adequacy of electricity in the coming winter. We estimate that the adequacy of electricity will be good, with a low risk of electricity shortages. The situation is better than last winter, since Finland’s domestic production has increased and the availability of electricity imports from neighbouring countries has improved.   The company’s ten-year plan for developing the main grid amounts to approximately EUR 4 billion. The implementation of the plan is progressing well. Behind the increase in grid investments is the electrification of society and the related construction of renewable electricity production. Fingrid’s strategy firmly supports the implementation of the Government Programme of Finland’s new government.

We plan to waive grid service fees for a total of six months in 2024. According to the plan, our customers’ grid service fees will decrease by some EUR 250 million. The plan is a reaction to the exceptionally large amount of congestion income. The company has already decided to waive the grid service fees for January, February and June 2024. The decision to waive grid service fees in the latter half of the year will be made in the summer of 2024.

We have established a Green Finance Framework and a Green Euro Commercial Paper Programme (ECP) that enable the company to cover its debt financing entirely with green financing. The new Green Finance Framework integrates Fingrid’s sustainable strategy, which enables Finland to reach its climate goals, further into the company’s financing activities. Fingrid’s goal is to significantly increase the share of green financing in the company’s debt financing.

Key figures

€M	1−9/23	1−9/22	change %	1−12/22
Turnover	806.1	1,243.4	-35.2	1,815.2
Operating profit*	112.7	86.5	30.3	149.8
Result before taxes	-101.2	376.9	-126.8	257.4
Result before taxes **	111.8	75.5	48.0	136.4
Profit for the period	-80.8	301.4	-126.8	205.8
Capital expenditure, gross	208.4	194.4	7.2	276.1
Net cash flow from operations***	-103.7	630.6	-116.4	747.5
Interest-bearing net debt	459.6	439.2	4.7	322.7
Balance sheet total	2,927.6	3,312.5	-11.6	3,216.6
Equity ratio %	17.3	24.6		22.4
* Operating profit excluding the change in the fair value of derivatives
** Result before taxes excluding the change in the fair value of derivatives
*** Net cash flow from operations, after capital expenditure

• Operating profit, excluding the change in the fair value of derivatives linked to operational activities, amounted to EUR 112.7 (86.5) million. Operating profit, excluding the change in the fair value of derivatives, grew from the previous year as the investment programme and the rise in the interest rate level increased the company’s allowed regulatory profit, and due to making use of the deficit from the previous regulatory period.
• Imbalance power sales and procurement costs decreased significantly due to the lower price of electricity. In addition, as a consequence of the lower price of electricity and the area price differences, loss power procurement costs and congestion income declined. Power system reserve costs increased from the previous year.
• Congestion income from cross-border transmission connections was significantly lower compared to the previous year, and amounted to EUR 183.4 (741.3) million, of which Fingrid’s share was EUR 148.3 (741.3) million. Fingrid’s income on the financial transmission rights (FTR) issued on the Finland–Estonian border amounted to EUR 37.7 (0.0) million, and the corresponding congestion income credited to the holders of cross-border capacity FTR was EUR 72.8 (0.0) million.
• A total of EUR 171.7 (109.2) million in congestion income was recognised in turnover to cover the waiving of grid service fees and operating expenses, and EUR 87.9 (10.5) million in other operating income to cover FTRs and cross-border capacity costs.
• Net cash flow from operating activities fell as a consequence of lower congestion income and the waiving of grid service fees. The company’s balance sheet total and equity ratio fell, mainly due to the change in the market value of electricity derivatives. The company’s liquidity remained strong.

Main business events

• In January–September, the system security of Fingrid’s main grid was at a good level, despite the disturbance situations in July in Forssa’s gas turbine and on Fenno-Skan 1, and the storm of 7–9 August, when Fingrid raised its disturbance-clearing readiness. The transmission reliability rate of Fingrid’s grid was 99.99996 (99.99995) per cent during the review period. 
• Between January and September, electricity consumption in Finland totalled 56.6 (60.4) terawatt hours. In the same period, Fingrid transmitted a total of 51.4 (52.6) terawatt hours in its grid, representing 83.6 (79.1) per cent of the total electricity transmission in Finland. During this period, the electricity Fingrid transmitted to its customers amounted to 44.3 (46.3) terawatt hours, which represents 78.2 (76.7) per cent of Finland’s total consumption. In January–September, 7.3 (12.3) terawatt hours of electricity was imported from Sweden to Finland, and 1.8 (0.9) terawatt hours was exported from Finland to Sweden. In January–September, 5.2 (5.2) terawatt hours of electricity was exported to Estonia. Only a very small amount of electricity was imported from Estonia to Finland.
• Main grid investments during the review period totalled EUR 208.4 (194.4) million. Fingrid had 69 substation projects and 644 kilometres of transmission lines under construction, and a total of 470 km of transmission lines in general planning. After the summer, the company made investment decisions on the expansion of three 110-kilovolt substations, the construction of one new 400-kilovolt substation in Raahe, and the refurbishment of the Estlink 1 DC connection between Finland and Estonia.
• By the end of September of this year, 1,126 MW (1,322 MW) of new renewable production capacity had been connected to the main grid. Of that volume, wind power accounts for 805 MW (1,182 MW) and solar power for 321 MW (140 MW).
• The total capacity of the electricity production connection enquiries during the review period was 338 GW. The total capacity of consumption connection enquiries was 22 GW.
• Due to the substantial increase in market-based reserve costs, the balance service fees collected from the balance responsible parties will increase from EUR 1.2 to EUR 1.5 per megawatt hour as of 1 November 2023.
• The main grid connection fees will be adjusted to match the increase in the construction costs of substation connections. Connection fees will be raised in accordance with the principles for grid connection fees on all voltage levels as of the start of 2024.
• In September, Fingrid announced that it would waive grid service fees for January, February and June of 2024. The reason for the waiving of grid service fees is the exceptionally large amount of congestion income in 2022.
• Nordic TSOs, power exchanges and the regional coordination centre (RCC) have jointly agreed to move forward the adoption of the flow-based transmission capacity calculation methodology in the Nordic countries. The new schedule for adopting the flow-based method will be published in November of this year.
• The go-live of the automated Nordic mFRR energy activation market related to power system reserves has been confirmed for early 2025. The go-live will enable the implementation of the Nordic balance management model and a transition to 15-minute market time units in intraday and day-ahead trading.
• In September, Fingrid released an estimate of the adequacy of electricity for the coming winter. The uncertainties of last winter have passed, and the outlook for the adequacy of electricity is now stable and the risk of electricity shortages is low. The situation is better than last winter, since Finland’s domestic production has increased and the availability of electricity imports from neighbouring countries has improved.

Legal proceedings and proceedings by authorities 

Teollisuuden Voima Oyj (“TVO”) lodged a request for an investigation with the Energy Authority on 25 May 2022 related to the claims by TVO that Fingrid has neglected its obligation to develop the main grid as stated in the Finnish Electricity Market Act and/or other applicable legislation, and that, as a result, it has placed unlawful restrictions on connecting the Olkiluoto 3 nuclear power plant to the grid, and that Fingrid is in breach of its administrative obligations linked to carrying out its public administrative task. Fingrid’s view is that the claims made by TVO are unfounded. Fingrid lodged a statement of defence with the Energy Authority concerning the claims made by TVO in its request for an investigation. The Energy Authority’s resolution on the matter is expected in autumn.

The EU Agency for the Cooperation of Energy Regulators (ACER), on 14 September 2022, made a decision on long-term price risk hedging opportunities between Finland and Sweden. In its decision, ACER requested that the Finnish and Swedish TSOs ensure the availability of other long-term cross-zonal hedging products and develop the necessary arrangements for providing hedging products. Fingrid, on 14 November 2022, filed an appeal against the decision to ACER’s Board of Appeal.

Events after the review period

On 13 October 2023, the Energy Authority published for consultation a draft for a confirmation decision on the regulatory methods for monitoring reasonableness in the pricing of transmission grid operations during the regulatory periods 2024‒2027 and 2028‒2031. Fingrid will issue its response to the draft decision within the given timeframe, by 10 November 2023.

The company has not changed its earnings guidance from what is stated in the Financial Statements Bulletin of 2 March 2023.

Further information:Jukka Ruusunen, President & CEO+358 30 395 5140 or +358 40 593 8428

Jukka Metsälä, Chief Financial Officer +358 30 395 5213 or +358 40 563 3756

Fingrid is Finland’s transmission system operator. We secure reliable electricity for our customers and society, and shape the clean, market-oriented power system of the future.

Fingrid delivers. Responsibly. www.fingrid.fi