Fortum pays down debt in Q2, cuts carbon
Finnish state utility Fortum reported a year on year drop in its Q2 earnings August 17, but said it had strengthened its balance sheet through asset sales in India and the Baltic region, in the process losing some carbon emissions.
In the last 18 months it has raised €5.2bn ($6.1bn) from such sales, strengthening its balance sheet and reducing its debt to Ebitda ratio to well below its target. As a result, it said both Standard & Poor’s and Fitch rating agencies had removed the negative outlook and given it longterm ratings of BBB with a stable outlook.Among the sales was its Russian coal-fired combined heat and power (CHP) plant at Argayash and separately it switched fuel at Chelyabinsk CHP plant from coal to gas, also in Russia.
It reported comparable Ebitda of €348mn, down from €512mn in Q2 2020. Comparable operating profit was €35mn, down from €203mn and its operating loss was €840mn, down from a profit of €539mn, mainly impacted by changes in fair values of non-hedge-accounted derivatives.
The German utility Uniper, of which Fortum is the majority owner, had success in the German coal-fired power plant early retirement plan, winning three out of three such auctions totalling 2 GW, while its UK coal fired plant is also up for early closure. In all, Fortum has accelerated the closure of almost 40% of its coal-fired generation capacity in under one year, it said.
Given the size of Uniper's business relative to Fortum's, the Finnish utility's results were also dragged down by Uniper's poor Q2; however carbon hedging losses will be cancelled out later in the year. Uniper's results also looked worse as they it did not replicate last year's commodity trading success.
Fortum’s generation segment benefited from higher power prices and strong performance in physical optimisation, although the effect was dampened by the fairly high hedge levels. All other segments showed improving or stable results.
It said the European Union's Fit for 55 package is well in line with Fortum’s views and includes, among other measures, a tightening of the emissions trading scheme and its extension to maritime transport as well as ambitious targets for renewable hydrogen use. Carbon pricing will also be broadened to buildings and road transport, something we have long been advocating for.