Fortum just held a virtual debrief for sellside analysts after yesterday''s results: As usual the session focused on points of detail, but we thought the comments on collateral (gradually posting less of it given a move to off-exchange bilateral power sales), latest thoughts on a potential Microsoft PPA, and earnings run-rates for the relatively-material Other segment were relevant.
Key points from the debrief QandA:
. Ability to capture long term Nordpool prices. Current 2030 Nordpool prices of EUR47/MWh showing on power exchanges aren''t very liquid and mgmt. played down ability to hedge at these prices. Most of the effort to increase long term hedge ratios is being targeted in the B2B/bilateral market hence off-exchange.
. Potential Microsoft PPA. Would be about 5TWh in total. Unclear whether MS will use a single supplier or spread the PPA across multiple generators. Fortum would also need to consider credit exposure if it was offered the full 5TWh. Currently in waiting mode as the project clears permitting hurdles, ''will take some years to get it up and running''.
. Behind-the-meter PPAs and grid constraints. Fortum do not see the same grid constraints in the Nordics that have incentivised behind-the-meter PPAs in the US. Therefore don''t see need for behind the meter PPAs in Finland and Sweden - offtakers can draw power easily from the grid which is mostly CO2-free.
. Run-rate EBIT for the Other segment. The Other segment includes three components: 1/ the part of the Circular Solutions business to be sold in 4Q, with last 12 months EBIT (comparable operating profit) of only EUR3m, 2/ the part of the Circular Solutions business to be retained, with L12m EBIT loss of c.EUR-25m, 3/ central and innovation costs with L12m EBIT of c.EUR-140m.
. Collateral and margining. Margining levels are now back to normalised levels: cEUR200m net position at 3Q24 vs. EUR5bn+ in 2022. Power sales are gradually shifting to bilateral B2B channels and away from exchanges, and under...
