The company’s electricity sales fell because of unseasonably warm weather. Prices dropped in response to an oversupply of power, and the company exported little from its hydropower plants.
In one sense, that shows the market working as it should. Statkraft sells its power across the Nordic market and with plenty of power available – largely from wind generation elsewhere in the system – prices fell. That’s good for consumers, and Statkraft has gained from the same market forces when wind is low and demand is high, when its hydro resources have allowed it to sell power at a very advantageous price.
Elsewhere, in Germany, the volume of renewable energy on the system has convinced Statkraft that it would not be economic to start up a new gas-fired station, and to mothball existing plant. Again, the market is responding as it should, and forcing companies to respond to oversupply.
All good – as regards the market. Not so good for the company.
The results neatly illustrate some broad energy company issues, as we move towards an electricity generation portfolio in which renewables play a much bigger part. In such a situation, the company is much more strongly affected by weather issues – not freak or even extreme conditions, but natural variation.
Weather issues hit both the demand and the supply side, and sometimes in a way that multiplies management issues. That happened to Statkraft at the end of 2011, and it should be noted that the interconnected Nordic market, which helped lower prices for customers, didn’t help the company.
All this can and will be managed, and Statkraft could find that the next quarter is as successful as the previous one was unsuccessful.
Energy companies have always dealt with variability in their fuel pricing, but that was balanced by control elsewhere. Now they will be managing volatility across the entire demand and supply chain. It’s manageable – but with more complex financial management, higher hedging costs and the need to appeal to investors who accept a higher level of risk for a higher return.
That all puts up the price for consumers.
Janet Wood
This article first appeared in Utility Week’s print edition of 24 February 2012.
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