Statkraft's activities
Statkraft is Europe's largest producer of renewable energy. The Group produces and develops hydropower, wind power, gas power, district heating and solar power, and is a significant player in the European energy exchanges, with specialist expertise within physical and financial energy trading. Overall, Statkraft has invested significantly in the innovation and development of marine energy, osmotic power and other new, environmentally friendly energy solutions. The Group has a large number of grid and end-user customers in Norway, and is the largest supplier of power to the Norwegian processing industry. Outside of Europe, Statkraft is engaged in energy production and development of new production through its subsidiary SN Power. The Group also holds interests in other energy companies, both in Norway and the other Nordic countries, as well as a shareholding of 4.17 per cent in the German energy company E.ON AG.
To ensure a good structure for continued growth and profitability, the Group's operational structure was reorganised in the summer of 2008. The new organisational structure was chosen to accommodate the major changes arising from increased growth and internationalisation. The organisation provides flexibility and a dynamic whereby new priorities and growth areas can be given visibility and attention as separate business units with clear responsibility for delivering results. The Group reports in accordance with how the Group management makes, follows up and evaluates its decisions. The segment structure is presented on the basis of the internal management information which the management periodically reviews and uses for resource allocation and goal attainment.
Statkraft’s business is organised into six segments – Generation and Markets, Wind Power, Emerging Markets, Skagerak Energi, Customers and Industrial Ownership. Areas not shown as separate segments are presented under the heading Other. This includes Southeast Europe Hydro, Solar Power, Small-Scale Hydro, Innovation and Growth and the 4.17 per cent shareholding in E.ON AG.
Generation and Markets segment is the largest segment, responsible for the operation and maintenance of hydropower plants and gas power plants in Europe, as well as physical and financial trading in energy and energy-related products in Europe. These business units are organised into one segment due to the close integration between operations, maintenance and energy optimisation. The production plants are generally flexible and include 182 wholly and partially-owned hydropower plants, five gas-fired power plants and two biomass plants. Total installed capacity is 12 956 MW. In addition to own power generation, extensive trading is performed in standardised and structured power contracts, gas, coal, oil and carbon quotas. Statkraft owns two-thirds of a 600 MW subsea cable between Sweden and Germany through the company Baltic Cable AB.
The Wind Power segment is responsible for the development, construction, operation and ownership of onshore and offshore wind farms in Norway and Europe. Responsibility for development and commercialisation of offshore wind power technology also rests with the segment. Development and construction projects are currently being implemented in Norway, Sweden and the United Kingdom. The segment has four wind farms in operation, Smøla, Hitra and Kjøllefjord in Norway and Alltwalis in the UK. The combined installed capacity of these wind farms is 268 MW. Further investments in wind power in Norway will take place through the company Statkraft Agder Energi Vind DA, where Statkraft owns 62 per cent and Agder Energi 38 per cent.
The Emerging Markets segment is responsible for the management and further development of ownership interests outside Europe, and currently consists of the ownership interest in SN Power (60 per cent from 13 January 2009), where Norfund owns the remaining 40 per cent. In addition, Theun Hinboun Power Company (THPC) (20 per cent shareholding) is managed on behalf of Statkraft SF. THPC is not included in the segment’s financial figures. At the end of last year, SN Power had ownership interests in 17 hydropower plants in South America and Asia, as well as in one wind farm and one gas power plant in South America. The power plants have an installed capacity of 649 MW (SN Power's share). In addition, SN Power is also currently constructing and refurbishing 610 MW of capacity together with its partners. THPC owns one 210 MW hydropower plant which will be upgraded to 220 MW, and has two further hydropower plants with a combined installed capacity of 280 MW under construction in Laos. SN Power has been consolidated as a subsidiary since January 2009, while recognised as an associate in 2008.
The Skagerak Energi group constitutes a separate segment. The activities are concentrated around power production, district heating and grid activities. Other activities involve fibre, natural gas distribution and electrical contractor activities and settlement activities. The company is owned by Statkraft (66.6 per cent shareholding) and the local authorities in Skien (15.2 per cent), Porsgrunn (14.8 per cent) and Bamble (3.4 per cent). The production assets cover 45 wholly and partially-owned hydropower and district heating plants with a total installed capacity of 1359 MW. The company has about 179 000 distribution grid customers.
The Customers segment comprises the distribution grid, district heating and power sales activities that are performed by Trondheim Energi. The segment has about 96 000 distribution grid customers and 82 000 electricity customers. The district heating system in Trondheim and Klæbu has a total installed capacity of 297 MW, and supplies around 750 business customers and 7000 households with district heating. In Sweden, the segment has an installed district heating capacity of 211 MW which it supplies to about 1450 customers. The segment also covers property management.
The Industrial Ownership segment is responsible for managing and developing Norwegian shareholdings where Statkraft has industrial ambitions. The segment comprises the companies Fjordkraft , BKK (49.9 per cent shareholding) and Agder Energi (45.5 per cent shareholding). The former company is included as a subsidiary in the consolidated financial statements, while the other two companies are reported as associates.
The Other segment includes the business units Southeast Europe Hydro, Solar Power, Small-Scale Hydro, Innovation and Growth, along with the 4.17 per cent shareholding in E.ON AG, and Group functions and eliminations. In 2008 it also included the investment in E.ON Sverige AB (44.6 per cent shareholding). The shareholding was sold to E.ON AG on 31 December 2008. Statkraft received assets and 4.17 per cent of the shares in E.ON AG in settlement. From 2009, the shareholding in E.ON AG is being reported under the Other segment.
Key figures for 2009 for the segments (pdf)
Strategy and vision
Vision
As a leader in renewable energy in Europe, Statkraft will meet the world's need for cleaner energy.
Strategy
Statkraft's strategy aims for continued profitable growth, both nationally and internationally, within environmentally friendly and flexible energy production. The Group has built up a large portfolio of projects, and will now focus on realising this portfolio.
The strategy indicates three main directions for further development.
Industrial developer in Norway
Statkraft is the most important player in the work to supply Norwegian households and businesses with clean energy, and will be an active driving force in the development of the energy industry in Norway, and through this effort create profitable jobs and contribute to meeting the need for more clean energy.
The substantial assets related to the hydropower plants must be prudently managed. The ambition is to grow further through the development of new hydropower, wind power and district heating, as well through meeting the industry's need for long-term energy agreements.European flexible power producer
Statkraft must develop integrated market operations further by establishing a strong position within flexible power assets in western Europe.
Existing power plants must be expanded and upgraded, and the flexibility in the power plants must be exploited to supply the market with green power when fluctuations in demand and prices make this attractive. Specialist expertise in market analysis, power optimisation, trading with energy production, as well as operations and maintenance must be exploited and further developed.Green global developer
There is a great need for development of renewable energy in order to meet the world’s energy and climate challenges. This creates commercial opportunities, and Statkraft strives to establish a strong niche position within international hydropower and renewable energy sources.
The Group's strategy and realisation of strategic objectives in 2009 is described in more detail in the chapter Group strategy.
Corporate governance
Statkraft's corporate governance shall contribute to sustainable and a largest possible permanent value creation in the Group. Efficient and transparent management and control of the business will form the basis for creating long-term values for the owner, employees, other stakeholders and society in general, and will help build confidence among stakeholders through predictability and credibility. Open and accessible communications shall ensure that the company has a good relationship with society in general and the stakeholders who are affected by the company’s business in particular.
Statkraft’s policy for corporate governance establishes the respective roles of the owner, board and operational management. Statkraft applies the Norwegian Code of Practice for Corporate Governance (NUES) within the framework established by the company's organisation and ownership. Recommendations related to equal treatment of shareholders, freely negotiable shares and general meeting are not relevant for Statkraft, which is not a listed company and has the Norwegian state as its only owner.
Statkraft has an audit committee, consisting of three board members, which prepares the board's processing of tasks related to financial reporting, internal control and audit. A compensation committee, consisting of the chair and two other board members, prepares the board's discussions of issues related to wages and other benefits for the CEO. Matters of principle related to salary level, incentive schemes, pension terms, employment contracts, etc. for the Group management are also dealt with in the committee. Under certain conditions this also applies to other Statkraft employees.
Corporate governance is described in more detail in the chapter Enterprise management.
The work of the Board of Directors
There were two changes to the board's composition in 2009. The members Aud Mork and Egil Nordvik were replaced by Hilde Tonne and Bertil (Pertti) Tiusanen. The board of Statkraft AS is also the board of Statkraft SF. The board held 13 board meetings throughout the year. In 2009, the board reviewed the Group's strategy.
In addition to monitoring the daily operations, a significant part of the board's work in 2009 was related to Statkraft's financial platform and the appointment of a new CEO to replace Bård Mikkelsen. The board emphasised finding a new chief executive for Statkraft with solid energy sector expertise, experience from international business activities and proven good results. Christian Rynning-Tønnesen will take up the position on 1 May 2010.
Risk management and internal control
The key risk factors for Statkraft are connected to market operations, financial management, operating activities and framework conditions. The international growth contributes to increased project risk, both in the concept and implementation phases. How we handle risk is important to value creation and forms an integrated part of all business activities. This is followed up in the respective units through risk monitoring procedures and risk mitigation measures. In addition, the mandate, expertise and capacity of the Group risk function has been strengthened in 2010.
There are substantial volume and price risks related to power production and trading. Precipitation and winter temperatures are of great importance to the Nordic power market, resulting in major fluctuations for both prices and production volumes. In addition, power prices are influenced by the price of gas, coal and oil, as well as CO2 quota prices. In addition, gas power production is directly exposed to both gas, oil and CO2. Statkraft manages this market risk by trading in physical and financial instruments in several markets. The increased integration of the energy markets is of great significance for business models and risk management, and great emphasis is placed on seeing the different markets in an overall context. Internal authorisations and limits have been established for all trading, and these are subject to continuous follow-up.
The central treasury department coordinates and manages the financial risk associated with foreign currencies, interest rates and liquidity. The most important instruments in managing this area are forward currency contracts, interest swap agreements and forward interest agreements. Foreign exchange and interest rate risk are regulated through mandates. Furthermore, limits have been established for liquidity and counterparty risk. Both market risk and the other financial risk, as well as exposure connected to the issued mandates, are followed up by independent middle office functions, and are regularly reported to Group management and the board.
The operational risk is mainly handled by means of detailed procedures, emergency preparedness plans and insurance. A comprehensive system has also been established to map, record and report unsafe conditions, undesirable incidents and injuries, and these are continuously analysed.
Other risk is primarily related to general framework conditions and political decisions. Climate changes can present both threats and opportunities, and are of importance for all the risks described above. Statkraft is therefore very concerned with the potential consequences of climate change.
Statkraft's board is committed to further strengthening the internal control in the Group. Consequently, a management system has been established that gathers all governing documents and facilitates a more efficient, systematic and uniform management of the Group, incorporating adequate formalisation, documentation and compliance. Systems for internal control over financial reporting have also been established to contribute to reliable financial reporting.