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Vattenfall to focus investments on wind while coal-fired margins slide

Swedish national utility Vattenfall AB is planning to invest the lion's share of its growth capital in wind power, while the company's coal-fired generation margins are being squeezed by CO2 prices and lower wholesale power prices, executives said Feb. 5 on the company's 2019 full-year and fourth-quarter earnings call.

As Nordic power prices fell in 2019 due to improving hydro conditions as well as falling coal and gas prices, coal generation became less profitable, President and CEO Magnus Hall said. The company's heat segment was hit by unfavorable production margins, and Vattenfall is suffering from the "complex pricing situation for CO2," Hall added. "Gas is more in the money right now."

The executive highlighted the company's ambition to cut ties to fossil fuels over time. While the wind business was also dampened by lower power prices in 2019, Vattenfall's wind fleet generated higher underlying operating profits in 2019, with more capacity on line. In 2019, Vattenfall had a total installed wind portfolio of 3.3 GW, up from 2.8 GW in 2018.

Growth capex targets wind business

The company commissioned the 407 MW Horns Rev 3 wind farm during the year and won a tender which will see it build the 1.5 GW Hollandse Kust Zuid 1-4 wind farm in the Netherlands, which will be subsidy-free. The 605 MW Kriegers Flak offshore wind farm in Denmark also got the green light from authorities.

Senior Vice President and CFO Anna Borg told analysts that 70% of Vattenfall's 35 billion Swedish kronor growth capital expenditure planned for 2020-2021 would go to wind power, while 11% will be injected into heat grids and 8% into power distribution.

Power distribution represents a key challenge in Sweden, according to Hall. "The issue isn't production of energy but distributing it to where it's needed," the executive said. Meanwhile, large new energy consumers are setting up businesses in Sweden who also need to be connected: "It's very much about grid investments," Hall added.

In its investment plan, Vattenfall has earmarked 4 billion kronor to be spent in Sweden in 2020-2021, while the largest sums will be spent in the Netherlands and Denmark, at 13 billion and 11 billion kronor, respectively.

As of Feb. 4, US$1 was equivalent to 9.60 Swedish kronor.