Tapio Kuula, Corp Executive VP, Fortum Corp., Finland
The energy industry is undergoing a turbulent state of transition: markets are being opened up; the industry is globalizing; competition is tightening; and new players are entering the market. There are a lot of acquisitions and alliances, and the Internet and mobile applications are beginning to change the face of traditional business practices. Who would have believed ten years ago that there would be change at such a great speed in the energy sector, which has been operating in the same way for many years.
Finland was one of the first countries in the world to deregulate its electricity market. Since 1998 it has been possible for small consumers to choose their supplier of electricity, and this has been possible for companies consuming more than 0.5 MW of electricity since 1 November 1995. Energy-intensive industries and electricity distribution companies have nearly always arranged tender competitions for their electricity. It has also been possible for anybody to build electricity generation capacity, and Finland has always had several generators of electricity.
During the past few years, there have been dozens of acquisitions and a great deal of cross-border investment activity in Europe in the electricity industry. Fortum has participated in this activity in several ways: by acquiring Länsivoima Oy (220 000 customers); establishing Birka Energi AB (840 000 customers) in Sweden together with the City of Stockholm; by merging Gullspå Kraft AB with Stockholm Energi Ab; and by acquiring Wesertal GmbH in Germany. Furthermore, Fortum itself was established two years ago on the basis of the merger of Finnish energy companies Imatran Voima Oy (IVO) and Neste Oy.
In Finland, the electricity transmission business has been separated from electricity sales for book-keeping reasons, and certain local companies, which previously sold electricity, now focus on distribution. Fortum has combined electricity sales and direct sales of oil into Fortum Energy House Ltd., which provides a wide range of energy products and services to customers of all sizes, everything from companies’ portfolio management to solar electricity for summer cottages.
The role of the electricity exchange has increased rapidly: in 1999, Nord Pool traded 75 TWh of electricity, which accounted for 20 per cent of Nordic consumption. The trade of financial products has also grown rapidly; in 1999 it was 216 TWh, and the volume of OTC (over-the-counter) contracts cleared through Nord Pool was 684 TWh. Prices in the exchange have varied to a great extent; although the trend has been on the decrease. The exchange price is a reference price in the whole electricity business.
In addition to these trends in the energy market, the Internet is another factor that is bringing change. It can be used to provide better customer services and to develop completely new concepts, for example, Muuttaja.com, which has been developed by Fortum. Muuttaja.com is an Internet-based electronic service aimed at consumers who are planning to move house and require different services connected with the move. The market has given a positive response to this service, and in future new potential services can be expected in the form of mobile applications, for instance.
Environmental issues have also changed and will continue to change the industry. For a long time, Finland has been one of the leading countries in the world in the use of combined heat and power generation and biomass: 50 per cent of the homes in Finland use district heat, and biomass accounts for about 13 per cent of Finnish electricity generation. Fortum produces 20 per cent of the heat in Finland and five per cent of the electricity generated with biomass.
The Finnish energy sector is highly modern. It is open, pro-environmental and technologically advanced. It is a good environment for a competitive energy company and for the POWER-GEN Europe conference. I believe that our expertise can be used in the international markets as well.
Fortum Corp., Finland