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The Finance Minister is not afraid of the decline in wind energy profitability – questioning discussion in the Riksdag |  Elsa wedding

The Finance Minister is not afraid of the decline in wind energy profitability – questioning discussion in the Riksdag | Elsa wedding

Today there was a grilling discussion with Finance Minister Elisabeth Svantesson. I raised the question of whether production requirements at Vattenfall should have been reasonably increased, in light of the now risky wind energy business that forms part of the production mix at Vattenfall. In my question, I also raised the issue of liability following the significant write-down of the Norfolk-Borea wind power project in Great Britain, which resulted in a negative impact on earnings of SEK 5.5 billion.

It is easy to suspect that the Minister does not really understand the relationship between return and risk. It also sees no reason to tighten Vattenfall AB's productivity requirements.

– All business activities are associated with risk, which is a prerequisite for achieving a good return. I have full confidence that the Board of Directors and management of Vattenfall AB manage operational risks in a balanced manner so that the company achieves the financial objectives decided by the general meeting over time.

– I don't take responsibility for the fact that people have made less good decisions throughout history, but I do take responsibility for what's happening now when it comes to the whole.

Of course, the Minister should not judge individual investment decisions, but that… He is Owner's responsibility to make Evaluate the return requirements based on the business undertaken by the company and then one must also understand how risky the business is.

Are the return requirements commensurate with the risks the company assumes through its investments?This is what this question is about. When risks in a business increase, the rate of return should also rise.

Vattenfall's fiscal operating profit for the second quarter, April-June 2023, was a loss of $2.7 billion. The result for this period was a loss of $4.9 billion. The company wrote that it had suspended development of the Norfolk Boreas wind power project in Great Britain, resulting in a negative impact on earnings of SEK 5.5 billion. Closing the project therefore cost SEK 5.5 billion – even before the company made an official investment decision.

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The group's earnings for the second quarter of the year have been cleared and the discussion on revenue requirements and the issue of liability should be activated. The Minister of Finance does not agree with this at all, but is satisfied with how the company deals with the risks.

The Minister has confidence in the Board of Directors of Vattenfall AB and its management despite the business decisions taken in recent years. A lot of water has flowed under bridges since November, but the sale of coal in Germany is interesting, not least because it has been used as a An argument for lowering the group's return requirements.

The big bad investment in wind energy in Great Britain is just around the corner, and it is also clear that Vattenfall has entered into an agreement to build the Kriegers Flak for revenues of €50/kWh. They won the auction and offered to accept revenues as low as 50 ori/kWh for the first 30 TWh. It is a pleasure for Vattenfall owners, that is. Taxpayers realize that this investment does not appear to be going away. In discussion, the Finance Minister does not want to get involved in any risky deals with disastrous profits, at least not in the near term. As for my concern that the return requirements are disproportionate to the risks the company is taking on with its giant wind energy investments, she doesn't understand that.

Historically, Vattenfall's return requirement has been 11% on capital employed. This 11% return requirement applied when Vattenfall owned much of the base load, i.e. Nuclear power and hydropower in Sweden and nuclear power and coal power in Germany. Coal power in Germany has been relatively unchanged low risk Because Vattenfall's facilities were open most of the year and thus provided a secure income. Most of them were also built in the 2000s and will not be dismantled for many years. Vattenfall's facilities were essential to keeping the system running.

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Vattenfall suddenly changed its strategy, on the advice of the owner and board of directors. Coal was now to be sold in Germany in order to invest widely in wind energy, which was also seen as justification Low yield requirements because of Reducing risks Which the use of wind energy was claimed to entail.

The coal was donated in one form or another for 124 million Swedish krona. Assets that were already worth several billion dollars were abandoned. Immediately after the acquisition, the buyers increased the value of LEAG to €564 million. During this period (six years and two months), LEAG generated current profits of €1,115 million (SEK 12.7 billion) and the company is now valued by the owners at €2,088 million (SEK 23.6 billion), an increase since 2018. Revaluation in in 2016 by 1,524 million euros (17.2 billion Swedish krona).

Decarbonization was a simple but very expensive way to achieve climate goals. Not a single gram of carbon dioxide was saved globally, but it looked good in Vattenfall's sustainability report. The sale of German coal is evidence of how this happens when political ideology is allowed to control a company rather than sound business thinking. Even today, I hope that the new government will have the strength, knowledge and courage to break this pattern. After today's interrogation discussion, my hopes were dashed.

Wind energy investments are associated with high risks as well as low profitability. In a large-scale and well-known study at the University of Edinburgh, conducted by Professor Gordon Hughes, the economics of around 1,000 wind energy installations in Great Britain and Denmark were examined. The study is based on real numbers and shows large gaps between the declared costs of wind energy and… Real costs to investment, Operating and Maintenance, Capacity index, age And filtering. As it appears Wind energy costs are constantly increasing, It was not reduced as claimed in the media. Above all may Operating costs rose sharply Serious failures occur after ever shorter operating periods.

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The picture is confirmed by the fact that most Swedish wind energy companies are at a loss today, as Professor Christian Sandström has aptly proven. Nor should they do so if the cost information provided by energy companies and wind energy lobbyists is correct. This risky business in which Vattenfall is now engaged should be reflected in the return requirements and it would be appropriate for the Ownership Unit of the Ministry of Finance to review the return requirements. At best, this requirement can prevent further wrong bets.