Fingrid Group – Management’s Review 1.1.−31.3.2024

    Fingrid Group – Management’s Review 1.1.−31.3.2024

STOCK EXCHANGE RELEASE 25 APRIL 2024 AT 13.30 EET

FINGRID GROUP – MANAGEMENT’S REVIEW 1.1.−31.3.2024

Fingrid follows a six-month reporting period in compliance with the Securities Markets Act and publishes Management’s Reviews for the first three and nine months of the year; the Management’s Reviews contain key information illustrating the company’s financial and other development.

The information presented in the Management’s Review relates to Fingrid Group’s performance in January–March 2024 and the corresponding period of 2023, unless otherwise indicated. The figures presented here have been drawn up in accordance with the International Financial Reporting Standards (IFRS). The Management’s Review is not an interim report in accordance with the IAS 34 standard. The figures are unaudited.

• The transmission reliability rate of Fingrid’s grid was high, at 99.99991 (100) per cent. Fingrid transmitted in its grid a total of 80 (76) per cent of the total electricity transmission in Finland.
• The company’s investment programme is moving forward as planned, and investments were higher than in the previous year. The company’s estimate of the gross investments for the next four years is approximately EUR two billion. Fingrid’s liquidity remained strong.
• 528 (481) MW in renewable production capacity was connected to the main grid. Of that volume, wind power accounts for 491 MW and solar power for 37 MW.
• Turnover for January–March was significantly higher than in the previous year. The balance service’s share of the company’s turnover was 59 (69) per cent. The increased price of electricity and expansion of operations have raised operating expenses.
• Grid service fees were waived in January and February. This, and growing costs, were compensated by recognising EUR 182.3 (88.4) million in congestion income in the company’s result. Balance service fees were reduced as of 1 March 2024.
• Operating profit, excluding the change in the fair value of derivatives linked to operational activities, amounted to EUR 119.8 (70.9) million. The company’s allowed profit has risen due to the higher interest rate level and extensive investment programme. Profit before taxes was EUR 81.0 (-80.4) million.

Key figures

€M	1−3/24	1−3/23	change %	1−12/23
Turnover	472.9	355.3	33.1	1,193.2
Operating result*	119.8	70.9	69.0	186.1
Earnings before taxes *	118.1	69.6	69.6	186.0
Result for the period	64.9	-64.3	201.0	1.2
Net cash flow from operations	36.7	73.2	-49.9	219.3
Accumulated congestion income	86.4	82.6	4.6	317.0
Capital expenditure, gross	77.0	56.9	35.3	322.0
Interest-bearing net debt	672.2	300.1	124.0	535.2
* Excluding the change in the fair value of derivatives

Review by the President & CEO: Period of bitter cold underscores need to discuss demands of evolving power system

“2024 began with bitter cold weather that raised electricity consumption to its highest level for the winter of 2023–2024. The hourly average load rose to its peak of 14,993 megawatt on 3 January 2024. In the same week, the price of electricity also rose to a high level when the peak hourly price surged on 5 January 2024 to close to EUR 1,900 per megawatt hour and the average price for electricity for the day was EUR 890. Fluctuations in the power system and the price of electricity were large. Despite the challenging circumstances, there was enough electricity and the significant flexibility in electricity consumption contributed to ensuring an adequate supply.

The prolonged period of below-zero weather made the adequacy of electricity generation and possible means for ensuring it a hot topic. In addition to rising electricity consumption, the power system was tested by disturbances in the availability of individual electricity generation facilities. Fingrid highlighted the need to quickly launch the planning and preparation of a well-defined and proportionate capacity mechanism or other arrangement supporting the adequacy of electricity supply.

Fingrid continued to implement the sizeable investment programme revealed last year and made new investment decisions based on customer needs to enable the connection of production and consumption and to maintain high system security. One major new investment that was decided was the construction of a 210-kilometre-long, 400-kilovolt transmission line from Rovaniemi to Vaala. The connection will increase transmission capacity from the north to the south.

Fingrid updated the electricity production and consumption forecasts used for planning the main grid. In the big picture, forecasts remain intact and we are prepared for significant growth in both production and consumption by 2030. The number of new grid connection enquiries that Fingrid receives from electricity producers and electricity-intensive industries has continued to grow. The enquiries, which mostly concern electricity-intensive industrial and electric heating projects, come to more than 25 gigawatts, while the enquiries number of wind and solar power projects equal approximately 350 gigawatts. In addition, the number of projects related to grid energy storage has increased rapidly to roughly 8 gigawatts. Naturally, there are uncertainties with regard to the schedules and implementation of the projects.

The continued efforts to improve corporate culture were recognised when Fingrid placed second in the list of Finland’s Most Inspiring Workplaces in the mid-sized companies category. This year, the goal of Fingrid’s entire personnel is to build an even more unified safety culture through an occupational safety promise made by each team and unit.

After the publication of the company's reasonable return regulatory model, which changed at the start of 2024, Fitch Ratings confirmed Fingrid’s long-term company rating as ‘A+’ and changed the rating’s outlook from stable to negative. S&P Global Ratings reduced Fingrid’s long-term and short-term credit ratings to “A+/A-1” from “AA-/A-1+”. The outlook for the ratings is stable. Carrying out the sizeable investment programme requires a level of financing that matches the needs of the programme. Fingrid’s Green Finance Framework and green commercial paper programme allow the company to implement its debt financing entirely by means of green financing. In March, the company issued a EUR 500 million green bond.”

Main business events

• The consumption peak for winter 2023–2024 was seen in the first week of January during a long period of below-zero weather. At its highest, electricity consumption came to 14,993 megawatt hours on 3 January 2024 between 7 pm and 8 pm, with Finland’s electricity production contributing 12,112 MWh/h and net imports from neighbouring countries amounting to 2,881 MWh/h. A new wind power production record was set on 14 March 2024, with Finnish wind power generating a total of 6,076 MWh/h.
• The colder than average weather drove Finland’s electricity consumption up and it came to 24.2 (22.3) terawatt hours in January–March. In the same period, Fingrid transmitted a total of 20.1 (18.3) terawatt hours in its grid, representing 80.4 (75.9) per cent of the total electricity transmission in Finland. During this period, the electricity Fingrid transmitted to its customers amounted to 18.7 (16.1) terawatt hours, which represents 77.4 (72.3) per cent of Finland’s total consumption.
• As of 1 March 2024, the volume fee for production and consumption paid by balance responsible parties fell from EUR 1.50 to EUR 1.33 per megawatt hour. It was possible to reduce the fee because the power system reserve costs covered by the balance service fees had fallen. Other balance service fees remained unchanged.
• The second transmission connection between Finland and Estonia, EstLink 2, experienced a failure on 26 January 2024, and it is still undergoing repairs. The failure in the EstLink2 connection has not caused any disturbances in the functioning of the power system.
• The company estimates that gross investments will come to approximately EUR two billion over the next four years, including the current year. Fingrid had 72 substations and 560 kilometres of transmission lines under way. Investment commitments came to EUR 751 million.
• Of the company’s investments, the majority are new investments based on customer needs. During the start of the year, the company made investment decisions to enable new connections and to maintain system security. Among other things, a decision on a new 210-kilometre-long, 400-kilovolt Rovaniemi–Vaala transmission line connection and two connected substations will increase the north-south electricity transmission capacity.
• The rapid development of the power system and dramatic growth in transmission needs require a variety of new solutions to enable customer connections. Fingrid will initiate discussions with customers to find new grid service pricing solutions, with the goal of effectively utilising the grid’s transmission capacity for the needs of new connectors.
• At the end of the review period, the total capacity of electricity production connection enquiries was 367 GW, and the total capacity of consumption connection enquiries was 35 GW.
• On 16 January 2024, the Energy Authority approved the reserve market terms and conditions for aFRR, FCR and FFR reserves, which will expand trading opportunities between Finland and Sweden. The terms will be adopted in two phases during spring 2024.
• Fingrid came second in Finland’s Most Inspiring Workplaces competition’s mid-sized companies category. The selection was based on the results of the PeoplePower personnel survey.
• On 1 March 2024, Antti Keskinen, M.Sc. (Tech.), took on the role of Senior Vice President, Markets at Fingrid and became a member of the executive management group. He reports to the President & CEO Asta Sihvonen-Punkka.
• On 21 March 2024, Fingrid Oyj’s Annual General Meeting approved the financial statements for 2023 and decided on the dividend payment. The first instalment of the dividend, totalling EUR 91,268,400.00, was paid on 26 March 2024. Hannu Linna was re-elected as the Chair of the Board of Directors, and Leena Mörttinen was re-elected as Deputy Chair of the Board of Directors. In addition, Jero Ahola and Anne Jalkala were re-elected as Board members and Mikko Mursula was elected as a new Board member. 

Legal proceedings and proceedings by authorities 

On 14 September 2022, the EU Agency for the Cooperation of Energy Regulators (ACER) made a decision on long-term price risk hedging opportunities between Finland and Sweden. In its decision, ACER requested that the Finnish and Swedish TSOs ensure the availability of other long-term cross-zonal hedging products and develop the necessary arrangements for providing hedging products. Fingrid filed an appeal against the decision to ACER’s Board of Appeal on 14 November 2022. The Board of Appeal issued its resolution on the appeal on 24 October 2023, where it confirmed ACER’s original decision. Fingrid submitted to the Energy Authority on 22 December 2023 its proposal for improving the price risk hedging opportunities between Finland and Sweden.

Fingrid received an expropriation permit for the widening of the Torna–Lautakari right-of-way for the neutral line on 27 October 2022. In the kick-off meeting for the expropriation procedure on 1 December 2022, the expropriation committee decided that the expropriating party is obligated to assume responsibility for the tree stands within the scope of the rights and restrictions set in the expropriation permit, unless otherwise agreed. The final meeting of the expropriation procedure was held on 16 November 2023. Fingrid has appealed the decision concerning the Torna-Lautakari tree stands’ expropriation to the Southwest Finland District Court’s Land Rights Court on 22 December 2023.

On 20 December 2023, Fingrid Datahub Oy filed a proposal with the Energy Authority to change the model concerning Fingrid Datahub Oy’s financial regulation for the regulatory period 2024–2027 and simultaneously proposed that the regulatory model be developed further.

On 2 January 2024, Fingrid appealed the Energy Authority’s decision on the terms and conditions of balance service at the Market Court. The appeal mainly concerns the collateral model for balance responsible parties presented in the decision. In November 2023, the Energy Authority issued a decision on the terms and conditions for balance responsible parties, which include the principles for how collateral requirements are determined. The Energy Authority’s decision includes major changes to the current collateral terms and conditions and sets apart Finland’s collateral model from that used in other Nordic countries. The most significant changes to the current collateral model include a major reduction in the required collaterals, elimination of the requirement to provide an adequate additional collateral and a possible collateral ceiling.

On 29 January 2024, Fingrid appealed the Energy Authority’s decision on the methods concerning the specification of the profit for the electricity transmission grid operations for the sixth regulatory period 1 January 2024–31 December 2027 and seventh regulatory period 1 January 2028–31 December 2031 at the Market Court. According to Fingrid’s assessment, the decision on the regulatory methods is a significant weakening of the electricity transmission grid operations’ reasonable profit regulatory method that expired at year-end. In Fingrid’s view, the assessment of impacts in preparing the regulatory model decision has been deficient and there are still issues open to interpretation related to the presented decision. Fingrid’s goal is a solution that would also enable the future development of the grid, allowing the hundreds of billions in green transition investments in Finland to be implemented as planned.

On 15 February 2024, Fingrid appealed the decision given by the Energy Authority on 11 January 2024 on the scope of the national transmission system operator’s systems responsibility regarding the grid connection of the OL3 nuclear power plant at the Market Court. Teollisuuden Voima Oyj (“TVO”) lodged a request for an investigation with the Energy Authority on 25 May 2022 related to the claims by TVO that Fingrid has neglected its obligation to develop the main grid as stated in the Finnish Electricity Market Act and/or other applicable legislation, and that, as a result, it has placed unlawful restrictions on connecting the Olkiluoto 3 nuclear power plant to the grid, and that Fingrid is in breach of its administrative obligations linked to carrying out its public administrative task. The Energy Authority states in its decision on 11 January 2024 that Fingrid fulfilled its development, connection and transmission obligations in accordance with the Electricity Market Act. The Energy Authority also found the 1,300 MW power limit specified in Fingrid’s connection terms justified and did not find Fingrid to have restricted Olkiluoto 3’s access to the grid. In its decision, the Energy Authority sees, however, that Olkiluoto 3’s grid load limitation falls under Fingrid’s responsibility based on a transmission system operator’s special protection system as intended by legislation and that Fingrid is in breach of Article 9 of the Commission Regulation (EU) 2017/1485 establishing a guideline on electricity transmission system operation and its obligation in line with Section 10, Subsection 1 of the Act on the Control of the Electricity and Natural Gas Market (2013/590) to bring the determination principles for fees it applies before the Energy Authority for approval prior to their implementation.

HiQ Finland Oy (name changed on 6 February 2024 to Frends Technology Oy) presented a claim for a revised decision and filed an appeal with the Market Court on Fingrid’s procurement decision related to the procurement of the user license for an integration platform on 6 February 2024. On 16 February 2024, Fingrid revoked its procurement decision and reported on 19 February 2024 to the Market Court that the procurement decision had been revoked. Following the revoking of the procurement decision, the Market Court will decide on the claim for legal costs presented by HiQ Finland Oy. Fingrid considers the claim for legal costs to be excessive.

Events after the review period

In line with the decision given by the Energy Authority on 11 January 2024, Fingrid initiated on 4 April 2024 a hearing on the terms of Olkiluoto 3’s grid load limitation and the determination principles for fees linked to the grid load limitation.

Fingrid has released a new contract notice on the procurement of user licenses for an integration platform on 5 April 2024.

The company has not changed its earnings guidance from what is stated in the Financial Statements Bulletin of 27 February 2024.

Further information:

Asta Sihvonen-Punkka, President & CEO
[phone] or [phone]

Jukka Metsälä, Chief Financial Officer
[phone] or [phone]

Fingrid is Finland’s transmission system operator. We secure reliable electricity for our customers and society, and shape the clean, market-oriented power system of the future.

Fingrid delivers. Responsibly.
www.fingrid.fi