The Energy Challenge
Peter Nygren
Manager Energy Procurement
SCA
Brussels Nov 2005
CEPI Paper week Nov 05
SCA in brief
Year 2004
 Sales:
10 bn €
 Employees:
52 000
 Energy cost:
4% of sales
Forest Products
14 %
Year 2006
 20 units and 3 600 employees less
Packaging Solutions
35 %
CEPI Paper week Nov 05
Hygiene
Products
51 %
SCA – global presence with Europe as a base..
Europe
79% of SCAs
sales
Pacific Ocean
5% of SCAs sales
North/South-America
15% of SCAs sales
Rest of the world 1% of SCAs sales
CEPI Paper week Nov 05
Industrial power prices world wide 2003/04
(commodity €/MWh)
Island: 12-15
Nordic: 24- 28
Europe: 30- 36
Canada: 24- 26
Spain 40+
USA: 30 - 32
Italy 50+
China: 30 +
M East: 14- 16
S-Africa: 20-22
Brazil: 20- 22
CEPI Paper week Nov 05
Russia: 14 - 16
Australia: 23- 25
Energy market Europe, market prices 2006 vs. 2004
 Electricity
 Gas
CEPI Paper week Nov 05
+ 30- 50%
+ 100 %
UK gas (ph/th)
NBP 29th Nov 2005
170,00
160,00
150,00
140,00
130,00
120,00
110,00
100,00
90,00
80,00
70,00
60,00
50,00
40,00
30,00
20,00
10,00
1no
v
3no
v
5no
v
7no
v
9no
v
11
-n
ov
13
-n
ov
15
-n
ov
17
-n
ov
19
-n
ov
21
-n
ov
23
-n
ov
25
-n
ov
27
-n
ov
29
-n
ov
0,00
CEPI Paper week Nov 05
Average 2004:
24,15 ph/th
UK electricity (GBP/MWh)
UXPX 28th Nov 05
110,00
100,00
90,00
80,00
70,00
60,00
50,00
40,00
30,00
20,00
10,00
1no
v
3no
v
5no
v
7no
v
9no
v
11
-n
ov
13
-n
ov
15
-n
ov
17
-n
ov
19
-n
ov
21
-n
ov
23
-n
ov
25
-n
ov
27
-n
ov
29
-n
ov
0,00
CEPI Paper week Nov 05
Average 2004:
34,41 €/MWh
Germany Electricity Spot price (€/MWh)
EEX 29th Nov 05
150,00
140,00
130,00
120,00
110,00
100,00
90,00
80,00
70,00
60,00
50,00
40,00
30,00
20,00
10,00
1no
v
3no
v
5no
v
7no
v
9no
v
11
-n
ov
13
-n
ov
15
-n
ov
17
-n
ov
19
-n
ov
21
-n
ov
23
-n
ov
25
-n
ov
27
-n
ov
29
-n
ov
0,00
CEPI Paper week Nov 05
Average 2004:
28,51 €/MWh
Continental Europe Gas (€/MWh)
Zeebrugge 29th Nov 05
Industrial price 04:
16 €/MWh
CEPI Paper week Nov 05
What are the reasons for a heavy price increase on
gas in Europe ?
 Under supply in some regions (UK)
 Market dominance by a few
 Vertical integration gas  electricity
Oil price development combined with oil linked gas contracts
CEPI Paper week Nov 05
Oil Price development 2005 (Brent Blend $/barell)
25th November 2005
67,00
65,00
63,00
61,00
59,00
57,00
55,00
53,00
51,00
49,00
47,00
45,00
43,00
41,00
CEPI Paper week Nov 05
19-nov
5-nov
22-okt
8-okt
24-sep
10-sep
27-aug
13-aug
30-jul
16-jul
2-jul
18-jun
4-jun
21-maj
7-maj
23-apr
9-apr
26-mar
12-mar
26-feb
12-feb
29-jan
15-jan
1-jan
39,00
What are the reasons for a heavy price increase on
electricity in Europe ?
 Oil (-gas) price development
 To some extent also coal price development (mostly domestic)
 Market dominance by a few
 Luck of price elasticity among the consumers combined with a
market based price setting model
The European Emission Trading Scheeme
CEPI Paper week Nov 05
Germany – a quasi-monopoly
• Traditional companies have lost their
Vattenfall
independence
• Concentration of market to a few partners
• Access of foreign providers strongly
RWE
hindered
e.on
EnBW
RWE
De facto no competition
Quelle: Norddeutsche Affinerie AG, 2004
13
Strompreisentwicklung Werk B
(570 GWh, 75 MW, "EEG-Härtefall")
Branche: Chemische Industrie
45
40
Energiepreis
Netznutzung
Staatlich induzierte Abgaben
€/MWh
35
30
25
20
1998
1999
2000
2001
2002
2003
Source: VIK ” Entwurf des Zweiten Gesetzes zur Neuregelung des Energiewirtschaftsrechts” 29 November 2004
CEPI Paper week Nov 05
2004
CEPI Paper week Nov 05
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20
05
-0
103
20
05
-0
118
20
05
-0
202
20
05
-0
217
20
05
-0
304
20
05
-0
319
20
05
-0
403
20
05
-0
418
20
05
-0
503
20
05
-0
518
20
05
-0
602
20
05
-0
617
20
05
-0
702
20
05
-0
717
20
05
-0
801
20
05
-0
816
20
05
-0
831
EUR/t
EUR/MWh
The correlation between ETS and Nord Pool electricity Cal 06
39
37
CEPI Paper week Nov 05
30
Nord Pool Cal 06 EUR/MWh
ETS EUR/t
25
35
33
31
25
20
15
29
10
27
5
The European electricity market
Market
phase:
Regulation
Liberalization
Consolidation
Germany, Nordic Countries
Price
curve
Reserve
capacity:
Over
•Price cap stated by
the Gouvernment or
Regulator
CEPI Paper week Nov 05
Decreasing
Small
•The price reference is now ”The Power Exchange”
according to the ”Free Market Based Price Setting
modell”
A deregulated European Electricity Market
I.
A natural market development with decreasing capacity
Accelerated by EUs idea of a greener society and the phase out
of cheap power production (coal and nuclear)
II. Some major obstacles for a well functional market
 No real substitute to electricity in the short and medium term
 Low liquidity on the power exchange makes it easy to influence
the reference price
 Low price elasticity among the customers
CEPI Paper week Nov 05
Market based price model - theory
Price
Buyer
Seller
In practice set by
”The Regional
Power Exchange”
Market Price
Volume
100%
CEPI Paper week Nov 05
Price
Actual price setting model
Seller
Actual
“accepted”
price
Buyer
Volume
100%
CEPI Paper week Nov 05
What does it mean ?
 To influence the price we either have to buy less or increase
the supply in the region
 Our price elasticity is and will remain low
 Increased supply is not in the producers interest
 We can not expect the producers to do the work for us and they do not
have to in a deregulated market !!
We therefore have to act our self to help the
market work better !
The alternative is re-regulation of the market
CEPI Paper week Nov 05
Examples – customer initiatives
 Elkem
 PVO
 BasEl
Norway
Finland
Sweden
•Goal:
 Increased supply in the region
 Alternative suppliers
On the way ?
 Withdraw market information
 BasEl
CEPI Paper week Nov 05
Germany
The Energy Challenges within EU
1
Terrorism and political uncertainty
The oil price development has a high influence
on gas and electricity prices
Unpredictable energy price
development
•
2
Liberalization of the Energy Market in Europe
Deceased overcapacity and low reserve
margins (Italy, Spain, Sweden)
Consolidation & market concentration
High and volatile prices
among producers & suppliers
Market based price setting without cap
(price reference: “The Exchange” with low
liquidity and few actors)
3
EU’s idea of a “greener” society
4
Week or no regulators in place
CEPI Paper week Nov 05
Increasing landfill cost &
electricity prices (ETS)
Risk for price manipulation
Problems to get access to
the grid and get offers
Gas - what can we do ?
The companies:
CEPI:
Focus:
Decreased oil dependency:
 Energy saving (10- 20%)
 Fuel switch to alternative fuels
 Waste and own residuals (10%)
Focus:
Increased market comptition:
 Access to the grid (pipe lines)
 Official tariffs
 State owned pipe lines and storages?
Problem:
 Time
 CAPEX (not core, IFREC, IAS)
Problem:
 Vertical integration in the energy
sector with weak or no regulators
Action needed:
 Review the strategy and consider
if Energy not should be core
CEPI Paper week Nov 05
Action needed:
 Develop a strong and focused “gas
lobbying strategy”
Electricity - what can we do ?
The companies:
CEPI:
Focus:
Increased supply & independency:
 Regional solutions on ETS
 Cooperation (“BasEl”)
 Buy out state owned production
Focus:
Prevent EU initatives with risk for extra
burden on the industry within Europe
 Emission Trading (CO2, NOX, SOX)
 Green certificates
 Security of supply (more capacity)
Problem:
 ?
Problem:
 No common Energy policy within EU
Action needed:
 Increased cooperation with other
energy intensive industries within
EU
Action needed:
 Develop a strong and focused
“electricity lobbying strategy”
 Cooperation with others

Energy savings and own production
CEPI Paper week Nov 05
(Energy initiatives is often used as an political
tool to buy support from minority parties)
Thank you for your attention!
CEPI Paper week Nov 05
Reserve slides
CEPI Paper week Nov 05
Coal, spot CIF API1 ($/ton)
25th November 2005
68,00
66,00
64,00
62,00
60,00
58,00
56,00
54,00
52,00
50,00
12mar
CEPI Paper week Nov 05
26- 9mar apr
23apr
7maj
21maj
4jun
18jun
2jul
16jul
30jul
13- 27aug aug
10sep
24sep
8okt
22okt
5nov
19nov
European Carbon Price 2005 (€/ton)
25th Nov 05
30,00
28,00
26,00
24,00
22,00
20,00
18,00
€/tCO216,00
14,00
12,00
10,00
8,00
Daily
CEPI Paper week Nov 05
1-dec
1-nov
1-okt
1-sep
1-aug
1-jul
1-jun
1-maj
1-apr
1-mar
1-feb
1-jan
6,00
Energy intensity of production
 Due to mechanical pulp production, energy intensity is the highest in the Nordic
countries. Countries with low energy intensity of the production are characterised
by high dependence on chemical and deinked pulp.
130
120
110
100
90
IR
L
D
N
K
H
U
N
N
LD
G
B
R
D
EU
IT
A
E
SP
B
EL
P
R
T
C
H
E
FR
A
P
O
L
C
ZE
A
U
T
S
W
E
FI
N
N
O
R
80
INDEX 100 = average electricity and heat consumption of
paper production, and electricity consumption of
papermaking fibres (MWh/t of production)
CEPI Paper week Nov 05

Source: JPC
Value of production of the ET industries
 The role of ET industries is the most significant in Finland, followed by Sweden, the
Czech Republic and Austria. Pulp and paper sector is dominant in Finland and
Sweden, and covers about a half of the ET industries in Norway and the Netherlands.
25
20
15
10
5
Sources: ”Structural Statistics for
Industry and Services”, Copyright
OECD, 2004 (on-line); JPC
CEPI Paper week Nov 05
Other ETS
Pulp and paper
N
FI
PR
T
ES
P
A
U
T
C
ZE
SW
E
B
EL
R
N
O
IT
A
0
IR
L
N
LD
H
U
N
G
B
R
D
N
K
D
EU
FR
A
Value of production as % of total
manufacturing, in 1999
ET industries include: Paper and paper products (includes pulp), glass and non-metallic mineral products,
basic iron and steel manufacturing, and casting of iron and steel.
Sensitivity to changes in electricity price
Countries most dependent on purchased electricity are Belgium, France,
Germany, Norway, Sweden and Switzerland
High dependency
on purchased
electricity
Low dependency on
purchased electricity
Belgium
Czech Republic
France
Austria
Finland
Germany
Portugal
Italy
Norway
Spain
Sweden
Switzerland
 Source: JPC
CEPI Paper week Nov 05