Good afternoon, everyone. A warm welcome to Fortum's webcast for the investor community, and today's announcement of the historical and very significant strategic partnership and long-term PPA that Fortum and Google have signed. My name is Ingela Ulfves, and I am Heading Investor Relations at Fortum. As always, this event is being recorded, and you will find a replay on our website later today. With me here in the studio, as you can see, is our President and CEO, Markus Rauramo. Markus will briefly present the key strategic highlights and what this partnership and PPA means for Fortum. Following the presentation, we will then take your questions. We have reserved approximately 30 minutes for this event. Without further ado, I now hand over to Markus to start.
Thank you very much, Ingela. Warm welcome to this call also from my side. Today, Fortum and Google have announced a historical long-term strategic partnership that represents much more than a commercial agreement. It is a unique partnership that supports growth, competitiveness, and long-term prosperity, not only for Fortum but also for Finland. This extensive strategic partnership with Google is deeply founded in our two main strategic priorities, to deliver reliable energy to our customers and to drive decarbonization in industries. At Fortum, growing together with our customers is at the core of our strategy. We provide reliable energy at scale, and we work with our customers to support their growth and decarbonization ambitions. Long-term partnerships like this one are a concrete example of our strategy in action.
In today's world, partnerships are essential for creating the conditions needed for investments in new power generation, while providing customers with reliable and low carbon energy. I am particularly proud that Fortum can play a role as the energy partner in enabling Google's ambitions as they expand their operations, create new jobs, invest in innovation, and strengthen Finland's position as a leading destination for digital and AI-driven growth. I will very briefly go through the reasons why to invest in the Nordics and what the current power demand projections in the Nordics are. After that, I will present the main points of our agreement with Google. As we have been highlighting already for quite some time, the Nordics is a very attractive market for various industrial companies, including data centers, to establish their businesses in. There are a few clear reasons. One is the power price level.
There are large variations between power prices in Europe, while the Nordics have the most affordable prices. Central Europe has roughly double the power price today. Lower prices in the Nordics are enabled by the energy mix, hydro, nuclear, and renewables with basically no fossil fuels. The energy mix also means very low carbon emissions. Further, our power grid is robust, and we have good infrastructure. For example, roads, railroads, harbors. There is an abundance of land and water areas and possibilities for waste heat recovery and use. We have also skilled workforce just to mention a few credentials. Large-scale land areas also enable us to build more supply when power demand increases. The interconnection capacity between Nordics and Central Europe is expected to grow to more than 13 GW by the end of this year.
This means that more than 100 TWh export and import possibilities between these energy markets. Cables are owned by the Nordic Transmission System Operators, the TSOs, and are working automatically. This means that in case of potential market tightness, power flows in both directions. Over to the very interesting topic, power demand projections and how power consumption could evolve over time. Power consumption is anticipated to increase significantly across various industrial sectors in the Nordic region. According to the latest TSO forecast, power demand is expected to grow from the current 400 TWh - 550 TWh by year 2030. By 2050, demand is estimated to increase even up to 975 TWh per year, which means that annual demand could more than double from the current level. Naturally, the very long term is uncertain, but this gives an indication of the direction.
The main take is, however, that certain sectors, especially data centers, are increasing demand already today, while other industrial sectors seem to grow further out in time. At Fortum, based on our discussions with customers, we continue to see robust underlying demand from various industrial sectors, and we believe that it well reflects power demand growth longer term. There is a lot of customer activity ongoing with a large amount of various planned industrial projects across the Nordics. Today's agreement with Google is one concrete proof point of this activity. Data centers are the most active sector right now, and they are also likely to have the fastest time to market, which is why we see power demand from data centers to increase before larger industrial projects. We are prepared to respond to this increasing demand.
With this as a backdrop, let's have a look at what the strategic partnership with Google means. The strategic partnership agreement consists of two main elements, a long-term PPA, power purchase agreement, and an MoU, Memorandum of Understanding. The agreement is related to the lifetime extension of the Loviisa Nuclear Power Plant and has a duration of 22 years. The PPA starts in 2028 with a smaller capacity before it reaches 50% of the Loviisa plant's capacity during the years 2030, 2049. This PPA provides an important foundation for the future. It gives Fortum the long-term visibility and the economic certainty needed to invest the better part of a billion EUR in extending the plant's lifetime and improving its performance. This is the first large-scale nuclear PPA in the Nordics, and also one of the first ones outside the U.S.
This is also Google's first PPA related to nuclear lifetime extension globally. Furthermore, this is one of the biggest, if not the biggest sales agreement ever signed by a Finnish company, and definitely the biggest sales agreement that Fortum has ever made. Consequently, this is a very meaningful business agreement in many respect. We are very proud and very pleased to have been chosen as Google's reliable and trusted strategic partner. We have two reactors in Loviisa, so the PPA basically accounts for half of Loviisa's total capacity, i.e. one unit. As we have earlier said, the plant is expected to generate up to 177 TWh of electricity during the extended lifetime. We are also very pleased that Google, like us, values the nuclear lifetime extension as a viable solution for fossil-free power.
At Fortum, we believe that there is ample potential to increase renewable energy production as well as opportunities for lifetime extensions and capacity increases in nuclear reactors in the Nordics. For competitive reasons, we have not disclosed the price of this PPA. However, what we say is that the PPA supports Fortum's profitability targets, and it is expected to increase the group's comparable return on net assets, RONA, by approximately 1.4 percentage points over time when 50% of the plant's capacity is contracted, which is starting from 2030. During the years 2028, 2029, the PPA is based on smaller capacity. In addition to the PPA, we have also agreed on several other cooperation areas under a Memorandum of Understanding. This includes asset development, energy portfolio management, new build nuclear, and site development.
To enable sustainable future growth, Fortum will develop future energy solutions for Google related to new renewables, BESS, and flexibility solutions. These include, for example, batteries and pumped hydro. We will together explore various models to manage and optimize Google's energy portfolio in Finland. As a first step, Fortum has signed an agreement with Google to optimize a new 94 MW battery storage system, which Google has contracted for, to be located adjacent to Google's new data center in Kajaani. We are also looking into possibilities for nuclear new build in Loviisa longer term together with Google. It also means exploring the conditions required for future nuclear investments. Together, we will examine business models that could enable new nuclear power to be developed in Loviisa, where Fortum has already made preparations and acquired additional land for potential future projects.
Already for a while, Fortum has developed various industrial sites to help our customers with their market entry. As part of the agreement with Google, we will, in cooperation with Google, look more concretely into their future needs for sites in the Nordics. We are very pleased that our strategic ambition to develop sites for our customers will start to materialize and that we are getting traction from our customers for powered land. This agreement is a good example of how we can holistically serve our customer in a strategic energy partnership. This partnership is not only good for Fortum and Google, it is also good for Finland. As Google today announced, their investments are expected to amount to as much as EUR 13 billion during the years 2027 and 2028, supporting more than 37,000 jobs nationwide and giving an annual boost of EUR 3.6 billion to Finland's GDP.
For many years, we have spoken about the opportunities created by electrification and digitalization. We believe that Finland could become one of the leading beneficiaries of these powerful global trends. By combining low carbon and fossil-free energy, technological innovation, and long-term industrial investment, we can strengthen Finland's competitiveness, create growth and jobs, and build a more prosperous future. I am sure that you will have several questions, so I will stop here, and we can start the Q&A session, and I will hand over to Ingela. Please, Ingela.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.
Thank you, Markus, and we are, as said, now ready for your questions. Please keep your questions relevant to today's topic and limit yourself to one question at a time. This will help then to ensure that everyone has a chance to participate.
The next question comes from Harry Wyburd from BNP Paribas. Please go ahead.
Hi. Morning, or I suppose afternoon, everyone. I'll reluctantly keep myself to the one question, although there are clearly loads more. I know you can't disclose the price, and I know you've agreed not to. What I'm going to do is run through some logic, and if I could ask if you could tell me if there's anything that's not logical that I'm saying here, and this is really going to help us understand the economics of this. Looking at the volumes involved, half of Loviisa is about 4 TWh per annum. Your current net assets are about EUR 9 billion, and 1.4% of EUR 9 billion, i.e. the uplift, would be around about EUR 130 million. If I back the 4 TWh into the EUR 130 million, that would kind of suggest a EUR 30 Wh uplift here.
If we consider what the base could be, Nord Pool long-term prices plus the Finnish area premiums, I guess if we ignore the last couple of weeks when prices have moved a lot, in July and August were probably around 50. So if we took a 50-ish base plus a 30 premium, you would be looking at something around 80. I know you cannot comment on the price, but maybe you could just comment a bit on the logic. Is there something that we have missed or miscalculated there? Then maybe last clause to it, you said over time. What does that actually mean? Is that the terminal uplift, as in at the end of the 22 years? Is it the middle? Could you give color on how it ramps, or it is relatively flat? Thank you.
Yeah, thank you for the good question. I think this, being a former CFO, this would be an approach that I would also take. But indeed, we have agreed with Google that we do not disclose the commercial terms of the PPA. So the contract price, we do not disclose. What we have disclosed is that indeed, we expect the PPA to increase our comparable RONA by the mentioned 1.4 percentage points over time, once 50% of the plant's generation capacity is contracted. This obviously supports our long-term comparable RONA target, which is 14, and at the end of Q2, we were at 11, so really nicely supports that. I think a point there, what you were also kind of coming to, is that this certainly differs from Fortum's customary financial hedging, as this is really reflecting the long-term customer value rather than the short-term market pricing.
The EUR 9 billion is indeed a recent number that we have published, but then when we get to the long-term perspective, then we cannot make forecasts on what the net assets would be going forward or the other parameters. But indeed, many of the parameters that you mentioned are the ones that we have communicated.
Okay, thank you. A ramp profile, anything you can say? Because what I am, again, just conceptually aiming at here is, it is a long ramp. What that effectively means is you get to your 1.4% RONA uplift at the very end of the PPA, but it might be less at the beginning. Or is it a relatively flat profile, and we should assume that you get the 1.4% RONA uplift from 2030, which, as I understand it, is the first full year of the PPA?
What we have said is that we expect the agreement to increase the RONA by approximately 1.4 percentage points over time, once 50% of the plant's generation capacity is contracted. Basically, that's the formulation we have been using.
Okay. Fair enough. Thank you very much.
The next question comes from Pavan Mahbubani from JP Morgan. Please go ahead.
Hi, team. Good afternoon, and thank you for taking my question. Just following up on what Harry was asking about as well. Your LTM RONA, I think has been around 11%. You guide to 14%, and this deal gets you about half of the way there. Can you talk about what we need to assume to get to the 14%? Have you embedded in similar deals like this or more data center PPAs, or does it assume higher Nordic prices? Would be great to get some color around what we need to assume, because I think the market, or certainly I was below the 14% in the medium term. Thank you.
Yeah, thank you. The 14% is a long-term target, so we haven't defined exactly what time period that is. We think that this is something that our business can achieve with our existing portfolio, including potential future investments, potential M&A transactions. What we have announced already are our profit improvement targets that we have communicated earlier. The market pricing, we are not forecasting. This is a long-term target, which we believe is achievable over the long run.
The next question comes from Alexandre Braunshausen from Bank of America. Please go ahead.
Good afternoon, and thanks for taking the question. Maybe just one clarification to start on Harry's comment. I think one of the question he had that I don't think you've clearly answered is if the 50% capacity was reached over time. To that, I think you've had conflicting comments if the 50% capacity, which was in 2030, or would that be more likely between 2030 - 2040? I think we've got conflicting comments in between your and the press release. My question would be just on other data center deal after you disclose this year an agreement with Day One and with NuScale, which I think are both supposed to be 500 MW data center as well. Any update on progress with your discussion there would be super helpful. Thank you.
Okay, thank you. Sorry if I was unclear. The contract goes to 50% of Loviisa's capacity from 2030 onwards. Then it's 50% of Loviisa's capacity until the end of the contract in 2049. Otherwise, on other customer discussions. The way I would put it is that, like I said in my presentation also, we see good interest from customers from various sectors, metals, steel, aluminum, mining, data centers, battery factories, hydrogen, e-mobility, electrified heating. If we look at the TSOs forecast, actually, the bigger demand will come from other sectors, according to their forecasts, than data centers. If we have material transactions, then we would announce them separately as we did today. Otherwise, we communicate our hedge prices and hedge ratios quarterly.
Now we are getting towards the end of the year, then we will also communicate the next year, so 2028 hedge ratios for the first time once we get to Q3 of this year. This, of course, also supports very nicely our target to have a rolling 10-year hedge ratio of 25% over our total portfolio. So in many respect, fulfilling many of our strategic KPIs and ambitions.
Great. Thank you.
The next question comes from Wanda Serwinowska from UBS. Please go ahead.
Hi, Markus. Congratulations on the deal that we have been waiting for two years. One question from me would be on the potential backlash in Finland, because basically, the deal with Google takes about 5% of the base load, and we know how precious the base load is. The Finnish market is more or less balanced. We also saw some initiatives by the Finnish government, which were not that favorable to data centers. So how do you think about potential impact on the end user customers? And if it's basically, or is it can go for data centers, we will see many, many more deals like yours being signed up.
Yeah, thanks for the good question. Globally, there is a lot of discussion about the energy-intensive industries and what is the impact on the market. The big benefit in Finland and the Nordics is that there is great potential to increase also supply if and when the demand and, of course, profitable demand is there. This is why we also today communicated in various events, also with Finnish politics involved, that we are very focused on making supply available when it is commercially feasible. That is why we have the 8 GW of renewables in permitting, and more in earlier stages of development. We have the target to develop 2.5 GW of flexibility, either customer flexibility or our own flexibility, and then further beyond that, also the pumped hydro. That would be batteries and consumer flexibility, industrial flexibility, electrified heating, and then new nuclear.
We have the new nuclear development program feasibility study. We have acquired land in Loviisa. We put in an application for the Swedish government nuclear scheme. There is a very high demand prospect in the TSOs forecast underlying, and there is a very good amount of potential supply also that can answer to that. Further on, what we see happening, for example, in the data center segment is that the investments are incremental. They are not happening, like there is not one huge investment coming in one go, but typically, the expansion is modular. When building new wind takes about two and a half years, new solar, about one and a half years. Batteries can be deployed faster. With the pipelines of new supply, there definitely is an answer to increased demand, but in a very healthy way, as we have seen now, recently.
If there is not profitable customer demand, then there is not new supply coming to the market either. I have quite good confidence in that. The potential for energy-intensive investments is there, and they will be answered with new profitable supply.
Thank you. Can I just clarify how many gigawatts do you have of renewables in permitting, and how many by 2030?
Yeah. In permitting, we have now 8 GW of wind and solar. Then our target by end of 2028 is to have 1.2 GW ready to build. Having something in permitting does not automatically equate to that is ready to build. This then has to go through all the permitting processes and potential complaints, et cetera, and courts, and of course, environmental assessments. Supply potential is there, and that's why we have so much optionality that we can bring to customers what they need.
Thank you very much.
The next question comes from Piotr Dzięciołowski from Citi. Please go ahead.
Hi. Good afternoon, everybody, and also congratulations from my side. My question would be, can you help us understand how you think about the profitability of the company and the realized prices in the medium and long-term, in the sense that you have a forward curve at, let's say EUR 40, EUR 50, and now you sign 10% of your volume significantly above this level. I just wanted to understand how much appetite you see for these type of deals, and how much share of your total portfolio could this take, and where the overall realized prices could land. How the market structure will look like. Are we going to see this dual pricing effect where you can go to the market, buy a short-term power at lower prices?
Or you, as a company, try to really bring as much volume and capacity to the long-term high price PPAs and what is the appetite for these? Thank you.
Yeah. I think many questions embedded in that, but maybe I take a very simple approach. With regards to profitability, we have communicated the group level target of 14% RONA, and we think that this is a feasible target given today's portfolio, the outlook, customer appetite, new investments, potential new M&A. Then every investment and contract, including this one that we did now, it has to meet our case-specific profitability targets. Of course, it can be better than that as well, but for new investments that I was talking to the previous question, we have our project and country technology-specific cost of capital and the required margins on top of that we will apply meticulously to every project. This is maybe the fundamental answer to your question, how should one think about our profitability?
Cost of capital plus the required margin for every investment, and then holistically leading to the 14% RONA.
I am not sure. If you are at 11% RONA at the moment, this deal moves you to 12.5%. It is just 10% of your volume, and does this mean you want to lower the market appetite for you signing more deals? Like you see only another one or two deals of this size in your portfolio, and that is about it? Or there is a potential to reprice more of your portfolio?
I go back to that we see long-term feasibility for the 14% target, and then each transaction and investment is priced at the WACC plus the margin. We believe it is feasible to be at the 14%. On the long-term contracts. We do have appetite to do long-term contracts that also reflect the long-term value of the power we have or the power we develop.
Okay. Thank you very much.
The next question comes from Louis Boujard from ODDO BHF. Please go ahead.
Yes. Hi, good afternoon. Thank you for taking my question. Just going into the contractual situation, does the agreement provide some fixed nominal price or inflation link mechanism? Also, if you could share with us your view regarding what happens in case of volumes, such as outage, planned or unplanned outage. If you are missing volumes, how is it treated into the contract? Do you have liability, or do you have a possibility to potentially offset this risk and pass it through to your clients? Regarding, still on the contract, the very duration, do you have any price adjustment mechanism that could be implemented in case of a dramatic change into the Nordic power market, or are you completely locked into what you have signed now? Thank you very much.
Yeah. Thanks for the question. I go back to what is the fundament of the agreement. The factor we have given is that we expect that the contract will increase our comparable RONA by 1.4 percentage points over time, once 50% of the plant's generation capacity is contracted, and that starts from 2030 onwards. For the first two years of the contract, it is a smaller volume. Then, deeper into the terms and conditions of the contract. These we have not published. This is basically the information we give on the contract. Then you will see the impact in hedge prices and hedge percentages in the normal course of reporting. That's where all of the contracts we make, published or not published, they will all be embedded into that eventually.
Okay.
The next question comes from James Brand from Deutsche Bank. Please go ahead.
Hi. Good afternoon. Congratulations on what a pretty amazing deal for you. This topic has been touched upon a little bit. You've obviously already said that you have more willingness to sign long-term deals, assuming they reflect the value of the power that you have or can build, as you said a couple of questions ago. You've also got this target for a 10-year rolling hedge of 25%, and I would imagine that you're pretty close to that, or maybe you've hit that already with this deal. Certainly, in that ballpark. I don't know if there's anything you could tell us in terms of your willingness. I guess you've already said you're willing to go above that. But is there a level which would be kind of ideal in your mind, which you wouldn't want to go above, like, 35% or 40%?
Is there any context you can give us in terms of where, in an ideal world, you'd like to get to as a mix between long-term contracted and independent? Thanks very much.
Thank you. So, good question. First of all, indeed, we do have continuous appetite to do also longer term deals if they really reflect the value of the long-term power to our customers. The 25% level has been 25% or more. That is our target. It is okay to be more than that. We have not disclosed something beyond it. But 25% presented a level that we would be okay to go to or over that. What the long-term hedging and long-term agreements give us is then predictability, forecastability. Now ascertaining the lifetime extension for Loviisa. And we have been very open to our customers that we are very happy to sell from our existing portfolio, and then we will also be available to do investments in additional capacity, if and when the pricing is appropriate and reflects the cost of building new capacity.
We have multiples way to answer the customer's appetite. And here, maybe I would go back to the big picture of the Nordic demand and Nordic attractiveness. So, also, if I put my Eurelectric hat on, I, of course, try to give good advice to Europe and where Europe should be going with regards to electrification and decarbonization. But going back to what I just presented about the Nordic attractiveness, there is land, there is infrastructure, there is grid, railroad, ports, fantastic O&M competencies, construction competencies. And that is leading to that, the DSOs, the potential for growing demand, and we see it in our own customer portfolio as well. And we are ready to answer that demand from our portfolio today and potential new investments. And now the transaction and agreements with Google reflect all of these points.
Great. Thank you very much.
We are already a bit over time, but I will allow one more question, and unfortunately, we then need to end the call after this. But here comes the last question.
The next question comes from Richard Alderman from BTIG. Please go ahead.
Yeah. Thanks very much for fitting me in and congratulations on the deal. Just one quick question. I understand you've got a long-term energy management contract, to manage assets. I think Google have already secured 700 MW of wind. You're helping them build this new battery. Over time, I guess you'll help them build other assets. Can you just tell me, will you earn an energy management contract fee on top of the PPA, or is the cost of that built into the PPA? If it's on top, is it meaningful? Do you have any concept at this stage as to how they might treat other renewable asset builds as they take that modular design? Would you get first opportunity to bid for that contract and build it, or will it be a full tender process as you've seen before with other data center providers?
Thanks for the question. There are three separate parts to the agreements that we have announced today. One is the PPA, and that's separate from the rest. So the nuclear PPA. Then we have a definite agreement on us optimizing for Google, the 94 MW third party battery in Kajaani. Then the Memorandum of Understanding, and then the fee for doing that's a separate one, but that's 94 MW, so you can see the scale there. The third leg of the contract is the MoU, which then comprises of cooperation for new renewables, for new flexibility, and investigating new nuclear together. This is then a separate thing, and that's on a Memorandum of Understanding basis. But I think it well reflects Google's ambitions to match their energy consumption with catalyzing also the same amount of supply.
I think we have a good meeting of minds here. We're delighted to help Google secure power and then make sure that there's a pathway also for them to be able to meet their growing energy needs going forward. This is something we'd love to do with other customers as well.
Very good. Thank you so much. Thank you everyone for participating here today, and thanks for your activity. We would have loved to take more questions, but unfortunately, time is up. We can continue
Thanks for the good questions.