Report on operations

Group

The Helen Group is a commercial entity, which consists of the parent company Helen Ltd and its subsidiaries Helen Electricity Network Ltd, Oy Mankala Ab, Suomen Energia-Urakointi Oy and Helsingin Energiatunnelit Oy. The associated companies of Helen Ltd are Voimapiha Oy and Suomen Merituuli Oy,

Helen Ltd offers its customers electricity, district heating and district cooling, along with a wide range of services for small-scale energy production and the customers’ own energy use and improving its efficiency. Helen Ltd produces energy at its power plants and heating plants located in Helsinki, as well as through its power assets. Helen Ltd is owned by the City of Helsinki.

Helen Electricity Network Ltd (100%) concentrates on electricity network operations in compliance with the Electricity Market Act and provides transmission and distribution services to its customers in almost the entire City of Helsinki. The net sales of Helen Electricity Network Ltd account for approx. 13% of the Helen Group’s net sales.

Oy Mankala Ab (100%) is a hydropower company that owns the Mankala, Ahvenkoski, Klåsarö and Ediskoski hydropower plants by the Kymijoki River. Oy Mankala Ab’s holding in Teollisuuden Voima Oy is 8.1%, in Suomen Hyötytuuli Oy 12.5% and in Suomen Merituuli Oy 50%.

Helsingin Energiatunnelit Oy (90%) started operation after the tunnel business of Helen Ltd had been transferred to the new company. The City of Helsinki’s holding in Helsingin Energiatunnelit Oy is 10%.

Suomen Energia-Urakointi Oy (60%) is a service company specialised in electronic urban technology, providing design, installation, operation and data transmission services for networks and equipment related to electricity transmission, distribution and use. The other owners are Vantaa Energy Ltd and Lahti Energia Oy.

Financial year 2016

The energy sector is currently going through a period of change that is rapidly and irrevocably changing the basis of the energy system, which means constant changes and challenges for the profitability of energy production. The slow economic recovery in Finland and the Eurozone has contributed to the diminished demand for electricity in Finland. Conversely, the supply of electricity has grown, as different support mechanisms have increased investments in renewable energy and especially in non-adjustable wind power. At the same time, power plants are being decommissioned, and there are no commercial grounds for building new power plants on the market conditions. Finland’s dependence on imported electricity continues to increase, but transmission connections limit electricity transmission from one country to another.

The price of electricity remained at a low level with the exception of a momentary price spike in the autumn. The water supply situation deteriorated after the summer, and the fuel prices rose at the same time, which resulted in a rapid increase in the market price of electricity. The prices were at their highest in November, during a period of colder-than-normal weather. In December, the quoted prices of electricity took a downward turn.

Competition became tougher in the sale of domestic power. The extremely price-driven market has required constant proactive sales measures and pricing of offers. Competition in electricity sales to corporate customers also remained challenging throughout the year.

In 2016, the cold weather in January and the cool weather in June increased the demand for district heat on the previous year. The district cooling sales grew significantly due to an increase in customer numbers.

Group’s profit trend

Helen Group’s results exceeded the forecast level, but remained clearly below the previous year’s level. The drop in the operating profit was mainly due to the low market price of electricity, a lower electricity sales volume and increased fuel costs.

The net sales for 2016 stood at EUR 782 million (EUR 746 million) and the operating profit at EUR 75 million (EUR 110 million). District heat sales grew by 10% on the previous year’s level to 6,633 GWh. At 6,649 GWh, the electricity sales volume fell by 7% on the previous year. District cooling energy sales grew by 13% on the previous year to 141 GWh. Electricity distribution in Helsinki increased by 2% to 4,424 GWh. 

Group and parent company: Key figures 2016

Investments

Helen Group’s investments totalled EUR 90 million. Investments in production and distribution for 2016 stood at EUR 46 million. An investment decision on the Salmisaari pellet-fired heating plant was made in March. An oil-fired heating plant was demolished in Salmisaari, and the required transfers of cables and pipelines were carried out. Foundation work for a new heating plant was started at the end of the year. A total of 26 kilometres of new district heating and cooling networks were constructed, and their share of all investments was EUR 14 million. Investments in the electricity network totalled EUR 33 million and those in the tunnel network EUR 3 million. Emission allowance purchases amounted to EUR 11 million.

Financing

In accordance with its financial policy updated in 2016, Helen Ltd manages the financing of its subsidiaries in a centralised way. The Group’s equity ratio was 71%, and the amount of interest-bearing debts EUR 577 million at the close of the financial year.

The interest-bearing debts of Helen Ltd consist of the subordinated loan (EUR 157 million) taken out from the owner, a so-called senior debt (EUR 273 million) taken out from the owner, and loans taken out from financial institutions (EUR 104 million).
The subordinated loan taken out from the City of Helsinki can be repayed early, either partially or fully, if the borrower so wishes. The capital of the subordinated loan can only be repaid to the extent that the unrestricted shareholders’ equity and the total amount of the subordinated loans at the time of repayment exceed the loss that is to be confirmed for the company’s latest financial year or is included in the balance sheet of more recent financial statements. The annual interest rate for the loan is six per cent (6%).

The loan of Oy Mankala Ab taken out from the State Nuclear Waste Management Fund amounted to EUR 84 million at the end of the year.

Shares

The registered and fully paid share capital of Helen Ltd is EUR 600 million. The total number of shares is 1,000. The City of Helsinki owns all the shares.

Key events during the financial period

• Finland’s largest solar power plant was commissioned in the Kivikko district of Helsinki in 2016. The solar power plant consists of 3,000 solar panels, and its estimated annual production corresponds to the annual consumption of about 350 one-bedroom flats. The total output of Helen’s solar power plants exceeds one megawatt, which is about 13% of the solar power production connected to the national grid.
• The construction of a large pellet-fired heating plant in Salmisaari began. This heating plant will be one of the biggest investments in renewable energy in Finland, and it will have the largest pellet boiler in Finland. The pellet-fired heating plant will be completed in early 2018.
• The design of the new heating and cooling plant to be built underneath the Esplanade Park progressed in accordance with the time schedule. The investment will cover two industrial-scale heat pumps that will produce cooling and heat. They will increase the cooling output of the Esplanade cooling centre to a total of 50 megawatts. As a result of this investment, Helen’s carbon dioxide emissions will be reduced by 20,000 tonnes per year. The new heating and cooling plant will be commissioned in spring 2018.
• Helen started to produce district heat with domestic biogas derived from waste, which increased the use of renewable energy sources. At the same time, Helen introduced on the market a renewable district heat product aimed at business customers, with production based on biogas in the early stages.
• Helen Electricity Network Ltd started construction work in Kalasatama. The new substation in Kalasatama will support electricity distribution in the nearby areas and improve the security of electricity supply. The substation will be commissioned in autumn 2017. A new section will also be added to the underground distribution network in the area.
• The largest electricity storage facility in the Nordic countries, located in the Suvilahti district of Helsinki, was introduced as part of the joint Nordic electricity system in August. In cooperation with Helen Electricity Network Ltd and Fingrid Oyj, Helen Ltd launched a three-year research project to promote the utilisation of electricity storage facilities. In the pilot project, new possibilities offered by a megawatt-scale electricity storage facility will be tested: flexible intermediate storage of electricity and new business models that can be developed by storing electricity.
• Helen developed a completely new kind of service for consumers interested in responsible energy use and production. The Enne service offers its members useful tips for energy consumption and instructions on how to improve the efficiency of their energy use. The Enne service is available for everyone to join, regardless of their location or type of home. As part of the Enne service, Helen launched a Heat Pledge campaign aimed at testing the consumers’ willingness to take part in demand response in connection with heating. Members of the service are given an opportunity to have a say on future energy solutions and to be among the first to test these solutions.

Employees

The parent company had 1017 (1,067) employees at the end of the year. The number of permanent employees was 976 (1016), or 95%, and the number of fixed-term employees was 41 (51). The average number of employees was 1,064 (1,111). A total of 30 (31) employees retired, and 7 (10) new permanent employees were recruited. The average age of the employees was 46.6 (46.1) with an average of 16 (17.5) years of service between them. A total of EUR 54 million (EUR 54 million) was paid as wages and salaries, including bonuses. In addition to statutory insurance, all employees are covered by group leisure-time accident insurance.

The average number of employees of Helen Electricity Network Ltd was 104 (108) and that of Suomen Energia-Urakointi Oy was 104 (167). The other subsidiaries did not have any employees at the end of 2016.

Research and development

New solutions for district heat production were identified on a wide scale: the most concrete one of these was to promote concept development of new bio-energy heating plants. Bio-energy heating plants are included in the assessment of alternative replacement investments in the Hanasaari B power plant and they are part of Helen’s efforts to increase the use of renewable energy sources.

The multi-annual BEST, CCS and FLEXe research programmes by Clic Innovation Oy and the EU project CITYOPT were completed in 2016. Bioenergy expertise was enhanced through the BEST (Sustainable Bioenergy Solutions for Tomorrow) programme, to be utilised, e.g. in the planning of bio-energy heating plants. The overall conclusion of the CCS (Carbon Capture and Storage) programme is that carbon capture and storage may be a cost-effective alternative in the mitigation of climate change when aiming for major emissions reduction targets. The FLEXe (Future Flexible Energy Systems) project increased our understanding of bi-directional formation of the energy market and the consumers’ interest in taking an active part in a climate-neutral energy system. The CITYOPT project investigated energy storage solutions in the Kalasatama and Östersundom districts and confirmed the decision to invest in an electricity storage facility in Suvilahti, which is connected to the Nordic energy system.

Research and project development work was carried out in many different subject areas, with various forms of bioenergy often being the common denominator. Development work was carried out in new biofuels and project concepts in relation to, e.g. biogas, biocoal, circular economy and local energy solutions.

Internal control and risk management

The aim of our risk management measures is to ensure the security of energy supply and safeguard and increase the value of the Helen Group in the long term. Within the company, risk management means a systematic and proactive way of identifying, analysing and managing uncertainties related to operations. Comprehensive risk management is a business-oriented, systematic and standardised procedure that steers decision-making and operations throughout the organisation.

It is the responsibility of Helen’s management to ensure that the company has efficient risk management and internal control practices with regard to the extent and content of its economy and business operations. With regard to the extent and structure of its operations, the company has extensively assessed the most significant risks and uncertainty factors, as well as other factors affecting operational development.

Internal control and risk management have been organised by including risk-management thinking in all activities of the company. Operating principles and a risk management handbook have been drawn up for energy trading. The energy trading principles and associated risk management practices outlined in the risk management handbook have been approved by Helen’s Board of Directors.

During the year, Helen Ltd. launched a comprehensive new development programme for risk management, which includes, e.g., a risk maturity model and year clock. The maturity model assesses the present level of risk management and sets a target level for it. Improvement of risk management is based on measures that help to achieve the target level. The Management Group of Helen Ltd assesses the level of risk management annually. In risk management, a decision was also made to use standardised risk management procedures. The risk management and risk assessment of energy trading were also developed, and risk management-related workshops were arranged.

The electricity market is highly volatile and predictability is expected to weaken. Competition is becoming tougher in the end customer market. Fluctuation of electricity exchange prices will cause business risks in wholesale and retail sales and also in electricity procurement. The Helen Group is prepared for risks and uses derivatives to hedge procurement and sales. The most significant risks of fuel procurement are the volume risk and price risk. These risks are controlled, e.g. by means of procurement and derivative contracts.

Earnings-related pension insurances and a group life insurance were taken out at Keva. The rest of insurances are divided between three insurance companies. The insurance protection covers damages to property, damage due to business interruptions, damage to third-parties, personal injuries and vehicle damage. It has been ensured that the coverage and excess levels of the insurances correspond to the insurance companies’ risk-bearing capacity.

Environment

The long-term target of Helen Ltd is climate-neutral energy production by year 2050. Guidelines have also been set for Helen in a decision that the Helsinki City Council made in December 2015; the City Council decided to decommission the Hanasaari power plant in 2024 and to replace its production with renewable energy.

Helen Ltd aims to make progressive investments to reduce emissions and increase the use of renewable energy sources, and utilise all the possibilities offered by new technologies. The company also develops new energy production solutions together with its customers. The company’s energy production falls within the scope of the EU Emissions Trading Scheme (EU ETS)

The Industrial Emissions Directive (IE Directive) that entered into force at the beginning of 2016 made the emission limits of local emissions, such as particle matter, sulphur dioxides and nitrogen oxides more stringent, in many cases reducing the amounts to less than half of their previous levels. The particulate emissions of Helen Ltd have already been at a very low level and even below the new emission limits. The efficiency of the desulphurisation plants of the power plants was also increased. Reducing emissions of nitrogen oxides required significant investments in emissions reduction technologies.

The impacts of the local emissions from Helen’s energy production on air quality in the Greater Helsinki area are monitored as part of the air quality monitoring carried out by the Helsinki Region Environmental Services Authority HSY. The results of the monitoring show that the impacts of energy production on the air quality of Helsinki are minimal.

At Helen Ltd, the production and distribution of electricity, heat and cooling has been certified in accordance with the ISO 14001 environmental management standard. Helen Electricity Network Ltd applies an integrated quality and environmental management system that complies with the ISO 9001, ISO 14001 ja OHSAS standards. The environmental impacts of all offices are managed with the Green Office environmental programme.

Annual General Meeting

The Annual General Meeting of Helen Ltd was held on 21 March 2016. In addition to the ordinary issues discussed at the meeting, the Annual General Meeting decided to return to the City of Helsinki some of the capital invested in the Shareholders’ Surplus Fund by transferring 40,000 shares of Helsingin Energiatunnelit Oy to the City.

KPMG Oy Ab was selected as the company’s auditor. The auditor with the main responsibility was Kaija Pakkanen, Authorised Public Accountant.

Furthermore, on 18 January 2016, based on the shareholders’ unanimous decision, the owner instructed the Board of Directors to implement the development programme of Helen Ltd in accordance with the City Council’s decision of 2 December 2015, i..e. in compliance with the distributed implementation model based on separate production of heat only, and so that the purpose of the present Hanasaari energy supply area will be changed after the completion of a bio-energy heating plant by 31 December 2024 so that power plant operations in the area will end and the power plant will be shut down.

At the Annual General Meeting of 21 March 2016, the following persons were elected as members of the Shareholders’ Permanent Nomination Board: Mari Puoskari, Chairman of the City Council of Helsinki; Tatu Rauhamäki, Chairman of the City Board of Helsinki; Jussi Pajunen, Mayor of Helsinki; Osku Pajamäki, Deputy Chairman of the City Board of Helsinki; and Veronika Honkasalo, Member of the City Council of Helsinki. By the shareholder’s decision, Tuuli Kousa, Charman of the City Board’s City Group Division, was elected as member of the Shareholders’ Nomination Board to replace Mari Puoskari, Chariman of the City Council of Helsinki. During the year 2016, the Shareholders’ Nomination Board convened four times.

Board of Directors

The following nine persons were members of the Board of Directors until the Annual General Meeting held on 21 March 2016: Pekka Majuri, Chairman, Osmo Soininvaara, Vice Chairman, Hanna-Maria Heikkinen, Mari Holopainen, Tapio Korhonen, Annukka Mickelsson, Hillevi Mannonen, Mikko Niinivaara, and Jouko Sillanpää. At the Annual General Meeting of 21 March 2016, Chariman Pekka Majuri, Vice Chairman Osmo Soininvaara, Hanna-Maria Heikkinen; Mari Holopainen; Annukka Mickelsson; Hillevi Mannonen; Mikko Niinivaara, and Jouko Sillanpää were re-elected to the Board of Directors, and Marko Karvinen was elected as a new board member. Board member Mikko Niinivaara announced his resignation from the Board of Directors of Helen Ltd on 24 August 2016.

During the financial year of 1 January 2016 – 31 December 2016, the Board of Directors convened 14 times.

The Board committees

The Board committees include the Audit Committee and the Personnel and Rewards Committee. The committees help the Board in carrying out its duties. The Board appointed the Audit Committee and the Personnel and Rewards Committee from among its members. Both committees have at least three members. The members of the Audit Committee are Hillevi Mannonen as Chairman, and Hanna-Maria Heikkinen and Mari Holopainen as members. The committee meetings were regularly attended by the Auditor, the Chief Financial Officer, and the Vice President, General Counsel, as the secretary of the committee, as well as by other experts invited by the committee at any given time. The Audit Committee convened eight times during the year 2016.

The members of the Personnel and Rewards Committee were Pekka Majuri, Chairman, and Mikko Niinivaara and Osmo Soininvaara as members. After the Annual General Meeting held on 21 March 2016, the Board elected from among its members Annukka Mickelson as a new member of the Personnel and Rewards Committee. On 24 August 2016, board member Mikko Niinivaara announced his resignation from the Board of Directors of Helen Ltd and thus also from the Personnel and Rewards Committee. The committee meetings were regularly attended by the CEO, the Chief Financial Officer, and the Vice President, General Counsel, as the secretary of the committee. The Personnel and Rewards Committee convened five times during the year 2016. The term of office of the committees in one year, and it will end at the termination of the Annual General Meeting to be held in 2017.

President and CEO

Pekka Manninen, M.Sc. (Tech.) has acted as President and CEO of Helen Ltd.

During the financial period, a total of EUR 558,795 (EUR 517,544) was paid as salaries, fees and bonuses to the members of the company’s Board of Directors and to the President and CEO and his deputy.

The Board of Directors’ proposal for the distribution of dividends

The distributable equity of the parent company Helen Ltd stands at EUR 1,305,913, 007.30, of which the profits from the previous financial years amount to EUR 33,974,375.03 and the profit from the financial year to EUR 20,766,238.82. The Board of Directors proposes to the Annual General Meeting that the company should pay a dividend of EUR 20,383.12/share, totaling EUR 20,383,120.00, and that EUR 34,357,493.85 should be held as retained earnings. The Board of Directors proposes that the distribution of dividends should take place on 31 March 2017. The liquidity of the company is good, and the Board of Directors takes the view that the profit distribution will not jeopardise the company’s liquidity.

Outlook for the future

The result for 2017 is expected to remain at the same level as in 2016. Uncertainties in the economy and the energy markets in Europe and Finland continue to have repercussions on our business operations. According to forecasts, the electricity market will be very challenging for electricity produces in the next few years. Uncertainty about the future is evident in the growing volatility of electricity prices.

The wholesale electricity price will remain low in the Nordic countries in the forthcoming years, and there seems to be no sign of increases in electricity prices. In Finland, the electricity price is expected to fall, when production at the Olkiluoto 3 nuclear power plant begins in 2018. It is not profitable to invest in unsubsidised electricity production. Subsidised wind power in particular makes prices volatile in the Nordic market in the short term, and higher prices can only be expected in the winter season, when production capacity may momentarily be inadequate.

The so-called winter package that the European Commission published at the turn of the year will provide an extensive steering framework for the energy and climate policy in the 2020s.

The implementation of the National Energy and Climate Strategy will have a considerable impact on the future of energy production in Finland.

The assessment of alternative replacement investments for the Hanasaari B power plant has continued and the time schedule has been specified. The next investment decisions can be expected in 2019 at the earliest. The solution of the energy future of Helen Ltd seems like a combination of several alternatives, and the days of big one-off investments seem to be over. In the longer term, the investments related to the development programme will have an adverse effect on the company’s earnings potential.