London (Platts)--12Feb2013/710 am EST/1210 GMT

Swedish power utility Vattenfall said Tuesday in it 2012 results, which registered a rise in profits, that conditions are expected to remain tough this year for the European power sector due to the continuing effects of the economic recession.

"2012 was a tough year for the entire European energy sector, and the industry is facing substantial challenges," said CEO Oystein Loseth.

"Demand is still low as a result of the economic recession. At the same time, new capacity is being added, especially in renewable energy production, which has led to low electricity prices," he added.

Vattenfall, which has power plants in the Nordic region and Europe, said that, in the face of the bleak conditions, it is continuing to cut back on costs and improve production efficiency.

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It reported that in 2012 its electricity generation increased by 7.3% to 178.9 TWh compared with 166.7 TWh in 2011, boosted by increased availability at its troublesome Swedish nuclear power plants. Fourth-quarter production rose to 49.9 TWh, up from 43.7 TWh a year earlier.

"The availability in our plants improved and the power production was on a record level," the CEO said.

"We see continued difficult market conditions ahead, however, and are therefore continuing to further improve the efficiency of our operations and strengthen our financial position."

Vattenfall posted 2012 operating profit up 12.8% to SEK26.175 billion ($4.1 billion) compared with SEK23.209 billion the previous year. Net profit was SEK17.2 billion against SEK10.4 billion.

The 2011 result was affected by impairment losses and provisions totaling SEK10.5 billion attributable to Germany's decision to phase out nuclear power.

Vattenfall said Tuesday that arbitration measures were proceeding against the decision in Germany.

Apart from Vattenfall's seven nuclear power reactors in Sweden, it operates two in Germany: one at Brunsbuttel and one at Krummel.

The group said that 2012's record power output was countered by sharply weaker power prices.

Vattenfall said a strong hydrological balance for the year 2012 as a whole helped push down the average power price in the Nordic countries, where hydro power accounts for a significant part of the power mix, to Eur31.27/MWh, a fall of 34% from Eur47.15/MWh in 2011.

Spot prices in Germany were approximately 17% lower overall in 2012 at Eur42.67/MWh compared with the 2011 level of Eur51.14/MWh.

The company said prices fell again in Germany in December as a result of high wind power generation together with warm weather and lower demand during the latter part of December on account of the large number of vacation days.

The company is cutting back its investment spending plan for the coming five years (2013 to 2017) to SEK123 billion, representing a decrease of SEK24 billion compared with the preceding five-year period (2012 to 2016).

--Patrick McLoughlin, newsdesk@platts.com
--Edited by Alisdair Bowles, alisdair_bowles@platts.com

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