TABLE OF CONTENTS

1  VATTENFALL (COMPANY PROFILE)  3

2  EUROPEAN UTILITY MARKET  5

2.1  TOTAL GROSS ELECTRICITY GENERATION OF THE EUROPEAN COUNTRIES  6

2.2  GENERATION OF ELECTRICITY IN GERMANY  8

2.3  AVERAGE ENERGY PRICES FOR CUSTOMERS  9

3  STRATEGIC OPTIONS ANALYSIS  9

3.1  ASSESSMENT TOOLS  9

3.1.1  Ranking  9

3.1.2  Decision Trees  9

3.1.3  Scenarios  10

3.2  CURRENT STRATEGY OF VATTENFALL  12

3.2.1  Scenario Analysis (assumptions) for 1990 2005  13

3.2.2  Decision Tree 1990 (assumptions) based on Scenario Analysis  14

3.2.3  Ranking (assumptions) based on Decision Tree  15

3.3  EVALUATION OF VATTENFALL S CURRENT STRATEGY  16

3.3.1  Quality oriented evaluation  16

3.3.2  Quantity oriented evaluation  17

4  RATIO ANALYSIS  18

4.1  EXPLANATION AND INTERPRETATION OF RATIOS  21

5  CONCLUSION  23

6  APPENDIX  25

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1 Vattenfall (company profile)

Vattenfall is a Swedish power supplier headquartered in Stockholm. It generates, distributes, trades and sells electricity as well as heat.

The company is divided in Vattenfall Nordic, Vattenfall Europe and Vattenfall Poland, which cover the whole range of organisational and functional areas on their own (Figure 1.1). They are supported by Vattenfall Trading Services, Vattenfall Treasury, Vattenfall Insurance, Group Functions Organization as well as the shared Service Centres.

Vattenfall Group Company Structure

The company was founded in 1909 and is up to now a fully state-owned business, which is public limited since 1992. It is active both in B2B and B2C market. After the Transit Directive of the European Commission in 1990, which enabled open trade in electricity markets and the fall of the Berlin Wall, Vattenfall extended business activities to Finland, Germany, and Poland. Acquisitions of Finnish network companies build the basis of today’s Vattenfall Oy (mid 1990`s) which is, amongst the Swedish location, part of Vattenfall Nordic. At the polish market Vattenfall acquired EW, Warsaw`s electricity and district heating company as well as GZE, the largest national electricity supplier. The polish businesses are represented by Vattenfall Poland. As a result of the liberalization of the German power market in 1998, RWE and Eon, the market leading companies, have been forced to sell some valuable assets of the eastern part of Germany preventing dominance of the market. Due to this chance, Vattenfall bought BEWAG, HEW Hamburg, VEAG and the lignite mining company Laubag, which later merged into Vattenfall Europe, today Vattenfall´s largest business sector with a portion of 60% of sales. Figure 1 of the appendix demonstrates the current structure of Vattenfall Europe in 2004.

Today over 33,000 employees are working for Vattenfall. In 2004 they generated approximately 167,000 GWh (Giga-Watt- hour), which equals 5.5% of overall european power generation and had net sales of 12.6 billion €, which made Vattenfall to Europe`s fifth largest generator of electricity. Vattenfall`s overall goal of today i s to become one of the leading european energy companies. (www.Vattenfall.com; 2005)

The future preparations of Vattenfall are reflected by its R&D efforts in renewable energies as well as in the extension of transmission networks especially in the German electricity market, which is the biggest in Europe. Due to the 100% state-ownership, it is easier for Vattenfall to get necessary investment funds.

According latest news Vattenfall Europe is going to spend 300 Mio. Euro for the construction of 360 kilometres of overland supply networks in Germany, in order to transmit energy throughout Germany, generated by wind power stations at the Baltic Sea. This will make Vattenfall to the second largest power supplier of wind energy in Germany behind Eon. Additionally Vattenfa ll is going to built two more coal fired power stations in Hamburg and Saxony. (Handelsblatt 2005-05-04)

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2 European Utility Market

Until recently, the electricity industry was a restricted, monopoly

sector, but as a result of the liberalisation process which began in Europe in the 1990s, electricity can now be traded across borders in an open competitive market. Competitive activities in the sector include generation (power production), supply and trading, whereas network activities – e.g. transmission and distributionare still by their nature regarded as natural monopolies to be operated under regulated conditions.

The liberalisation of the electricity sector has created a new competitive environment in which the power generation business is fully open to competition and already millions of industrial and household consumers are ent itled to freely choose their power supplier. Some 70% of all consumers in the European Union currently have this right of choice. Figure 3.1 shows the distribution of liberalisation throughout Europe. “The Old European countries” are more or less deregulated, whereas the new members of the EU still have some restrictions of their electricity market. Due to their geographical position, Malta and Cyprus are up to now not connected to the European electricity network

The adoption in June 2003 of a new EU liberalisation package, will result in full liberalisation of the internal EU electricity and gas market, in two steps. Since 1st July 2004, all non-household users (industrial, commercial and professional customers) have been free to choose their supplier and all households across the EU will obtain this right at the latest on 1st July 2007

(www.vdew.de; 2005)

2.1 Total gross electricity generation of the European countries

Due to the different population in each country,

there are great differences within the European electricity market. Germany and France with a market share of 37,4 % are the biggest energy producers in the European U nion. The former communist states Poland, the Czech Republic, the Slovak Republic (commonly referred to as Slovakia), Slovenia, Lithuania, Estonia, Latvia and Hungary come up to an market share of only 11,1 %, what is almost half of German generation. Also the figures of Imports and Exports are very interesting (Figure 3.2). There you can see, that Lithuania exports more than half of its generation to other countries. The electricity of this country is mostly produced by nuclear power plants with the relatively highest share on nuclear power (79.8%), followed by France with a share of 78 %. Energy trade between different countries increased a lot during the last decade until now to 9.3%. As a limitation of this figure one must consider, that there is a high percentage of intra company-trades, which takes place between subsidiaries of the same company but located in different countries. Due to this fact there are no exact figures available from the European Commission of Energy.

The exchange of energy between different

countries or companies takes place at the so called “Energy E xchanges”. One of the biggest is the

European Energy Exchange (EEX) in Leipzig. But up to now the energy market is a more or less regional one, whereas only some big companies have the opportunity to act

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Figure 3.2

Source: www.europa.eu.int; 2005; European Commission of Energy