Ronald Trächsel, there was only one direction for electricity prices in 2021: sharply upwards. How does this development affect BKW’s business?
Ronald Trächsel: BKW generally benefits from rising electricity prices. In 2021, we recorded a positive effect of approximately CHF 60 million at EBIT level. However, this effect stems from the price increases in 2019. The rising prices in 2021 are something we will benefit from in 2024 and afterwards in particular. This is because we hedge our electricity production for approximately three years into the future. Rising electricity prices tended to have a negative effect in calendar year 2021. Because the Leibstadt Nuclear Power Plant (KKL), in which we have a stake, was shut down for a month longer than planned, BKW had to pay record prices to procure the plant’s production that had already been sold. For this reason, our EBIT and net operating profit are slightly below the previous year’s figures, although the BKW Group increased its revenue in all business areas by a total of 14 percent or CHF 425 million.
«The rising prices in 2021 are something we will benefit from in 2024 and afterwards in particular. This is because we hedge our electricity production for approximately three years into the future.»
So you are saying that the high prices on the electricity exchanges were a challenge in 2021. And this comes after it was a problem when electricity prices were too low in recent years. How are we to understand this?
The challenge was not so much the absolute level of prices but rather the enormous fluctuations in electricity prices that caused us problems. The energy markets in Europe are currently under great strain. More and more generating capacities are being taken offline (nuclear power and coal in Germany) and the construction of new renewables to close the gap is progressing too slowly. External factors such as nuclear power plant outages in France and supply uncertainties relating to Russia then immediately lead to major distortions in the markets. At certain times, 1 MWh peak cost up to CHF 2,000 in France.
What were the concrete effects of this turbulence for BKW?
When energy prices rise, our positions on the power exchange also change. Since trading on the exchange requires that collateral be deposited, the collateral requirements of the exchange also increased as the prices increased, and we had to come up with a great deal of cash fairly quickly in order to continue trading. However, due to our well-functioning risk management and a capable treasury, we were always able to make the corresponding payments. A large portion of these deposits has already been returned today.
Can BKW cope with the current and future risks in the energy business?
Yes, I am quite certain of that. In recent years we repeatedly demonstrated that BKW can cope with challenging situations very well thanks to the three-pillar strategy and its expanded risk management. BKW is in a robust position. We have always said that there are risks associated with the price development of electricity and have therefore chosen a strategy that makes us less dependent on price. But electricity prices are also an opportunity because high prices support our growth strategy. BKW was able to enter an additional growth phase in the reporting year. We will achieve growth in both our Energy and Services business segments.
How did the Services business perform last year?
The Services business is the segment with the most attractive return on capital. For every franc we invest in this segment, the return on capital employed (ROCE) exceeds 10 percent. All of our Services businesses increased in turnover in 2021 – the entire division achieved a growth rate of 9 percent, thus growing faster than the market. EBIT increased disproportionately to revenue, rising by 14 percent. The good news is that due to our broad competencies, we were able to prevail in the tenders for more complex contracts, which are also characterized by better margins.
«The Services business is the segment with the most attractive return on capital. For every franc we invest in this segment, the return on capital employed (ROCE) exceeds 10 percent.»
The BKW Group has the Grid as a third pillar and stalwart performer. What conclusions can you draw?
Grid has exhibited its usual stability. And if you neutralize the effect of the special payment to Swissgrid in 2020, Grid was even able to grow, recording a 2 percent growth in revenue to CHF 540 million and an EBIT of CHF 198 million, which was 14 percent higher. The primary reasons for this are the waning effects of the coronavirus pandemic and the somewhat colder weather.
Finally, a question about the liquidity of the BKW Group: Other large companies in the industry struggled with liquidity problems due to turbulence on the energy markets. What is the situation at BKW?
BKW is in an excellent position in terms of liquidity. At the end of the year, liquidity amounted to more than CHF 1 billion. BKW was and continues to be able to cope with extraordinary movements on the markets at all times.
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