July 20, 2018 / 8:45 AM / 2 months ago

UPDATE 1-Vattenfall profit dips in Q2, heatwave seen driving prices

(Adds CEO comment, detail)

STOCKHOLM, July 20 (Reuters) - Swedish state-owned utility Vattenfall reported a fall in underlying operating earnings for the second quarter on Friday after higher coal and gas prices put a damper on margins even as a heatwave lifted power prices in its Nordic home market.

A hot and dry spring and early summer have followed a cold winter in the region, leading to far lower water flows than normal, though Vattenfall said reservoir levels at its Swedish hydropower plants remained adequate for now.

The drought, which has sparked wildfires across Sweden, has pushed up Nordic electricity prices with the hydrologic balance between water supply and consumption growing increasingly strained, Vattenfall Chief Executive Magnus Hall said.

“This hydrologic balance is almost back at the situation we had in 2003, when prices became very high,” he told Reuters.

“Prices have already come up as a result of this and the assessment is that if we don’t see considerable amounts of rain, this price increase will continue.”

Vattenfall’s hydropower plants, primarily located along the river arteries crossing northern Sweden, account for roughly a third of its electricity production.

Quarterly operating profit excluding one-off items fell to 3.8 billion Swedish crowns ($427 million) from a year-ago 4.8 billion even as net sales increased 9 percent, the company said.

Vattenfall, which produces energy from carbons, nuclear, hydropower and wind, said higher prices for coal, gas and CO2 emission allowances had squeezed margins in its power plants that use those fuels.

The average spot price for gas was 35 percent higher compared to the second quarter of last year while coal prices were up 17 percent, the company said.

“Electricity prices have come up, but so have costs, and that is what we are seeing a bit in our results,” Hall said.

Vattenfall recorded its first annual profit in five years in 2017 as the company turned the corner on a disastrous buying spree outside its Nordic home market that saw it rack up the biggest write-downs in Swedish corporate history. ($1 = 8.8967 Swedish crowns) (Reporting by Niklas Pollard; Editing by Johannes Hellstrom and Dale Hudson)

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