Harnessing hydropower

After a huge leap forward in 2007, Hafslund has laid an important foundation in their objective: focusing on environmental responsibility and profitable development of renewable energy. So what's next? President and CEO Christian Berg explains how he plans to keep up the current momentum and outlines his strategies for the future.

“Working with infrastructure is a long-term investment”
-Christian Berg, Hafslund

2007 was a big year for Norwegian utility company Hafslund. With an increased interest in climate change and renewable energy worldwide, Hafslund has been attracting increased international attention for the company’s focus on renewable and sustainable energy, and in addition, profits reached an historic high. “2007 was a fantastic year,” smiles Christian Berg, President and CEO of Hafslund. “But it didn’t just happen. We have been working towards these goals since the group as it is today was created, around 2001, 2002.”

Hafslund was originally established in 1898, with the objective to harness hydropower, however, it wasn’t until 2001 that the group focused its activities on energy while also acquiring several alarm and security companies. Today, Hafslund has three business areas, heat and infrastructure, markets and venture, representing the different aspects of Hafslund.

“I am pleased with the financial results, and believe that it proves that our business functions have performed well, although it is worth bearing in mind that one of the big contributors to our financial results was the market-to-market value and increase in value of our shares in RSE,” says Berg “Our financial results reflect that both our employees and customers are happy with us, as a supplier of electricity as well as a network operator with the lowest cost and the highest security of supply.”

In order to keep up the momentum Berg will be focusing on growth combined with excellence in service. “Working with infrastructure is a long term investment, and alongside that is our contract with society to provide a first-class service, which for the moment we are performing very well against,” explains Berg.

Power upgrade

Although the country is a considerable oil and gas producer, Norway is Europe’s largest hydropower producer and domestic demand for electricity is met almost exclusively through hydropower, with an average annual production of around 120 terawatt hours.

Two of Hafslund’s major hydropower plants are due a major upgrade by 2011, and as a result the turbine output will increase by an impressive 20-30%. For Berg it is important to have the right people with the right skills involved. “We haven’t renewed or refurbished for the past 20 years,” explains Berg, “but we do have lots of project management experience when it comes to other areas, so we are able to lean on each other internally, using our best project managers to lead the project.”

While some Hafslund employees have been working for the company for 30-40 years, Berg is also keen to employ younger people with a better understanding of business and operations. “We seem to get the best of both worlds – we have the skills and knowledge of the plant itself from our older employees, and a new skill and knowledge set from our younger employees – combining all the skills and knowledge into one project.”

Berg also points out that Hafslund are working with a variety of suppliers. ‘We are working with a Chinese supplier on one of our plants, which is a challenge for us, mainly because we are not used to working with these suppliers. However, I believe that it is important that we accept and understand that the Far East is where most new energy plants are being built so there is an extreme competence and skilled mindset in China. We are very much looking forward to co-operating with the Chinese engineers, who will be coming to Norway and staying here together with our people and working together with us to refurbish the plants.”

Hafslund also have some other major infrastructure projects in the pipeline. Over the next four to five years the company will be investing around three million Norwegian kroner in pipes and production plants in the Oslo area, in order to upgrade the distribution network. “Over the next five to seven years, we will have even more focus on investing in and upgrading the infrastructure in and around Oslo,” says Berg.

New plants are also on plan. There are two biofuel plants, one that has now been operating for six months and one that is due for completion in 2010 that will be fuelled with wood and waste. “We are also building a large pellet plant on the west coast of Norway, making pellets to be exported to European coal-fired plants, and we expect this to be up and running in 2010,” adds Berg.

Challenges

One of the major challenges for hydropower are the legal requirements. In Norway, two thirds of a hydropower plant needs to be owned by the local municipality or region state, in order to actually buy or build larger hydropower plants. “Despite the legal environment, it is a real possibility for us to grow the hydropower business in an organic way without ownership of more than one third – that’s a challenge we are overcoming, by developing our own hydro-assets, building new technology, becoming more efficient and increasing capacity up to 10%,” says Berg. “It’s important to have an organisation on their toes in order to develop themselves further.”

Looking at the distribution network side of the company, Berg is keen to highlight that Hafslund are the most reliable and efficient company in the sector. However, he admits that there are challenges in terms of distribution regulations, particularly around how to organise the network. “How much you should own yourself, how much should be done via contractors and how ownership is decided are all big issues for us,” says Berg. “But, at the moment, with a stable financial situation in Norway, we have no strive for selling assets for the moment, although it is natural for us to look at opportunities outside Oslo.”

On the retail side of the business Berg is concentrating on how to grow the company, both in terms of operational excellence and in order to take the company even further in the facilities and operations. Changing the meters in 550,000 homes in the larger Oslo, which is a large project for Hafslund, will be a challenge in the period to come, admits Berg. “I also believe maintaining growth in new areas will be tough, so distributing waste handling for example. However, we are building on our waste innovations, which are looking pretty good – we’ve built one plant and are in the process of building a new one, and we are even planning a large plant in Oslo.”

Innovation

Berg’s ambition for Hafslund is to make everyday life safer and better, making known its environmentally conscious focus on the profitable development of renewable energy. Berg believes that this vision is important in order to convey that the company represent a good and reliable power supply. “It’s also about wanting to take a bigger share of the responsibility for environmental and climate issues,” says Berg. “We want to be an organisation that our customers can trust and very conscious about our effect on the environment. We sell guaranteed green power to all our customers, and are in the midst of doubling capacity of our district heating in the Oslo area, taking away many old boilers – we have a strong commitment to developing new technologies and solutions for the energy markets as a whole.”

Hafslund is built on being innovative and inventive and Berg believes this stems from the formation of the company. “Hafslund has always been focused on staying at the forefront of innovation,” says Berg. “It’s in the cultural roots of the company, which is a good foundation for a focus on innovation. You need to develop confidence in leadership and have the guts to invest and believe in new technologies, and you need to have the ability to handle failure as well as success.” Berg goes on to explain that the venture arm of the business is dedicated to looking at new ventures, innovative ideas and “finding the crazy guys in the world who want to find a new solution”.

The major success for Hafslund over the last couple of years is the investment in RSE, the global leader in solar energy, says Berg. “We invested in the company almost 10 years ago, and to be honest it was struggling until the focus on solar energy became international. Being one of the founding investors in that group has been a tremendous success. It’s all about challenging old technology viewpoints and trying to develop new ways of running water, which has been running for some 100 years through the power plants, looking at taking more power out of that water, trying new technologies and being able and willing to invest in that.”

Hafslund have also been investing in two or three automatic metering companies. Berg is keen to highlight that these metering companies offer much more than metering on its own but rather the opportunity to use them as a communications box to inform the user how much energy they use as well as let them know how to become more energy efficient during a period of the day for example.

Social commitment

Despite being one of the country’s most innovative companies within the energy sector, it is at Hafslund Manor, a protected cultural landmark built in 1762, that Hafslund was born. Named after the manor rather than vice versa, Hafslund has enjoyed a long, successful history at the manor and Berg hopes to continue this. “It’s great to be able to do our internal meetings in a place with so much history and culture, and a good basis for making the forward planning decisions we need to make, knowing the history that we have inherited.”

Hafslund Manor is open to the public all year round, and open for public guided tours during the summer months, and as well as this Hafslund also sponsors a humanitarian organisation, Medecins Sans Frontiers, an environmental organisation, Bellona Environmental Foundation, and Valerenga Fotball team, a Norwegian premier league football team. “Social commitment is an important part of our operational activities,” says Berg. “We believe they are a part of our long term value creation and believe that they inspire both trust and confidence and hope that it makes the company even more attractive to stakeholders. Of course, it also reduces some of Hafslund’s business strategies and risk forces.”

Berg goes on to explain that Hafslund are working with a number of companies when to comes to promoting the issues that the company have, how to become more energy efficient, for example. “Getting out our message to other channels is very important to us.” Belloma Environmental Foundation has been an important sponsorship for Hafslund. Belloma has always focused on alternative solutions understanding that, for example, the world can nor will stop driving cars or using air travel, so they instead focus on influencing decision makers in relation to handling CO2. Belloma is an important advisor to Hafslund, and make continuous suggestions for safeguarding the environment in the best possible way. “We have organised some good events with Belloma, including a conference with the Club de Madrid, drawing interesting conclusions from prominent speakers, and an environmental concert with many good artists, trying to reach out to the audience in another way than we would usually do as a utility. To be engaged with them is great for us, they continue to challenge s, and we even get them to work at our place so they can see how we’re working and thinking and we also send out our people to them to see how they work.”

Future focus

Berg is keen to focus on his long term plan for the future, growing within the renewable energy sector and increasing investments in existing operations, including distribution networks and hydropower plants. Berg also maintains that he will continue to focus on operational skills and management, finding and retaining the right people into the group and challenging them in their thinking. We will also try to remain innovative, although of course that is always a challenge for larger utilities, says Berg. “We will continue working towards our long term goals, which will require focus, but I am optimistic that we will be successful, as we have been so far.”

Great ideas
Christian Berg’s top tips for success:
Fail to succeed: “You need to fail to succeed, know how to handle those failures and also how to handle success”
Develop confidence in leadership: “You need to have the guts to invest and believe in new technologies”
Look for new, innovative ideas: “Find the crazy guys in the world who want to find a new solution”

Hafslund: fast facts

• 520,000 power grid customers
• 600,000 power sales customers
• 80,000 residential alarm customers
• 14,900 GWh distributed through the distribution net
• Annual median hydropower production amounts to 2900 GWh

Eco-electricity
In 2007, 2008 and 2009, Hafslund has purchased and will continue to purchase guarantee certificates for all the electricity delivered to private households, therefore guaranteeing that 100% of electricity is based on the production of pure renewable energy created with hydropower. This means that Hafslund has obligated itself to supply the market with as much renewable energy as customers use, which promotes environmentally friendly, renewable production.

Strategic priorities and targets areas

• Energy production shall be increased via growth in renewable and alternative energy and heating
• Status as a major regional infrastructure provider will be strengthened through further targeting of district heating
• Maintain position through improved efficiency, quality, customer service and product development
• Continue to be a driving force in the strategic development of the Norwegian power and security market in order to contribute to increased returns and more efficient markets
• Identify and develop new investments and business opportunities
• Develop ownership in Renewable Energy Corporation to ensure best possible growth for all shareholders
• Continue with its new, flexible HR policy based on individual needs and work on competence development and training
• Continue to develop a company culture based on core values, in order to create a developing and attractive workplace and secure its good reputation