p. 10 p. 13 p. 19 p. 23 p. 34 p. 57 p. 74 Table of Contents Energi Danmark Business Foundation Financial Highlights for the Group...

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1 Annual report 2011

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3 Table of Contents 03 p Management Report p. 13 The disaster at the Fukushima plant in Japan on 11 March 2011 was a real watershed moment for the European power market p. 19 Spot price development, Nord Pool Gas, 2011 Price Øre (DKK)/Nm /02/ /04/ /06/ /08/ /10/201 01/12/2011 p. 23 One Stop Shop Nordic p. 34 Energi Försäljning Sverige s growth continued in 2011, with the subsidiary delivering a profit of SEK 48.5 million p. 57 Income Statement p. 74 Development in pre-tax profit/loss, DKK million NPG Supply date Year Business Foundation Financial Highlights for the Group Statement by Board of Directors and Management Declaration by Independent Auditors Management Report Forvaltning A/S Energi Försäljning Sverige AB Energia Myynti Suomi Oy Energi Salg Norge AS Vind A/S International A/S Corporate Social Responsibility Accounting Policies Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes Development The Group s activities in the Nordic countries The Nordic Transmission Grid Organisation Chart Corporate Information Ownership Directorships: Board of Directors and Management Corporate Information, Subsidiaries

4 04 Business Foundation The Group is a leading energy trading group in the Nordic countries with activities ranging from physical and financial electricity trading, carbon credit trading and trading in gas and wind energy to currency hedging, portfolio management, portfolio contracts and associated trading in derivative financial instruments. The customers of the Group comprise much of the business market as well as public-sector enterprises in the Nordic countries. Indirectly, the Group also has a large share of the consumer market, especially in Denmark, via supplies to several distribution companies and other trading companies. The Group wishes to provide its customers with services typified by a high level of quality and adapted to the customers wishes and needs. Business concept With energy trading as its starting point, the Energi Danmark Group is an important player in securing and further developing an efficient electricity- and energy-trading market in the Nordic countries. Vision The vision of the Group is to be the preferred partner of business customers and public-sector enterprises wishing to obtain financial benefits in deregulated energy markets. Mission The mission of the Group is to provide the competitiveness generated by consultancy advice, support and the right prices. Performance management based on visible targets Cost-effectiveness Being a reliable business partner Being committed to teamwork Being committed to continued skills enhancement. Business values The Group s marketing efforts are based on the Group s five core values: This is ensured by highly-educated, professional employees and the intensive application of information technology and advanced auxiliary applications. The Energi Denmark Group continues to develop its business activities as opportunities emerge, provided that it is possible to obtain satisfactory profitability and thus create added value for shareholders. Creating added value for customers and shareholders Setting high standards of professionalism and quality Being punctual and meticulous Being a knowledge-based business Being available.

5 Financial Highlights for the Group 05 DKK million Consolidated main figures Revenue 8, , , , ,339.0 Gross profit/loss Profit/loss from ordinary operating activities Net financial items Profit/loss from ordinary activities before tax Tax Profit/loss for the year Balance sheet total 2, , , , ,114.1 Of this, investment in non-current assets Equity Cash flow from operating activities Cash flow for investing activities Cash flow from financing activities Total cash flow Consolidated key figures Gross margin ratio 3.8% 3.2% 3.1% 1.5% 2.0% Profit ratio (EBITA) 1.7% 1.5% 1.5% 0.5% 0.7% Equity/assets ratio (solvency) 35.9% 26.9% 40.1% 42.3% 48.7% Return on equity before tax 17.4% 16.6% 15.1% 8.2% 10.5% Return on equity after tax 13.0% 12.4% 11.2% 6.1% 7.7% Average number of full-time employees The key figures were calculated according to the Recommendations and Financial Ratios 2010 published by the Danish Society of Financial Analysts. Please refer to definitions and concepts under Accounting Policies.

6 06 Statement by Management and Board of Directors On today s date, the Board of Directors and the Management have discussed and approved the annual report for the financial year 1 January 31 December 2011 for A/S. The annual report is presented in accordance with the Danish Financial Statements Act. In our view, the consolidated financial statements and the company s financial statements provide a true and fair view of the Group s and the company s assets, liabilities and financial position as of 31 December 2011, as well as of the result of the Group s and the company s activities and also the Group s and company s cash flow for the financial year 1 January 31 December It is also our view that the Management Report contains a true and fair account of the developments in the Group s and the company s activities and financial circumstances, the financial results for the year and the financial position of the Group and the company. The annual report is hereby submitted to the general meeting for approval. Aarhus, 6 March Management Jørgen Holm Westergaard CEO Henning Müller Carlsen CFO Board of Directors Jesper Hjulmand Knud Steen Larsen Jan Ravn Chairman Deputy Chairman Søren Sørensen Anders J. Banke Jens Otto Veile

7 Declaration by Independent Auditors 07 To the shareholders of A/S Review of the consolidated financial statements and the company s financial statements We have audited the consolidated financial statements and the financial statements for Energi Danmark A/S for the financial year 1 January 31 December The consolidated financial statements and the company s financial statements include the accounting policies, the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and notes for both the Group and the company. The consolidated financial statements and the company s financial statements were prepared pursuant to the Danish Financial Statements Act. Board and Management responsibility for the consolidated financial statements and the company s financial statements The Board of Directors and Management are responsible for preparing and presenting the consolidated financial statements and the company s financial statements that give a true and fair view pursuant to the Danish Financial Statements Act. The Board and Management are also responsible for the internal controls which they consider necessary in order to prepare consolidated financial statements and the company s financial statements without significant misstatement, regardless of whether this is due to fraud or error. Auditors responsibility We are responsible for expressing our opinion of the consolidated financial statements and the company s financial statements based on our audit. We have performed our audit in accordance with international auditing standards and additional requirements under Danish auditing legislation. This means that we need to meet ethical requirements as well as planning and conducting our audit in such a way that we achieve a high degree of certainty that the consolidated financial statements and the company s financial statements are free of material misstatement. An audit includes the execution of audit measures aimed at obtaining audit evidence of the amounts and information cited in the consolidated financial statements and the company s financial statements. The audit measures chosen depend on the auditors assessment, including an assessment of the risk of material misstatement in the consolidated financial statements and the company s financial statements, regardless of whether the misstatement is due to fraud or error. For the risk assessment, the auditors consider the internal controls appropriate for the company s preparation and presentation of consolidated financial statements and the company s financial statements that give a true and fair view. The purpose here is to determine the audit measures appropriate under the circumstances, but not for the purpose of expressing an opinion on the

8 08 effectiveness of the company s internal controls. An audit also includes assessing whether the accounting policies applied by the Board and Management are appropriate, whether the accounting estimates exercised by the Board and Management are reasonable and making an assessment of the combined presentation of the consolidated financial statements and the company s financial statements. In our view, the audit evidence obtained is sufficient and provides an appropriate basis on which to express our opinion. Our audit has not given cause for qualification. Opinion of the Management Report In accordance with the Danish Financial Statements Act, we have read through the Management Report. We have not performed further procedures in addition to our audit of the consolidated financial statements and the company s financial statements. In light of this, it is our opinion that the information in the Management Report is in accordance with the consolidated financial statements and the company s financial statements. Aarhus, 6 March KPMG State-authorised Public Accountants. Conclusion In our view, the consolidated financial statements and the company s financial statements provide a true and fair view of the Group s and the company s assets, liabilities and financial position as of 31 December 2011, as well as of the result of the Group s and the company s activities and cash flow for the financial year 1 January 31 December 2011, in conformity with the Danish Financial Statements Act. Søren P. Nielsen State-authorised public accountant Michael Mortensen State-authorised public accountant Development in pre-tax profit/loss, DKK million Year

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10 Management Report 2011 was a very satisfactory year for the Energi Danmark Group. With profit before tax of DKK million and total Group revenue of DKK 8,164.2 million, the Group achieved a profit that was a 17% improvement on This corresponds to a return on equity before tax of approx. 17.4% was typified by appreciable customer activity in every business area of the Group in the Nordic countries. Group revenue was DKK 8,164.2 million, which is DKK million higher than in The increase in revenue of approx. 4%, despite a fall in energy prices of around 25%, was down to a considerable influx of customers in the Nordic markets. The Group s balance sheet total fell to DKK 2,182.2 million in 2011, a fall of approx. 18% compared to This fall was partly due to fewer wind projects and partly due to less tied-up liquidity in the customer contracts compared to s market share was consolidated very satisfactorily in the segment areas over the course of Despite reduced purchases by the companies since 2008 due to the financial crisis, the Group was able to generate growth in the Nordic countries of approx. 18% in sold physical kwh in the period from 2008 up to The Group s growth in Sweden continued in 2011, and Energi Försäljning Sverige AB experienced a striking influx of customers again in 2011 and more than doubled its revenue to SEK 1,811.3 million. The company also achieved a very satisfactory profit before tax etc. of SEK 48.5 million. The Group s growth in Finland also continued in 2011, with Energia Myynti Suomi Oy experiencing an appreciable influx of customers and generating revenue of EUR 56.8 million. The Finnish company achieved a satisfactory profit before tax of EUR 0.2 million. The Group s growth in Norway also continued in 2011, with Energi Salg Norge AS being well received by the Norwegian market. Revenue of NOK 21.0 million and a loss of NOK 0.6 million were achieved, with appreciable customer activity expected in Forvaltning A/S continued its marvellous development in 2011, and the Nordic organisation achieved a very good profit before tax of DKK 20.5 million. New risk-hedging models and models for dynamic trading in electricity certificates were introduced, as were new reporting models which the Nordic Group customers in particular have welcomed. Both Danish and Nordic Group customers have welcomed s Nordic concept the One Stop Shop Nordic. This concept gives the Group substantial scaling potential throughout its systems and also with regard to online trading, risk hedging, portfolio models and reporting, as well as significantly more cost-effective solutions for Group customers throughout the Nordic countries. During 2011, Vind A/S implemented several wind projects and delivered an especially satisfactory profit before tax of DKK 20.5 million. In particular, the possibility of being able to offer business customers a sound, eco-friendly investment was warmly welcomed, although a forthcoming political agreement for the (wind) energy area is anticipated. In 2011, International A/S completed two major projects, the first in Cape Town, South Africa, and the second in Dhaka, Bangladesh. Both projects were supported by Danida s B2B programme and are based on International s Loss Reduction Service. International made a modest profit. Due to the difficult international situations in the Loss Reduction Service area, this business area is expected to be somewhat diminished for a while. is actively working to ensure that there is free, correct pricing in the electricity market.

11 11 Based on competition authorities decisions in previous years,, together with more than 1,100 businesses, brought action for damages against DONG Energy, claiming a refund of the difference between a reasonable price and the unreasonably high prices charged between 1 July 2003 and 31 December The status of the appeal case between DONG Energy and the Danish Competition Council is that DONG Energy has requested an expert appraisal. The High Court has granted DONG Energy permission to conduct an expert appraisal. The expectation is that an expert appraiser can be appointed and interviewed on the subject in Q2 2012, after which a hearing date for the case will be set for 2013 in the best case scenario. The status of the damages suit is that in October 2011 at the Maritime and Commercial Court, it was agreed that the parties would prepare their pleas partly in 2011 and partly at the start of 2012 with a view to final selection of some test cases concerning the damages issue. There is still nothing in the cases which would cause us to change our expectations that the Maritime and Commercial Court will uphold the competition authorities decision, with this then being a strong element of the damages suits. A final decision in the above cases is expected in In 2008, the Board of Directors formulated a dividend policy that both considers the Group s need for equity consolidation as a result of continued growth and ensures a dynamic, attractive dividend level when circumstances allow. For this reason, the Board recommends the payment of a dividend of DKK 48 million for the financial year Provided that market terms are satisfactory, 2012 is expected to be yet another satisfactory year for the Group. A profit before tax in the neighbourhood of DKK 110 million is therefore expected. Aarhus, 6 March Board of Directors, A/S.

12 12 Fundamentals of the electricity market Electricity trading is conducted on various electricity exchanges in Europe, which in Denmark s case takes place on Nord Pool in Oslo, Norway, which covers all the Nordic countries except Iceland. The exchanges basically permit two types of electricity trading: either spot market or further in advance, via forward and future contracts. Since the spot price, which is determined on an hourly basis, serves as the underlying price for forward contracts, it is important to understand the developments in the contracts, and what determines the spot price. The spot price is determined on the basis of: Equilibrium between supply and demand (demand is the consumption in the individual countries, as well as any electricity flow to neighbouring regions); The weather particularly the temperature in the winter especially in Sweden and Norway where electricity is the primary source of heating energy; This all means that the factors affecting electricity prices largely depend on regional, geographic and political factors that can vary from one country to another. In the German market, where reservoirs play only a marginal role, sustainable energy is by contrast an important factor, especially now that the country has decided to phase out nuclear power. In addition, the significance of the flow of electricity to and from Germany s many neighbouring countries is completely different from in Scandinavia. Another important factor is that public holidays in Germany vary from one state to another, something which has a dramatic effect on consumption patterns. Forecasts for the Danish economy in 2012 The global economy is in a serious situation, and there is great uncertainly over whether it will be able to operate in the same way in future. Up until now, the political reaction has tended to be that the best way of dealing with problems paying debt is to acquire more debt. The question here is simply how long this system can possibly continue to work. The time and day of the week, as consumption at night and at weekends or on public holidays is much lower than during the day, especially on weekdays; Financial business trends; The extreme increases in the costs of raw materials seen in recent years were suspended for much of 2011; instead we saw falling prices dominate the oil market from spring This has, however, changed again, so it now seems as if the trend of rising prices has returned. Precipitation levels and the fill level of reservoirs in Norway and Sweden; Nuclear power in Sweden, which has great capacity but on the other hand is slow to bring on line after any breakdowns; Central power plants in Denmark that are very quick to bring on line; Danish growth is expected to be 1.25% per year until 2013, and a real upturn is not expected for the next few years. The second half of 2012 is thus the earliest turning point for unemployment, which is currently just over 6%. For 2012 we anticipate a total annual consumption of approx. 35 TWh compared to approx TWh in 2010 and approx. 33 TWh in The marginal cost of fossil fuels; Wind production, which, particularly in Denmark, accounts for a large share of the combined electricity production.

13 13 Spot prices in 2011 The spot prices in 2011 were characterised by historically high levels of precipitation in the Nordic countries as well as by mild and windy weather, with the end of the year in particular providing a record mild and windy period. The disaster at the Fukushima plant in Japan had a major impact on the German spot price and consequently the system price too, especially the Danish area prices. The closure of two coal-fired power plant units due to lack of profitability also increased the Danish areas reliance on German and Swedish electricity. It is also worth mentioning the introduction of four price areas in Sweden on 1 November At the end of 2010, there were extremely low temperatures and very little precipitation observed in the Nordic countries. The high consumption and the very low fill level in the reservoirs meant that the prices of water-based energy, the water values, were unusually high in relation to the price of electricity production from coal and gas. As a result, the system price in week 1 was EUR For the purpose of comparison, the prices for DK1, DK2 and Germany were EUR 52.94, EUR and EUR respectively in the same period. In January the weather changed to become both warmer and wetter, and the system price experienced a marked fall of approx. EUR 20 over the course of the month. In February, the prices rose slightly due to low temperatures, but the continued good levels of precipitation curbed this rise. The disaster at the Fukushima plant in Japan on 11 March 2011 was a real watershed moment for the European power market. The earthquake and the subsequent tsunami were an eye-opener for the politicians in charge, with Angela Merkel, the Chancellor of Germany, in particular responding directly and closing down the seven oldest German nuclear power plants at short notice. This had a major impact on the European power market, which reacted by increasing prices. NO1 NO2 SE FI SYS Spot - weekly average for 2011 SE1 SE2 SE3 DK1 DK2 EEX EUR/MWh Week

14 14 The disaster at the Fukushima plant and the subsequent announcement of the closure of a number of German nuclear power plants caused the German electricity prices to rise steeply. The Danish area prices followed those of Germany until the German spot price passed the system price in May. Historically high precipitation and weather characterised by generally low pressure led to high wind production in much of The system price and all price areas in the Nordic countries therefore showed a falling pattern over the course of the year. In September and October in particular, the prices collapsed as a result of an extremely high level of irregular water production. This meant that the average weekly price for the system in week 40 was only EUR The DK1 and DK2 prices were EUR and EUR respectively in the same week. The spring of 2011 saw two Danish power plant units closed down: one unit at the Studstrup plant (380 MW) in DK1 and the largest unit at the Asnæs plant (640 MW) in DK2. The closure of these plants has meant that in future there will be greater dependency on foreign connections and thus a greater price link with the highest of the price areas that Denmark s price areas are associated with. New price areas in Sweden Sweden was divided into four price areas on 1 November Sweden was ordered to do this by the EU, after it was established that the existing Swedish model of a single price area was protectionist and therefore a barrier to the free movement of goods. Prior to 1 November, Svenska Kraftnät had to reduce the capacity of the foreign connections in order to maintain a single price area. The new division should lead to more transparent and correct spot prices since the pricing will no longer be affected by the system manager to the same extent and will instead be determined by the commercial market players. Up until the introduction of the four price areas there was considerable uncertainty surrounding the power balance and thus the pricing in the four areas, especially in the southernmost areas, SE3 and SE4. The CfDs for November and December were traded with considerable risk premiums in the forward market, something which was especially true of SE4. Due to the continued mild and windy weather and nuclear power plants being brought back online relatively problem-free after annual maintenance, these two areas came in way under the price set for SE4 by the forward market. The market has yet to observe the pricing in the new areas in a strained balance situation. Futures and forward market 2011 was characterised by the Nordic water reservoirs improving markedly over the course of the spring, something which has not been seen to the same extent in the past 15 years. At the start of 2011, there was a shortfall of almost 40 TWh due to the fact that the Norwegian reservoirs were only 45.3% full. At the Norwegian Water Resources and Energy Directorate (NVE), it was feared that another cold winter like the one of 2010 would lead to such a strained situation that the enforced rationing of electricity in the driest areas could be necessary. This justified fear of an energy shortfall faded away quietly over the course of the spring as the water resources situation improved ended with a surplus in the order of 15 TWh, which corresponds to the fact that 55 TWh was supplied on an annual basis. At the end of week 52, the fill level in the Norwegian reservoirs had reached 80.30%, compared to a seasonal average of 71.60%. This was also the case for the Swedish reservoirs, where the fill level was 79.20% compared to a seasonal average of 66.20%. The majority of the precipitation fell in the period from May to September a huge 47 TWh which contributed to making 2011 the wettest year since 1996 with sharply falling prices as a result. The Japanese nuclear power disaster and the subsequent closure of German power plants at short notice greatly surprised the market, and the electricity prices rose steeply as speculation about a general shutdown of the European nuclear power industry created panic. The fear that Germany s

15 15 Spot - weekly average for the Swedish price areas in 2011 EUR/MWh 100 SE3 SE4 SE SE1 SE Week Malmö CfD (December 2011) EUR/MWh 15 Exchange rate (forward) Spot (base) Supply (=spot price-average) /09/ /10/ /11/ /12/2011 Average weekly fill level for Norwegian reservoirs Fill level Average ( ) Week

16 16 politically correct reaction would rub off on France s energy policy led to a 15% increase in the 2012 contract in Germany for the period from 11 March to 4 April 2011 a rise from EUR 53.11/MWh to EUR 60.68/MWh. The marginal cost of coal was EUR 51/MWh at the start of 2011 and was relatively stable in the first three months of the year until the closure of the German nuclear power plants pushed the market up dramatically to a level just below EUR 55/MWh. The marginal cost of coal then fell and at the end of 2011 was EUR 42.00/MWh. The marginal cost of coal in EUR terms depends on the coal price, the EUR/USD exchange rate (because coal is quoted in USD) and the CO 2 prices. In 2011, both the coal prices and the EUR/USD exchange rate remained relatively stable, whereas the CO 2 prices dropped sharply. CO 2 prices in freefall As the European debt crisis worsened, last year saw great pressure on the pricing of CO 2 quotas. Faith that there a is real willingness to solve the problems with strict international controls on the emission of CO 2 is virtually non-existent. The expectations for the COP17 Conference held in Durban in South Africa at the end of 2011 were not particularly great. The European Commission s declared target for further reducing CO 2 emissions by increasing the current target of 20% to 25-30% was received positively at first with prices rising slightly as a result. This declaration of intent could not, however, immediately guarantee a stable to rising price trend for the CO 2 prices, and the market instead continued to push the prices down to the record-low price level of EUR 7.00/tonne. As long as there is no binding agreement in place covering all the major CO 2 emitters outside of the EU, e.g. USA, India and China, it is difficult to see how the Kyoto Protocol can survive. Despite the challenges involved in reducing CO 2 emissions on a worldwide level, the sustainable wave continues in Europe, where the German market in particular has taken on the role of the green standard bearer. Over 7,000 MW solar energy was installed in 2011, meaning that the total solar power output at the end of the year was approx. 24,800 MW. The total wind turbine power output for the same period came to approx. 28,500 MW. Bearing in mind the current trend to exploit solar energy s more stable production, it cannot be ruled out that by the end of 2012 solar energy will overtake wind energy in Germany. Environmentally friendly production still represents a clearly increasing share of total production, and at the present time total production capacity in Germany has not fallen despite the phasing out of several German nuclear power plants. It will be exciting to follow the pricing in the German market where the trend is still for the phasing out of stable and cheap production and the establishment of expensive and unstable production. Natural gas market in 2011 The European natural gas market was put under a great amount of pressure in The natural dis-

17 17 Price development for YR12: System vs. Germany EUR/MWh 61 YR-12: Germany YR-12: System /03/ /03/ /03/ /03/ /03/ /04/2011 CO 2 -contracts EUR EUADEC-11 EUADEC-12 EUADEC-13 EUADEC /02/11 03/04/11 03/06/11 03/08/11 03/10/11 03/12/11 Environmentally friendly energy - installed capacity in MW MW Wind Solar Bio dec/2006 dec/2007 dec/2008 dec/2009 dec/2010 dec/2011

18 18 aster in Japan as well as the European debt crisis set the agenda for the political and economic measures. At the same time, this also cast doubt on whether Europe had safeguarded the reliability of supply for the use of natural gas as a source of energy. In the Danish wholesale market the reliability of supply for the next few years is still a high priority. In light of the expectation of falling natural gas production by the end of 2013, it is crucial for there to soon be a greater import capacity in the Danish natural gas infrastructure on the Danish-German border. A closer link to the German market is vital for the Danish natural gas market. In 2010, the import capacity on the Danish-German border was improved via a partnership between the Danish and German transmission operators Energinet.dk and Gasunie Deutschland respectively. This makes possible the physical import of natural gas from Germany to Denmark. The expansion on the Danish-German border is expected to be completed in Energinet.dk does, however, assume that in 2015 further measures will be implemented which will increase the capacity from 200,000 Nm 3 /h (2010) to 700,000 Nm 3 /h. Sustainable energy has been the operative concept on the political agenda for the forthcoming energy policy agreement. In September 2011, it became possible to import biogas into the Danish natural gas system, thereby allowing the natural gas producers to contribute to sustainable energy. A certificate scheme was also introduced in order to facilitate trading in biogas. One of the first biogas plants was also installed in Fredericia. The plant can import biogas into the Danish transmission system and then transport it on to an end customer. In October 2011, Energinet.dk changed the rules on transport customers balance handling for the supply of natural gas. A transport customer is entitled to transport the natural gas around the Danish natural gas system and is responsible for creating a balance between the natural gas supplied and the actual consumption. This made the requirement for transport customer forecasts of end customer consumption stricter. In addition to this, Energinet. dk decided to use the Danish gas exchange Nord Pool Gas quotation as the basis for the balance settlement where it had previously used the Dutch reference price Title Transfer Facility (TTF). In doing so, a Danish natural gas price was defined that has been accepted by the market. The future of the European gas market presumes total coordination in order to safeguard reliability of supply. Closer cooperation between the countries is essential for the proper investments to be made, and for the commercial players to have the right conditions in place to meet their commitments, in order to guarantee that the end customer can still be supplied with natural gas in the future. Several new gas suppliers joined the Danish retail market over the course of the year, and in 2011 Revenue, Nord Pool Gas MWh January February March April May June July August September October November December

19 19 there were 18 registered commercial players in the market. This is a marked increase in a short period of time and will lead to greater market competition. In 2011, has continued its partnership with the shareholder companies covering the supply of natural gas to the consumer segment. This partnership means that is the transport customer for the shareholders. The physical deliveries began on 1 January 2011, with the collaboration being positive and working well right from the start. expects this working relationship to continue to contribute to greater competitiveness for the shareholders and expand their product portfolio at the same time. s sales and delivery of natural gas to the business segment have continued to show positive growth in s pricing of natural gas is based on the European energy exchanges where transparency is rated highly. is still focusing on customer needs and has offered variable prices to the German price area NetConnectGermany (NCG) and the Dutch price area TTF in excess of those at Nord Pool Gas. The oil-indexed natural gas price still has a place on the Danish market and will continue to do so, due to the long agreements entered into between the major European natural gas companies. However, the demand for an oil-indexed gas price has fallen with spot-related pricing being preferred instead. In the future, will continue to use the European energy exchanges and provide an opportunity for the end customers to benefit from being able to trade directly on the European gas market. will also continue to utilise its knowledge and skills gained from its many years in the electricity sector to develop products that are demanded by the market. Price trends in the natural gas market Nord Pool Gas contributes to an average price and reflects the pricing based on supply and demand for the Danish natural gas market. The majority of trading in natural gas still takes place bilaterally between the commercial players using the virtual trading point at Energinet.dk called the Gas Transfer Facility or GTF. In 2011, trading on GTF accounted on average for 108% of Danish consumption while trading on Nord Pool Gas accounted for 10.50% of Danish consumption. This equates to a marginal increase of 0.50% compared to A total volume of 4.02 TWh was traded on the exchange in 2011, which corresponds to a small fall in revenue of 0.05 TWh compared to Trading increased in Q2 and Q3 compared to 2010, which is illustrated in the graph on the opposite page. The increased trading activity compared to the previous year demonstrates that trading on the exchange is not used as an alternative method of trading in periods with peak loads but rather as a daily part of the commercial players purchasing strategy. In the last two months of the year, the volume fell Spot price development, Nord Pool Gas, 2011 Price Øre (DKK)/Nm 3 NPG /02/ /04/ /06/ /08/ /10/201 01/12/2011 Supply date

20 20 compared to 2010 due to the warm weather and the large amounts of natural gas stored. In the spot market, the year began with soaring prices as a result of the high demand on top of an extremely cold winter as well as a strained supply situation. Up until the end of Q3, this was a period with a rising price trend, but after that point the spot price followed a slightly falling trend. The reasons behind this price movement are the tsunami in Japan and the European debt crisis, with the real focus in the summer being on Greece s economy. At the beginning of Q4 the price fell for a few days because of the warm weather in October, which led to more supply. In Q4, the spot prices were more volatile, although the prices were at a level which bears comparison with the spot prices in the summer. The reason for this was the mild weather in the last quarter of the year. The average spot price in 2011 was listed at øre (DKK)/Nm 3. The lowest price of the year ended up at øre (DKK)/Nm 3, while the highest was traded at øre (DKK)/Nm 3. Throughout 2011 there was a strong correlation between the Danish spot price and spot prices in continental Europe (Germany and the Netherlands), as illustrated on the opposite page. The large fluctuations between the price areas are due to local conditions that have affected the supply and demand situation and thus the pricing. The price trend in the forward market experienced a turbulent year in 2011, with not only the disaster at the Fukushima plant but also the unrest in the Middle East and the European debt crisis setting the limits for the price trend. Germany s decision to shut down several nuclear power plants led to a major question mark over the supply and demand situation. This resulted in the prices in the forward market rising because a risk premium was factored in if the demand for European natural gas was greater than the supply. The unrest in the Middle East affected the production of oil, which had a knock-on effect on the energy prices. The European debt crisis was an important factor in the price trend during the second half of Positive political and economic measures led to rising prices, while negative measures contributed to falling prices. The negative atmosphere was further reinforced by the USA s credit rating being downgraded. The centre graph on the opposite page shows the price trend for the calendar year for the forward contracts that are listed on the German energy exchange EEX (European Energy Exchange). This graph shows how the market reacted to the Japanese disaster as well as to the macroeconomic events in For YR-12 the average price was listed at EUR 26.27/MWh, which corresponds to øre (DKK)/Nm 3, while the highest and lowest prices were listed at EUR 28.26/MWh and EUR 22.75/MWh respectively, equivalent to øre (DKK)/Nm 3 and øre (DKK)/Nm 3. Development in gas stores The Danish gas stores have continued to be of major importance to the reliability of supply in Denmark and act as a buffer in situations where production levels of natural gas in the North Sea are declining saw Energinet.dk offer both short-term storage agreements and 10-year storage agreements for auction for the first time. All commercial players were allocated their desired capacities since the demand at the different auctions either matched or was less than the supply. The storage year 2011/12 did not see as much natural gas injected as in 2010/11. This was due to the gas stores generally being full because of the financial crisis. At the start of August, Energinet. dk s gas stores were 90% full, reducing the commercial players ability to restock the gas stores. The injection restriction continued until the middle of November, after which the players could again utilise their capacity to the full. At the end of 2011 the gas stores were not being used with the same intensity as at the end of 2010 when the Nordic countries were in the grip of an extremely cold winter. Seen over the year, the Danish gas stores were