Alpiq performed very well in a still fragile market environment

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Antje Kanngiesser and Johannes Teyssen

Dear reader,

After 18 months of crisis management, 2023 can be described as a year with a strong operational focus. We moved from pure risk control and liquidity management to operational excellence, profitability and a “Secure Base Leadership” culture. This translated into a very good performance and a significantly strengthened balance sheet at the end of 2023. Within a year, net debt of CHF 107 million had been turned into net cash of CHF 347 million, underlining Alpiq’s sound financial situation as a result of excellent operational performance in challenging times. The significant reduction of the price environment relieved the pressure of margin and liquidity squeezes. Volatility was still meaningful, but significantly below the erratic moves of the previous year and allowed us to exploit our key strength of flexibility management for our customers. In a nutshell, the embedded flexibility in our Swiss hydropower and European spread assets, along with our trading and origination competence, has proved once more to be a key enabler in increased renewable energy production.

With the commitment of the Board of Directors, Management and our employees, we have once again made a significant contribution to the security of supply in Switzerland and large parts of Europe. We take pride in living up to our purpose of contributing to security of supply and a better climate, and inspiring our stakeholders to join us. Once again, our teams ensured the highest availability of our plants, allowing us to supply electricity when needed. We also completed several important refurbishment projects in 2023. For example, in Valais the renovation of the Fionnay and Nendaz power plants and the penstock between Lake Dix and the Rhône Valley was completed after more than six years of work. The power plants (part of the Grande Dixence complex), which date from the 1960s, have been completely renovated via 89 sub-projects since 2016, and gradually resumed operations at the start of 2023 – about nine months ahead of schedule. Thus, an additional 450 MW of power was made available in the critical winter months of 2023. In the Simplon region, Energie Electrique du Simplon (EES) completed the full renovation of the Gabi hydropower plant, which opened in 1957, enabling average annual production to increase by about 15% to 44 gigawatt hours (GWh). All works came in on budget and on time.

In 2023, the Swiss authorities launched the second tender for the hydro winter reserve and again Alpiq gave the biggest commitment to ensure security of supply in Switzerland, at the expense of higher profitability of other businesses. Instead of maximizing profit, we focus repeatedly on security of supply in Switzerland and neighbouring countries.

New value chain steering has driven our performance

Our purpose has also been at the heart of our dialogue between Management, the Board of Directors and shareholders on Alpiq’s future strategic direction. Since 2021, Alpiq has focused on its core competences and core markets in order to increase resilience and profitability for future investments in security of supply and climate-sensitive operations. Climate protection and security of supply do not naturally go hand in hand. That’s why we are determined to find viable solutions that take the environment, society and the economy into account. In 2023, Alpiq’s Board of Directors confirmed this strategic path and Alpiq’s further development as a low carbon flexibility provider through its Asset, Trading and Origination business. We want to contribute significantly to the low carbon energy transition with increased security of supply and are committed to becoming net zero by 2040. However, our claim to sustainability goes far beyond a net zero target; it determines how we do business. We have issued a new Code of Conduct, which is at the core of our sustainable business transformation alongside responsible corporate governance and meaningful social responsibility. Our diversity is a key lever that contributes to our performance. In 2021, we became a member of ‘Advance – gender equality in business’ and set our target of increasing our share of female leadership from 6% to 33% by 2030. In 2023, the proportion of female leadership was 25% and there’s more to come. We further strengthened our assurance by appointing KPMG as the new external auditor and it has been successfully onboarded. Other actions taken to minimise our footprint can be read here in our sustainability report.

In 2023, our new value chain steering was fully implemented and has driven our performance. Abandoning a divisional perspective and managing value with a disregard for organisational layers has also proven extremely effective in promoting cross-divisional cooperation and understanding of what matters most. The focus on creating value for the entire company characterises the way we think and act, and ultimately leads to a significant improvement in operational performance.

As Michael Wider, Head of the Switzerland Division, decided to retire in 2024, we have been able to find in Amédée Murisier an excellent internal successor and addition to Alpiq’s Executive Board. Michael has played a key role in shaping Alpiq and EOS for more than 20 years and the Swiss energy industry for even longer. We would like to thank him for his tireless and valuable commitment to the company and express our deepest respect for his work. We are convinced that we have the right successor in Amédée. He knows Alpiq, our challenges and the opportunities ahead of us.

Following the very strong result in 2023, we are confident that we will perform well in 2024. Our highly flexible and reliable production plant portfolio helps to ensure security of supply across Europe. Not only is the value chain element Assets expected to generate good results, but the well-positioned Trading business and the firmly anchored Origination business, based on its long-term customer relationships, are also expected to do well. In line with our strategy, we will continue to focus on our core markets and competences. We will invest in our flexible production portfolio and expand our Trading business and Origination activities.

Our strategic ambition is to better support the security of supply

Our ambition is to better support the security of supply in Switzerland and the much-needed decarbonisation of the European energy system. Our Board of Directors shares this and has approved this new strategic ambition. The energy transition is doomed to fail without a different and better integration of the growing base of intermittent wind and solar energy capacities. This needs to be balanced with a reliable and consistent electricity demand by all customers. And it is precisely in this area that we want to play a role. With our extensive and highly flexible hydropower fleet, we offer the necessary flexible solutions. We have been one of the leading players on the European markets for decades. In recent years, we have even strengthened this position. But we now intend to move beyond these assets and capabilities to become a leading player in delivery of a wider range of technologies and commercial solutions to systems and customers. Our successful future investments will ensure that a new green energy supply can be added to the system – not risking but strengthening security of supply. Alpiq will become an important and growing enabler and integrator of tomorrow’s cleaner, better, decarbonised and reliable energy system.

We are aware that despite the easing in the energy markets, some uncertainty remains on how the markets will develop in 2024. Nevertheless, thanks to our strong financial position, we expect to maintain our good liquidity and net cash position in 2024. We continue to invest in our leadership development and are most grateful to our committed employees, whose very positive feedback in the group employee survey provided management with strong indications on how to pursue this course.

The Board of Directors of Alpiq will propose to the Annual General Meeting on 30 April 2024 that a dividend of CHF 3.5 per share totalling CHF 116 million is distributed for financial year 2023.

27 February 2024

Johannes Teyssen

Chairman of the Board of Directors

Antje Kanngiesser

CEO Alpiq Group