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Corporate Governance and Investments in Energy Production Anders Sandoff, PhD

Corporate Governance and Investments in Energy Production Anders Sandoff, PhD School of Business, Economics and Law, Göteborg University anders@handels.gu.se. The importance of corporate governance. Separation of ownership and control Different goals and attitudes towards risk

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Corporate Governance and Investments in Energy Production Anders Sandoff, PhD

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  1. Corporate Governance and Investments in Energy Production • Anders Sandoff, PhD • School of Business, Economics and Law, Göteborg University • anders@handels.gu.se

  2. The importance of corporate governance • Separation of ownership and control • Different goals and attitudes towards risk • Changes are taking place • Increased focus on corporate responsibility • The role of the corporate board of directors • The situation for the power and heat producers • Heavy investment needs • Widespread State and municipal ownership • Potentially high profit margins • Low public trust and presence of externalities

  3. How does this effect investments in energy production? • Web survey • All municipally controlled energy companies in Sweden with power and heat production (approx 100) • Chairman of the municipal executive committee • Chairman of the board of directors • Chief Executive Officer (CEO) • Targeted question areas • Ownership motives and goals for the company • Constitution, operation, role and competence of the board • Capital budgeting practices • Attitudes towards investments in power and heat production • Boundaries of an utility

  4. Tentative results • Based on approximately 40 % response rate • Multiple choice questions • Response scale based on literature studies and interviews • Work in progress • Only graphic display of frequency distributions • No non-response analysis • Answers are to a limited extent based on responses from the same companies

  5. Motives for municipalities to own an energy company Chairman of the municipal executive committee CEO • Influence the local energy system • Influence local environment • Low price district heating • Lower price distribution • Increase regional attractiveness • Financing other municipal activities • Increases quality in other activities • More profitable than selling • Gives financial stability • Heritage/historical reasons • Unclear motives • Other than above Chairman of the board of directors

  6. Importance of municipal owner for developmentlast ten years / coming ten years Chairman of the board of directors • Very little importance • Little importance • Some importance • Important • Very important • No opinion CEO

  7. Most likely reasons for investing in energy production coming five years, according to CEO • New connectable heat • Profits from power sale • Value of green certificates • Value of CO2 allowances • Need for added reserve capacity • Need for increased efficiency in existing production • Need for exchanging existing production units • Environmental reasons • Increased flexibility • High financial solidity • Customer demands • Owner demand

  8. Most important changes of the company's current operations in the coming ten years Chairman of the board of directors • Increased environmental focus • More power production • More wind power • More CHP • More heat production • More energy services • Expansion of district heating system • Expansion of gas grid • Reinforcement of power grid • Expansion of residential house district heating • Existing operations doesn't need to be changed • Other changes CEO

  9. Early lessons • Wide spread knowledge about owners motives • Influence the local energy system • Influence local environment • Low price in district heating • CEO acknowledge the significance of these motives • Municipalities is seen as important as owners • Expansion of district heating • New connectable heat is seen as the main driving force for investments • Important to expand residential house district heating • Large interest in CHP production • Many investments will be driven by aging equipment

  10. Possible lines of business, if economically attractive… Chairman of the board • Sales of heat pumps • Sales of heat exchangers • Drying of biomass • Sales of pellets • Manufacturing of pellets • Indoor climate solutions • Energy services • Energy system solutions • Owning production outside of municipally • Owning gas/oil production • Owning forests • Owning pellets manufacturer • Owning a broad band network • Sale of energy related network contents • Sale of non energy related network contents • Consultancy in environmental planning • Waste management • None of the above CEO

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