AdvantagesAdvantages ofof BiofuelBiofuel CHPsCHPs

Zemgale Zemgale EnergyEnergy DaysDaysJelgavaJelgava

Ginta CimdiĦa-Pundure24 September 2010

Fortum is the world’s 4th largest heat producer with operations in 8 countries

• Listed at the Helsinki Stock Exchange since 1998• Over 90,000 shareholders• Heat sales 50,2 TWh and electricity sales 20,4 TWh (2009):

CHP/condensing production in over 30 plantsSmall scale heat production in over 700 heat-only boilersOperations in over 200 district heating networks located in 80 cities

Households 7.1%

Financial and insuranceinstitutions 2.7%

22

• Industrial heat and steam supply for over 250 indus trial customers• Management model under two divisions

Heat: Sweden, Finland, Norway, Poland and Baltic countriesRussia : OAO Fortum (former TGC-10) and ~25% in TGC-1

Foreigninvestors30.5% The Finnish

state50.8%

Other Finnishinvestors 8.9%

TGC-1 (~25%)Russia

Our geographical presence today

Nordic countriesGeneration 48.1 TWhElectricity sales 54.9 TWhHeat sales 18.0 TWhDistribution cust. 1.6 millionElectricity cust. 1.2 million

Nr 1

Nr 3

Heat

Electricity sales

Distribution

Power generation

Nr 1

Nr 2

Total sales: – ca. 25 TWh heat – 5 TWh electricity

Total production capacity:– 23 CHP plants – 700 heating plants

and stations

33

Power generation ~6 TWhHeat sales ~8 TWh

OAO Fortum Power generation 16.0 TWhHeat sales 25.6 TWh

PolandHeat sales 3.7 TWhElectricity sales 20 GWh

Baltic countriesHeat sales 1.3 TWhElectricity sales 0.1 TWhDistribution cust. 24,100

Fortum’s Mission and Strategy

Strategy

Fortum’s purpose is to create energy that improves life for present and future generations.

We provide sustainable solutions that fulfill the needs for low emissions, resource efficiency and energy supply

security, and deliver excellent value to our shareholders.

Mission

44

Competence in CO2 free nuclear, hydro and energy efficient CHP production, and

operating in competitive energy markets

Fuel mix

Waste21%

Biomass fuels35%

Seawater16%

Electricity17%

Fosil oil6%

Coal5%

Stockholm

Biomass fuels78%

Peat16%

Natural Gas6%

Tartu

55

Natural gas

100%

Jelgava

Biomass fuels81%

Peat17%

Natural Gas2%

Parnu

Overview of Heat’s main CHP plants

Existing Main CHP's in Heat Division

Fuels Electricity MW

Heat MW

CHP Suomenoja, Finland Gas, Coal 370 565

CHP Naantali, Finland Coal, biomass 325 430

CHP Stockholm City, Sweden Coal 125 295

CHP Högdalen, Stockholm, Sweden Waste, biofuel 70 150

CHP Brista, Stockholm, Sweden Biofuel 42 108

CHP Hässelby, Stockholm, Sweden Wood pellets 75 194

CHP Joensuu, Finland Biofuels, Peat 70 130

CHP Nokia, FInland Gas 70 85

CHP Tartu, Estonia Biofuels, Peat 22 65

6

CHP Tartu, Estonia Biofuels, Peat 22 65

CHP Projects, under construction or planned

Fuels Electricity MW

Heat MW

CHP Czestochowa Coal, biomass 65 120

CHP Pärnu, Estonia Biomass, peat 20 45

CHP Klaipeda, Lithuania Waste, biomass 20 50

CHP Brista, Sweden Waste 20 60

CHP Järvenpää, Finland Biomass, peat 24 60

CHP Jelgava, Latvia Biomass 23 45 Naantali CHP plant provides heat for the city of Turku

CHP regulation challenges in Latvia

Date No Title Status

24.07.2007. 503 “Regulations Regarding power production using RES ”

not in force

24.02.2009. 198 “Regulations Regarding power production using RES and determination of price”

not in force

16.03.2010. 262 “Regulations Regarding power in force

7

16.03.2010. 262 “Regulations Regarding power production using RES and determination of price”

in force

06.11.2006. 921 “Regulations regarding power production in cogeneration ”

not in force

10.03.2009. 221 “Regulations regarding power production and price determination for power produced in cogeneration ”

changed 18.03.2009, 01.12.2009, 31.12.2009, 23.09.2010

End 2010 “Renewable energy Law “ in prog. from Jan-2010

Combined heat and power production and district heating is extremely energy efficient

• Very high fuel efficiency

• Small scale production enables local fuels (bio, waste, peat) with lower price volatility

• Competitiveness of CHP increases with higher coal and gas prices,

8

• Fuel efficient CHP utilising heat as primary energy source

• CHP is small scale electricity production

with higher coal and gas prices, and with the need to reduce emissions (CO 2)

• Dust emission regulation (Industrial Emissions Directive) by 2016 drives potential for new CHP investments

Benefits of CHP are undisputable – offering untapped business opportunities

• High fuel efficiency• High fuel flexibility• A key solution in meeting increasing

demand for heat and power in urban environments

• Politically sound solution for sustainability

9

sustainability• Subsidies from power production

(Green certificates)• Competitive• Still unexploited potential

Value creation logic based on the cost of alternative supply options

Condensingthermalpower

Alternativeheat supply

Power Heat Power Heat

CHP

Value creation logic

10

Production cost Production Cost

If electricity price is set by condensing thermal power plant new entry cost and heat is priced according to alternative supply, CHP production is principally profitable due

to more efficient fuel utilisation.

>

Emission reduction targets and increasing fuel costs will promote growth of CHP production in the future

Customer and Social Benefits from District Heating Customer benefits• Competitive price• Comfortable and reliable• Constant local presence• Automated metering and online

reporting support energy savings

Social benefits• Enables efficient CHP production and

thus superior CO2 efficiency

11

thus superior CO2 efficiency• Suits urban infrastructure• Centralized emission control in power

plant

Other benefits• Fuel flexibility• New market and new industry

development (based on local biofuels)

• New work places

Parnu CHP plant (2010-Apr)

• Heat 45 MW• Electricity 24 MW• Fuel:

– peat 50%, – biomass 50%,

1212

Tartu CHP plant

• Heat 52 MW• Electricity 25 MW• Fuel:

– peat 40%, – biomass 50%,– waste10%

1313

Existing heat load curve

40

50

60

70

80MW

0

10

20

30

40

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106

113

120

127

134

141

148

155

162

169

176

183

190

197

204

211

218

225

232

239

246

253

260

267

274

281

288

295

302

309

316

323

330

337

344

351

358

365

14

Gas boilers

Gas CHP

Days

Heat load curve with BioCHP

40

50

60

70

80MW

0

10

20

30

40

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106

113

120

127

134

141

148

155

162

169

176

183

190

197

204

211

218

225

232

239

246

253

260

267

274

281

288

295

302

309

316

323

330

337

344

351

358

365

15

Gas boilers

BioCHP

Gas CHP

Days

Heat Tariff from 2007 - 2010LVL/MWh

35

40

45

50

55

60

Heat tarif LVL/MWh w/o VAT

16

10

15

20

25

30

35

Jan.

07

Feb

.07

Mar

.07

Apr

.07

Mai

.07

Jūn.

07

Jūl.0

7

Aug

.07

Sep

.07

Okt

.07

Nov

.07

Dec

.07

Jan.

08

Feb

.08

Mar

.08

Apr

.08

Mai

.08

Jūn.

08

Jūl.0

8

Aug

.08

Sep

.08

Okt

.08

Nov

.08

Dec

.08

Jan.

09

Feb

.09

Mar

.09

Apr

.09

Mai

.09

Jūn.

09

Jūl.0

9

Aug

.09

Sep

.09

Okt

.09

Nov

.09

Dec

.09

Jan.

10

Feb

.10

Mar

.10

Apr

.10

Mai

.10

Jūn.

10

Jūl.1

0

Aug

.10

Sep

.10

Okt

.10

Heat Tariffs in Latvia April 2010, LVL/MWh

25.00

30.00

35.00

40.00

45.00

50.00

55.00

17

10.00

15.00

20.00

Heat Tariffs in Latvia September 2010, LVL/MWh

35.00

40.00

45.00

50.00

55.00

18

25.00

30.00

Fortum Jelgava (heat supply in perspective)

Ganību II5MWth/4MWel

Ganību I113MW

Skautu0.3MW

Instituta0.9MW

Kalnciema2.5MW

Aviacijas28MW

1919

BIO CHP plant45MWth/23MWel

New connection

Filozofu0.8MW

5MWth/4MWel

Neretas1MW

Construction of Bio Fuel CHP Plant in Jelgava

• Installed capacity – 45th / 23el MW• Fuel: wood, straws, etc.• Boiler technology: Bubbling Fluidized Bed

Boiler• Turbine technology: backpreasure steam

turbine

20

turbine• Amount of heat energy produced per year –

up to 230 GWh • Planned investments up to 65 MEUR• Finalization of the project – in Dec, 2012• Within the scope of the project it is required

to construct a connection pipeline between the two networks.

20

Structure of heat energy costs

ConsumptionConsumption

Total costs

Client’s responsibility

2121

DistributionDistribution

ProductionProduction

Total costsLVL/m2

Energy supplier’s responsibility

Improvements in DH network

3000

3500

4000

4500

5000

Replaced DH pipes, m

€ 800 000

€ 1 000 000

€ 1 200 000

22.0%

24.0%

26.0%

Heat loses in DH network andInvestments

Heat loses

Investments

22

0

500

1000

1500

2000

2500

2005 2006 2007 2008 2009

22

€ 0

€ 200 000

€ 400 000

€ 600 000

14.0%

16.0%

18.0%

20.0%

2005 2006 2007 2008 2009

Heat loses

2323

Thank You!