Profitable, sustainable bioenergy solutions for the Baltic region Fortum case

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1 Profitable, sustainable bioenergy solutions for the Baltic region Fortum case Esa Hyvärinen, Senior Vice President Corporate Relations Nordic Baltic Bioenergy 2015, Riga, April 14 th -16 th, 2015

2 Fortum is owned by approximately 110,000 shareholders Power and heat company in the Nordic countries, Russia, Poland and the Baltics Listed at the Helsinki Stock Exchange since 1998 Among the most traded shares on the Nasdaq Helsinki stock exchange Market cap ~18 billion euros Households 8.3% Financial and insurance institutions 2.3% Other Finnish investors 7.9% Finnish State 50.8% Foreign investors 30.7% 28 February

3 Our current geographical presence Power generation Heat Electricity sales Distribution * Including Fortum s associated company Fortum Värme; power generation 1.2 TWh and heat sales 7.6 TWh. Nordic countries Power generation* 49.2 TWh Heat sales* 10.9 TWh Electricity customers 1.3 million Distribution customers in Sweden 0.9 million Key figures 2014 Sales EUR 4.8 bn Comparable operating profit EUR 1.4 bn Balance sheet EUR 21 bn Personnel 8,600 Russia* OAO Fortum Power generation 23.3 TWh Heat sales 26.0 TWh * In addition, Fortum has a 29.5% share in TGC-1 Poland Power generation 0.7 TWh Heat sales 3.4 TWh Baltic countries Power generation Heat sales 0.7 TWh 1.2 TWh India Power generation 9 GWh 3

4 Climate change dilemma: Heading to +4 C, pledging for +3 C and talking about +2 C The scientific basis of climate change is evident: warming is unequivocal and human influence is clear. Global mean temperature increase above pre-industrial by 2100 The international community has agreed the 2 C temperature rise as a goal. Global carbon budget for 2 C target is likely to be exceeded by ) To reach 2 C global emissions have to peak by 2020 and reduced by 50 80% from 1990 by Current emission trend heading to 4 C: gap to target is increasing to 8 12 GtCO 2 eq/a 1) by Current emission pledges are resulting in 3 C: world s countries should deliver their pledges early 2015 for the Paris COP negotiations. Bioenergy has a significant greenhouse gas (GHG) reduction potential up to 80 90% compared to the fossil energy baseline, provided that the resources are developed sustainably and that efficient bioenergy systems are used. 3) It is the only renewable source that can replace fossil fuels in all energy markets in the production of heat, electricity, and fuels for transport. Remaining 275 GtC Estimated increase in Source: Climate Action Tracker Carbon budget for 2 C target Remaining budget Used GtC 1 Sources: IEA 2013, WRI ) UNEP The Emissions Gap Report ) IPCC 5 th Assessment Report ) IPCC, Bioenergy Special Report on Renewable Energy Sources 2011

5 Legally binding sustainability criteria for solid and gaseous biomass are needed According to the Commission about half of the increase in renewable energy needed to achieve EU 2020 RES target comes from biomass. Review of RES legislation is expected to take place in Biomass will be a key issue (bio-chp as one way forward). Biomass will play a pivotal role in achieving the EU 2030 RES target. In order to avoid fragmentation of EU biomass market and establish a level playing field for industry a legally binding set of sustainability criteria for solid and gaseous biomass is needed. The legal framework to be established should build on sustainable forest management legislation and practices. A key issue in possible new legislation is the necessity to retain carbon neutrality of biomass as set out in the ETS Directive. Sustainability of biomass should be based on mutual recognition among Member States. 5

6 Fortum s investment programme in Europe Major bio- and waste-chp investments in several countries Naantali co-owned bio- CHP (ongoing) Joensuu Pyrolysis oil production in CHP plant Joensuu Brista co-owned waste-chp Stockholm Järvenpää Espoo Jelgava Klaipeda Järvenpää Bio-CHP Värtan co-owned bio- CHP (ongoing) Częstochowa Espoo sewage water heat pump Jelgava Bio-CHP Espoo geothermal heat pump (ongoing) Klaipeda Waste-CHP Czestochowa Coal/bio-CHP Espoo heat recovery from hospital (ongoing) 6

7 Jelgava Bio-CHP benefits to GHG emissions and the Latvian economy First and largest bio-chp project of its kind in Latvia Commissioned 2013, investment about 77 M Economic impact (examples) Jelgava district heating customers M * Latvian fuel supply chain M ** Latvian workforce M ** Latvian trade balance M *** Increase in employment in the value chain + 88 FTE** CO 2 emissions from heat production (g CO 2 /kwh) Sources: * Fortum, reduction of end customer price 2013-April 2015 ** Preliminary report of Gaia Consulting Oy made for Fortum. Final report to be published in April 2015 *** Preliminary figures depending on result of analysis of the electricity merit order of Latvia

8 Assessment of impact in environmental sustainability of the Jelgava bio CHP case Indicator group Climate change Energy Material efficiency Resource depletion Indicator 1.1 GHG emissions from production 1.2 GHG emissions from transport 1.3 Carbon balance 2.1 Energy intensity of processing steps Case Jelgava 2.2 Share of renewables in energy used in processing steps 3.1 Alternative uses of raw material 3.2 Main raw material utilization rate to products 3.3 Waste per product ratio 4.1 Fossil intensity 4.2 Mineral intensity 5.1 Land use efficiency of raw material production Competitive advantage Neutral Potential risk PRELIMINARY DRAFT* Heat and electricity production by wood chips Heat production by natural gas and electricity production by Latvia s grid mix *Final report will be ready in April Land use synergies through ecosystem services + + Land use Threat to food production from raw material production 5.4 Threat to biological diversity from raw material production 5.5 Risks through indirect land use change

9 Key takeaways Biomass can and will play a significant role in climate change mitigation Sustainability criteria for biomass should be established and there should be mutual recognition of schemes Biomass is an ideal fuel for CHP CHP competitive situation is tight, new ways to improve its competitiveness needed Biomass in CHP contributes positively to local and global economic, security of supply and environmental target 9

10 10 Thank you!