CHP combined heat and power production as energy efficient and sustainable solution

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Delhi Clean Energy Conference 11 December 2012 CHP combined heat and power production as energy efficient and sustainable solution Maria Paatero-Kaarnakari SVP, Fortum Asia 1

Fortum briefly Nr 1 Nr 1 Nr 2 Nr 2 Heat Distribution Power generation Electricity sales Great Britain Power generation 1.2 TWh Heat sales 2.1 TWh Nordic countries Power generation 53.1 TWh Heat sales 17.2 TWh Distribution customers 1.6 million Electricity customers 1.2 million Russia Key figures 2011 Sales EUR 6.2 bn Operating profit EUR 2.4 bn Balance sheet EUR 23 bn Personnel 10,800 OAO Fortum Power generation 17.4 TWh Heat sales 26.7 TWh TGC-1 (~25%) Power generation Heat sales ~7 TWh ~8 TWh Poland Power generation 0.6 TWh Heat sales 4.3 TWh Baltic countries Power generation 0.4 TWh Heat sales 1.1 TWh Distribution cust. ~24,000* * Distribution business sold Jan 1, 2012 2

Fortum's European power (and heat production) Fortum's European power generation in 2011 Fortum's European heat production in 2011 Nuclear power 45% Coal 26% Biomass fuels 24% Other 1% Biomass 3% Natural gas 4% Coal 9% European generation 55.3 TWh (Generation capacity 11,422 MW) Hydro power 38% Other 4% Peat 3% Waste 4% Oil 5% European production 22.0 TWh (Production capacity 10,625 MW) Natural gas 22% Heat pumps, electricity 12% 3

Agenda CHP concept 4

The global energy challenge Global average efficiency of power plants that generate only electricity is 41% Almost three-fifths of the primary energy used in these plants becomes waste heat, of no economic value With current way forward, energy related CO 2 emissions grow from 31.2 Gt in 2011 to 37 Gt in 2035 With current way forward, a long-term average temperature increase of 3.6 o C is estimated USD/MWh 70 60 50 40 30 20 10 0 1985 1990 1995 2000 2005 2010 Oil (Brent) Coal (NWE) 5 Source: IEA WEO 2012

Towards a future energy system Solar Economy CHP important in transition phase High Solar Economy Solar based production with high overall system efficiency Hydro Ocean Sun Resource & system efficiency Traditional energy production Exhaustible fuels that burden the environment CHP Advanced energy production Energy efficient and/or low-emission production Nuclear tomorrow Geothermal Bio Wind Low Oil Coal Gas CCS Nuclear today Finite fuel resources Large CO2 emissions Infinite fuel resources Emissions free production 6 Copyright Fortum Corporation All rights reserved by Fortum Corporation and shall be deemed the sole property of Fortum Corporation and nothing in this slide or otherwise shall be construed as granting or conferring any rights, in particular any intellectual property rights

CHP combined heat and power generation Combined heat, cooling and power (CHP) production is simultaneous generation of usable heat, cooling and electricity in a single process In CHP production the steam is used after a backpressure turbine for industrial processes or producing heating or cooling instead of dissipating it with the cooling water into the environment (as waste) Typical power to heat production ratio varies from 30-50% depending on the selected technology Up to 90% primary energy efficiency can be reached In the case of industrial CHP plants, the steam can be extracted in different stages from the turbine and used as process heat in required pressure levels; CHP facilities can be found in almost all manufacturing industries, in India, CHP (cogeneration) is currently typically found at the sugar industry 7

CHP is small scale electricity production in comparison with traditional thermal condensing plants for electricity production The disadvantage of small scale investments is set off by high fuel efficiency (heat production) and ability to effectively use local renewable fuels 8

Agenda CHP benefits 9

Benefits of CHP advanced energy production in transition phase to solar economy Efficient use of resources One plant multiple products Fuel flexibility Economically viable in small scale: Electricity Renewable fuels competitive to fossil fuels Large global potential 10

CHP fuel flexibility enhanced possibilities to use local fuels a further step closer to solar economy Local fuels can meet society s expectations of reduced environmental impact Waste Forestry biomass Bio oils avoid cost of CO 2 emissions reduce transportation and shortage risks Nonrenewable Agro biomass 11

New CHP+ concepts integrated production adding value Key rationale and potential New sustainable business opportunities and better utilization of assets Development of integrated technologies to produce upgraded higher value products e.g. traffic fuels or bio-chemicals Wider product range; new products in addition to electricity, heat and cooling from one plant Better management of fuel portfolio and prices; production of renewable fuels and replacement of fossil fuel oils New sustainable solutions to decrease emissions and use of fossil fuels, to improve energy efficiency and to create added value CHP+ concept : Bio-oil production integrated to CHP-plant in Joensuu Investment 20 M to a industrial-scale demo plant Construction to be completed H1/2012-H2/2013 Yearly bio-oil production of 50.000 tons equals 210 GWh to replace heavy fuel oil in existing heat boilers 12

More electricity with lesser emissions Environmentally friendly combined heat and power (CHP) production has many benefits. It is no surprise that the EU regards it as one of the key technologies in the reduction of greenhouse gases. Today cogeneration saves Europe around 200 million tonnes of CO 2 per year. In the next 20 years, studies indicate that at least 25% of electricity production could come from cogeneration. This potential can come from industrial, district heating, buildings and agricultural applications. Micro-CHP, biomass-chp and new technologies, such as cooling, poly-generation and fuel cells are areas where the potential for cogeneration has yet to be realised. 13

Agenda Examples on CHP solutions 14

Stockholm winter 1950 15

Stockholm winter 2010 CHP/district heating have enabled radical emissions reduction 60 % CO 2 (carbon dioxide) 80 % NOx (nitrogen oxides) 95 % SOx (sulphur oxides) 16

Savings in carbon dioxide emissions in Finland due to CHP million t CO 2 25 20 savings due to CHP 15 10 5 CO 2 -emissions in the production of district heat and cogenerated electricity 0 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 17 *) The actual fuel savings are equal to 3 million metric tons of hard coal.

Fortum's CHP plants (Europe) increasing utilization of complex and renewable fuels Existing Main CHP's in Heat Division Fuels Electricity MW CHP Suomenoja, Finland Gas, Coal 370 565 CHP Naantali, Finland Coal, biomass 325 430 CHP Stockholm City, Sweden Coal 125 295 Heat MW CHP Högdalen, Stockholm, Sweden Wase, biofuel 70 1,500 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 CHP Czestochowa Coal, biomass 64 120 CHP Pärnu, Estonia Biomass, peat 24 50 CHP Projects, under construction Fuels Electricity MW CHP Klaipeda, Lithuania Waste, biomass 20 50 CHP Brista, Sweden Waste 20 60 CHP Järvenpää, Finland Biomass, peat 24 60 CHP Jelgava, Latvia Biomass, peat 24 60 Heat MW 18

Making use of local fuels Högdalen, Stockholm municipal waste for CHP Högdalen 40 years experience of waste-to-energy CHP Up to 700,000 tonnes recycled waste p.a. 3.6 TWh heat p.a. 0.3 TWh electricity p.a. Using waste as energy raw material is sustainable in all levels of society Local fuel from recycled materials Turns cost into commodity Landfill problems solved Reduces methane by reducing landfills 19

Agenda CHP potential for India 20

District heating and CHP in Europe EU energy policy encouraging further deployment DH market share ~15% in European heating markets CHP market share ~11% in European electricity markets 21 Sources: Euroheat & Power, KPMG benchmarking, Fortum analysis

Long-term potential competitiveness of energy efficient CHP will increase driven by fuel prices and by need to reduce emissions Today, CHP covers about 10% of world electricity supply with significant growth potential globally CO 2 / primary energy scarcity issues will increase CHP s competitiveness EU s Industrial Emissions Directive to drive new CHP investment potential US goal of additional 40 GW industrial CHP capacity by end 2020 Synergy opportunities in the growing bio energy and bio fuel markets Organic growth potential in emerging markets Global new CHP potential 1,350 TWh e From 2,000 TWh e up to total 3,350 TWh e by 2020 Small scale CHP Desalination Industrial CHP District heating >100 >250 >500 >500 22

CHP potential for India? 23

CHP for industrial clusters CURRENT MODEL: MULTIPLE BOILERS, DG SETS AT CUSTOMER LOCATIONS 24

CHP for industrial clusters untapped potential in India PROPOSED MODEL: CONSOLIDATED CHP Efficient use of fuel & other resources Reduced emissions and waste More reliable power supply Optimized land & equipment usage Allows industries to focus on core 25

Promotion of high-efficiencychp will call for further deployment of regulatory incentives EU today Energy Efficiency Directive (EE-D 2012) ) Revision of State Aid Rules (ongoing) Industrial Emissions Directive (IE-D 2011) Emission Trading Scheme Directive (ETS-D 2009) Renewable Energy Directive (RES-D 2009) Energy Taxation Directive (ET-D 2003) Energy Performance of Buildings Directive (EPB-D 2002) energy efficiency through promoting efficient district heating and cooling, and high-efficient CHP replacing existing CHP Directive 2004 setting EU wide pre-conditions for national support mechanisms boosting refurbishments of outdated CHP assets preferred market-based climate instrument promoting renewable electricity and high-efficient cogeneration increasing tax burden on fossil fuels promoting increased energy efficiency through stricter building regulations 26

CHP for India.. CHP has proven and sizeable potential for increasing energy efficiency, that would benefit all parties involved including the environment, the state, the local communities and industry how then promote CHP in India? Preferential tariffs in place when majority biomass-fuelled Recent court rulings in a few Indian states have freed captive CHP plants using conventional fuel from RPO obligation, i.e. considered CHP similar to production based on renewable energy How to acknowledge the primary energy efficiency and CO2 emissions reducing value of CHP eligibility for certificates (PAT/REC)? 27

Thank you! www.fortum.com www.fortum.in 28