The Combined Heat & Power (CHP) story - Baltics

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Content

CHP – energy for the future

Sustainability

Global potential

Pricing

Fortum – Next Generation Energy Company

Fortum’s vision for the future

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C

D

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F

CHP – energy for the future

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CHP – a simple and safe technique with great benefits

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Economically viable in

small scale: Electricity

One plant – multiple products

Renewables competitive to

fossil fuels

Fuel flexibility Efficient use of resources

Large global potential

Main advantages of CHP

Overview

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Main advantages of CHP

Efficient use of resources

Losses 25Losses 25 Losses 48Losses 48

CHP production75% efficiencyCHP production75% efficiency

Separate production52% efficiencySeparate production52% efficiency

Fuel100Fuel100

Fuel100Fuel100

Electricity 25Electricity 25

Heat 50Heat 50

Electricity 17Electricity 17

Heat 35Heat 35

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Main advantages of CHP

Economically viable in small scalewith potential for economy of scale

CHPCHP

8

Non-renewable

Forestry biomass

Agro biomass

Bio oilsWaste

Main advantages of CHP

Fuel flexibility

99

Main advantages of CHP

Renewables competitive to fossil fuels

• Reduced environmental impact

• Avoids cost of CO2 emissions

• Reduces transportation and shortage risks

• Offers a more stable and competitive price

Chapter 2

Sustainability

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March 2009

0

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

TWh

2006 Afterinvestmentprogramme

2007

Consistently towards CO2-free energy production

Fortum’s electricity production in the Nordic countries

2008

Hållbar utveckling 201011

Other production(Peat, gas, coal, other)

CO2 -free production(nuclear, hydro power, and bio mass)

Researching new fuels

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• Bio-fuels, residual products, waste

• Low cost, abundant, sustainable

• Meeting plant specifications

• Bio-fuels needs to fulfil EU-criteria

• Fuels for electricity needs to qualify for

• green certificates

• chemical legislation

Research and progress bio-fuels

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Residual products from biodiesel

Lignin

Animal oilsPellets

Pine tar oilPyrolitic oils

Olive stones

Salix

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Secure Security of supply

Sustainable

Simple Competitive

Meets the demands of customers and society

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The sustainable waste

• Enables a more sustainable society

• Local fuel from recycled materials

• Turns cost into commodity

• No need for landfill

• Reduces methane by reducing landfills

European Commission climate targets

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20-20-20 until 2020

Reduce green house

gas emissions with

20 %

Increase usage of renewable energy to

Increase energy

efficiency and energy savings with

20 % 20 %

Chapter 3

Global potential

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China

Russia

India

Europe

North America

Global demand for 4,800 GW new capacity until 2030

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Source: IEA WEO 2009, reference scenario

Primary energy demand 2007-2030

Electricity consumption growth 2007-2030Electricity capacity additions 2008-2030 (GW)

China

Russia

India

Europe

North America

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CHP meets the global challenges

Organic growth potential in emerging markets

Organic growth potential in emerging markets

Significant growthpotential globallySignificant growthpotential globally

Enables the use of local fuels (bio, waste)Enables the use of local fuels (bio, waste)

Synergy opportunities in the growing bio energy and bio fuel markets

Synergy opportunities in the growing bio energy and bio fuel markets

EU’s LCP Directive to drive new CHP investment potential further

EU’s LCP Directive to drive new CHP investment potential further

CO2 issue will increase CHP’s Competitiveness

CO2 issue will increase CHP’s Competitiveness

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Estimated distribution of potential increase

Small scale CHP >100Desalination >250Industrial CHP >500District heating >500

>1,350

An average CHP plant equals 2 TWhe

Main advantages of CHP

Large global potential for CHP

Heat

Elec-tricity

2,000 TWhe1,000 large plants

Today

>3,350 TWhe1,675 large plants

Tomorrow

CHP output(approx. distribution)

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Supply – demand balance of solid biomass Current Potential

Wood

Agro

Estimated bio fuel potentialby 2020

(TWh fuel)

869

193

Source: Pöyry analysis 2010

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Current EU target

Estimated waste to energy potential by 2020

Waste incinerated today and potential

26 311

1000 tn/a

73 035

Chapter 5

Pricing

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Heat pricing

Regulatory approval of heat

prices from ex ante to ex post

Protection towards

excessive heat prices

Different regulators approach

Most common approach - cost based pricing

District heating pricing approaches vary in different European countries

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Heat pricing

Incentivizing productivity

improvements and investments

Simple, straight forward and high

quality

DH competitive with alternatives

over time

DH competitive with alternatives

over time

Promotion of alternative based pricing based on several advantages

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Heat pricing

• Provides incentives for energy efficiency actions

• Secures reasonable returns on invested capital

• Market prices for both heat and electricity

• fair for customers and companies,

• allows to cover costs of necessary investments

• sustainable in a long term

• predictable and do not create additional costs

The most important aim of DH industry is to create a pricing approach that is:

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Energy efficient buildings and district heating

• Important with understanding of global system perspective.

• Promotion of alternative space heating solutions will decrease the potential for energy efficient CHP production.

• Decreasing heat demand will reduce heat sales specially during spring and autumn time. Peak hours will decrease and respectively share of fixed costs will increase.

• Any measures leading to increased condensing electricity production or heat-only production should be carefully considered.

• Obligatory connection to district heating is not recommended

Chapter 6

Fortum – Next Generation

Energy Company

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Fortum’s emissions among the lowest in Europe

Source: PWC & Enerpresse, Novembre 2010Changement climatique et Électricité

g CO2/kWh electricity, 2009

Average 346 g/kWh

0

200

400

600

800

1000

1200D

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Dra

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RW

E

CE

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SS

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Ene

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on F

enos

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urop

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tota

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EU

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tkra

ft

41155

CO2-free electricity production 2010•66% of total electricity production•86% of electricity production in the EU• The majority of the capacity of the ongoing investment programme in the EU is CO2-free.

Source: PWC & Enerpresse, Novembre 2010Changement climatique et Électricité, Fortum

Note:Fortum’s specific emission of the power generation in 2010 in the EU were 84 g/kWh and in total 189 g/kWh, 86 % (91 %) emission free in EU and 66 % (69 %) emission free overall.Figures for all other companies include only European generation.

Mission

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Our mission and strategy

Strategy

Create solid earnings growth in Russia

Leverage the strong Nordic core

Build platform for future growth

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

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.

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CHP cornerstone of Fortum’s strategy

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• Corner stone in Fortum’s strategy

• Competitive

• Resource efficient

• Has potential for further growth

• Will enable the sustainable society

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CHP is part of Fortum’s past, present and future strategy

Kuusamo

UimaharjuJoensuu

Nokia

SuomenojaKirkniemi

Naantali

Kauttua

Tartu

Jelgava Ganibu

Pärnu

Klajpeda (under construction)

CzęstochowaŚwiebodzice

BristaCity KVV6/Stockholm/ CHP

Hässelby

HögdalenCity KVV1/Stockholm

BytomZabrze

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Cases (3/4)

Pärnu, Estonia

• Fueled by local bio fuels such as chips, wood residues from local industries, and peat

• Provides the City of Pärnu with district heating

• Constructed without accidents

• Benifits local industry

Fortum Klaipėda

CHP – a simple and safe technique with great benefits

Overview

• At the moment ”Fortum Heat Lietuva” owns 95% of ”Fortum Klaipeda” shares, other 5 % - AB Klaipėdos energija

• Total planned investment - EUR 130 million

• Power plant capacity for heat power will consist of 50 MW from fuels incineration plus 14 MW during Winter time from flue gas condenser. It planned to produce 140 GWh of electricity and about 380 GWh of heat power

Overview

• Capacity – 50 MW of heat and 20 MW of electricity

• Klaipėda CHP plant will use biofuels as well as municipal and industrial waste as fuel, producing both heat energy that will be supplied to Klaipeda city, covering 40% of Klaipeda’s heat demand, and electricity that will be sold in the national grid Klaipeda CHP plant will use the latest available technologies that will secure maximum efficiency of fuel consumption as well as from flue gas cleaning

• Planned commissioning – 2013

Annual reduction of CO2

emissions - by

96000 tons

Steam boiler of a grate type 85MW • Steam pressure - 47 bars, temperature - 400º C, • Steam generation capacity - 105 t/h• Steam turbine and generator 20MW

Annual output will be generated: • about 400 GWh thermal energy• about 140 GWh electrical power

Fuel types which are being used at CHP

• Biomass fuel (wooden chips) - 75’000 tons• Public utilities waste - 115 -130’000 tons• Industrial waste - 50’000 tons

Public utilities waste from Klaipėda region after the primary screening on the locations of their collection or after the secondary screening

Fuel types

Benefits for Klaipėda region

• Reduces dependence on imported fuels (natural gas) when supplying heat to Klaipeda city, whereas 40% of heat from total needed for the city will be produced in this CHP plant.

• Reduced dependence on imported fuel (gas)

• More stable heat tariff

• Reduced expenses for construction of new waste dumps and management of the existing ones since the amount of waste reduces by 4 to 5 times as a result of waste burning process

• Reduced impact on the formation of the greenhouse gas effect since the gas originating from waste dumps (shale gas) has a much greater impact on the increase of the greenhouse effect than CO2 gas

Construction in Klaipėda

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Great business opportunities for the CHP business

• CHP especially suitable in densely populated areas

• 40 % of EU’s energy is used for heating

• Demand for electricity will increase when replacing other types of energy

• Demand for heating is expected to decrease only very slow

• Even small CHP plants more and more profitable in the future

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Continue to strive for resource efficient carbon

free production

What does Fortum want?

Push the development towards the sustainable society Continue the integration

towards a European market

R&D on sustainable energy sources

Chapter 7

Fortum’s vision for the future

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* CCS decreases plant output (energy efficiency), while at the same time reducing CO2 emissions dramatically.If applied to bio-CHP, “negative” emissions = removing CO2 from the atmosphere

** Extremely low utilization (<5%) of uranium energy content in LWR with final deposition of spent fuel.However, huge improvement potential both with CHP mode and Generation IV (breeder) technologies

* CCS decreases plant output (energy efficiency), while at the same time reducing CO2 emissions dramatically.If applied to bio-CHP, “negative” emissions = removing CO2 from the atmosphere

** Extremely low utilization (<5%) of uranium energy content in LWR with final deposition of spent fuel.However, huge improvement potential both with CHP mode and Generation IV (breeder) technologies

Towards a solar economy

HighHigh

LowLow

FiniteFinite InfiniteInfinite

EfficiencyEfficiency

ResourcesResources

Condensing

CHP

SolarSolar

Coal IGCC CHP

Coal CHPCoal CHP

CCGT CHP

CCS *

Bio fuelsCHP

Nuclear tomorrow**

Nuclear today **

Coal condensing

Gas condensing

CCS *

SolarCSP

Hydro

Photo-voltaic Osmosis

Wind Wave

Large CO2 emissionsLarge CO2 emissions Zero emissionsZero emissions

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Fuel flexibility enables transition towards solar economy and sustainability

• CHP a driving force away from fossil fuels

• Renewable local fuels are advantageous over fossil fuels

• Reduced environmental impact

• Fuel flexibility enables the use of local fuels and renewable fuels

• Reduces the need for fuel transportations

Smart Heat – a research project for the sustainable energy system of the future

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Electricity, heat, cooling, and gas in one integrated system where we always make use of surplus energy

The sustainable energy system of the future We use energy that would otherwise be

lost, and use it when it is needed

1. Enables more solar and wind power2.

Increased integration between the heating and electricity systems

1.Heat and cold storage

2.Increased share of local production in buildings

3.Smart grids

4.Electric vehicles and bio gas vehicles

We make use of all local energy

1.Recycling turns household waste into electricity, heat, and biogas

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Pyrolysis could be a fast track for fuel switching

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• Oil is produced by low oxygen burning

• Pyrolysis can be obtained by utilising the heat from existing CHP-plants

• Fortum is part of a R&D consortium which has piloted a CHP-integrated production method

• Next step will be a construction of a demo-plant

• Pyrolysis oil can replace heating oil in existing heat boilers

• Pyrolysis oil can be upgraded into traffic fuels or value-added bio chemicals.