Responding to the changingenergy market

Valmet Customer Days

Risto Penttinen - SVP Strategy, People and Performance

October 4, 2018 Vienna

-20 000 -16 000 -12 000 -8 000 -4 000 0 4 000

Year (BC / AD)

Temperature 20 000 BC – 2100 AD

-4

-3

-2

-1

0

1

2

3

Temperature anomaly, °C

Rough Fortum illustration based on reconstruction of

various external studies and forecasts;

Shakun et al. (2012); Marcott et al. (2013);

CMIP5 A1B; HadCRUT4

Forecast

2100 AD

Impact of 3 C warming on crop yields

Source: World Resource Institute, Petteri Taalas

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Greenhouse gas emissions

(minimum targets from 1990 level)

- 40 %

- 60 %

- 80 %

MtCO2 (eqv.)

Source: IEA World Energy Outlook 2017, Eurostat, Fortum Industrial Intelligence1 including international aviation and marine2 iron & steel and chemicals are among the biggest contributors3 residential and commercial heating & cooling4 non-energy related emissions: industrial processes and product use, waste management, agriculture, fugitive emissions

(2°C target level) - 95 %

TODAY

Other

Gas

Oil

Coal

Other4

Industry2

Transport1

Power

Buildings3

By source By sector

European emissions need to decrease drastically beyond power and industry in order to reach the 2050 targets

Lignite134 TWh, 24%

Wind104 TWh, 19%

Hard coal82 TWh, 15%

Nuclear72 TWh, 13%

(to be shutdown by 2022)

Gas49 TWh, 9%

Biomass47 TWh, 9%

Solar38 TWh, 7%

Hydro20 TWh, 4%

Despite Energiewende, more than 40% of Germanelectricity is produced by lignite and hard coal

5Source: Fraunhofer ISE

All figures for full year 2017.

https://www.energy-charts.de/energy.htm?source=all-sources&period=annual&year=2017

6

$79,26

$0,25

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

1976 1986 1996 2006 2016 2026 2036 2046

Solar module, $/W Solar capacity installed, GW

Solar and wind to account ~50% of global electricity mix by 2050

Sources:

Module prices; PVInsight and Maycock

Capacity installed; BP Statistical Review and BNEF

0

100

200

300

400

500

600

700

800

900

The energy transition will not happen overnightCase Germany

7

Total power production

includes exports

”No” to nuclear

decided closures

”No” to highest emitters?

coal and lignite phaseouts

Gas ramp for flexibility

output roughly doubled

Tripling of solar and wind

equals decades of buildout*

~ 70 TWh

> 200 TWh

~ 60 TWh

> 400 TWh

Sources: Bloomberg New Energy Finance NEO2017, BP Statistical Review 2017, BCG

* Roughly equivalent of additional ~ 200 GW of solar and wind power. In the last five

years, annual wind buildout ~ 5 GW/a and solar buildout ~ 1 GW/a in Germany

Used at

production

CHALLENGE:

Time-shift

required

Illustrative

~ 600 TWh

2018 by 2022 Under review by 2030 by 2050

Energy markets are integrating

9

2 x 1,400 MW

Norway-UK

1,400 MW

Norway-Denmark

700 MW

Denmark-Netherlands

860 + 1,000 MW

Jutland-Germany 400 MW

Zealand-Germany

New internal Nordic

grid expansion

Estonia-Latvia 1,400 MW

Denmark-UK

700 MW

Sweden-Germany

New interconnection lines

New Nordic interconnection lines

Existing interconnection lines

2500 homes measured and

controlled in real-time

6+ MW

7+ GWhflexibility on the Finnish fast

frequency reserve markets

15 millionmeasurements each hour

Fortum Spring virtual battery as one enabler of CO2-free energy system

Electric

vehicles

mainstream

Solar and

Wind

mainstream

Bio in

power and

heat

De-carbonization of energy and sustainable waste and materials management are needed to reach 2-degree path

4 ⁰C

3 ⁰C

Global

warming

challenge

Continuation

trajectory

2 ⁰C

Bio-

Products

and

materials

Chemical

recycling

Waste to

Energy

mainstream

Increasing

material

recycling

Value

enhancing

recycling

Sustainable waste management

and material productionDecarbonisation of energy system(power, heat, transportation)

Bio-

based

traffic

fuels

Landfilling

Massive electrification

Accelerated

transition (Paris)

Bio2X

CCS* →

CCU*Power to

Hydrogen

* CCS = carbon capture and storage, CCU = carbon capture and utilization

11

Fortum’s strategy and priorities were laid out in Feb 2016

12

Flexible

Non-flexible

Flexible

Non-flexible

Hydro

Gas

Nuclear

Coal

Other

Industry transformation - Uniper is present across Europe and Russia

• Uniper has ~300 power plants, 200 of

which are hydro power

• Total capacity: ~36 GW

• Power generation: ~121 TWh

• Power generation primarily driven by

hydro, nuclear and thermal sources

• Integrated gas midstream assets

• Employees: ~12,000

Gas power plants (area where located)

Coal / Lignite power plants (area where located)

Hydro power plants (area where located)

Nuclear power plant

Other (area where located)

Uniper’s geographic presence

Gas storage (area where located)

Gas midstream assets

Note: Capacity as per accounting view. Hydro and gas capacity categorized flexible.

Capacity split

14* Heat production incl. Fortum’s associated company Stockholm Exergi; heat production 8.0 TWh (capacity 3,842 MW).

Note: Fortum’s total heat production 36.6 TWh in 2017

** Waste-to-energy plant belonging to Fortum Oslo Värme, which is owned together with City of Oslo since August 2017. Fortum is responsible for operating the joint venture.

City Solutions CHP assets and district heating operations Current focus in Nordics, Poland and Baltic rim

Oil 1%

Coal 22%

Peat 2%

Natural gas 4%

Waste 27%

Heat pumps, electricity 16%

Biomass 28%

(Production capacity 8,513 MW*)

Klaipėda

Hässelby

Jelgava

Joensuu

Järvenpää

Espoo

Częstochowa

Zabrze

Riihimäki

Kumla

Nyborg

Tartu

Naantali

Pärnu

Brista

Bytom

Klemetsrud

Plock

Wroclaw

VärtanHögdalen

Pärnu

Woodchips

Tartu

Woodchips, peat

Jelgava

Woodchips

Associated companies

Waste-CHPMultifuel-CHPBio-CHP Coal/gas-CHP

Joensuu

Woodchips, peat +

pyrolysis plant

JärvenpääWoodchips,

horse manure &SRF

Hässelby

Wood pellets

Värtan KVV8,

Brista 1

Woodchips

Czestochowa

Coal, woodchips

ZabrzeNew unit ready 2018:

coal, waste

NaantaliCoal, woodchips

RiihimäkiHazardous waste MSW+

ICW, material recovery

Kumla

Hazardous waste

ICW + MSW

Nyborg

Hazardous waste

KlaipėdaMSW, RDF,

woodchips

Klemetsrud**

MSW, ICW, RDF

Högdalen

MSW, ICW, RDF

Espoo

Coal, natural gas

Bytom

Coal

Värtan, old units

Coal, oil

Brista 2 MSW, ICW, RDF

Co-owned and consolidated

companies

= hazardous waste

CHP plant locations today

District heat supply/networks

w/o own production

Associated companies’ CHP plants

Fortum’s European heat production 16.6TWh* in 2017

Key common projects

• 185 employees

• Waste to energy treatment of approx. 400.000 tons waste/year

• District heating production: 1,7 TWh/year

• Electricity production: Approx. 150 GWh/year (E)

• 600 kilometres of district heating network

• 30 million litres of water circulating in Oslo

• More than 5000 customers (buildings) connected

Mobility / transportEnergy /

building

Resource utilization

CO2 emissions in Oslo by sector

15

Oslo kommune and Fortum

Fortum Oslo Varme – Key figures

• 2020: The City of Oslo will reduce greenhouse

gas emissions by 50%

• Budget for 2018: Reduction of 36% by 2020

• 2030: Oslo's greenhouse gas emissions

reduced by 95%

• 2050: Zero greenhouse gas emissions in Oslo

The City of Oslo’s climate budget

Charge&Drive

• Frame agreement signed

between the Oslo

kommune and Fortum

• Fortum delivers back end

system for Oslo

kommune’s own chargers

Oil boilers

• Fossil fuel for heating will be

prohibited in Oslo from 2020

• Fortum Oslo Varme replace oil

boilers with district heating (DH)

CCS at Klemetsrud

• Tests show stable CO2 purification

with 90% catch

• Removes both fossil CO2 biological

CO2, resulting in carbon negativity

• Can remove approximately 400 000

tonnes of CO2 per year

• Building expertise locally and

nationally, great global transfer value

• Cutting global emissions also

reduces local emissions

Fortum is an important partner to Oslo kommune

in reaching the city’s climate goals

Norway’s largest player within waste to energy and district heating

Fortum is a main partner for Oslo kommune in

reducing emissions in all sectors

Fortum participates in JV in India to build a bio-refinery based on Chempolis fractionation technology

• Prove Chempolis core process in ethanol production

• Bamboo sourcing and suitability for processing

• Working and project execution in India business environment

What will we learn from NRL fractionation plant?

• Fortum has taken a step forward in its

Bio2X programme and established a

joint venture together with Numaligarh

Refinery Limited (NRL) and Chempolis

for building and operating a

biorefinery in Assam, India.

• The joint venture will own the

biorefinery. Construction work will

begin in the autumn of 2018, with the

target date for beginning operations at

the site set for the year 2020.

By 2040, EVs in Europe are set to

increase electricity demand equal

to size of France

Fortum Charge & Drive:

Market leader in Finland and

Norway

• 75 000 registered users

• 2 100 chargers

• 700 fast chargers

• 16 countries

Plugsurfing:

Europe’s leading charging

service

• 76 000 charging points

• 50 000 EV driver users

• 200 charging networks

• 31 countries

Accelerating electric vehicle sales

Third million

Second million

First million

Time to sell amount of EVs

20 years

18 months

8 months

Source: Bloomberg New Energy Finance

the best IN our people

Believethe best FOR

our people

Wantthe best FROM

our people

Expect

We believe in our people, which

empowers them to believe in

themselves, grow and exceed

their own expectations.

We create a work environment

and company culture that

help our people thrive.

Because we believe in our

people and secure a good

work environment, we expect

them to deliver results and

are confident they will

exceed our expectations.

Fortum Leadership Principles – the framework

THANK YOU

Our current geographical presence

21

PAO Fortum

Power generation 26.3 TWh

Heat sales 19.8 TWh

Russia

Nordic countries*

Power generation* 47.1 TWh

Heat sales* 13.2 TWh

Electricity customers 2.4 million

Power

generation

Electricity

sales

Heat

PolandPower generation 0.5 TWh

Heat sales 3.7 TWh

Baltic countriesPower generation 0.7 TWh

Heat sales 1.4 TWh

IndiaPower generation 0.3 TWh

Key figures 2017Sales EUR 4.5 bn

Comparable operating profit EUR 0.8 bn

Balance sheet EUR 22 bn

Personnel 8,800

* Including Fortum’s associated company Stockholm Exergi;

power generation 1.7 TWh and heat sales 8.2 TWh.