Fortum’s policy messages in a nutshell November 2014 1 Introduction • Energy issues are increasingly significant in our society: climate change, security of supply and the price of electricity are key topics in the mainstream dialogue. • We engage in an active dialogue with authorities, decision-makers and other stakeholders about key issues in the energy sector. • As energy industry experts, we actively disclose our views on policy developments and provide constructive proposals forming the basis of policies, legislation and regulations. • This presentation describes our key messages on the topical energy and climate policy issues in a nutshell. • We regularly publish position papers and commentaries on key energy policy issues. You can find them at: http://www.fortum.com/en/corporation/corporate-relations/positionpapers/pages/default.aspx 2 Content 4 Fortum’s Mission and Strategy 5 Our geographical presence 6 Energy is an enabler 7 Our core beliefs 8 European wholesale electricity market 9 Retail electricity market 10 Heat policy and regulation 11 EU climate policy 12 Renewable energy 13 Energy efficiency 14 Nuclear safety and liability 15 Sustainability of biomass 16 Corporate Relations Team 3 Fortum’s Mission and Strategy Mission Fortum’s purpose is to create energy that improves life for present and future generations. We provide sustainable solutions for society and deliver excellent value to our shareholders. Strategy Build on the strong Nordic core Create solid earnings growth in Russia Build a platform for future growth Strong competence in CO2-free hydro and nuclear, efficient CHP production and energy markets 4 Our geographical presence Power generation Heat Distribution Electricity sales Nordic countries Key figures 2013* Power generation* 46.5 TWh Heat sales* 13.9 TWh Distribution customers in Sweden 0.9 million Sales EUR 6.1 bn Operating profit EUR 1.7 bn Balance sheet EUR 23 bn Personnel 9,900 Electricity customers 1.2 million OAO Fortum Power generation 20.0 TWh Heat sales 24.2 TWh Great Britain (Sold in Oct ‘14) In addition, ~25% share in TGC-1 Power generation 1.0 TWh Heat sales 1.8 TWh Poland Baltic countries India Power generation 0.6 TWh Heat sales 4.0 TWh Power generation Heat sales Power generation * incl. Fortum Värme; power generation 1.3 TWh and heat sales 8.2 TWh. 5 Russia 0.5 TWh 1.1 TWh ~9 GWh Solar Economy Energy is an enabler High Efficiency Solar based production with high overall system efficiency Hydro Sun Wind Geothermal CHP Advanced energy production Ocean Bio Interconnectors Energy efficient and/or low-emission production Nuclear tomorrow Traditional energy production Low Efficiency Storage Exhaustible fuels that burden the environment Oil Coal Gas Smart applications CCS High Emissions Copyright © Fortum Corporation 6 Demand Response Active Consumer 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 Nuclear today Emission free Our core beliefs We focus on decarbonised energy systems on the way to a Solar Economy We favour market-driven solutions We believe that a geographically integrated and commercially functioning energy market is a necessary precondition for meeting energy policy objectives most cost-efficiently 7 European wholesale electricity market • A well-functioning and properly interconnected internal energy market is key for the EU’s competitiveness, internal security of supply and environmental sustainability. • A commercially functioning electricity market based on harmonised and technologyneutral rules needs to be completed as soon as possible. • The EU needs to be internally unified to be able to speak with one voice with external partners. Market integration should therefore be followed by policy harmonisation. • Larger markets enforce competition, more stable and competitive prices and a better service level for the benefit of customers. Investments in transmission infrastructure are key to improving the market efficiency and security of supply. • An energy-only market is the preferred and most efficient electricity market model. However, it might not survive in the new energy system that is increasingly based on intermittent renewable electricity with very low marginal costs. • Capacity mechanisms (CRMs) are likely to emerge in Central European countries, having an direct and indirect impact on electricity flows, prices, and generation and transmission investments. • CRMs should meet common EU criteria, including cross-border participation. CRMs should also be regional (rather than national) and only with one set of rules in the same regional market. 8 Retail electricity market • Integration of the wholesale market should be followed by retail market development, both at the national level and across Europe. • Customers must be able to influence their energy consumption and cost. Signals from the wholesale market should therefore be passed on to retail prices. • Smart grids enable customers to become active players in the energy market. This development should be encouraged by developing a competitive market for new energy service innovations. • Smart meters and hourly pricing promote market-based energy-efficiency products and services as well as distributed generation. • Energy poverty is an important topic to be addressed as part of social policy, not as an energy policy issue. • Demand response tools, energy storage and various service innovations are needed in the future energy system based on an increasing share of intermittent renewable electricity. • A new energy system requires also clarification of the roles of various market participants. Distribution system operators should be considered as neutral market facilitators. 9 Heat policy and regulation • About 45% of the energy consumed in the EU is used for space heating. European heating markets Towards liberalised heat markets • Renewable and efficient district heating is a vital contributor to Europe’s climate and resource- efficiency targets. • Combined heat and power (CHP) is the most energy-efficient way of producing both heat and electricity and a way to utilise local solid fuels and improve security of energy supply. • Effective competition is the most functional platform for developing the heating of buildings, for customers, suppliers and society. • Customers should have the freedom of choice between different alternatives in the heat market and an incentive to influence their heat consumption and cost. • Competing heat production sources, e.g. waste heat, should enter the heat market on commercial merits, based on voluntary agreements and transparent access. Competitive district heat pricing for customers 10 • District heat pricing should be value-added – competitive and transparent towards alternatives – and similar customers must be treated equally. Price adjustments have to reflect real costs. • Public district heat price regulation should primarily enhance competitiveness of district heat, system efficiency and sustainability, and promote related investments. EU climate policy • Long-term stability and cost-effectiveness are key for the EU climate policy. • Greenhouse gas reduction and a well-functioning emissions trading system (ETS) have a central role in the implementation of the EU climate policy. Targets for renewable energy and energy efficiency should primarily focus on non-ETS sectors. • As the first step of ETS structural reforms, the Market Stability Reserve (MSR) should be introduced by 2017 at the latest. • The annual linear emission reduction factor of the ETS has to be adjusted to cope with the economy-wide target of at least 40% reduction in 2030. • Predictable and harmonised EU-wide carbon leakage provisions for the industry are needed and the cost of the EU's climate targets to the industry must be compensated until other countries commit to comparable targets. 11 Renewable energy • Renewable energy is an important tool to combat climate change, to provide jobs and growth, and to contribute to security of supply. • Renewable energy has to be integrated into the electricity market with the same rights and responsibilities in terms of grid connection, balancing, etc. • The EU should move towards harmonised support schemes and marketbased trading of renewable energy. • Financial support for mature, economically feasible renewable energy should be phased out. Instead, it should be focused on research, development and deployment. • The penetration of intermittent renewables into the European electricity system highlights the importance of hydro power in balancing the subsequent peaks. Hydro power also contributes to emission reduction and better energy security. 12 Energy efficiency • Completion of a market-driven energy market is the most cost-efficient way to promote energy efficiency in the EU. • Customers should be able to influence their energy consumption based on prices reflecting the real cost, so regulated prices need to be removed. • The main focus in the development of the EU Energy Efficiency policy should be on streamlining and implementing the existing legislation and regulation, including standardisation. • The effective use of labelling is a good tool to increase awareness towards energy efficiency and consumption among consumers. • In some sectors, like building and transportation, more demand-side management may be necessary to correct market failures. • Voluntary agreements are appropriate tools for promoting energy efficiency in companies. • Space heating offers great potential to improve energy efficiency by introducing market principles into the heating sector. • Society’s excess heat can be efficiently put to use by opening up district heating networks to new business models. 13 Nuclear safety and liability • Fortum supports maintaining a high level of nuclear safety in the EU and considers strengthening of the nuclear liability regime important. • From the common European electricity market point of view, responsibilities and liabilities should be clear, equal and understandable for all. • The incoherence of the EU nuclear liability arrangements could in the short term be reduced by fully utilising the existing international nuclear liability framework largely based on the Paris and Vienna Conventions. • Euratom’s eventual accedence to the relevant international nuclear liability conventions would be welcomed. • In the longer term, feasibility of a European nuclear insurance pool could be assessed based on the US nuclear liability system. Such an investigation should be carried out in close collaboration between the Commission, Member States and nuclear operators. 14 Sustainability of biomass • Use of all types of bioenergy – solid, liquid and gaseous – should be ecologically, socially and economically sustainable. • Sustainability criteria should apply to the origin of all bioenergy, regardless of whether being used in industry, energy production or transportation. • In addition to biofuels and bioliquids, sustainability criteria are needed also for solid biomass. • Sustainability criteria should be legally binding. • The target should be global sustainability criteria, but at least common EU requirements. Mutual recognition is needed to facilitate the market of biomass-based products. • Sustainable forest management and generally recognised agricultural practices establish the basis for the sustainable production of biomass. 15 Corporate Relations Team For additional information, please contact us or visit: www.fortum/com/company/public relations email: firstname.lastname(at)fortum.com Pia Lilja, Assistant, Corporate Relations Tel. +358 10 45 24343 16
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