1. Competition based heat markets help delivering EU climate targets Building heat markets, Brussels, February 27 th 2015 Markus Rauramo, Executive Vice President Heat, Electricity Sales and Solutions Division

2. Introduction Linking EU climate targets with heating and cooling sectors 2 * Co-study: Heat Roadmap Europe 2050 ** Intelligence Energy Europe: CODE 2 project Emissions reduction 40 % Renewable energy 27 % Energy efficiency 27 % 2030 CHP share in electricity 20 % ** District heat share in heating 30 % * 2030 CHP share in electricity 25-30 % ** District heat share in heating 50 % * 2050 Heating and cooling strategy DH share ~12% in heating (IEA) CHP share ~11% in electricity (CODE2) Today Primary energy savings Reduce CO2 emissions Reduce cost of heating systems Utilization of local renewable fuels Primary energy savings 25%

3. DH and CHP operator in Baltic Rim and Russia Heating and CHP operations in 2014 3 Note: Fortum’s total power generation 73 TWh and total heat production 35 TWh in 2014 European heat production 8 TWh (Heat production capacity 3,900 MW) Peat 3% Oil 1% Waste 3% Natural gas 29% Biomass 25% Heat pumps, electricity 1% Coal 38% CHP plants accounted for 28% of total power generation and 90% of total heat production Chelyabinsk Tobolsk Tyumen Stockholm** Tartu Jelgava Klaipeda Pärnu Joensuu Järvenpää Bytom Częstochowa Świebodzice Zabrze Plock Wroclaw Argayash CHP plant locations today District heat supply/networks w/o own production ST. Petersburg** Espoo Total heat sales, TWh 35 Finland Baltic countries Poland Great Britain (sold in 2014) Russia 3.2 1.2 3.4 1.5 26.0 In jointly owned companies, heat sales, TWh** Fortum Värme in Sweden TGC-1 in Russia 8 28

4. Investment program in Europe Major bio- and waste-CHP investments in several countries 4 Stockholm Jelgava Klaipeda Joensuu Järvenpää Espoo Częstochowa Järvenpää Bio-CHP Brista co-owned waste-CHP Värtan co-owned bio- CHP (ongoing) Jelgava Bio-CHP Klaipeda Waste-CHP Czestochowa Coal/bio-CHP Espoo sewage water heat pump Espoo heat recovery from hospital (ongoing) Joensuu Pyrolysis oil production in CHP plant Naantali co-owned bio- CHP (ongoing) Espoo geothermal heat pump (ongoing)

5. Defining space heat markets in urban areas Heat markets should be driven by customers and competition 5 Existing and new customers (building owners) District heating system Individual gas boilers Individual heat pumps Individual solar thermal Electrical heating o Free choice by end-customers enhances engagement and trust o Fair competition between alter- natives calls for affordability o Equal competition rules replace uneven regulatory burden o New technologies more likely to emerge and to be utilized o Drives for best resource and system efficiency 5 key reasons Heat markets Increased heat system flexibility required

6. Heat for next generations Competition ensures resource efficient DH 6 High electricity production High fuel efficiency and availability Local fuel and waste heat sources Energy recovery from non- recyclable waste Low heat and water losses High reliability Competitive price Profitable Hedging to fundaments Solidity to invest No subventions Resource efficient Low emissions High share of RES and CHP Easy and reliable Simple connection High service quality Value-added price Efficient DH network Efficient heat production SustainableLoyal customers Economically viable

7. Development of district heating Open DH networks encouraging new heat sources 7 o Open district heating: Heat customers becoming producers (i.e. data centers, hospitals, laundries) o Heat pumps: Utilization of heat from sewage water systems and ground heat o Bio-oil production: Pyrolysis oil production in a bio-CHP plant to replace use of fossil fuels in own and customers heating plants o Renewable heating: Increasing bio fuels in peak and reserve plants o Fuel efficiency: Investments in efficient burning technology, flue gas cleaning and fuel conversions o Heat storages: CHP flexibility towards more intermittent electricity markets and heat system optimization

8. Future heat markets European heating strategy EU climate targets Conclusion Competitive heat markets help reaching EU climate targets 8 o Comprehensive overlook on heating and cooling sector o Specific and ambitious target setting to 2030 o Proportionate and specific steering mechanisms (PES) o Free choice by end-customers determine heat markets o Imposition in national policies and regulations o New technologies and resource efficiency to boost * Co-study: Heat Roadmap Europe 2050 ** Intelligence Energy Europe: CODE 2 project

9. Thank you!