Delhi Clean Energy Conference 11 December 2012

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

Maria Paatero-KaarnakariSVP, Fortum Asia

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Fortum briefly

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TGC-1 (~25%)Power generation ~7 TWhHeat sales ~8 TWh

OAO Fortum Power generation 17.4 TWhHeat sales 26.7 TWh

Russia

PolandPower generation 0.6 TWhHeat sales 4.3 TWh

Baltic countriesPower generation 0.4 TWhHeat sales 1.1 TWhDistribution cust. ~24,000*

Nordic countriesPower generation 53.1 TWhHeat sales 17.2 TWhDistribution customers 1.6 millionElectricity customers 1.2 million

Nr 2 Power generation

Electricity sales

Nr 2

Nr 1 Heat

DistributionNr 1

Key figures 2011Sales EUR 6.2 bnOperating profit EUR 2.4 bnBalance sheet EUR 23 bn Personnel 10,800

Great BritainPower generation 1.2 TWhHeat sales 2.1 TWh

* Distribution business sold Jan 1, 2012

Fortum's European power (and heat production)

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Nuclear power 45%

Coal 9%

Other 1%

Hydro power 38%

Biomass 3%

European generation 55.3 TWh (Generation capacity 11,422 MW)

Fortum's European power generation in 2011

Natural gas 4%

European production 22.0 TWh (Production capacity 10,625 MW)

Fortum's European heat production in 2011

Waste 4%Peat 3%

Heat pumps, electricity 12%

Oil 5%

Biomass fuels24%

Natural gas22%

Other 4%

Coal 26%

• CHP concept

Agenda

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The global energy challenge

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0

10

20

30

40

50

60

70

1985 1990 1995 2000 2005 2010

Oil (Brent)

Coal(NWE)

USD/MWh• Global average efficiency of

power plants that generate only electricity is 41%

• Almost three-fifths of the primary energy used in theseplants becomes waste heat, of no economic value

• With current way forward, energy related CO2 emissionsgrow from 31.2 Gt in 2011 to 37 Gt in 2035

• With current way forward, a long-term averagetemperature increase of 3.6 oC is estimated

Source: IEA WEO 2012

Towards a future energy system – Solar Economy– CHP important in transition phase

Res

ourc

e &

sys

tem

effi

cien

cy

Finite fuel resources Large CO2 emissions Infinite fuel resources Emissions free production

Hig

hLo

w

Geothermal

Hydro

Wind

SunOcean

Coal GasOil Nuclear

today

Nucleartomorrow

CHP

CCS

Traditionalenergy production

Exhaustible fuels that burden the environment

Advancedenergy production

Energy efficient and/orlow-emission production

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

Solar EconomySolar based production with

high overall system efficiency

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Bio

CHP – combined heat and power generation

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• 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

CHP is small scale electricity production in comparison with traditional thermal condensing plants for electricity production

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The disadvantage of small scale investments is set offby high fuel efficiency (heat production) and

ability to effectively use local renewable fuels

• CHP benefits

Agenda

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Benefits of CHP – advanced energy production in transition phase to solar economy

Economically viable in small

scale: Electricity

One plant – multiple products

Renewable fuels competitive to

fossil fuels

Fuel flexibility

Efficient use of resources

Large global potential

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Forestry biomass

Agro biomass

Bio oilsWaste

CHP fuel flexibility – enhanced possibilities to use local fuels – a further step closer to solar economy

Non-renewable

• Local fuels can

• meet society’s expectations of reduced environmental impact

• avoid cost of CO2 emissions

• reduce transportation and shortage risks

New CHP+ concepts – integrated production adding value

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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

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• 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 CO2 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.

More electricity with lesser emissions

• Examples on CHP solutions

Agenda

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Stockholm winter 1950

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Stockholm winter 2010

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– 60 % CO2(carbon dioxide)

– 80 % NOx(nitrogen oxides)

– 95 % SOx (sulphur oxides)

CHP/district heating have enabled radical emissions reduction

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CO2-emissions in the production of district heat and cogenerated electricity

0

5

10

15

20

25

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

million t CO2

savings due to CHP

Savings in carbon dioxide emissions in Finland due to CHP

*) 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

Heat MW

CHP Suomenoja, Finland Gas, Coal 370 565

CHP Naantali, Finland Coal, biomass 325 430

CHP Stockholm City, Sweden Coal 125 295

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

Heat 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

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• 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.

Making use of local fuels– Högdalen, Stockholm – municipal waste for CHP

• 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

• CHP potential for India

Agenda

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District heating and CHP in Europe –EU energy policy encouraging further deployment

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Sources: Euroheat & Power, KPMG benchmarking, Fortum analysis

DH market share ~15% in European heating markets

CHP market share ~11% in European electricity markets

Long-term potential – competitiveness of energy efficient CHP will increase driven by fuel prices and by need to reduce emissions

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• Today, CHP covers about 10% of world electricity supply with significant growth potential globally

• CO2 / 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

>100

Global new CHP potential 1,350 TWhe

From 2,000 TWhe up to total 3,350 TWhe by 2020

>250

>500

>500

Small scale CHP

Desalination

Industrial CHP

District heating

CHP potential for India ?

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CHP for industrial clusters

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CURRENT MODEL: MULTIPLE BOILERS, DG SETS AT CUSTOMER LOCATIONS

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PROPOSED MODEL: CONSOLIDATED CHP

CHP for industrial clusters – untapped potential in India

Allows industries to focus on core

Optimized land & equipment usage

More reliable power supply

Reduced emissions and waste

Efficient use of fuel & other resources

Promotion of high-efficiencyCHP will call for further deployment of regulatory incentives – EU today

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Energy Efficiency Directive (EE-D 2012) ) energy efficiency through promoting efficient district heating and cooling, and high-efficient CHP replacing existing CHP Directive 2004

Revision of State Aid Rules (ongoing) setting EU wide pre-conditions for national support mechanisms

Industrial Emissions Directive (IE-D 2011) boosting refurbishments of outdated CHP assets

Emission Trading Scheme Directive (ETS-D 2009) preferred market-based climate instrument

Renewable Energy Directive (RES-D 2009) promoting renewable electricity and high-efficient co-generation

Energy Taxation Directive (ET-D 2003) increasing tax burden on fossil fuels

Energy Performance of Buildings Directive (EPB-D 2002) promoting increased energy efficiency through stricter building regulations

CHP for India …..

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• 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) ?

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