UPM Annual Report 2019

OUR DIRECTION • Profitable growth in zero-carbon electricity generation

UPM Energy

• Solutions for industrial energy excellence • Embracing the electrification of society

MARKET-AGILE ENERGY

OUR STRENGTHS • Competitive, zero-carbon electricity generation asset portfolio • Strong track record in physical and financial electricity markets • World-class expertise in the optimisation of industrial power consumption

KEY FIGURES

2019

2018

417 185

Sales, EURm

391 123

Decarbonisation, growth of renewables and electrification are driving the change in electricity markets.

Comparable EBIT, EURm

2,454

Capital employed (average), EURm

2,346

7.5 68

Comparable ROCE, % Personnel on 31 Dec.

5.3 63

The main, ongoing project is underway at Teollisuuden Voima (TVO), where its Olkiluoto 3 EPR-type nuclear power unit is scheduled to commence regular electricity production inMarch 2021. UPM’s share of the new unit’s capacity is approximately 500 MWthrough its holding in Pohjolan Voima. In January, UPMEnergy announced that it will increase the production capacity of its Kuusankoski hydropower plant through an extensive renovation and modernisation project from 2019–2022. The plant's average annual electricity production is estimated to increase from the current 180 GWh to 195 GWh. In addition to improved efficiency, modern hydropower technologies are also better for the environment. Market-based solutions are driving changes in the energy market. The Nordic electricity market is increasingly tied with continental Europe. A strong CO 2 emission trading scheme should be the main tool for decarbonisation. This presents an attractive position for UPM Energy in the transforming energy markets.

The energy industry has a central role in making societies carbon neutral. UPMEnergy is well positioned to support the system in climate changemitigation. Our CO 2 -emission-free hydro and nuclear generation in Finland account for 97%of the electricity we generate. Hydropower is valuable in securing balance for an increasingly volatile market, whereas nuclear power can provide a reliable base load for the system. The electricity produced is sold to Nord Pool, the Nordic power market. In addition to physical trading, UPMEnergy also operates in the financial energymarkets. We also provide industrial electricity consumption and flexibility services to industrial consumers and other energy companies. Our deep understanding of industrial consumption, as well as efficient, low-emission electricity generation, give us a unique position in the marketplace.

Improving diversity of water systems Hydropower plants can also have an adverse impact on aquatic ecosystems. These adverse effects are caused by the regulation of watercourses, the clearing of rivers and the building of dams. The impact is mainly alleviated by means of compensation in line with permit conditions, with the funds being used by authorities to transplant fish and promote research into restoring migratory fish stocks. UPM supports the restoration of migrating fish stocks. Our migratory fish programme aims to dismantle migration barriers and test new ways to restore fish stocks all around Finland. The programme is based on collaboration with stakeholders. For example, the project funded construction of a breeding and growth area for the endangered Saimaa land-locked salmon in Kuurna of river Pielisjoki in Finland. The construction was completed in 2019.

Comparable EBIT increased due to higher electricity sales prices and lower costs for nuclear. The hydro situation improved in Finland.

Growth in CO 2

-emission-free generation

UPMEnergy is investing in power generation that is free fromCO 2

emissions.

CASE

THE NEW REALITY OF ELECTRICITY The electricity markets are undergoing a transformation. As the share of intermittent renewable energy sources grows in the energy system, the volatility in the market also increases. This in turn requires increased balancing capabilities to ensure stability in the system.

Industrial demand- side flexibility increases

Renewable energy sources increasing

Volatility increases risks and creates new opportunities

We aim at expanding our zero-emission power generation.

Household consumption increases and role diversifies

Nuclear power recognised reliable

Electrification in transportation and other sectors intensifies

Hydropower secures balance

Electricity prices based on supply-demand balance

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OUR BUSINESSES

OUR BUSINESSES

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS