UPM Annual Report 2023

BUSINESSES

UPM

BEYOND FOSSILS

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2023

EXPLORING NEW OPPORTUNITIES UPM ENERGY

The energy transition requires CO 2 -free electricity, flexibility and new innovations.

OUR DIRECTION • Profitable growth in zero-carbon electricity generation • Embracing the decarbonisation of society • Capturing opportunities in energy transformation

OUR STRENGTHS • Providing nuclear power for base load and hydropower for flexibility • Strong track record in physical and financial electricity markets • World-class expertise in the optimisation of power production and consumption

PLANNED ACTIONS FOR 2024 • Manage remarkable portfolio growth with OL3 nuclear power plant unit • Continue exploring opportunities in Power to-X and renewable energy • New projects for the stream water programme

SPOTLIGHT

KEY FIGURES 2023

in Finland and now the Olkiluoto nuclear power plants meet 30% of Finland’s elec tricity demand. Research on water course continues There are many unnecessary barriers for migratory fish in Finland, such as defunct dams, and biodiversity can be enhanced by removing them. UPM’s stream water programme aims to dismantle 500 km of stream waters by 2030. By the end of 2023, we had dismantled 186 km of that goal. In 2023, our programme funded an ongoing migratory fish research project on the Arvaja water course, where we complet ed a restoration project in 2022. UPM also funded the third and final stage of the Hii tolanjoki project in southeastern Finland, dismantling the dam of the Ritakoski rapid and restoring the area (page 84). In 2023, we grew our capacity to produce CO 2 -free electricity by almost 50%.

Increased electricity supply and decreased demand led to significantly lower power prices in Finland. UPM Energy has succeeded in optimising production and creating value in a volatile market, but profits were not at the record highs compared to the exceptional year of 2022. Hydropower production vol umes reached a good level and the beginning of commercial production at OL3 provided Finland with a steady base load. The extensive renovation and modern isation of the Kuusankoski hydropower plant was completed in the spring. The plant’s average annual energy production increased from 180 GWh to 195 GWh, producing more electricity with the same amount of water. OL3 provides CO 2 -free electricity We are responding to the growing need for CO 2 -free electricity as society electrifies and moves away from fossil fuels. The OL3 nuclear power plant unit by Teollisuuden Voima (TVO) began commercial production succesfully in May 2023. Our share of the new unit’s production is approximately 500 MW through Pohjolan Voima’s ownership. OL3 has significantly increased the supply of CO 2 -free electricity

TRADITIONAL HYDROPOWER MEETS MODERN METHODS

SALES

COMPARABLE EBIT

COMPARABLE ROCE

PERSONNEL on 31 Dec. 81

EURm 628

EURm 182

% 6.0

Back in 2017, a group of UPM Energy hydropower experts brought together concepts under development and named the project Smart River. The pro ject aims to build automated processes to make them work more efficiently. Over the years, the project has ex panded into eight different concepts, all of which involve some form of modern technology, digitalisation, artificial intelligence, the Internet of Things (IoT) and a lot of long-term development. In 2023, we specifically focused on developing the IoT inflow concept, whereby sensors were added to the nearby streams of hydropower plants to collect data on water inflow. The data is used, for example, to forecast inflows, especially during springtime floods when controlling water levels is difficult. These concepts are applied to aspects such as trading, maintaining the hydro power plants, forecasting water flows and operating rivers in an optimal way.

-14%

-52%

-6pp

More key figures on page 129

UPM Energy’s assets in CO 2 -free electricity production combined with its expertise in optimisation and innovations make UPM an enabler of the green transition. We are actively exploring opportunities in the energy transformation. UPM Energy is a major player in the Nordic electricity market. We produce competitive, CO 2 -free hydropower in our own plants and through shareholdings, plus nuclear power through shareholdings. Our hydropower plants meet the growing demand for renewable energy and offer rapid adjustment to an electricity system in which flexibility in other production units is decreasing and weather-dependent solar and wind power are becoming increasingly important. Flexible hydropower balances

out the system in an increasingly volatile market, while nuclear power ensures relia ble baseload capacity for the system. The electricity generated is sold to the Nordic power market. We trade directly in physical and financial electricity exchanges. We have also increased our bilateral trade with external counterparties. UPM meets the different demands of the market by optimising our electricity consumption and production, thus balancing the grid. Electrification will play an important role in moving society away from fos sil-based energy sources. Demand for electricity is therefore expected to increase all over Europe. New transmission connec tions will increasingly link the Nordic elec tricity market to the continental European

market. UPM Energy is in an excellent po sition in a changing energy market with its CO 2 -free electricity production. In 2023, we grew our capacity to produce emission-free electricity by almost 50% through Olkiluoto 3 (OL3). We are also actively exploring new possibilities arising from the transforma tion, such as the hydrogen economy. Markets calmer, root cause remained In 2023, the energy crisis in Europe calmed down but the root cause of the crisis re mained. Russia’s war in Ukraine is ongoing, and Central Europe is still working on find ing ways to replace natural gas as an energy source. Electricity prices were still high in Europe and significant volatility in prices has become the new normal.

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UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023