1. Historic Developement of the Nordic power market Egil Eriksson 1

2. Historic Developement of the Nordic power market Before 1998 –The National Grid and interconnectors to neighboring countries were owned by the Finnish National Power Company “Fortum” –Fortum’s Control Centre acted as “National Control Centre” –Major part of Finnish production capacity was owned by Fortum –There were bilateral trade between national producers but Fortum had a coordinating role as the major net owner –All international trade was made by Fortum (owner of interconnectors to Sweden, Norway and Russia) 2

3. Historic Developement of the Nordic power market After 1998 –Operation of the Finnish Grid was transferred to the National Grid Company (later on “Fingrid”) and a new National Control Centre was established –The Grid, including the interconnectors, were made available for all actors –Distribution network was opened for all utilities –Fortum became Balance Responsible only for its own balance, not the national one –Electricity started more and more to be sold on the established Scandinavian day ahead market (Nord Pool Spot) and less as bilateral trade –A Regulating Market for secondary regulation was established by the Nordic System Operators –Intra Day Market was developed, “Elbas” (NordPool) market took a strong role –Financial markets were developed 3

4. Market Structure - Business Value Chain 4 Large customers Small customers Retail market Retail companies Competitive businesses Distribution Regulated monopolies Transmission and system services Nordic wholesale market Nord Pool and bilateral Generation Independent TSOIndependent DSO

5. Strong focus on market operations through organization structure 5 Physical and financial Nordic power market Generation Focus on technical, environmental and asset productivity issues of the generation portfolio. Operation and Trading Focus on market operations of the generation portfolio. Physical and financial trading.

6. We got new tasks: Procurement planning to sell available electricity at “best” hours / to maximize income Forecast weather, inflows, prices - analysis Control and co-ordinate availability, outages according to analysis Plan bids to Day ahead market both to prices and volumes; on long term to daily basis - allocation Plan bids to Intraday markets Continuously bid volumes on Intraday markets - activity to buy needed electricity at “best” hours / to minimize cost Forecast weather, inflows, prices - analysis Control and co-ordinate availability, outages according to analysis Plan bids to Day ahead market both to prices and volumes; on long term to daily basis - allocation Plan bids to Intraday markets Continuously bid volumes on Intraday markets - activity to fulfill requirements Market Conduct, disclosure requirements and competition laws Plans to the TSO (Fingrid) Earlier our Sales Managers visited all our customers and sold our production bilaterally. Now all our physical production is sold on one place electronically and the sale price of future production is secured on the financial market. No Sales Managers are needed anymore! 6

7. 7 Physical Operation and Trading

8. 8 Market Analysis

9. 9 Financial Portfolio Management

10. Marketplaces in the Nordic power market 10 Time of delivery Regulating market Balance adjustment market TSO TSO- transmission system operator Nord Pool Day before delivery Years, months, weeks and days before delivery Derivatives market: futures, forwards, options, structured deals Nasdaq OMX: standard contracts Nord Pool Financial trading floor Day-ahead spot market Physical trading floor POT portfolios Heat power portfolio Markets power portfolios

11. Marketplaces in the Nordic power market, cont. 11 Financial HeatElectricity sales Day aheadIntra Day Creates physical balance Reduce imbalance costs Involves operative teams at several levels Important for smooth operations of power plants Improves efficiency at operative level Managed by: NordPool Spot (Elbas) TSO (Regulating Market) Quotes market prices for each hour on the basis of purchase and sales bids Transparent reference price for wholesale and retail markets Base for physical energy balance planning Reference price for financial contracts Managed by: NordPool Spot Provides stabiltiy to the business Fundamental for desision making within the whole business Functions as a conductor for investments Refers to day ahead market price Managed by: Nasdaq OMX

12. 12 Marketplaces in the Nordic power market, summary Financial Intra Day Day Ahead Managed by Nasdaq OMX Managed by Nord Pool ELBAS Elspot Managed by Nord Pool Managed by TSOs Regulating market Balance power Managed by TSOs Forwards 36...12 h 33...1 h 12...0,5 h 3 years...1d

13. Intra Day Markets (Elbas and Regulation markets) Elbas provides easy access to physical trading. Elbas creates the possibility of balancing portfolios even up to one hour before the delivery. Elbas promotes, except internordic cooperation, intereuropean cooperation through market coupling to Germany, the Netherlands and other European countries. The regulating power market concludes the last bids and transactions during the actual hour of operation. Thus the power balance is finally managed. 13

14. Bidding process, summary Seen from the producer’s side: Portfolio planning - each plant and river is optimized in the bids Bids according to internal mandate Production planning and bids based on transparent information Notification procedures/ insider information Ethical guidelines/ internal rules "It is the responsibility of every employee to follow existing rules and guidelines, and to seek answers in uncertain situations" 14

15. Key issues for a deregulated market 15 Transparent information transmission capacities - availabilities - fundaments - prices - turn overs Authorisation on right level 24 h fast decision making - mandates Reliable information systems measurements - plans - statistics - securities Market conduct rules Simple & clear - commitment -honest Clear market rules no misinterpretations - straight & clear

16. In the end, it is all about skills of people and organisation 16 Power market Generation assets Procurement planning Day ahead & Intra day trade Hedge planning Hedging and contract trade Market analysis

17. Fortum’s mission, strategy and values Strategy Fortum’s purpose is to create energy that improves life for present and future generations. We provide sustainable solutions that fulfill the needs for low emissions, resource efficiency and energy supply security, and deliver excellent value to our shareholders. Mission Create solid earnings growth in Russia Leverage the strong Nordic core Build platform for future growth Competence in CO 2 -free hydro, nuclear and energy efficient CHP production and energy markets. ACCOUNTABILITY CREATIVITY RESPECT HONESTY Values 17

18. Datatransmission within Fortum and with Fingrid (EDI &Elcom) and NordPool (Elweb & EDI) 18 Scada system Balance Control (Fortum) Spot bid optimization & Short term planning Outage optimization Revisions & restrictions Plans for execution Measured values Mandates & min/max prices Tactical plannng Time series (plans) Balance Settlement Time series (plans & prices) Fingrid Balance Control (National) Measured prod.& consumption Plans for prod.& consum. regulation prices confirmations Hydrological data Price forecasts NP DC plants

19. What is Simpson? Simpson is a hydro power production planning system for Fortum Oy, made up by applications in the Powel ICC Software It consists of: –time series database –time series handling system –dispatch consequence analyze system –production optimizer –restriction handling system. Simpson supports Fortum in all phases of the short term hydro power production planning Simpson closely with other parts of Fortum systems such as SCADA, long term production planning, bid support and revision handling 19