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Financial statements and operating and financial review 2021

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Financial performance and position

Outstanding performance under extraordinary and volatile market conditions

Key figures

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1)Comparable EBITDA is defined as an alternative performance measure and used as a component in the capital structure target 'Financial net debt-to-Comparable EBITDA'. In 2020 Comparable EBITDA includes contribution from Uniper for the period of 1 April to 31 December 2020 since Uniper was consolidated as a subsidiary from 31 March 2020. Until 31 of March 2020 Uniper's contribution to the income statement was recognised in the Share of profit/loss of associates and joint ventures. Comparable share of profit/loss of associates and joint ventures for 2020 has been recalculated following the introduction of comparable net profit APM in 2021.

2)In 2021, Fortum introduced two new performance measures: comparable net profit and comparable earnings per share.

3)Following the consolidation of Uniper, Fortum has updated its definition of net debt and uses financial net debt and adjusted net debt.

See } Definitions and reconciliations of key figures.

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2021 was in many ways an extraordinary year in the energy business. We have experienced a rare combination of circumstances leading to unprecedented developments in the commodity market. During these turbulent times Fortum Group held course. We successfully continued the implementation of our strategy with active portfolio rotation and accelerated decarbonisation, and produced another great set of operative results.

After the drop in 2020, energy consumption in our market areas increased as economies recovered, and societies learned to cope with the Covid-19 pandemic. Market conditions were characterised by colder weather during the first half of the year, below normal European wind and Nordic hydro conditions as well as increasing EU emission allowance prices. It was gas that was in the driver’s seat for the energy commodities. Lower-than-average gas storage levels coupled with tight LNG and pipeline supplies caused unprecedented volatility and a price rally in the second half of the year in Europe.

The higher power and gas prices have clearly impacted both our business and results in many ways. Both our Uniper and Generation segments significantly contributed to the Group’s comparable operating profit, which increased by 89%. Uniper’s gas business benefitted from the extraordinary market developments with volatile and rising prices despite additional liquidity requirements while the Generation segment significantly gained from the higher power prices supported by successful physical and financial optimisation. In the fourth quarter, the segment’s achieved power price reached its highest quarterly level since 2009. Record-high nuclear and higher hydro volumes also contributed to the upsurge. The results of our Russia segment were supported by sales gains and higher power prices. Our City Solutions segment also produced a sound result improvement especially in power and heat sales year-on-year. Whilst large parts of the business benefitted from these developments, Consumer Solutions suffered from high electricity purchase costs due to the very high power prices in the fourth quarter and the intensifying competition in the Nordic market.

The extremely volatile commodity markets with record-high gas prices in December also caused a sharp increase in the margining requirements of Uniper’s trading business. At the beginning of 2022, Uniper took precautionary financing measures including credit arrangements from Fortum and the German state-owned KfW Bank to ensure liquidity and financial flexibility, and to manage any further market volatility. These efforts were positively noted as S&P Global Ratings rating agency in January 2022 affirmed Fortum’s and Uniper’s long-term ratings of BBB with a stable outlook.

In this turbulent operating environment, we have kept our strategic priorities clear. Our goals for 2021 were to strengthen the balance sheet, to further decarbonise our portfolio and to drive profitable growth while balancing it with our dividend and financial position.

Actions taken during the year included the divestments of mainly district heating assets such as Stockholm Exergi (50%) and the Baltic district heating business as well as the 500 megawatts of solar power capacity in India. The total consideration recorded for divested assets amounted to more than EUR 4 billion in 2021, securing a strong balance sheet and bringing our financial net debt-to-comparable EBITDA to 0.2 times, significantly below our set target level of <2 times.

We also continued working towards our climate targets to be carbon neutral in our European generation at the latest by 2035 and in all operations by 2050. Within less than one year, we have been able to announce accelerated coal phase-out of six of our coal-fired power plants in Germany and the UK compared to the original timetable. In Russia, our Chelyabinsk CHP-2 plant is transitioning from the use of coal to gas, ending the use of coal in the Fortum Russia segment by the end of 2022. Towards the end of the year, we also set a reduction target for the Group’s indirect emissions, i.e. Scope 3, which is -35% by 2035.

At the same time, we strengthened our position in CO₂-free power generation. Over the year, we commissioned a total of almost 600 MW of new wind and solar capacity in Russia and announced our first joint wind power project of 380

MW in Finland together with Uniper. In addition, we have won the right to build a total of 2 GW of wind and solar power capacity in the coming years in national auctions.

2021 was also the year in which Fortum and Uniper grew closer together. We announced new cooperation in the three strategic areas of Nordic hydro and physical trading optimisation, wind and solar development, as well as hydrogen with the ambition to create value for both companies, and, in particular, for our customers. We made management changes and announced more diverse leadership teams at both Fortum and Uniper.

As a group, our strategy execution will continue with the same determination and focus this year. We will continue to drive profitable growth and to further deepen the cooperation between Fortum and Uniper. Today we have also announced the decision to submit an application for a new operating licence for our nuclear power plant in Loviisa in Finland. In addition to financial, political and societal aspects, the EU taxonomy was a key factor that we took into account when preparing the decision – it is central in guiding investments towards sustainable and clean activities.

Based on the solid results of 2021 and the outlook for future years, Fortum's Board of Directors is proposing to the Annual General Meeting a dividend of EUR 1.14 per share for the financial year 2021. The proposal is in line with Fortum’s dividend policy to pay a stable, sustainable, and over time increasing dividend.

Changes in reporting

In 2021, Fortum introduced two new Alternative Performance Measures (APM) to provide additional financial performance indicators that better reflect the underlying profitability.

Comparable net profit is shown after non-controlling interest and adjusted for items affecting comparability, as well as adjustments to share of profit of associates and joint ventures, net finance costs, income tax expenses, and non-controlling interest. Comparable earnings per share is calculated from comparable net profit.

See } Note 7 and } Definitions and reconciliations of key figures.

Financial results

Sales by segment

1)Sales and purchases with Nord Pool Spot are netted at the Group level on an hourly basis and posted either as revenue or cost depending on whether Fortum is a net seller or net buyer during any particular hour.

Comparable EBITDA by segment

Comparable operating profit by segment

Operating profit by segment

Share of profits of associated companies and joint ventures

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Comparable share of profits of associated companies and joint ventures

For further information see } Note 6.

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Sales were EUR 112,400 (49,015) million due to record high commodity prices.

Comparable operating profit was EUR 2,536 (1,344) million. A strong performance in an exceptional commodity market enabled the highest comparable operating profit in Fortum’s history following volatile commodity prices and the consolidation of Uniper as a subsidiary. Additionally, the Uniper segment’s gas business could take profit from extraordinarily volatile market fundamentals. Earnings increased in the Generation segment due to the higher achieved power price and higher nuclear and hydro volumes. In the first quarter of 2020, Uniper was consolidated as an associated company.

Operating profit for the period was impacted by EUR -3,124 (255) million of items affecting comparability, mainly due to changes in fair values of non-hedge-accounted derivatives of EUR -5,424 (-675) million almost entirely related to the Uniper segment. Items affecting comparability also includes the tax-exempt capital gains of EUR 2,681 million, the main part of which is related to the divestment of the 50% ownership in Stockholm Exergi Holding AB and the divestment of the Baltic district heating operations (} Note 7).

Comparable share of profits of associates and joint ventures was EUR 154 (656) million (} Note 18). The comparison period includes the comparable share of profit from Uniper of EUR 502 million based on Uniper’s fourth-quarter 2019 and first-quarter 2020 results.

Finance costs – net, i.e. net finance income, amounted to EUR 107 (-56) million. Comparable finance costs - net amounted to EUR -38 (-103) million. The change mainly relates to the positive effect of changes in discount rates on Other provisions in the Uniper segment.

Profit before income taxes was EUR -289 (2,199) million. Comparable profit before income taxes was EUR 2,651 (1,897) million.

Income taxes for the period totalled EUR 175 (tax income) (-344) million. Comparable income tax expenses were EUR -605 (-299) million (} Note 12).

Net profit was EUR -114 (1,855) million. Comparable net profit was EUR 1,778 (1,483) million after the deduction of adjusted non-controlling interest. Comparable net profit is adjusted for items affecting comparability, adjustments to share of profit of associates and joint ventures, net finance costs, and income tax expenses. The alternative performance measure (APM) ‘comparable net profit’ was introduced in the first quarter of 2021 to better reflect the underlying profitability (} Note 7.2 and } Definitions and reconciliations of key figures).

Earnings per share were EUR 0.83 (2.05) and comparable earnings per share were EUR 2.00 (1.67).

Financial position and cash flow

Cash flow

In 2021, net cash from operating activities increased by EUR 2,415 million to EUR 4,970 (2,555) million. The change in working capital was impacted by operational liquidity measures in the Uniper segment, which are done to manage the increased margin receivables in investing activities.

Net cash used in investing activities was EUR 5,727 (2,140) million. Capital expenditure increased by EUR 77 million to EUR 1,178 (1,101) million. Acquisition of shares, net of liquid funds, was EUR 294 (1,801) million. Acquisition of shares mainly relates to the acquisition of Uniper shares. Divestment of shares and capital returns of EUR 3,863 (1,244) million mainly include the divestments of the 50% ownership in Stockholm Exergi Holding AB and the district heating business in the Baltics. In 2020, divestment of shares mainly included the divestment of the Joensuu and Järvenpää district heating operations. The change in margin receivables was EUR -7,964 (-552) million as a result of the higher commodity prices.

The negative change of EUR 7,964 (552) million in margin receivables in net cash used in investing activities was partly offset by the positive change of EUR 649 (-623) million in margin liabilities in the cash flow from financing activities.

Cash flow before financing activities was EUR -756 (415) million.

Net cash from financing activities was EUR 6,013 (505) million. The net increase in long-term liabilities was EUR 1,124 (2,062) million while the increase in short-term liabilities was EUR 5,364 (207) million. The increase in short-term liabilities is mainly related to the use of commercial paper programmes and revolving credit facilities, which are used to manage the increased margin receivables. In 2020, Fortum drew a term loan of EUR 2,000 million and a bridge loan of EUR 300 million to finance the acquisition of shares in Uniper. (For additional information, see the Financing section.) The dividend, EUR 995 million, was paid on 7 May 2021. The change in margin liabilities was EUR 649 (-623) million, mainly due to higher commodity prices. The net increase in liquid funds was EUR 5,256 (920) million (} Note 27).

Assets

At the end of 2021, total assets amounted to EUR 149,661 (57,810) million. The increase from December 2020 mainly relates to derivative financial instruments in the Uniper segment as a result of the higher commodity prices. Liquid funds at the end of 2021 were EUR 7,592 (2,308) million.

Equity

Total equity amounted to EUR 13,665 (15,577) million. Equity attributable to owners of the parent company totalled EUR 12,131 (12,953) million. The change from December 2020 was mainly related to the net profit for the period of EUR 739 million offset by the EUR -980 million impact from fair valuation of cash flow hedges and the dividend payment of EUR 995 million.

Financing

At the end of 2021, financial net debt was EUR 789 (7,023) million and adjusted net debt EUR 3,227 (9,784) million (} Note 27).

At the end of 2021, the Group’s liquid funds totalled EUR 7,592 (2,308) million. Liquid funds include EUR 2,966 (289) million held by the Uniper segment.

At the end of 2021, Fortum had undrawn committed credit facilities of EUR 400 million.

In May, Fortum repaid a maturing bond of EUR 500 million and in December 2021 Fortum prepaid EUR 1,550 million of a EUR 2,000 million bridge loan maturing in October 2022. Additionally, in October 2021 Fortum cancelled the remaining revolving credit facility that was part of the facility for the purchase of Uniper shares and liquidity purposes, EUR 1,350 million, with the original maturity date in November 2021.

In December, following the surge in commodity prices Fortum extended the credit facility agreement with Uniper, originally signed in September, to EUR 8,000 million comprising tranches for both a shareholder loan and a parent company guarantee. Both Fortum (EUR 1,750 million) and Uniper (EUR 1,800 million) withdrew their core revolving credit facilities as precautionary measures to secure sufficient liquidity for possible further increases and volatility in commodity prices and consequent additional requirement of collateral payments. In addition, Fortum signed new bilateral financing agreements to further strengthen the liquidity position. These agreements consisted of a EUR 400 million bank loan (maturing in September 2024), a EUR 500 million bank loan (maturing in June 2023 with an extension option of eight months) and a revolving credit facility of EUR 800 million (maturing in December 2022 with an extension option of one year), of which EUR 500 million was drawn as of 31 December 2021. Also in December, Uniper extended the existing EUR 400 million bank loan, maturing in September 2022, to mature in March 2023 and signed a new EUR 150 million bank loan with maturity in January 2024.

After year-end 2021, in January 2022, Uniper signed a EUR 2,000 million short-term revolving credit facility with the German state-owned KfW-Bank (maturing in April 2022). Fortum signed a EUR 3,000 million revolving credit facility (maturing in April 2022 with an extension option of three months). These facilities have not been used.

In the fourth quarter of 2021, Fortum’s total interest-bearing loans increased by EUR 4,486 million to EUR 16,144 million. Current loans, including the EUR 1,731 million current portion of long-term loans, amounted to EUR 8,389 million. In order to manage the higher margin requirements short-term loans increased by EUR 2,847 million from EUR 3,811 million at the end of September to EUR 6,658 million at the end of the year. These short-term liquidity needs were mainly covered by commercial paper programmes and the use of the revolving credit facilities. The use of commercial papers increased by EUR 895 million from EUR 2,234 million at the end of September to EUR 3,129 million.

In June 2021, Fitch revised its long-term rating for Fortum to BBB, with a stable outlook (previously BBB with a negative outlook). The short-term rating is at the level F2. In July 2021, S&P Global Ratings revised its long-term rating for Fortum to BBB, with a stable outlook (previously BBB with a negative outlook). The short-term rating is at the level A‑2.

In September 2021, S&P Global Ratings reaffirmed Uniper’s BBB rating and stable outlook. In July 2021, S&P Global Ratings also revised its long-term rating for Uniper to BBB, with a stable outlook (previously BBB with a negative outlook).

In January 2022, S&P Global Ratings affirmed both Fortum’s and Uniper’s rating of BBB with a stable outlook.

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Operating and regulatory environment

European power markets

Year 2021 turned out to be the complete opposite of year 2020, with European gas, carbon and power markets breaking record-high levels in both day-ahead and forward products. A cold winter and spring of 2021, increasing consumption of gas in the power and industrial sectors in Asia, lower pipeline gas flows from Russia to Central Europe, and below normal European wind conditions all contributed to unprecedentedly high gas and, consequently, very high power prices. Towards the end of 2021, high Continental European power prices also increasingly influenced power prices in the Nordics, further supported by continuing low precipitation in the Nordics and new interconnectors from the Nordics to Germany and the UK.

According to preliminary statistics, power consumption in the Nordic countries was 404 (384) TWh in 2021. The higher power demand in the Nordics, was mainly caused by colder weather but also supported by a slight increase in industrial demand.

In central western Europe (Germany, France, Austria, Switzerland, Belgium, and the Netherlands), power consumption in 2021 was 1,359 (1,316) TWh according to preliminary statistics. This is in line with the pre-Covid-19 level of power demand.

In the long term, electricity is expected to continue to gain a significantly higher share of total energy consumption. The electricity demand growth rate will largely be determined by classical drivers, such as macroeconomic and demographic development, but also increasingly by decarbonising the industrial, transport and heating sectors through direct electrification and green hydrogen.

At the beginning of 2021, the Nordic water reservoirs were at 105 TWh, which is 21 TWh above the long-term average. During 2021, the Nordic precipitation and inflow was below normal while hydro power utilization remained high, which decreased the water reservoirs compared to normal. At the end of 2021, the reservoirs were at 73 TWh, which is 11 TWh below the long-term average and 32 TWh lower than one year earlier.

In 2021, the average system spot price in Nord Pool was EUR 62.3 (10.9) per MWh. The average area price in Finland was EUR 72.3 (28.0) per MWh, in the SE3 area in Sweden (Stockholm) EUR 66.0 (21.2) per MWh, and in the SE2 area in Sweden (Sundsvall) EUR 42.6 (14.4) per MWh. In Germany, the average spot price during 2021 was EUR 96.8 (30.5) per MWh.

At the end of February 2022, the Nordic system electricity forward price on Nasdaq Commodities for the remainder of 2022 was around EUR 69 per MWh and for 2023 around EUR 48 per MWh. The Nordic water reservoirs were at 55 TWh, which is about 5 TWh below the long-term average and 14 TWh lower than one year earlier. The German electricity forward price for the remainder of 2022 was around EUR 225 per MWh and for 2023 around EUR 148 per MWh.

European commodity markets

In 2021, gas demand in central western Europe was 2,218 (2,111) TWh. The central western European gas storage levels decreased from 439 TWh at the beginning of the year to 293 TWh at the end of 2021, which is 146 TWh lower than in 2020 and 129 TWh lower than the five-year average (2017–2021).

Tightness in the gas market has lifted European gas prices to unprecedented levels. During 2021 the average gas spot price (TTF) was EUR 47 (9) per MWh. The 2022 forward price increased from EUR 16 per MWh at the beginning of the year to EUR 79 per MWh at the end of 2021.

In 2021, there were also strong gains in the EUA market. The price increased from EUR 34 per tonne at the beginning of the year to EUR 81 per tonne at the end of 2021, which is EUR 56 per tonne higher than the average price in 2020. For the full year of 2021, the average EUA price was EUR 54 per tonne.

In 2021, there was an increase in coal prices. The forward quotation for coal (ICE Rotterdam) for 2022 increased from USD 72 per tonne at the beginning of the year to USD 99 per tonne at the end of 2021, which is USD 37 per tonne above the average price in 2020.

At the end of February 2022, the TTF forward price for gas for the remainder of 2022 was EUR 102 per MWh. The forward quotation for EUA’s for 2022 was at the level of EUR 85 per tonne. The forward price for coal (ICE Rotterdam) for the remainder of 2022 was USD 204 per tonne.

Russian power market

Fortum’s Russia segment operates thermal power plants mainly in the Tyumen and Khanty-Mansiysk area of western Siberia, where industrial production is dominated by the oil and gas industries, and in the Chelyabinsk area of the Urals, which is dominated by the metal industry. Uniper’s Russian subsidiary Unipro PJSC operates in the Smolensk, Moscow, Sverdlovsk, and Krasnoyarsk regions, as well as in the Khanty-Mansiysk Autonomous District.

The Russian market is divided into two price zones; Fortum’s Russia division operates in the first price zone (European and Urals part of Russia), while Uniper operates in both the first and second price zones.

According to preliminary statistics, Russian power consumption in 2021 was 1,090 (1,033) TWh. The corresponding figure for the first price zone was 830 (783) TWh and for the second price zone 217 (209) TWh. The increase in consumption resulted from the economic recovery.

In 2021, the average electricity spot price, excluding capacity prices, was RUB 1,405 (1,220) per MWh in the first price zone, RUB 935 (873) in the second price zone, and RUB 1,221 (1,068) per MWh in the Urals hub.

The Russian Government increased the gas price by 3% in July 2021.

In Russia, capacity payments based on Capacity Supply Agreements (CSA) are a key driver for earnings growth, as CSA payments are considerably higher than for capacities selected in Competitive Capacity Selection (CCS) auctions. Currently, Fortum’s Russia segment’s CSA capacity amounts to 1,926 MW, including 70 MW of solar and wind capacity. These capacities do not include those related to the joint ventures. Correspondingly, Uniper’s CSA capacity amounts to 800 MW.

Thermal power plants are entitled to clearly higher CSA payments starting approximately six years after commissioning (see tables below). In 2021, there was an increase in CSA payments for three units of Fortum’s Russia segment’s generation fleet and for one unit of Fortum’s Uniper segment’s generation fleet. After the CSA period ends, the units can receive CCS payments from CCS auctions. See the corresponding changes in the table below:

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1)Wind CSA.

2)Solar CSA.

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1)Started receiving CSA payments from 1 May 2021 when returning to the market after repairs.

2)Modernisation CSA 2.

Fortum’s Russia segment’s generation capacity not receiving CSA payments, a total of 2,697 MW, is allowed to participate in the annual CCS auctions. Uniper’s generation capacities allowed to participate in the CCS auction totalled 10,445 MW. The next CCS auction, for the year 2027, is expected to be held in November 2023.

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1)Excluding inflation.

In the June 2017 CSA auction, the Fortum-Rusnano wind investment fund won the right to build 1,000 MW of wind capacity. The wind parks were to be commissioned during 2018–2022 and will receive a guaranteed CSA price corresponding to approximately RUB 7,000–9,000 per MWh for a period of 15 years.

In the June 2018 CSA auction, the Fortum-Rusnano wind investment fund won the right to build 823 MW of wind capacity. The wind parks were to be commissioned during 2019–2023 and will receive a guaranteed CSA price corresponding to approximately RUB 7,000–8,000 per MWh for a period of 15 years.

In the June 2018 and 2019 CSA auctions, Fortum won the right to build 110 MW and 6 MW of solar capacity. The power plants will receive a guaranteed CSA price for a period of 15 years, corresponding to approximately RUB 15,000 per MWh and RUB 14,000 per MWh, respectively. In December 2021, 78 MW of the capacity was commissioned, and the remaining part will be commissioned in the second half of 2022.

In September 2021 in the most recent CSA auction, Fortum announced that the Fortum-Rusnano wind investment fund won annual CSA remuneration in the range of RUB 16.9–23.8 billion for new wind power generation. This corresponds to wind capacity of approximately 430–530 MW per annum (a maximum of 1.4 GW); the capacity will be commissioned during the years 2025–2027. The number of gigawatts ultimately to be constructed is subject to separate investment decisions. The projects will be covered by CSAs for a period of 15 years from commissioning. The average nominal price is expected to be in the range of RUB 2,600–4,200 per MWh during the CSA period. The estimated prices are inflation adjusted.

Together with its joint ventures in Russia, Fortum is the largest player on the renewable energy market in Russia with a wind and solar portfolio of approximately 3.4 GW projects. Of the wind and solar power plants and projects in the portfolio, 1.2 GW are operational, 0.3 GW are under construction, and 1.9 GW are under development.

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Power consumption

1)Reported from 2020 onwards.

Average prices

1)Excluding capacity tariff.

2)Including capacity receiving payments under "forced mode status", regulated tariffs, and bilateral agreements.

3)Capacity prices paid for the capacity volumes, excluding unplanned outages, repairs, and own consumption.

4)Reported from 2020 onwards.

Water reservoirs and gas storage levels

1)Reported from 2020 onwards.

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Export/import

Regulatory environment

EU taxonomy rules on nuclear and gas published

At the beginning of December 2021, the first Climate Delegated Act under the EU taxonomy framework on climate change was officially approved by the Council and the European Parliament. At the end of December 2021, the European Commission issued the long-awaited draft Complementary Delegated Act covering nuclear and gas and the final Act was published in February 2022. In the Act both gas and nuclear energy are classified as transitional activities under strict conditions. The Act is subject to a four-month scrutiny period, extendable by two months, during which the Parliament and the Council can either reject or adopt the Act.

Fortum has consistently advocated for a science-based and technology-neutral taxonomy. In broad terms, we welcome the Complementary Delegated Act, as it recognises the contribution of nuclear energy to drive climate mitigation, but we recognise that it leaves several issues open for interpretation. It is also unfortunate that the majority of existing nuclear is not included, as was recommended by both the Commission’s own research centre and the Finnish and Swedish governments. We welcome the recognition of natural gas as a transitional fuel but consider the proposed criteria too restrictive. These criteria will make necessary investments in additional gas-fired power plants more difficult in countries where flexible gas is needed for the security of supply.

EU’s gas market package published

In December, the Commission adopted a set of legislative proposals to decarbonise the EU gas market by facilitating the uptake of renewable and low carbon gases, including hydrogen, and to ensure security of energy supply for all citizens in Europe. The proposal largely extends the existing rules that are currently applied to natural gas to cover also hydrogen.

Gas is confirmed to act as a bridging technology and thus the proposal supports the planning and investment security of the respective industries– at least until 2049. Simultaneously, the proposed criteria in the EU taxonomy are highly restrictive for gas. Regarding energy prices, the Commission supports a market-driven approach; however, it suggests member states to, if needed, use voluntary measures based on the Commission’s Toolbox Communication (see the next section) in order to keep consumer prices at reasonable level. The proposals support the non-discriminatory treatment of market participants and propose unbundling principles for both gas and hydrogen networks.

However, several ambiguities still need to be addressed, e.g. the clarification of technology neutrality in hydrogen production and the methodology to calculate the greenhouse gas emission reduction of low-carbon gases. Further, clarification is needed regarding the discussed controversial ‘additionality principle’ related to the Renewable Energy Directive (meaning that the corresponding capacity for renewable generation must be added specifically for each newly installed hydrogen production plant (electrolysis)).

EU not to intervene in the energy market despite the price crisis

Unprecedentedly high energy prices have triggered a debate among the EU institutions. The European Commission published its Toolbox Communication in October with the objective to help member states tackle the high energy prices. This toolbox outlined a number of measures that member states can implement to protect vulnerable consumers and industries within the existing regulatory framework. 

Although the energy price crisis was discussed at the EU level on multiple occasions during the fourth quarter of 2021, the Commission, together with a broad coalition of member states, highlighted free/market-driven pricing and competitive markets without any need to intervene in the market. The impact of soaring and persistent high energy prices start to be visible in the real economy, and several small- and medium-sized enterprises, including energy suppliers, have already been significantly affected. The exceptional commodity price situation is also putting a strain on utilities with large trading portfolios (including Uniper), as they face clearly higher collateral requirements and consequently need to secure additional liquidity reserves.

New German government with ambitious climate goals started

“The Traffic Light Coalition”, the new German Government formed by Social Democrats, Liberals, and Greens, has officially started under the leadership of Chancellor Olaf Scholz. The coalition agreement sets very ambitious climate targets and requires heavy investments to implement those targets (e.g. a target to reach an 80% share of renewables by 2030). Renewable energies shall be expanded massively while the coal exit is intended to be brought forward, ideally to 2030. The crucial role of natural gas for security of supply is well recognized; at the same time, the Government is under pressure because the goal of climate neutrality must be achieved in 2045. The Government supports the ramp up of the hydrogen economy which is important especially to enable decarbonisation of the industry sector.

Nord Stream 2 halted

Following the invasion of Russia on Ukraine, the German government halted the certification process of Nord Stream 2 on 22 February 2022, and the US has put Nord Stream 2 AG, which is a Swiss subsidiary of Gazprom, and its CEO under sanction on 23 February 2022.

For comments on the geopolitical uncertainty due to Russia’s invasion on Ukraine, imposed sanctions and possible future sanctions and counter sanctions and their possible impacts on Fortum Group’s Russian business and assets, please see section ‘Events after the balance sheet date’.

Proposal for Swedish hydrogen strategy published

In November 2021, the Swedish Energy Agency presented a proposal on a national hydrogen strategy. The strategy focuses on “colour-blind” fossil-free hydrogen with a target to have 5 GW of installed electrolyser capacity by 2030 and an additional 10 GW of capacity by 2045.

According to the proposal, the use of hydrogen should contribute to the transition to a fossil-free economy and at the same time strengthen security of supply in the electricity system. Hydrogen must be used where it is economically efficient and creates the highest system value. Sweden should be an international frontrunner and exporter of climate-friendly products and services based on hydrogen that lower emissions abroad.

The strategy is currently being processed in the Ministry of Infrastructure, but it is still unclear when it will be adopted as the official Swedish hydrogen strategy.

Lack of firm power production in the south of Sweden increases market turmoil

In Sweden, the electricity price differences between the four internal price areas significantly increased in 2021. The increased volatility and lack of balanced and sufficient power supply in southern Sweden has caused many retailers to stop offering fixed price contracts to their customers. It has also triggered the transmission system operator, Svenska Kraftnät, to announce that more firm dispatchable power must be added to the system and that transmission capacity from north to south needs to be increased.

Finnish river basin management plans approved

In December 2021, the Finnish Government approved the river basin management plans that will guide the future licencing and operation of all industrial plants in the neighbourhood of watercourses. The plans are based on the classification of water bodies and propose measures to reach the desired status of water bodies by 2027.

The proposed measures, e.g. minimum flow requirement, may reduce the regulating hydropower capacity provided by hydropower by up to 20%. Therefore, the hydropower generators consider the government’s decision to pose a significant risk to the operation of the electricity system.

Fortum is committed to the goals of the plans, including reaching good water status. However, due to severe shortcomings in the classification of water bodies, Fortum has appealed to the Supreme Administrative Court regarding the Oulujoki watercourse and the Klobbfjärden sea area around the Loviisa nuclear power plant. Court processes are expected to take several years.

Government permit granted for the final repository for spent nuclear fuel in Sweden – Posiva applies for operating permit for final disposal in Finland

In August 2021, the Swedish Government decided to extract the interim storage decision from SKB's (Svensk Kärnbränslehantering AB) comprehensive final repository system application. Only the increased storage at the interim storage facility was given the go-ahead at that time. In line with the licensing process, the case is now to be decided by the Swedish Land and Environmental Court, and a building and operation permit on the interim storage facility is expected in June/July 2022. The Government decision made in August 2021 created uncertainty with regard to the process to have a legally enforceable building and operation permit for the interim storage facility in place by the end of 2023, when maximum capacity under the current license will be reached. If a legally enforceable permit is not in place by the end of 2023, nuclear operators will not be able to store more spent fuel, and therefore the risk for electricity supply disruptions in the spring of 2024 still remains. In January 2022, the new Swedish Government made a decision to give the go-ahead to the final repository for spent nuclear fuel in Forsmark in Östhammar Municipality and an encapsulation plant in Oskarshamn.

In Finland, the nuclear waste management organisation Posiva Oy announced the submission of the application for the operating license for the encapsulation and final disposal facility (ONKALO®) to the Finnish Ministry of Economic Affairs and Employment in December 2021. Posiva will dispose of the high-level nuclear waste of its owners, Fortum (share of ownership 40%) and Teollisuuden Voima Oyj (TVO) (share of ownership 60%).

Segment reviews

Business model

Fortum is a European energy company with activities in more than 40 countries. We provide our customers with electricity, gas, heating and cooling as well as smart solutions to improve resource efficiency. Together with our subsidiary Uniper, we are the third largest producer of CO₂-free electricity in Europe. Fortum is the largest electricity retailer in the Nordic countries and one of the leading heat producers globally.

Fortum’s organisation consists of four business divisions: Generation, Russia, City Solutions, and Consumer Solutions, and additionally Uniper as a segment. Fortum employs a diverse team of almost 20,000 energy-sector professionals.

Generation

Generation is responsible for Nordic power generation. The division comprises CO₂-free nuclear, hydro, and wind, power generation, as well as power portfolio optimisation, trading, market intelligence, thermal power for the capacity reserve, and global nuclear services. The division does not include the Nordic hydro and nuclear power generation or the trading activities of Uniper. As of 31 March 2020, the division includes Generation’s proportionate share of OKG (} Note 1).

1)The Nordic power sales income and volume includes hydro and nuclear generation, excluding minorities. It does not include thermal generation, minorities, customer business or other purchases.

2)Power plants are often built jointly with other power producers, and owners purchase electricity at cost including interest cost and production taxes. The share of profit/loss is mainly IFRS adjustments (e.g. accounting for nuclear-related assets and liabilities) and depreciations on fair-value adjustments from historical acquisitions (} Note 18).

3)Comparable share of profit/loss of associates and joint ventures for 2020 has been recalculated following the introduction of comparable net profit APM in 2021.

The Generation segment’s total power generation in the Nordic countries increased driven especially by higher nuclear volumes but also by higher hydro volumes, the effect of which was partly offset by the sale of a majority share of Fortum’s Nordic wind assets. The availability for nuclear generation was at a good level throughout the year with annual production records in the Loviisa (Finland), Oskarshamn 3 and Forsmark (Sweden) nuclear power plants. The CO₂-free generation accounted for 100% of the total power generation.

The achieved power price in the Generation segment increased by EUR 8 per MWh, up 23%. The achieved power price increased due to the very successful physical optimisation, financial optimisation and higher spot prices. While the spot power price increased by 183% in Generation segment’s power generation areas, the positive result effect of the higher achieved power price was dampened by the fairly high hedge levels and a hedge price below the level of the spot price as well as the achieved power price being well above the spot price in comparison period.

Comparable operating profit increased by 54%. The increase was mainly related to the higher achieved power price. Also higher nuclear and hydro volumes contributed to the increase. Comparable operating profit included EUR -13 (15) million from the consolidation of the Generation segment’s proportionate share of OKG (} Note 6).

Operating profit was affected by EUR -56 (-11) million of items affecting comparability, mainly related to the fair value change of non-hedge-accounted derivatives. It also included the tax-exempt capital gain of EUR 50 million from the divestment of eight small hydropower plants in Sweden (} Note 6).

Comparable share of profits of associates and joint ventures totalled EUR 11 (13) million (} Note 6 and } Note 18).

In January 2021, Fortum announced that it had finished the construction of two new wind parks in the Nordics: Kalax in Finland and Sørfjord in Norway which subsequently started generating CO₂-free energy for the Nordic market. The wind parks are part of the transaction concluded in 2020 with Energy Infrastructure Partners AG (EIP), and Fortum’s ownership is 20%.

In March 2021, Fortum announced a substantial investment in dam safety in Sweden for an extensive rebuild of the over 100-year-old Forshuvud hydropower plant. Fortum is investing more than SEK 450 million (approximately EUR 44 million) during 2021–2025. This investment guarantees an extended lifetime for the power plant as a supplier of renewable electricity and balancing power for more weather-dependent types of power.

In April 2021, Fortum announced its second pilot project for the use of batteries as energy storage at hydropower plants in Landaforsen, Sweden. Out-of-service batteries from plug-in hybrid cars and other batteries, a total of 48 batteries with a combined storage capacity of 1 MW and 250 kWh, are installed, extending the lifetime of the hydropower turbines and the batteries.

In September 2021, Fortum and Uniper agreed on long-term external and internal collaboration in nuclear decommissioning services. The objective for the complementary capabilities is to develop a wider customer offering, reach a stronger market position, and ensure excellent performance in the Oskarshamn and Barsebäck decommissioning projects in Sweden.

In September 2021, Fortum submitted its Environmental Impact Assessment (EIA) Report of the Loviisa nuclear power plant in Finland to the Ministry of Economic Affairs and Employment (MEAE). The report contains an assessment of the environmental impacts of the potential lifetime extension of the nuclear power plant or, alternatively, the decommissioning of it, as well as the environmental impacts of Posiva Oy’s final disposal facility ONKALO® for low- and intermediate-level waste. In January 2022, MEAE gave its informed conclusion on the Loviisa nuclear power plant’s Environmental Impact Assessment report and stated that it meets the requirements of the EIA legislation. The alternatives examined were not found to have such significant adverse environmental impacts that could not be accepted, prevented or mitigated to an acceptable level.

On 16 December 2021, the Radiation and Nuclear Safety Authority in Finland (STUK) granted Teollisuuden Voima Oyj (TVO) permission to make the Olkiluoto 3 EPR (OL3) reactor critical and to conduct low power tests. Consequently, Finland's fifth nuclear reactor was started and it reached first criticality on 21 December 2021. Electricity generation starts in March 2022, and regular electricity generation is expected to start in July 2022 (} Note 29).

On 22 December 2021, Fortum announced the first investment by the joint team of Fortum and Uniper for wind and solar businesses in Europe. Fortum decided to construct the 380-MW Pjelax-Böle and Kristinestad Norr wind parks in Närpes and in Kristinestad in Finland in partnership with the Finnish energy company Helen Ltd. Construction started in January 2022 and the wind parks are expected to be fully operational at the latest in the second quarter of 2024. Fortum has a 60% majority and Helen holds a 40% minority ownership in the project. The total capital expenditure of the projects is approximately EUR 360 million, of which Fortum’s share is EUR 216 million.

Power generation by source

Nordic sales volume

1)The Nordic power sales income and volume includes hydro and nuclear generation, excluding minorities. It does not include thermal generation, minorities, customer business or other purchases.

Sales price

1)Generation’s Nordic power price includes hydro and nuclear generation, excluding minorities. It does not include thermal generation, minorities, customer business or other purchases.

Russia

The Russia segment comprises power and heat generation and sales in Russia. The segment includes Fortum’s fully owned power plants and its joint ventures for building and operating approximately 3.4 GW of renewable power generation and for power and heat sales, as well as Fortum’s more than 29% holding in TGC-1. These joint ventures and associated company are accounted for using the equity method. The segment does not include Uniper’s Russian subsidiary Unipro.

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Power generation volumes increased by 6% due to higher consumption as a result of the economic recovery in 2021. Heat production volumes increased by 4% due to colder weather in the Chelyabinsk and Tyumen areas. This positive effect was partly offset by the Argayash CHP plant divestment in the second quarter.

Sales decreased by 2%, or EUR -23 million, due to the weaker Russian rouble during the first half of 2021. This impact was partly offset by higher power prices and volumes. The effect of the change in the Russian rouble exchange rate was EUR -48 million.

Comparable operating profit increased by 4%, or EUR 10 million. The EUR 17 million positive effect of the sale of the 116-MW CSA-backed solar power project to the Fortum-RDIF joint venture and higher power prices more than offset the effect of the change in the Russian rouble exchange rate of EUR -14 million. The net effect of the changes to CSA payments was slightly negative; the changes derived from three units entering the four-year period of higher CSA payments, the CSA period expiry for two units, as well as corrections to the CSA prices as a result of lower bond yields. The divestment of the Argayash coal-fired CHP plant only had a minor effect on comparable operating profit.

Operating profit was affected by a tax-deductible non-cash impairment of EUR 35 million in connection with the Argayash CHP plant divestment.

Comparable share of profits of associates and joint ventures totalled EUR 62 (47) million, including the share of profits of EUR 33 (24) million from TGC-1, and the share of profits of EUR 23 (18) million from the joint ventures for renewables power generation (} Note 6 and } Note 18). The share of profits from the joint ventures for renewables power generation in 2021 includes a EUR 11 million gain from the transfer of the Kalmykia wind power park from the Fortum-Rusnano wind investment fund to the Fortum-RDIF joint venture. The share of profits for the joint ventures for renewables power generation in 2020 includes a EUR 9 million gain from the transfer of the Rostov wind power park from the Fortum-Rusnano wind investment fund to the Fortum-RDIF joint venture (} Note 3).

In March 2021, Fortum announced its decision to construct the largest solar power plant in Kalmykia in Southern Russia through a joint venture established with RDIF. In December 2021, 78 MW of the capacity was commissioned and the remaining capacity will be commissioned in the second half of 2022. These capacities relate to CSA auctions held in 2018 and 2019.

In March 2021, Fortum sold its 116-MW CSA-backed solar power project to the joint venture with RDIF.

In June 2021, the Fortum-Rusnano wind investment fund sold its 200-MW Kalmykia wind parks to the Fortum-RDIF joint venture.

In July 2021, Fortum signed an agreement to sell its Argayash coal-fired CHP plant to AO JSC Rusatom Smart Utilities. In September 2021, the transaction was concluded. Following the decision earlier in 2021 to transition to gas at Chelyabinsk CHP-2, this transaction will allow Fortum’s Russia division to discontinue its use of coal by the end of 2022 and reduce annual CO₂ emissions by approximately 2 million tonnes.

In September 2021, the Fortum-Rusnano wind investment fund (joint venture, Fortum's ownership 50%) began the construction of wind power parks with a total capacity of 237 MW in the Samara region in Russia.

In September 2021, Fortum announced that the Fortum-Rusnano wind investment fund was awarded annual CSA remuneration for 15 years in the range of RUB 16.9–23.8 billion (inflation adjusted) for new wind power generation in a Russian renewables’ auction. This corresponds to wind capacity of approximately 430–530 MW per annum (a maximum of 1.4 GW) to be commissioned during years 2025–2027. The average nominal price is expected to be in the range of RUB 2,600–4,200 per MWh (inflation adjusted) during the CSA period.

During 2021, Fortum signed several Memorandums of Understanding (MoU) regarding renewable energy sales in Russia with Novatek, Magnitogorsk Iron and Steel Works, Baker Hughes, and Shell. MoU’s were also signed with Electroshield Samara and Sberbank for the supply of wind power in the Samara region and with Mosenergosbyt for the supply of wind power to Sberbank’s offices in Nizhny Novgorod. The new agreements support Fortum’s strategy to partner with industrial and infrastructure customers to help them reduce their own emissions.

Key electricity, capacity and gas prices for Fortum Russia

1)Including capacity receiving payments under "forced mode status", regulated tariffs, and bilateral agreements.

2)Capacity prices paid for the capacity volumes, excluding unplanned outages, repairs, and own consumption.

3)Translated using the average exchange rate.

Russian power generation and heat production

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City Solutions

City Solutions is responsible for sustainable solutions for urban areas. The segment comprises heating, cooling, waste-to-energy, and other circular economy solutions, as well as solar power generation, services, and development of new biomass-based businesses. The business operations are located in the Nordics, Poland, and India. The segment has also included Fortum’s 50% holding in Stockholm Exergi Holding AB, which was a joint venture accounted for using the equity method. Stockholm Exergi Holding AB was divested in September 2021. The segment does not include the operations of Fortum’s subsidiary Uniper.

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1)Waste treatment sales comprise gate fees at waste treatment plants and environmental construction services.

2)Other sales comprise mainly operation and maintenance services and fuel sales.

Heat sales volumes increased by 4% as temperatures were colder than usual especially during the first and fourth quarter of the year. This positive effect was partly offset by the divestment of the Baltic district heating business. The power sales volumes increased by 10%, mainly supported by a different production mix in the Finnish heat business and the commissioning of the new 250 MW solar power plant in Rajasthan, India. This positive effect was partly offset by the divestment of the Baltic district heating business.

Comparable operating profit increased by 187% mainly as a result of higher heat sales volumes in all heating areas, higher power prices, and higher Norwegian heat prices due to the price link between heat and power prices. Comparable operating profit increased also due to Solar including the total tax-exempt sales gains from the divestment of the 250-MW Pavagada II solar plant and the 250-MW Rajasthan solar plant in India from which EUR 11 million was recorded in the fourth quarter of 2021 and the rest is expected to be recorded during the first half of 2022. The profits

from the Pavagada and Rajasthan solar park divestments are recognised in comparable operating profit. In addition, the result was positively affected by operational improvements in the Recycling and Waste Solutions.

Operating profit was affected by EUR 2,536 (728) million of items affecting comparability, mainly related to the tax-exempt capital gains of EUR 2,350 million from the sale of the 50% ownership in Stockholm Exergi Holding AB, and EUR 254 million from the sale of the district heating business in the Baltics partly offset by the fair value change of non-hedge-accounted derivatives. (} Note 6).

Comparable share of profits of associates and joint ventures totalled EUR 42 (57) million, EUR 28 (46) million of which is related to the share of profit of Stockholm Exergi until September 2021. (} Note 6 and } Note 18)

In March 2021, Fortum announced that it had signed an agreement to sell its district heating business in the Baltics to Partners Group. In July 2021, Fortum concluded the sale. The total consideration of the sale amounted to approximately EUR 710 million.

In June 2021, Fortum made the investment decision to expand its lithium-ion battery recycling capacity by building a new state-of-the-art hydrometallurgical plant in Harjavalta, Finland. The investment of approximately EUR 24 million will increase Fortum’s hydrometallurgical recycling capacity and enable the production of sustainable battery chemicals. The new facility will be able to efficiently recover scarce metals from old electric vehicle lithium-ion batteries while also recycling various waste fractions derived throughout the battery supply chain.

In June 2021, Fortum announced that it had signed an agreement to divest the 250-MW Pavagada II and the 250-MW Rajasthan solar power plants in India to Actis. The parties also signed an agreement targeting potential further investments in solar power plants in India. The total consideration for the divestment on a debt- and cash-free basis, including the effect of deconsolidation of the net debt, amounted to approximately EUR 280 million. The sale of the 250-MW Pavagada II solar plant was concluded in October and the first phase of the Rajasthan plant in November.

In September 2021, Fortum concluded the sale of its 50% ownership in the Swedish district heating and cooling company Stockholm Exergi Holding AB to a consortium comprising APG, Alecta, PGGM, Keva, and AXA. The total consideration of the sale amounted to SEK 29.5 billion (approximately EUR 2.9 billion).

Heat sales by country

Power sales by country

Consumer Solutions

Consumer Solutions is responsible for the electricity and gas retail businesses in the Nordics, Poland, and Spain, including the related customer service and invoicing businesses. Fortum is the largest electricity retail business in the Nordics, with approximately 2.2 million customers across different brands in Finland, Sweden, Norway, Poland, and Spain. The business provides electricity, as well as related value-added and digital services, mainly to retail customers.

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The electricity sales volumes increased by 8% mainly due to clearly colder weather in the Nordics during the first and the fourth quarter and increased enterprise customer sales. Total sales revenue increased by 107%, driven by increased volumes and clearly higher prices in the Nordics. The gas sales volumes increased by 22%, mainly due to an increase in enterprise customers in Poland. Several new digital services were launched during the year, and new enterprise contracts were signed with customers in the energy, food processing, real estate, and retail industries.

Comparable operating profit decreased by 42%, mainly due to the high electricity purchase costs resulting from the high and volatile electricity market prices in the third and the fourth quarter and a reduction in the number of customers. Required additional electricity volumes were acquired in the spot market at prices that were clearly higher than the agreed customer prices, resulting in higher electricity purchase costs and negative margins. The negative effect was partially offset by increased unit margins resulting from active development and improvement of the service offerings.

Operating profit was affected by EUR 443 (39) million of items affecting comparability, due to the fair value change of non-hedge-accounted derivatives (} Note 6).

Sales volumes

1)Not including wholesale volumes.

Number of customers

1)Rounded to the nearest 10,000.

2)Measured as quarterly paying customers.

Uniper

The Uniper segment comprises Fortum’s majority ownership in Uniper, a subsidiary of Fortum. Uniper is a leading international energy company with activities in more than 40 countries. Its business is the secure provision of energy and related services. Its main activities include power generation in Europe and Russia as well as global energy trading and optimisation, which Uniper reports in three businesses – European Generation, Global Commodities, and Russian Power Generation – in its financial statements. Approximately 50% of the power generating capacity is gas-based, 25% coal-based, approximately 15% hydro- or nuclear-based, and 10% is other. The segment includes Uniper’s proportionate share of OKG (} Note 1).

Fortum consolidated Uniper into its balance sheet as of 31 March 2020 and, from the second quarter of 2020, consolidated Uniper’s results into its income statement. In the first quarter of 2020, Uniper was consolidated as an associated company into Fortum’s income statement, presented in the Other segment. The main reason for the change in cumulative figures and in comparison to the year 2020 is thus the consolidation of Uniper.

Power generation volumes were supported by better availability of the thermal fleet, the commissioning of Datteln 4 in the second quarter of 2020, and the return to commercial operation of the gas-fired Irsching 4 and 5 generating units. Additionally, nuclear volumes increased due to higher availability.

Comparable operating profit amounted to EUR 1,120 (363) million. Predominantly Uniper’s gas business benefitted from the extraordinary market developments with volatile and rising prices, despite additional capital requirements. In the first quarter of 2020, Uniper was consolidated as an associated company.

The result of the European Generation business was driven by the commissioning of the Datteln 4 coal-fired power plant at the end of May 2020 and the return to regular commercial operation of the Irsching 4 and 5 gas-fired power plant units in the fourth quarter of 2020. In addition, higher revenues from the UK capacity market and higher production volumes in the nuclear business, due to higher availability, contributed to the improved result. This positive effect was more than offset by the lower result in the Dutch steam business stemming from outages in the third quarter and higher nuclear provisions in the fourth quarter. In addition, in the fossil business, the exceptionally positive margin contributions from the previous year could not be repeated.

The Global Commodities business benefitted from improved results in the international portfolio, driven by the unusual weather conditions in North America and Asian operations especially in the first quarter. The positive business activity in Asia was partly offset by a negative contribution from the trading of power and carbon and rescheduled LNG deliveries phasing earnings into 2022 and affecting the result of the fourth quarter. Despite the already strong performance in 2020, the result of the gas business further improved benefitting from extraordinary market conditions with volatile and rising gas prices especially during the second half of 2021.

The Russian Power Generation business was at almost the same level as in the previous year. The expiry of CSA payments for four units at the Shaturskaya, Surgutskaya, and Yaivinskaya power plants was more than offset by CSA payments from the commissioning of the Berezovskaya 3 power plant unit in May 2021 as well as by higher prices and volumes on the electricity market.

Operating profit was affected by EUR -6,021 (-333) million of items affecting comparability, mainly related to EUR -5,688 (-706) million of fair value change of non-hedge-accounted derivatives (} Note 6). The Uniper segment’s future cash flows are largely hedged with forward sell contracts; however as hedge accounting is not applied for most of the contracts, unrealised changes in the fair values of these derivative instruments are presented in items affecting comparability.

Comparable share of profits of associates and joint ventures totalled EUR 39 (38) million (} Note 6 and } Note 18).

In March 2021, amendments to the Russian Strategic Investment Law were approved. Based on the law, Fortum is allowed to own 100% of Uniper, the majority owner of Unipro PJSC. In July 2021, Fortum withdrew its earlier submitted application for merger control approval from the Russian Federal Antimonopoly Service under the Competition Law to further analyse the requirements of the scope and content of the filing process.

In April 2021, the German Federal Network Agency accepted the bid from the 757-MW Wilhelmshaven power plant as part of the second round of auctions for the closure of hard-coal-fired power plants. Power generation at the plant ended in December 2021, one year earlier than previously announced. Uniper plans to establish a German national hub for hydrogen in Wilhelmshaven, including an import terminal for green ammonia (‘ammonia cracker’) and a 410-MW electrolysis plant in connection with the terminal. Uniper is working on a feasibility study and no final investment decision has been made.

In 2021, Uniper started legal proceedings on the Dutch coal phase-out law for the intended 2030 coal exit, as it does not provide appropriate compensation for investments made. Uniper also has the ambition to convert the Maasvlakte site into an ecosystem for sustainable energy production.

In April 2021, Uniper published a stock exchange release (‘ad-hoc’) with a positive update of its earnings guidance for 2021.

In July 2021, the German Federal Network Agency confirmed the essential status of the Heyden 4 hard-coal power plant as a reserve power plant until the end of September 2022. Also, in July 2021, the German Federal Network

Agency accepted the bid from the 345-MW Scholven C power plant as part of the third round of auctions for the closure of hard-coal-fired power plants. The commercial power generation at the plant will end as early as the end of October 2022, slightly earlier than previously announced.

In August 2021, the Higher Administrative Court of North Rhine-Westphalia (OVG) declared in three parallel proceedings that the City of Datteln’s 2014 development plan for the Datteln 4 hard-coal-fired power plant are invalid at the request of the City of Waltrop, BUND NRW, and four private individuals. Specifically, the OVG held that the City of Datteln’s development plan is based on a deficient regional plan. The court did not admit an appeal. Uniper is a joined party to the proceedings as the permit owner and thus has the right to appeal. In October 2021, Uniper filed complaints against the non-admission of the appeal in relation to the judgements. The City of Datteln, as the direct defendant in the proceedings, has also filed non-admission complaints.

In August 2021, Uniper announced the decisions to accelerate the coal phase-out in the UK by closing one 500-MW unit of the Ratcliffe hard coal-fired power plant as early as at the end of September 2022 and the closure of the remaining three units by the end of September 2024 at the latest.

In September 2021, Fortum and Uniper announced cooperation in offering nuclear decommissioning and dismantling services for nuclear companies. See further details in the Generation segment.

In September 2021, Uniper announced that it was exploring the opportunity of restarting the Happurg pumped storage power plant. The plant has an output of 160 MW and can store water with energy for approximately 850 MWh of electricity making it the largest pumped storage power plant in Bavaria. With effect from the end of September, Uniper transferred its shares in the Schkopau power plant near Halle/Saale, the last investment in a lignite-fired power plant in the European portfolio. The sale follows the company's strategic goal of accelerating the phase-out of coal-fired power generation and becoming climate-neutral in Europe by 2035.

In October, after a strategic review, Uniper announced plans to fundamentally restructure its Engineering business, which has a total of 1,100 employees mainly located in Germany and the United Kingdom. Under the plans, the future engineering competencies will be solely focused on operating Uniper’s own assets and on the growth priorities of decarbonization and green customer solutions

In October 2021, Uniper published a stock exchange release (‘ad-hoc’) with a positive update of its earnings guidance for 2021.

In December 2021, Uniper announced that the Staudinger 5 power plant had been awarded the contract by the BNetzA and that commercial electricity generation would therefore be discontinued by the end of May 2023 at the latest and the power plant would be shut down.

In December 2021, Novatek and Uniper announced that they had signed a term-sheet on the long-term supply of low-carbon ammonia. Up to 1.2 million tonnes will be delivered to Uniper customers in Germany and northwest ern Europe in the future.

For further information, see Uniper’s year-end 2021 results published on 23 February 2022.

Power generation by source

Nordic sales volume

1)The Nordic outright power sales volume includes hydro and nuclear generation. It does not include thermal generation, minorities, customer business, or other purchases.

Sales price

1)Uniper’s Nordic achieved power price includes hydro and nuclear generation. It does not include thermal generation, minorities, customer business, or other purchases.

2)Including capacity receiving payments under "forced mode status", regulated tariffs, and bilateral agreements.

3)Capacity prices paid for the capacity volumes, excluding unplanned outages, repairs, and own consumption.

4)Comparable prices changed from previously reported.

5)Translated using the average exchange rate.

Capital expenditures, divestments, and investments in shares

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In 2021, capital expenditures and investments in shares totalled EUR 1,407 (4,941) million. Capital expenditures were EUR 1,116 (1,146) million (} Note 3 and } Note 6).

Fortum expects to start, or has started, power and heat production capacity of new power plants and expects to upgrade its existing plants as follows:

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Generation

In January 2021, Fortum announced that it had finished the construction of two new wind parks in the Nordics: Kalax in Finland and Sørfjord in Norway which subsequently started generating CO₂-free energy for the Nordic market. The wind parks are part of the transaction concluded in 2020 with Energy Infrastructure Partners AG (EIP), and Fortum’s ownership is 20%.

In February 2021, Fortum completed the sale of eight small hydropower plants in Sweden with an average annual power generation of 0.1 TWh to Downing Renewables & Infrastructure Trust plc and recording a tax-exempt capital gain of EUR 50 million.

In March 2021, Fortum announced a substantial investment in dam safety in Sweden for extensive rebuild of the over 100-year-old Forshuvud hydropower plant. Fortum is investing more than SEK 450 million (approximately EUR 44 million) during 2021–2025. This investment guarantees an extended lifetime for the power plant as a supplier of renewable electricity and balancing power for more weather-dependent types of power.

On 22 December 2021, Fortum announced the first investment by the joint team of Fortum and Uniper for wind and solar businesses in Europe. Fortum decided to construct the 380-MW Pjelax-Böle and Kristinestad Norr wind parks in Närpes and in Kristinestad in Finland in partnership with the Finnish energy company Helen Ltd. Construction started in January 2022 and the wind parks are expected to be fully operational at the latest in the second quarter of 2024. Fortum has a 60% majority and Helen holds a 40% minority ownership in the project, and the investment will be consolidated on Fortum’s balance sheet. The total capital expenditure of the projects is approximately EUR 360 million, of which Fortum’s share is EUR 216 million.

Russia

Together with its joint ventures in Russia, Fortum holds the largest portfolio of wind and solar power parks and projects in Russia, approximately 3.4 GW. Once operational, the wind and solar parks receive a guaranteed CSA price for a period of 15 years.

In 2017 and 2018, the Fortum-Rusnano wind investment fund (joint venture, Fortum's ownership 50%) won the right to build a total of 1,823 MW of wind capacity in CSA auctions. During the second half of 2020, the Fortum-Rusnano wind investment fund sold the 50-MW Ulyanovsk 2 and the 300-MW Rostov wind parks to the Fortum-RDIF joint venture. In June 2021, the Fortum-Rusnano wind investment fund additionally sold the 200-MW Kalmykia wind parks to the Fortum-RDIF joint venture. In December 2021, the Fortum-Rusnano wind investment fund started commercial operation of wind farms with a total capacity of 478 MW in the Astrakhan, Volgograd and Rostov regions.

In 2018 and 2019, Fortum won the right to build a total of 116 MW of solar capacity in CSA auctions. In March 2021, Fortum announced the sale of the solar power project to the Fortum-RDIF joint venture and decided to construct the solar power plant through this joint venture. In December 2021, 78 MW of the capacity was commissioned, and the remaining part will be commissioned in the second half of 2022.

In June 2021, the Fortum-Rusnano wind investment fund made an investment decision on the construction of wind power parks with a total capacity of 237 MW in the Samara region in Russia. The investment decision is based on an agreement with the Government of the Samara Region that envisages construction of wind parks with a total capacity of up to 300 MW in the region in 2022–2023. In September 2021, groundbreaking was done, and commissioning of the wind parks is expected in the fourth quarter of 2022.

In July 2021, Fortum signed an agreement to sell its Argayash coal-fired CHP plant to AO JSC Rusatom Smart Utilities. In September 2021, the transaction was concluded. Following the decision earlier in 2021 to transition to gas at Chelyabinsk CHP-2, this transaction will allow the Russia Division to discontinue its use of coal by the end of 2022 and reduce annual CO₂ emissions by approximately 2 million tonnes.

In September 2021, Fortum announced that the Fortum-Rusnano wind investment fund was awarded annual CSA remuneration in the range of RUB 16.9–23.8 billion (inflation adjusted) for new wind power generation in the latest Russian renewables’ auction. This corresponds to wind capacity of approximately 430–530 MW per annum (a maximum of 1.4 GW) to be commissioned during years 2025–2027. The number of gigawatts ultimately to be constructed is subject to separate investment decisions. The average nominal price is expected to be in the range of RUB 2,600–4,200 per MWh (inflation adjusted) during the 15-year CSA period from commissioning.

The investment decisions related to the solar and wind capacities won by Fortum and the Fortum-Rusnano wind investment fund in the Russian CSA auctions in 2017, 2018, 2019, and 2021 are made on a case-by-case basis. Fortum’s maximum equity commitment is RUB 15 billion.

City Solutions

In March 2021, Fortum announced that it had signed an agreement to sell its district heating business in the Baltics to Partners Group. In July 2021, Fortum concluded the sale. The total consideration of the sale amounted to approximately EUR 710 million. Fortum recorded a tax-exempt capital gain of EUR 254 million in the City Solutions segment’s third-quarter 2021 results.

In March 2021, Fortum commissioned 150 MW of the 250-MW Rajasthan solar park in India. The remaining 100 MW was commissioned in May 2021.

In June 2021, Fortum made the investment decision to expand its lithium-ion battery recycling capacity by building a new state-of-the-art hydrometallurgical plant in Harjavalta, Finland. The investment, estimated at EUR 24 million, will increase Fortum’s hydrometallurgical recycling capacity and enable the production of sustainable battery chemicals. The plant is expected to be taken into operation in 2023. In March, Fortum’s hydrometallurgical battery recycling operations were shortlisted for the EU’s Innovation Fund for low-carbon technologies.

In June 2021, Fortum announced that it had signed an agreement to divest the 250-MW Pavagada II and the 250-MW Rajasthan solar power plants in India to Actis. The parties also signed an agreement targeting potential further investments in solar power plants in India. The total consideration for the divestment on a debt- and cash-free basis, including the effect of deconsolidation of the net debt amounted to approximately EUR 280 million. The sale of the 250-MW Pavagada II solar plant was concluded in October and the first phase of the Rajasthan divestment in November.

In September 2021, Fortum concluded the sale of its 50% ownership in the Swedish district heating and cooling company Stockholm Exergi Holding AB to a consortium comprising APG, Alecta, PGGM, Keva, and AXA. The total consideration of the sale amounted to SEK 29.5 billion (approximately EUR 2.9 billion). Fortum recorded a tax-exempt capital gain of EUR 2,350 million in the City Solutions segment’s third-quarter 2021 results.

Uniper

In February 2020, Uniper signed an agreement to sell its 58% stake in Schkopau, a lignite‐fired power plant in Saxony‐Anhalt in eastern Germany, to Saale Energie GmbH, a subsidiary of the Czech energy producer EPH, which owns 42%. The transfer of ownership took place on 1 October 2021.

Other Operations

In June 2021, Fortum signed an agreement to sell a majority share of its carbon removal startup Puro.earth to Nasdaq, a multinational financial services company. The partnership will create a shared ownership structure designed to accelerate Puro.earth’s global growth and long-term market development. Puro.earth is the first marketplace to offer carbon removal from the atmosphere that is verifiable and tradable through an open, online platform.

Research and development

Sustainability is at the core of Fortum’s strategy and, alongside Fortum’s current businesses, the company is carefully exploring and developing new sources of growth within clean energy solutions.

Fortum’s goal is to be at the forefront of energy technology and application development. To accelerate innovation and the commercialization of new offerings, Fortum is strengthening its in-house innovation and digitalization efforts and building partnerships with leading global suppliers, technology and service companies, and research institutions. Fortum makes direct and indirect investments in start-ups that have promising new innovations focused on decarbonization, flexibility, clean gas or accelerate the transition towards a circular economy. Fortum also invests in technologies that support better utilization of the current asset base and that can create new markets and products for Fortum. The company is continuously looking for emerging clean energy solutions and for solutions that increase resource and system efficiency.

The Group reports its R&D expenditure on a yearly basis. In 2021, Fortum’s R&D expenditure was EUR 61 (56) million, or 0.1% (0.1%) of sales.

Changes in Group management

In February 2021, Bernhard Günther started as Chief Financial Officer (CFO) and member of Fortum’s Executive Management.

In March 2021, Klaus-Dieter Maubach, member of Fortum’s Board of Directors, announced his resignation from the Board, as he had been elected the CEO of Uniper. Fortum's Shareholders' Nomination Board evaluated the Board of Directors' ability to function and concluded, based on the recommendation of the Board of Directors, that the Board had full capacity to continue in its current composition until the 2021 Annual General Meeting (AGM).

In March 2021, Tiina Tuomela was appointed the new CFO of Uniper and consequently stepped down from her position at Fortum. Simon-Erik Ollus, was appointed Executive Vice President of Fortum’s Generation division and member of Fortum’s Executive Management with immediate effect.

In March 2021, Nebahat Albayrak was appointed Senior Vice President Corporate Affairs, Safety, and Sustainability and member of Fortum's Executive Management. Ms Albayrak assumed the role on 1 June 2021. She succeeded Arto Räty, who retired at the end of October 2021.

In April 2021, Sirpa-Helena Sormunen was appointed as Uniper’s new General Counsel and Chief Compliance Officer and Risto Penttinen was appointed as Uniper’s new Executive Vice President, Strategy, Corporate Development and M&A. Nora Steiner-Forsberg was appointed Fortum’s General Counsel and member of Fortum’s Executive Management, and Eveliina Dahl was appointed Senior Vice President, People and Procurement and member of Fortum’s Executive Management, All appointments were effective as of 1 May 2021.

Mr Günther, Mr Ollus, Ms Albayrak, Ms Steiner-Forsberg, and Ms Dahl report to President and CEO Markus Rauramo.

In November 2021, Arun Aggarwal, Senior Vice President, Business Technology left his position at Fortum. He was succeeded by Sanna Pekari, M.Sc. (Civil Eng.), MBA. Sanna Pekari is not a member of the Fortum Management Team but is reporting directly to the President and CEO, Markus Rauramo.

Annual General Meeting 2021

The AGM of Fortum Corporation was held on 28 April 2021. The AGM adopted the Financial Statements and the Consolidated Financial Statements for the financial period 1 January-31 December 2020 and discharged from liability for the year 2020 all persons who acted as members of the Board of Directors and as President and CEO during the year 2020.

The AGM decided that a dividend of EUR 1.12 per share be paid for the financial year that ended on 31 December 2020. The record date was 30 April 2021, and the dividend of EUR 995 million was paid on 7 May 2021.

The AGM supported the Remuneration Report for the company’s governing bodies.

The AGM confirmed the remuneration for the Board of Directors for the upcoming term as follows: for the chair EUR 77,200 per year, for the deputy chair EUR 57,500 per year, for a member EUR 40,400 per year, and for the Board member acting as the chair of the Audit and Risk Committee EUR 57,500 per year if he or she is not simultaneously acting as chair or deputy chair of the Board. In addition, a fee of EUR 600 will be paid for each Board meeting and Board Committee meeting. For Board members living outside Finland in Europe, the fee for each meeting will be doubled, and for Board members living outside Europe, the fee for each meeting will be tripled. For Board members living in Finland, the fee for each Board and Board Committee meeting will be doubled for meetings held outside Finland and tripled for meetings held outside Europe. For Board and Committee meetings held as a telephone conference, the fee will be paid as single to all members.

The AGM decided that the Board of Directors will consist of seven members. Mr Veli-Matti Reinikkala was elected as chair, Ms Anja McAlister as deputy chair, and Ms Essimari Kairisto, Mr Teppo Paavola, Mr Philipp Rösler, and Ms Annette Stube were re-elected as members. Ms Luisa Delgado was elected as a new member.

In addition, Deloitte Oy was re-elected as the auditor with Jukka Vattulainen, APA, as the responsible auditor. The auditor's fee is paid pursuant to an invoice approved by the company.

The AGM authorised the Board of Directors to decide on the repurchase and disposal of the company's own shares up to 20,000,000 shares, which corresponds to approximately 2.25 % of all the shares in the company. Only the unrestricted equity of the company can be used to repurchase own shares on the basis of the authorisation. These authorisations cancelled the authorisation resolved by the AGM of 2020 and will be effective until the next AGM and in any event no longer than for a period of 18 months. These authorisations have not been used as per 2 March 2022.

The AGM authorised the Board of Directors to decide on contributions of a maximum of EUR 500,000 for charitable or similar purposes and to decide on the recipients, purposes, and other terms of the contributions. The authorisation will be effective until the next AGM. As per 2 March 2022, a contribution of 300,000 euros of this authorisation has been used.

Board decisions

At the meeting held after the AGM 2021, Fortum’s Board of Directors elected to the Nomination and Remuneration Committee: Veli-Matti Reinikkala as chair and Luisa Delgado and Anja McAlister as members.

Furthermore, the Board elected to the Audit and Risk Committee: Essimari Kairisto as chair and Teppo Paavola, Philipp Rösler, and Annette Stube as members.

Shareholders’ Nomination Board

On 6 September 2021, Mr Kimmo Viertola, Director General, Prime Minister's Office, Ownership steering department (Chairman), Mr Jouko Pölönen, President and CEO, Ilmarinen Mutual Pension Insurance Company, and Mr Risto Murto, President and CEO, Varma Mutual Pension Insurance Company were appointed to Fortum’s Shareholders’ Nomination Board. In addition, Veli-Matti Reinikkala, the Chairman of Fortum's Board of Directors is a member of the Shareholders’ Nomination Board.

Other major events during the reporting period

On 30 September 2021, Fortum’s Board of Directors decided to launch the savings period for year 2022 under its Employee Share Savings (ESS) programme. The ESS programme was established in October 2019; the Board of Directors decides separately on the annual launch of each individual savings period. The total amount of all savings for the 2022 savings period may not exceed EUR 6 million.

On 17 December 2021, Fortum’s Board of Directors decided to commence the 2022–2024 long-term incentive (LTI) plan for key employees and executives. The 2022–2024 LTI plan is part of Fortum's ongoing LTI programme and follows the same principles as the previous plan. The performance measures applied to the 2022–2024 LTI plan will be based on the total shareholder return measured relative to the peer group comprising selected European utility and gas companies, as well as a target linked to the reduction of absolute CO₂ emissions based on fossil fleet review addressing the Group’s European generation portfolio. The rewards related to the 2022–2024 LTI plan will be paid in the spring 2025, assuming that the performance targets are achieved. The 2022–2024 LTI plan will comprise a maximum amount of approximately 140 participants, including the members of Fortum Executive Management. The Board of Directors also decided to commence the 2022–2024 restricted share (RS) plan as a supplement to the LTI programme and reserve shares that potentially will be delivered in spring 2025. The maximum amount of shares of the plan that may be delivered as a reward is expected to be approximately 620 000 shares for the 2022–2024 LTI plan and 60 000 shares for the 2022–2024 RS plan.

On 20 December 2021, Fortum Group announced to have set a reduction target for Scope 3 indirect greenhouse gas emissions as part of its ambitious decarbonisation agenda. The target is to reduce Scope 3 indirect emissions by 35% by 2035 at the latest, compared to the base year 2021. Fortum and Uniper account resellers in addition to end-users in the Scope 3 indirect emissions. The Scope 3 target confirms the Group-level commitment to achieve carbon neutrality at the latest by 2050 and is in line with the objectives of the Paris Agreement. In December 2020, Fortum Group announced that in European power generation it is committed to reduce CO₂ emissions (Scopes 1 and 2) by at least 50% by 2030 (base year 2019) and to be carbon neutral at the latest by 2035.

Key drivers and risks

For comments on the geopolitical uncertainty due to Russia’s invasion on Ukraine, imposed sanctions and possible future sanctions and counter sanctions and their possible impacts on Fortum Group’s Russian business and assets, please see section ‘Events after the balance sheet date’.

Fortum’s financial results are exposed to a number of financial, operational, strategic, and sustainability-related risks. Fortum is exposed to these risks both directly and indirectly through its subsidiaries, associated companies, and joint ventures. The principal associated companies and joint ventures are TVO, Forsmarks Kraftgrupp AB, Kemijoki Oy, and TGC-1. For more information, please see each respective company’s annual report.

Fortum is the majority shareholder of Uniper. However, Uniper remains a separate listed company operating under German law and regulations and with its own risk management systems. As per the end of the fourth quarter 2021, credit risk, market risk, legal risk, political and regulatory risk, financial risk, and asset project risk are the major sources of uncertainty for Uniper’s financial performance. During the fourth quarter the key commodity prices Uniper is exposed to significantly increased, with the short- to mid-term gas future prices reaching unprecedented levels. Although this development is positive for Uniper’s earnings, the cash flow risks have increased as especially the margining requirements from Uniper’s hedges have grown, and the risk of further margin calls has increased in light of elevated market volatility. For more information about Uniper’s risk management systems and risk exposures, please see Uniper’s Annual report for 2021.

The increasing geopolitical tensions pose a risk for the Fortum Group, the impacts of which have been assessed. The increasing geopolitical tensions and further escalation could, for example lead to curtailments of physical gas deliveries to Uniper which may require Uniper to source gas in the market at higher prices. In addition, counterparties of the Fortum Group could become subject to sanctions, which may impact current or future business relations. Fortum is actively monitoring the situation in order to ensure continued compliance with prevailing rules and applicable sanctions laws. Moreover, Germany has halted the certification of the Nord Stream 2 gas pipeline for time being. Uniper is currently analysing potential effects of the halted certification process on its financial position, net assets, and operational results. Both Fortum and Uniper are continuing to monitor the situation closely and constantly preparing adapted mitigation measures to minimise the impact of an escalation to Fortum Group.

One of the key factors influencing Fortum’s business performance is the Nordic electricity wholesale price. In the Nordics, power prices exhibit significant short- and long-term variations on the back of several factors, including but not limited to weather conditions, outage patterns in production and transmission lines, CO₂ emission allowance prices, fuel prices, and the supply-demand balance. Fortum uses hedging in order to limit the exposure to fluctuations in power prices and reports on the hedging levels quarterly (see ‘Outlook’).

For Fortum’s Russian businesses, the key drivers are economic growth, the rouble exchange rate, and the regulation of the power and heat business. A key profitability driver is the received payments based on the CSA contracts and CCS auctions. The main part of Fortum’s generation capacity built after 2007 is entitled to CSA payments for approximately 10 years after commissioning and approximately 15 years for renewable generation. The CSA payments are adjusted for, among other factors, the Government bond yield, the rate of return, the consumer price index (CPI), and earnings from the electricity-only (spot) market (done every three and six years after commissioning of a unit). In addition, thermal power plants are entitled to clearly higher CSA payments starting approximately six years after commissioning.

Fortum is exposed to liquidity and refinancing risks primarily through the need to finance the Group’s business operations, including margining and collaterals issued for commercial activities. As a result of the recent volatility increase in commodity prices, the cash flow risk related to margin calls on the Group’s hedges has increased. In the fourth quarter, further mitigating actions were taken to increase liquidity and reduce the positions exposed to margin calls.

Fortum has cash flows, assets, and liabilities in currencies other than the euro and is therefore exposed to fluctuations in exchange rates. Currency risk arises mainly from physical and financial trading of commodities, existing and new investments, external financing, as well as internal loans and shareholder loans within the Group. The main currency exposures are toward euro/Swedish krona, euro/Russian rouble, and euro/British pound sterling, arising from Fortum’s extensive operations in Sweden, Russia, and the United Kingdom.

Fortum’s business activities include energy generation, storage, distribution, and control of operations, as well as the construction, modernisation, maintenance, and decommissioning of power plants or other energy industry facilities. Any unwanted operational event (which could be caused by e.g. technical failure, human or process error, natural disasters, sabotage, failure of key suppliers, or terrorist attack) can endanger personal safety or lead to environmental or physical damage, business interruptions, project delays, and possible third-party liability. The associated costs can be high, especially in the Group’s largest units and projects.

During 2020 and 2021, the Covid-19 pandemic resulted in new and partly unexpected risks as societies and governments across the world implemented drastic measures to contain the spread of the disease. Although the impacts for Fortum have so far been limited, and the situation compared to the end of 2020 has improved, the risks related to a prolonged pandemic cannot be ruled out. The main risk factors include lower commodity prices, decreased demand, increased risk of credit defaults and delayed payments, project delays, and increased risk of operational incidents or prolonged maintenance as a result of travel restrictions, absence of key personnel, as well as difficulties in obtaining key materials and spare parts. Fortum is closely monitoring the development of the pandemic and its potential impacts.

For further information about Fortum’s risks and risk management systems, see the } Risk management section of the Operating and financial review and } Note 4.

Outlook

Hedging

At the end of 2021, approximately 75% of the Generation segment’s estimated Nordic power sales volume was hedged at EUR 34 per MWh for 2022 (at the end of the third quarter of 2021: 65% at EUR 32 per MWh) and approximately 50% at EUR 31 per MWh for 2023 (at the end of the third quarter of 2021: 40% at EUR 31 per MWh).

At the end of 2021, approximately 80% of the Uniper segment’s estimated Nordic power sales volume was hedged at EUR 18 per MWh for 2022 (at the end of the third quarter of 2021: 85% at EUR 22 per MWh), approximately 60% at EUR 18 per MWh for 2023 (at the end of the third quarter of 2021: 55% at EUR 21 per MWh) and approximately 20% at EUR 30 per MWh for 2024.

The reported hedge ratios are based on the hedges and power generation forecasts of the Generation segment and the forecasts of the Uniper segment’s Nordic generation. The underlying generation assets and definition of hedges differ to some extent and thus are not fully comparable.

The reported hedge ratios may vary significantly, depending on Fortum’s and Uniper’s actions on the electricity derivatives markets. Hedges are mainly financial contracts, most of them electricity derivatives quoted on Nasdaq Commodities.

Capital expenditure

Fortum estimates its capital expenditure, including maintenance but excluding acquisitions, to be approximately EUR 1,500 million in 2022, of which the share of maintenance capital expenditure is estimated to be approximately EUR 800 million, well below the level of depreciation.

Generation

The Generation segment’s achieved Nordic power price typically depends on factors such as hedge ratios, hedge prices, spot prices, availability and utilisation of Fortum’s flexible generation portfolio, as well as currency fluctuations. Excluding the potential effects from changes in the power generation mix (currently approximately 45 TWh), a EUR 1 per MWh change in the Generation segment’s achieved Nordic power price will result in an approximately EUR 45 million change in the segment’s annual comparable operating profit. The achieved power price also includes the results of optimisation of Fortum’s hydro and nuclear generation, as well as operations in the physical and financial commodity markets.

Russia

In the Russia segment, the financial effect of the CSAs is expected to be negative in 2022, due to the impact of the expiry of the CSA period of one generation unit, partly offset by a higher bond yield.

For comments on the geopolitical uncertainty due to Russia’s invasion on Ukraine, imposed sanctions and possible future sanctions and counter sanctions and their possible impacts on Fortum Group’s Russian business and assets, please see section ‘Events after the balance sheet date’.

Uniper

Excluding the potential effects from changes in the power generation mix, a EUR 1 per MWh change in the Uniper segment’s power sales price for outright generation (hydro and nuclear, currently approximately 25 TWh) will result in an approximately EUR 25 million change in the segment’s annual comparable operating profit. Uniper also has generation other than hydro and nuclear power, and the sensitivity for that generation is different and is not included in the previously mentioned sensitivity.

With regard to Uniper, reference is made to the guidance that the company publishes quarterly.

Income taxation

In 2022, the comparable effective income tax rate (excluding items affecting comparability) for Fortum is estimated to be in the range of 22-25%. Following the consolidation of Uniper, the weight of the profit in different jurisdictions has resulted in an upward trend in the lower end of the range of the tax rate guidance currently driven by the higher nominal tax rates in the Group’s major operating countries.

Possible impacts, if any, of a global minimum tax as stated in the proposed EU directive from 20 December 2021, are not taken into account in this guidance.

Events after the balance sheet date

On 24 February 2022, Russia started a widespread invasion into Ukraine. As a consequence, the US, the EU and the UK amongst others have imposed sanctions targeting Russia’s ability to access capital and financial markets, sanctioning numerous individuals and banks; as well as trading in general. These sanctions and possible counter sanctions as well as further reactions by the US, the EU and the UK could impact Fortum’s operations in Russia.

Meanwhile, uninterrupted gas supply from Russia to Europe has continued. Fortum’s Russian operations are also running normally.

Given the uncertainty and risks arising from the geopolitical situation, including imposed sanctions and possible future sanctions and counter sanctions and their consequences, there may be significant impact to the fair values and economic lives of assets; as well as on the commodity prices and related margining requirements in Europe. The book value of Fortum’s Russian assets, including the exposure in the Nord Stream 2 pipeline project, was approximately EUR 5.5 billion as of 31 December 2021. Fortum is currently assessing the impact of recent developments and mitigating measures, and specifically the following:

Fortum actively monitors the situation in order to ensure continued compliance with prevailing rules and applicable sanctions laws.

See the Risk management section in the Operating and financial review.

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On 18 January 2022, Fortum announced that 1.3 GW portfolio of wind projects is being transferred from the Fortum-Rusnano wind investment fund (50/50 joint venture) to a joint venture recently established with Bank GPB. Upon the transfer, the joint venture of Fortum-Rusnano wind investment fund will be dissolved.

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Sustainability

Sustainability at Fortum

Introduction

This section covers Fortum’s non-financial reporting in accordance with the Finnish Accounting Act 1336/1997, Securities Market Act 746/2012 and Limited Liability Companies Act 624/2006. It also includes disclosures prepared in accordance with the EU Taxonomy Regulation Delegated Act of 6 July 2021. The reporting scope includes Uniper, which Fortum has consolidated as a subsidiary as of 31 March 2020.

In this report, selected sustainability key performance indicators that include Uniper are disclosed. Indicators following the same calculation principles have been consolidated and are disclosed as one figure. In cases where the definitions currently differ, only one figure for Fortum, excluding Uniper, is presented. No historical figures have been restated.

Fortum Group’s business model is described in } Note 6.

Uniper is a listed company in Germany and has its own sustainability processes, approach, and standalone interim and annual sustainability reporting. Uniper also prepares and publishes a Combined Separate Non-Financial Report in accordance with §315c in conjunction with §289c to §289e of the German Commercial Code. Uniper stand-alone disclosures prepared in accordance with the EU Taxonomy Regulation Delegated Act of 6 July 2021 are included in Uniper’s Combined Separate Non-Financial Report.

Material non-financial aspects

Fortum’s non-financial reporting includes information on the four mandatory aspects defined in the Finnish Accounting Act. These are: environmental matters, social and personnel matters, respect for human rights, and prevention of corruption and bribery.

Fortum reassessed its material topics in 2021. The materiality analysis was based on internal and external stakeholder surveys, including some 800 respondents, and an extensive desktop review of potential business impact with regard to regulation and expectations of capital markets. The desktop review also included an assessment of peers’ material sustainability aspects and media analysis as well as an analysis of the correlation between the topics and the UN sustainable development goals (SDGs).

Based on the materiality analysis, Fortum’s updated sustainability priority areas are:

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Fortum’s sustainability performance is monitored and disclosed in interim and annual reporting. Fortum publishes an annual Sustainability Report with more extensive information on Fortum’s sustainability performance.

Sustainability targets

Fortum updated its climate targets aligned with the goals of the Paris Agreement in December 2020 and is committed to carbon neutrality by 2050 at the latest. The target covers direct CO₂ emissions (Scope 1) and indirect CO₂ emissions (Scope 2 and 3). Fortum’s roadmap to reduce emissions in Europe has also been defined. Fortum is committed to at least a 50% reduction in CO₂ emissions (Scope 1 and 2) in its European generation by 2030 (compared to base-year 2019) and to be carbon neutral (Scope 1 and 2) by 2035 at the latest.

Scope 3 emissions play a significant role in Fortum’s total emissions. In December 2021, Fortum committed to reduce Scope 3 greenhouse gas emissions by 35% by 2035 at the latest (compared to base-year 2021).

Fortum had a target for biodiversity to conduct a minimum of 12 major voluntary measures that improve the living conditions of species and strengthen populations, covering all countries where Fortum has hydropower production, for 2021. The projects focus on threatened species or habitats, in particular, and in 2021 included restoring aquatic and terrestrial habitats, improving fish migration and migratory fish populations, and combating invasive species.

For Fortum, excellence in safety and caring about both its own employees and contractors is the foundation of the company’s business and an absolute prerequisite for efficient and interruption-free production. Fortum’s safety target is measured as Total Recordable Injury Frequency (TRIF), for own personnel and contractors, and the ambitious goal is <1.0 by the end of 2025. Fortum also had a target for Lost Time Injury Frequency (LTIF), for own personnel and contractors: ≤1.2 in 2021.

Both Fortum and Uniper are supporters of the Task Force on Climate-related Financial Disclosures (TCFD). Fortum has a long-standing focus on mitigating climate change and adopted the reporting recommendations of the TCFD starting from the financial year 2019. Uniper disclosed its first TCFD report for 2021 as part of its non-financial reporting.

Fortum executed a review of its lobbying activities and practices during 2021. The review was published in December 2021 and is publicly disclosed on Fortum’s website. The summary of the review will also be published as a part of Fortum’s Sustainability Report in 2022 and thereafter on a yearly basis.

Group sustainability performance