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ÅF & PÖYRY
                                        JOINING
                                        FORCES
MANAGEMENT CONSULTING

Pöyry Post
                            ENERGY

SPRING 2019

                                             INSIGHTS
                                    HYDROGEN BY PIPE
                           PUTTING THE ‘ELECTRIC’ IN EV

                                          INTERVIEWS
                        PEKKA LUNDMARK (CEO FORTUM)
                          GREG JACKSON (CEO OCTOPUS)
Pöyry Post JOINING FORCES
PÖYRY POST ENERGY
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                                        CONTENTS                                                                                                                                EDITORIAL

                                                                                                                                                                                DEAR READERS,

                                                                                                                                                                                From its first issue, the Pöyry Post has always been a careful observer of the business
                                                                                                                                                                                world in general and the energy industry in particular. We are on the trail of relevant
                                                                                                                                                                                market developments, emerging technologies, compelling business models and
                                                                                                                                                                                pioneering innovations with one clear focus, the needs of our clients. On 21 February,
                                                                                                                                                                                Pöyry announced that it had joined forces with ÅF to create a leading engineering,
                                                                                                                                                                                design and advisory services company. The additional value that we bring to you, our
                                                                                                                                                                                clients, is so large that we decided, in order to keep you as informed as ever, to dedicate
                                                                    INSIGHT                                                                                                     our centre pages to this topic and introduce the CEO of ÅF Pöyry Jonas Gustavsson.
                                                     HYDROGEN BY PIPE
                                                                   Is It hype?                                                                                                  History has taught us that innovation does not look for ways, it creates them. And

IMPRINT                                                                                                                                                                         those who do not change for fear of change will eventually lose the freedom to change
                                                                                                                                                                                in a self-determined way. Clearly, our interview partner Pekka Lundmark, CEO of
                                                                                                                                        CORPORATE NEWS                          Fortum, keeps on being active and agile in business and outlines in his interview how
                                                                                                                                        JOINING FORCES                          Fortum intends to Lead The Change (p.8). With the central thought he expressed in our
PUBLISHER                                                                                                                               ÅF Pöyry                                conversation “We have to get better. Decarbonize and take care of the environment” he
Pöyry Management Consulting
                                                                                                                                                                                could not have given a better summary for the collection of Pöyry Post articles that deal
                                                                                                                                                                                with the circular economy and how the energy industry can deal with plastic waste,
Matthew Brown
                                                                                                                                                                                hydrogen and renewables.
matt.brown@poyry.com

                                                                                                                                                                                Applying any new technology to business has its challenges, but the disruptive poten-
Roland Lorenz
                                                                                                                                                                                tial of AI is probably only comparable with the profound changes that came along with
roland.lorenz@poyry.com                                                                      INTERVIEW
                                                                                                                                                                                the PC in the 1980s. Like the PC, AI will pave the way for an unparalleled and endur-
                                                                                 PEKKA LUNDMARK
                                                                                       Leading the change                                                                       ing acceleration in innovation throughout, creating a significant boost for the global
www.poyry.com
                                                                                                                                                                                economy. This is why our colleague Richard Pinnock’s article (p. 28) introduces our
                                                                                                                                                                                new AI framework Krti 4.0 that Pöyry has jointly set up with Infosys and Nokia to sup-
EDITORIAL TEAM
                                                                                                                                                                                port particularly industry, utilities, transportation and infrastructure organisations.
Matt Brown, Roland Lorenz,
Andrew Morris
                                                                                                                                                                                Global energy markets will continue to undergo massive transformation and companies
                                                                                                                                                                                need to stay flexible. Martin à Porta, CEO of Pöyry and acting president of the Manage-
AUTHORS
                                                                                                                                                                                ment Consulting division, shares his latest perspectives in our feature interview and
Martin à Porta, Rebecca Bleasdale,
                                                                                                                                                                                describes Why flexible is King.
Brendan Cronin, Lucy Field,
Tomi Nyman, Michel Martin,
                                                                                                                                                                                In the truest sense of the word you can expect a versatile edition of our magazine,
Richard Pinnock, Robert Schwarz,
                                                                                                                                                                                which we hope you find a pleasant and informative read, and we look forward to your
Fiona Skinner, Benedikt Unger,
                                                                                                                                                                                feedback!
Jan Wierzba, John Williams                                                       FEATURE
                                                   OUR WASTE IS OUR RESOURCE
EDITORIAL STAFF                                             Pöyry PlasticsToBio initiative
                                                                                                                   MANAGEMENT CONSULTING
Filip & Grimm                                                                                                      DIGITAL REVOLUTION
                                                                                                                   Distributed ledger technologies

Raquel Ogando,
                                                                                                                                                                                                               Matt Brown                           Roland Lorenz
Dean Jackson, Tim Pohlmann
                                                                                                                       WANT MORE?                                                                              Head of Western Europe,              Head of Nordics,
                                                                                                                                                                                                               Middle East and Americas             Central and Southern Europe
Virgil Grymonprez (Creative Director)
                                                                                                                       10 THE NEW SILK ROAD
                                                                                                                              Diverse markets offer immense opportunity
CONCEPT AND REALISATION
Filip & Grimm                                                                                                          20 UNLOCKING RESIDUAL VALUE FOR IPP S
www.filip-grimm.com                                                                                                           Emerging markets

THANKS TO
                                                                                                                       24 INTERVIEW GREG JACKSON
                                                                                                                              Lots of new energy
Fortum, Octopus Energy
                                                                                                      FEATURE          26 WASTE TO GREEN GAS
SOURCES                                                            PUTTING THE “ELECTRIC” IN EV                               How can GB incentivize a win-win transformation
                                                                                                      E-mobility
Photography:
                                                                                                                       28 PÖYRY’S AI FRAMEWORK “KRTI 4.0 TM ”
ÅF Pöyry, Bolt (Taxify),                                                                                                      Tying it all together
Fortum, Octopus Energy, iStock,
Adobe Stock, Gettyimages                                                                                               32 WHY FLEXIBLE IS KING!
                                                                                                                              Martin à Porta perspective
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                           e-car
                           e car
                                                                                                                                                                                                                                                          850 feet high
                                                                                                                                                                                                                                                          The Netherlands is a country famous for its windmills, but
                                                                                                                                                                                                                                                          it’s never had one like this. GE is planning to build the world’s
                                                                                                                                                                                                                                                          largest wind turbine outside the city of Rotterdam. It will
                                                                                                                                                                                                                                                          stand 850 feet high (259m) from the base to the top of the
                                                                                                                                                                                                                                                          blade, almost as tall as the Eiffel Tower, and it will produce
                                                                                                                                                                                                                                                          12 megawatts of power, enough to keep the lights on in more
                                                                                                                                                                                                                                                          than 15,000 homes.

                                                          1000 KM RANGE
                                                          Researchers have developed a battery type that allows electric cars with a range of 1000 kilometers.
                                                          This could mean a breakthrough for e-mobility. The company “Innolith” wants to introduce a new battery
                                                          technology based on inorganic electrolytes. The advantages? No exotic materials, no fire hazard and a
                                                                                                                                                                          1046ft                     1063ft                    850ft
                                                          good ten times more charge cycles than with conventional lithium-ion batteries. The battery is not only
                                                                                                                                                                           319m                       324m                    259m
                                                          safer, it also has significantly lower costs per charging cycle. They are talking about 55,000 charging     Chrysler Building            Eiffel Tower          Haliade-X 12 MW
                                                          cycles with a half-hour changeover and a charging depth of between 0 and 100 %.

                                                                                                                                                                            16 mollusks, millions of data
                                                                                                                                                                            Mollusks can be used to monitor the quality of water around industrial
                                                                                                                                                                          sites in real time — an inexpensive solution with unmatched reliability.

                                                   15 cents/min.
                                                                                                                                                                      Total Exploration & Production’s R&D teams joined forces with the French
                                                                                                                                                                             National Center for Scientific Research (CNRS) for the study. Just 16
                                                                                                                                                                    mollusks in a net less than a meter long can generate and send more than 2.5
                                                                                                                                                                    million datapoints daily over long periods and continuously. The principle of high-
                                                                                                                                                                         frequency, non-invasive (HFNI) valvometry involves observing the mollusks’ natural gaping
                                                   The electric scooter scene wins popularity! Estonian ride-hailing firm Bolt, formerly known as                   cycle and noting when this is disturbed using electromagnets attached to both parts of the shell
                                                   Taxify, is launching its electric kick scooter-sharing service in Madrid, following a rollout last year in                                                 so that the activity can be recorded and then analyzed.
                                                                  Paris. Rides in the Spanish capital will cost 15 cents a minute, on top of a €1 minimum
                                                                   charge. Customers need to scan a QR code to unlock the scooters and can leave them

                                                                                                                                                                                                                   >75 % & >100 %
                                                                  on the street once a trip is complete. The move marks another stepping stone in the
                                                                  start-up’s drive toward new mobility options beyond car hailing.

                                                                                                                                                                                                                   Study from The Ohio State University shows potential for Earth-friendly plastic replacement combining natural
                                                                                                                                                                                                                   rubber with bioplastic in a novel way that is already capturing the interest of companies looking to shrink their
                                                                                                                                                                                                                   environmental footprints. The study involved melting rubber into a plant-based thermoplastic called PHBV along
                                                                                                                                                                                                                   with organic peroxide and another additive called trimethylolpropane triacrylate (TMPTA). The end product was
                                                                                                                                                                                                                   75 % tougher and 100 % more flexible than PHBV on its own - meaning it is far easier to shape into packaging.

The 1                 st          China Is Aiming High for The World’s First Solar Power Station In Space.
                                  The plan is to build a solar facility with a capacity equivalent to one
                                  megawatt slated for 2030 and build then larger generators, with a
gigawatt-level facility. A solar power station orbiting the earth in space at 36,000 km would be a                                                                                        Just Walk Out
first of its kind, and with a budget of $8 billion annually, not many would be able to                                                                                                        Innovation led to a breakthrough in image processing
compete with that. The possibilities for inexhaustible power supply                                                                                                                             through AI, which provides a higher detection rate
may not be too far off and could be the solution to the energy                                                                                                                                   than conventional model-based methods. Amazon
shortages around the globe.                                                                                                                                                                       used this for a new business model called Amazon
                                                                                                                                                                                                  Go, a new kind of store with no checkout required.
                                                                                                                                                                                                  It uses computer vision, sensor fusion and deep
                                                                                                                                                                                                        learning. The so-called “Just Walk Out
                                                                                                                                                                                                          Technology” automatically detects when
                                                                                                                                                                                                             products are taken from or returned to
                                                                                                                                                                                                               the shelves and keeps track of them in
                                                                                                                                                                                                                a virtual cart. When a person is done
                                                                                                                                                                                                                 shopping and leaves the store, a
                                                                                                                                                                                                                  receipt is sent, and the person gets
                                                                                                                                                                                                                   charged via their Amazon account.
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                                                                                                                As far back as the 1870s the energy potential          then the existing gas networks could be               pathway against an all-electric pathway and
                                                                                                                of hydrogen was being recognised. In his               repurposed to deliver hydrogen to provide heat        examined the potential role for hydrogen for
                                                                                                                novel ‘The Mysterious Island’, the visionary           to industry and homes. Hydrogen can also be           the heat, power and transport sectors. In the
                                                                                                                author Jules Verne wrote, “water will one day          stored in many of the existing natural gas storage    zero-carbon gas pathway, hydrogen demand
                                                                                                                be employed as fuel, that hydrogen and oxygen          facilities and this could allow a form of seasonal    is expected to grow significantly in these three
                                                                                                                which constitute it, used singly or together, will     storage that renewables alone cannot provide.         sectors to reach over 2,000 TWh by 2050. We
                                                                                                                furnish an inexhaustible source of heat and light,                                                           also examined the different production costs of
                                                                                                                of an intensity of which coal is not capable.”         For industry, hydrogen offers a route to              hydrogen and found that hydrogen production
                                                                                                                Now, almost 150 years later we are starting to         decarbonisation that otherwise could be               costs from methane reforming were consistently
                                                                                                                realise that maybe he was on to something. It          extremely costly and difficult. It offers an          lower than hydrogen produced by electrolysis.

    HYDROGEN
                                                                                                                is possible that hydrogen offers a route to the        alternative to electrification – which for some
                                                                                                John Williams   decarbonisation of our energy systems and this         may not even be feasible – and to the installation    This is because by 2050 a flexible demand side
                                                                                    john.williams@poyry.com     is becoming increasingly attractive to policy          of carbon capture at individual plants. Green         (made possible by millions of electric vehicles)
                                                                                                                makers and the energy industry for a number of         or blue hydrogen can also decarbonise many            and high levels of interconnection mean that

      BY PIPE:
                                                                                                                reasons.                                               industrial feedstocks e.g. ammonia production         there is generally an absence of many very
                                                                                                                                                                       and demonstration projects are investigating the      low electricity price periods, which otherwise
                                                                                                                WHAT ARE THE BENEFITS                                  use of hydrogen to decarbonise steel production.      would support hydrogen production from
                                                                                                                OF HYDROGEN?                                                                                                 electrolysis at lower cost than from methane

    IS IT HYPE?
                                                                                                                                                                       For the electricity and renewables industry,          reforming. Subsequently methane reforming is
                                                                                                                Primarily, hydrogen emits zero carbon when             converting power to hydrogen allows excess            the dominant source of hydrogen production.
                                                                                                                burned and so could be considered a zero               renewable electricity to be used instead of           However, production from electrolysis has a
                                                                                                                carbon energy source, depending on how it is           being curtailed and this gives additional value       higher share in some regions in Europe with very
                                                                                                                produced. It can be used as a replacement for          and revenue for renewables. It also raises the        high renewable penetrations and less system
                                                                                                                natural gas in a number of applications including      possibility to use hydrogen as a storage medium       flexibility (e.g. Iberia/Italy).
                                                                                                                power generation, industrial feedstocks and            for electricity. Excess electricity can be used to
                                                                                                                process heat and domestic heat and cooking. It         create hydrogen at times of low demand or price,      The figure on the previous page shows the
                                                                                                                can also be used with fuel cells to decarbonise        which can then be stored and converted back           potential growth in hydrogen demand by sector
                                                                                                                transport. In short, it can help to decarbonise        into electricity when demand or price increases.      to 2050 from our zero-carbon gas pathway and
                                                                                                                those sectors where a total electrification                                                                  shows the significance of the heat and transport
                                                                                                                solution could be extremely difficult and              SO, WHAT’S THE ISSUE?                                 sectors in driving this demand growth.
                                                                                                                expensive to achieve.                                                                                        The figure below shows the relative split of
                                                                                                                                                                       It seems hydrogen could solve all our energy          hydrogen production between SMR/CCUS and
                        Hydrogen                                                                                The energy industry has grasped the potential of       problems! In reality, there are many issues that      electrolysis in the same pathway.

                        Production methods
                                                                                                                 hydrogen and many projects are underway to            need to be considered before embarking on a
                                                                                                                           investigate its production and use.         pathway to hydrogen deployment. Firstly, the          WHAT IS THE FUTURE OF
                                                                                                                                  These projects vary in scale         hydrogen supply chain including production,           HYDROGEN IN THE ENERGY MIX?
                        Hydrogen can be produced in a number of                                                                       from investigations on           transport and storage will need to be significantly
                        ways:                                                                                                              blending hydrogen           expanded to meet potential demand. But without        The potential is clear, but the route to realising
                        Electrolysis – electricity is used to separate                                                                        with natural gas         certainty that this demand will emerge, the risks     this potential is uncertain. There are numerous
                        water into hydrogen and oxygen. Where                                                                                   in existing            are significant.                                      barriers that will need to be overcome which
                        the electricity is renewable the hydrogen is                                                                               networks,                                                                 include creating a business case, acceptance of
                        considered zero carbon. This is sometimes                                                                                   hydrogen           Secondly, there are issues with each of the           CCS, public acceptance of hydrogen in the home
                        called ‘Green’ or ‘Renewable Hydrogen’.                                                                                      CCGTs,            hydrogen production methods. Grey hydrogen            as well as proving the safety case for hydrogen. If
                                                                                                                                                      small            is not low carbon and so has little role to play      these barriers can be overcome then possibly we
                        Steam Methane Reformation (SMR) – refers                                                                                       stand-          in a decarbonised energy environment. Blue            can exploit Jules Verne’s ‘inexhaustible supply of
                        to a chemical synthesis that reacts steam                                                                                      alone           hydrogen needs CCS, and although this is a            heat and light’.
                        at high pressure to produce hydrogen and                                                                                                       proven technology, we are not yet at a stage
                        carbon dioxide from hydrocarbons such as                                                                                                       where it can be deployed economically at scale.
                        natural gas. This is sometimes referred to as                                                                                                  Green hydrogen is the most expensive of the
                        ‘Grey Hydrogen’                                  Hydrogen demand (TWh)                                                                                                                               Hydrogen production (TWh)
                                                                                                                                                                       production methods and will need very low
                                                                                                                                                      electrolysers    electricity prices and reductions in the costs of
                        SMR with Carbon Capture Utilisation and                                                                                      to the grand      electrolysis to make it a reality. Pyrolysis is not
                        Storage (CCUS) – where CCUS is added to the                                                                                ambitions of the    yet proven to be able to work at scale and be
                        SMR process to capture and prevent release                                                                               H21 project in the    competitive with the other production methods.
                        of the carbon dioxide, the process can be                                                                              North of England.       However, if hydrogen is the solution to
                        considered as low carbon. This is sometimes                                                                        For gas producers           decarbonising the difficult sectors of residential
                        referred to as ‘Blue Hydrogen’.                                                                                and network companies,          heat, industrial heat and the heavier end of the
                                                                                                                                 hydrogen provides a possible          transport sector then these issues will need to be
                        Thermal Methane Pyrolysis (TMP) – this                                                           answer to the existential threat of an all-   overcome. Pöyry’s analysis carried out recently
                        involves natural gas and a low-temperature,                                             electric world. If natural gas can be converted        for our study ‘Decarbonising Europe’s Energy
                        high-pressure reaction with no oxygen                                                   into hydrogen with little or no carbon emissions,      System by 2050’ compared a zero-carbon gas
                        present to produce hydrogen and solid
                        carbon. This is also ‘Blue Hydrogen’.
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Leading                 Over the last ten years, the rules of the game and business models in the energy industry have changed fundamentally. Some energy suppliers are
                        suffering massively from reputational problems and find themselves under pressure to act as a result of digitalisation and the rising number of new
                        competitors. In the centre of this storm, one CEO, Pekka Lundmark, behaves very calmly, at least on the outside. Fortum’s CEO has very clear ideas

the
                        when speaking about what has to happen next: “We have to get better. Decarbonize and take care of the environment”.

                        Pöyry: It is rare to see a CEO who is so             of bio-based solutions that are seamlessly             With the planned European coal phase out,
                        vehemently committed to sustainability and           connected to the energy ecosystem, such as             coupled with Germany’s 2022 nuclear stop-date,
                        Corporate Social Responsibility issues for his       producing bio oil from forest residues at our CHP      Uniper’s gas assets and competence will have an

change
                        company and the industry as a whole. What            plants or replacing fossil raw materials through       important role to play.
                        prompts you to take this stance and what             fractioning technologies.
                        reaction do you expect from the stakeholders?                                                               Pöyry: So you see natural gas as a sensible
                        Lundmark: Global energy-related CO 2 emissions       Pöyry: The circular economy leads to added             bridging technology for CO2-free energy
                        hit an all-time high again in 2018 and the year      value for suppliers and customers. Which               production?
                        was among the warmest ever recorded, so              opportunities arise for Fortum as a result?            Lundmark: Absolutely, gas will play a vital role
                        frankly I do not see I can be anything else, but     Lundmark: The whole value chain around                 on the way to carbon neutrality; first natural gas
INTERVIEW               committed. Europe needs to become carbon             waste is still evolving, which creates numerous        and eventually clean, synthetic gas. Natural gas

PEKKA LUNDMARK          neutral by 2050 if we want to have a chance
                        of reaching the 1.5 C goal in line with the IPCC
                                                                             possibilities in, for example, recycling of plastics
                                                                             and rare and valuable metals. Just recently we
                                                                                                                                    has roughly half of the emissions of coal-fired
                                                                                                                                    generation and will be crucial in providing
CEO OF FORTUM           report. Energy companies have the opportunity        announced a new technology allowing us to              security of supply for the growing share of
                        to make a huge difference, but at the same time,     recover more than 80% of materials embedded            intermittent renewables in the system. At the
                        we need to make sure that our stakeholders           in lithium-ion batteries for recycling, thus           same time, we should put more effort into
                        understand that that the transition will take time   improving the environmental profile of electric        developing large scale solutions for producing
                        and has to be managed in an orderly manner, so       vehicles as well as easing the raw material            clean gases with renewable electricity. While
                        that we do not compromise security of supply or      challenges related to battery manufacturing.           clean electricity alone can help decarbonise
                        the competitiveness of European industry.                                                                   other sectors, like passenger road traffic and
                                                                             One perhaps less traditional application of            heating of individual buildings, converting
                              Pöyry: In this context, you are driving        circular economy involves heating and cooling.         clean power to gas will also allow for the
                                 the idea of the circular economy            We are one of the largest heat producers in the        decarbonisation of “hard to electrify” sectors
                                       and want to establish Fortum          world and have started recovering excess heat          such as heavy traffic and various industries. That
                                         as a solution provider for          from our customers to reduce the need to burn          would be circular economy at its best!
                                         sustainable cities. What does       fuels for heat production. Datacentres, which
                                         “circular economy” mean for         are the most obvious example of this, are large        Pöyry: You highlighted that companies alone
                                         Fortum?                             electricity consumers and inadvertently also           can only do so much and that an EU-level
                                        Lundmark: We have partnered          large heat producers: a 100 MW datacentre              solution for tackling climate change is required.
                                        with cities like Oslo, Stockholm     produces enough heat to supply up 50 000               What is your message to politicians?
                                        and Espoo with a goal to             residents connected to a Nordic district heating       Lundmark: We believe that the EU emissions
                                       decarbonise each city’s heating       network.                                               trading (ETS) is the best way to take Europe to a
                                       and to provide other innovative                                                              lower carbon future and that national measures,
                                       energy solutions. However, we         Pöyry: According to your own statement, 96%            like taxes, support schemes and bans, should
                                       believe that carbon neutrality        of Fortum’s energy production in Europe is             target sectors that are outside the ETS, like
                                      requires us to take a closer look      CO2-free. Strategically speaking, how does your        transportation, agriculture, and building-specific
                                      at not only energy, but the use of     stake in Uniper fit into your portfolio?               heating. However, the ETS needs to be further
                                      resources in general.                  Lundmark: Most of the public attention with            strengthened if we are serious about reaching
                                                                             regards to Uniper is focused on what the               our targets. Expanding its coverage both
                                        For us circular economy today        company has been, in the past. We are focused          geographically and to new sectors would be a
                                        means that as large a share as       on potential and the impact our companies              great way to do this, because the more emissions
                                        possible of the waste our society    can have in the future. The compatibility of           that fall within the emissions cap, the simpler it is
                                      produces is reused or recycled.        Fortum and Uniper lies in our strategic mix of         to reduce them. A possible immediate expansion
                                     This requires that hazardous            assets - both clean and secure - as well as the        target would be the heating and cooling of
                                    substances be effectively removed        expertise required to successfully and affordably      individual buildings, which would increase
                                  from circulation. Furthermore, waste       drive Europe’s transition towards a low carbon         the emission trading volume by one fourth.
                                 that is unsuitable for reuse or recycling   energy system. We firmly believe that Uniper’s         Something that should be looked at further into
                                should be recovered as energy, and           stated role as the provider of security of supply      the future is integrating all other emissions – and
                              thereby reducing the need for virgin fuels     is an excellent match with Fortum’s ambition to        perhaps carbon sinks – into the same market-
                            in electricity and heat production. For us,      accelerate the energy transition with increasing       driven system.
                          circular economy also means development            renewable generation and innovative solutions.
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                                                                                                                                                                                                                        BRI INVESTMENT IN EASTERN EUROPE AND THE CAUCASUS 2013 TO 2018 (Q2)

DIVERSE MARKETS ALONG

THE NEW
                                                                                                                                                             market reform, the first of which will likely be for
                                                                                                                                                             solar capacity in the Chernobyl area. In both
                                                                                                                                                             countries, auction winners are awarded long-
                                                                                                                                                             term (15-20 year) PPAs with a guaranteed buyer,

SILK ROAD
                                                                                                                                                             providing security for investors.

                                                                                                                                                             While deployment and investment volumes so far
                                                                                                                                   Fiona Skinner
                                                                                                                                                             have been modest, commitments made by both
                                                                                                                       fiona.skinner@poyry.com
                                                                                                                                                             regional stakeholders and international players

OFFER IMMENSE OPPORTUNITY
                                                                                                                                                             hold promise. In 2017, the energy ministries of
                                                                                                                                                             Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan
                                                                                                                                                             and Turkmenistan all committed to accelerating
As we approach the 30 year anniversary of           the Caucasus, as well as established working           around security of supply;                        their uptake of renewable energy with the
the fall of the Soviet Union, it’s a good time to   relationships with Chinese firms implementing        • rising standards of living, leading to growing    support of IRENA. Kazakhstan has dedicated
take stock of the growing opportunities offered     BRI. Pöyry is uniquely placed to advise firms          electricity demand and driving the need for       1% of its annual GDP to its “transition to a
by the evolving power markets across Central        seeking to capture opportunities falling from          increased and more flexible generation            Green Economy” initiative. A number of project
Asia and the Caucasus. This fulcrum region is       China’s overseas expansion. Our clients have           capacities; and                                   developers, multilateral development banks
often referred to as the New Silk Road in a nod     consistently confirmed that Pöyry is one of the      • ambitious regulatory and political goals          and high-profile oil and gas players wishing to        Beyond an historic role in the Silk Road,            investments in Serbia, Romania and Bosnia and
to the ancient trade route connecting East and      select few consultancies covering the rapidly          evolving to support the scale-up of renewable     diversify their investment portfolios have already     governments in Central Asia and Eastern              Herzegovina. However, as of 2017 renewables
West, now being revived under China’s Belt and      evolving Central Asian power markets in detail.        technologies.                                     begun to make their mark on the region.                Europe have been quick to sign up to China’s         drew most investment, in Kazakhstan, Serbia,
Road Initiative (BRI). The region is comprised                                                                                                                                                                      Initiative. All of the countries mentioned in this   Ukraine and Croatia.
of diverse countries at various stages of energy    DIVERSE MARKETS                                      INVESTMENT                                          BELT & ROAD INITIATIVE                                 article are among the 123 members of the BRI,
market liberalisation.                                                                                                                                                                                              having pledged through the signing of an official    As put by EBRD’s President Sir Suma
                                                    Previously dependent on an integrated regional     Attracting foreign investment continues to be a       China’s Belt and Road Initiative (BRI) builds on       agreement to welcome Chinese investment.             Chakrabarti, “A new Silk Road is taking shape
Key drivers in this process have been the           power system with heavily interlinked energy       key priority for governments across the region.       a growing wave of Chinese overseas investment          This may prove to be a timely move as Chinese        before our very eyes.”
European Union (EU) Association Agreements          industries, each country’s natural resource        Renewables auctions are a growing method of           which began to grow in the early 2000s. Indeed,        investment in the United States falls under trade
signed by Ukraine, Georgia and Moldova,             endowment has strongly dictated the trajectory     encouraging renewable energy deployment, by           since 2005, China’s cumulative overseas                tensions. Indeed, already USD 13 billion in          Pöyry’s presence in the Chinese market,
eventually resulting in membership of the EU        of its power market. The outcome has been a set    increasing competition and putting downward           investment is now on the cusp of hitting USD 2         capital investment and construction contracts for    combined with our expertise in the SE
Energy Community. The Energy Community,             of heterogeneous markets with vastly different     pressure on prices while allowing governments         trillion.                                              energy and utilities have been brought forward       European and Central Asian markets, means
which currently has nine members (Albania,          power market structures that are each uniquely     to control the speed and size of capacities                                                                  under the Initiative in Eastern Europe and the       we are uniquely well-placed to advise investors
Bosnia and Herzegovina, Kosovo, North               positioned for the accelerated deployment of       installed. In 2018, Kazakhstan awarded almost         Central Asia and Eastern Europe are key BRI            Caucasus since 2013.                                 in the region, and those international firms
Macedonia, Georgia, Moldova, Montenegro,            renewable energy technologies in the coming        900MW of renewables capacity through tenders.         fulcrum regions on the route to Western Europe.                                                             seeking to partner on BRI projects – as well as
Serbia and Ukraine), aims to create an integrated   decades. Despite their fundamental differences,    Ukraine has also announced the introduction of        The initiative is not limited to spend on transport    Most of the USD 13 billion of BRI investment         providing advice on the Chinese market itself.
European energy market by supporting countries      key trends driving structural change across the    auctions in 2019 as part of its current multi-stage   infrastructure to facilitate Chinese exports,          in the region has been in oil and gas, primarily
in developing regulatory frameworks for             region include:                                                                                          over 30% of the USD 600 billion invested or            in Kazakhstan and Kyrgyzstan as China seeks
                                                                                           BREAKDOWN OF INVESTMENT AND CONTRACTS BY SECTOR
liberalised markets.                                                                       (TOTAL BETWEEN 2013 AND 2018 Q4)                                  pledged under the BRI has been in energy or            to ensure sufficient supplies in its import-
                                                    • aging, soviet-era                                                                                      utilities; driven by Chinese state-owned energy        dependent oil and gas markets. Major Chinese
Pöyry has long focused on the evolution of these       generation and grid                                                                                   firms, sovereign wealth funds and the Asian            coal firms have also made inroads, with               PÖYRY’S SERVICES
markets (amongst others) and brings a unique           infrastructure leading to                                                                             Infrastructure Investment Bank.                        significant thermal coal and coal to chemical         Our offering for these markets is structured
combination of local insights in Central Asia and      growing concerns                                                                                                                                                                                                   in two tiers.
                                                                                                                                                                                                                                                                          As a first step, we offer screening reports to
                                                                                                                                                                                                                                                                          assist our clients in the pre-project, pre-FID
                                                                                                                                                                                                                                                                          phase. Our research provides high-level
                                                                                                                                                                                                                                                                          due diligence screening, with provisional
                                                                                                                                                                                                                                                                          benchmarking in markets of interest across
                                                                                                                                                                                                                                                                          the New Silk Road countries.
                                                                                                                                                                                                                                                                          We also offer clients the option to develop
                                                                                                                                                                                                                                                                          a full Pöyry Independent Market Report
                                                                                                                                                                                                                                                                          with wholesale electricity price projections
                                                                                                                                                                                                                                                                          on specific target markets. Full Pöyry
                                                                                                                                                                                                                                                                          Independent Market Reports provide
                                                                                                                                                                                                                                                                          wholesale price projections and their
                                                                                                                                                                                                                                                                          fundamental drivers to 2040, and investigate
                                                                                                                                                                                                                                                                          key issues such as the roll-out of renewable
                                                                                                                                                                                                                                                                          energy sources. In recent years, we
                                                                                                                                                                                                                                                                          have developed full Pöyry Independent
                                                                                                                                                                                                                                                                          Market Reports for Georgia, Ukraine and
                                                                                                                                                                                                                                                                          Kazakhstan.
Pöyry Post JOINING FORCES
PÖYRY POST ENERGY
 12                                                                                                                                                                                                                                                                                                                            13

                                                                                                                                                                     to collect all the plastics, we have to make sure    vegetable oils, sugar, starch and lignocellulosic     collection and recycling, even when plastics
                                                                                                                                                                     they are recycled as efficiently as possible. A      materials. In addition to the virgin materials, the   demand grows on the market.

OUR WASTE
                                                                                                                                                                     number of technologies are available for sorting     agricultural sector generates billions of tons of
                                                                                                                                                                     and mechanical recycling, but the chemical           waste and residue materials that can be made          Simplifying a long story: We can demonstrate
                                                                                                                                                                     recycling sector is the golden opportunity for       available and suitable for the production of          how all the global plastics can be turned bio-
                                                                                                                                                                     the industry. The great thing about some of          plastics and other bioproducts.                       based in an affordable, economical manner.

IS OUR RESOURCE
                                                                                                                                                                     the chemical recycling technologies is that                                                                This does require substantial investments and
                                                                                                                                                                     they accept mixed waste, even dirty plastics,        COMBINING RECYCLING AND BIO-BASED                     changes in attitude, but the economic planning
                                                                                                                                                                     multilayers, even bio-based waste as feedstock       PLASTICS FOR A FOSSIL-FREE SOLUTION                   shows that it is feasible and the payback times
                                                                                                                                                                     – which can be converted to hydrocarbons or                                                                can be lucrative, once the unit costs are low
The Pöyry PlasticsToBio initiative aims at turning                                                                                      Tomi Nyman
                                                                                                                                                                     monomers.                                            If we have a strong will, we can replace 10%          following sufficient scale-up of operations.

all plastics in the world bio-based.
                                                                                                                                                                                                                          of fossil plastics feedstock with bio-based           Effectively, 20-30 oil refineries globally need
                                                                                                                              tomi.nyman@poyry.com                   When will the rate of investment be high             feedstock and bio-based plastics – every              to be converted to recycling units or they will
                                                                                                                                                                     enough? Recently the plastics market has grown       year. We can make the choice between                  become obsolete. This has the added benefit
Our vision is fully fossil-free plastics production.   can be demonstrated that all plastics can be           chemical recycling is still possible – breaking the    at a rate of 4% annually – equating to 10-15         taking a vegetable oil, turning it into a fuel and    of reducing CO 2 emissions from the industry
The transition is affordable and economically          produced from bio-based feedstock in the               polymers back into monomers or hydrocarbons            million tonnes year on year. In order to make a      burning it in an engine in less than a second,        by 1 billion tonnes annually, reducing global
viable and will lead to a better understanding         future. Secondly, it can be very profitable and        for subsequent new polymerization of high-             substantial difference to the situation, we must     or alternatively, produce a plastic from it and       emissions by 2.5%. ÅF Pöyry is creating
of the value of products, and even rubbish.            in the future, bioplastics can become cheaper          quality new plastics – until eventually the            aim at investing in new collection and recycling     recycle it ten times during the next 100 years.       a taskforce to bring together the partners
Wherever we look, we see plastic rubbish               than fossil plastics are today. Thirdly, we will       majority of the original plastic is lost in energy     capacity every year that enables recovering          Inserting this 10% and consequently collecting        throughout value chains to make this transition
around – and yet a lot of valuable raw material        save more than 1 Gt of CO 2 every year when            production. The technologies are already               over 30 million tonnes until we reach the levels     everything back carefully after use, we retain the    a reality. Companies involved in plastics
and energy has been used to produce it and             implementing this logic. There are two strands to      available. In Europe alone, the local production       of plastics coming to market a few seconds or        value and the material. Gradually, the biocontent     manufacturing, waste management, oil refining,
distribute it. Still, after use, the best thing        this initiative, recycle as much plastic as possible   of plastics exceeds 65 million tons of plastics;       years after production, after the products have      in the pool of plastics starts to increase and        renewable feedstocks, bioplastics, retailers and
mankind has come up with is to throw it out of         and increase the amount of plastic produced            less than a third is collected and less than 15% is    reached their end-of-life. For Europe, this would    the fossil content will decrease. Therefore,          brands are welcome to join and participate.
the window or burn it, ’out-of-sight, out-of-mind’.    from bio-based sources.                                recycled. These numbers still do not include the       currently require investing in ~60-70 million        before we even realise, we are actually recycling
                                                                                                              amount of imported plastics and plastic goods          tonnes of plastics recycling capacity.               bioplastics.                                          For further information or to discuss how to join
Today we produce almost 400 million tonnes of          The entire transition can be financed and the          used and discarded after use in Europe. We                                                                                                                        our future changing taskforce, visit:
plastics annually. In a matter of a few decades,       solution is actually rather simple. All plastics       collect plastics today and most of it is incinerated   Bio-based plastics                                   When the decoupling of fossil feedstock is            www.poyry.com/plasticstobio Passionate about
due to global population growth and the                have a value, even after use. We see a piece of        to make four products: electricity, heat even in                                                            done with substantial scale we could turn all         turning all plastics in the world bio-based
increasing wealth leading to a growing middle-         rubbish on the street and continue walking. We         excess, ash and carbon dioxide – the last three of     The global production of bio-based vegetable-        the plastics bio-based in a matter of about           Twitter: @tomi_nyman
class, the demand for goods and packaging              all walk past the ‘money’ on the streets without       which are not deemed to be actually necessary.         origin raw materials exceeds 500 million tonnes.     only 10 years, although in practice it must           #PlasticsToBio
made from plastics will grow three-fold!               giving a second thought to pick it up. If a $1         The logistics are already in place and require         There will never be enough virgin biomass to         be acknowledged it will take 20-30 years.
                                                       note would have been lying on the streets, it          little change, but we need to stop incinerating,       use it directly to replace all plastics production   The amount of capital used for raw material
People have said it is crazy and a megalomaniac        would more than likely be picked up. A global          and instead recycle everything, with meticulous        without causing harm to food supplies. The           will decrease thanks to efficient recycling
idea, but fully fossil-free plastics production        plastic deposit scheme would demonstrate               efficiency.                                            main three segments of this pool of materials are    and capital can be spent to ensure efficient
is viable and sustainable. The entire global           value and support collection of waste.
plastics production can become bio-based                                                                      Entering a full circular economy with regards
by using bio-based feedstock systematically.           Recycling                                              to plastics requires significant investments
This would be the largest transformation of the                                                               into education, logistics and collection of all
petrochemical industry ever. The concept and           Plastics can be recycled mechanically several          plastic after its end of life. Once we are able
initiative is extremely ambitious – yet doable,        times until the technical properties become so
when well-planned and organised. Firstly, it           low that it no longer works as plastic. After that,

                                                                                                                                                                                                              Gradual large-scale use of bio-based feedstock in plastics production
                                                                                                                                                                                                              combined with intensive recycling will end up decoupling plastics entirely
                                                                                                                                                                                                              from fossil feedstock eventually.
Pöyry Post JOINING FORCES
PÖYRY POST ENERGY
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                                                                                                                                                                                                  17,000

                         Putting the
                                                                                                                                         ENERGY COMPANIES NEED TO UNDERSTAND                 The largest battery storage whole European demand.
                                                                                                                                         CHARGING NEEDS AND IMPLICATIONS                      projects are 300MW with         However, most home EV chargers
                                                                                                                                         At the same time, energy companies need to          4 hours of storage. 17,000 are rated at 6-11kW, which more
                                                                                                                                         be ready for the impact that the EV charging          electric vehicles would        than doubles peak electricity
                                                                                                                                         industry will have on the energy sector.            have equivalent storage to       demand in an average household.

                         ‘electric’ in EV
                                                                                                                                         There are opportunities and challenges.                   those projects.            Even more impressively, Ionity’s
                                                                                                                                         On the one hand, extra volumes of demand                                             ultra-fast charging network will offer              Benedikt Unger
                                                                                                                                         create new revenue potential. On the                                                 charging with up to 350kW. An EV,        benedikt.unger@poyry.com
                                                                                                                                         other hand, ignoring or underestimating the impact of EV            charging at that speed, adds a load comparable
                                                                                                                                         charging could lead to supply issues, or at the very least          to that of a medium-sized warehouse. Distribution
                                                                                                                                         cost increases. From a business perspective, electricity            networks will be on their heels. They need to
                                                                                                                                         suppliers will want to make sure they capture a part of the         act fast, but also need a long-term
                                                                                                                                         value that is created by the additional energy demand.              strategy for dealing with electricity
                         The year 2018 was another record-setting                complex, heavily regulated, and intransparent.          For single customers, Paola Lualdi in our Milan office              load from electric vehicles.
                         year for the electric vehicle industry. Plug-in         However, since electricity costs make up a large        has worked with utilities on their strategy in incorporating
                         vehicles are selling better than ever before, and       portion of the cost associated with setting-up          electric vehicles
                         new milestones – e.g. 4 million EVs on the road         and operating a vehicle charging station, their         into their portfolio.
                         globally – were reached. While these are positive       developers will need to understand energy               She describes
                         signs, the global EV market share is still in the       markets, networks and regulation. The main              her experience:
                         low single digits, and growth has                                        fixed cost components for a            “Energy suppliers
                         not quite reached ‘exponential’                                          vehicle charging station are           are excited about the
                         scale yet.                                    49.1%                      grid connection, transformer           additional electricity
                                                                 EVs have a 49.1% market          installation and the actual            sales, and they will look
                         Several factors that have been             share in Norway – the         charging connections themselves,       to get involved in providing
                         discussed as inhibitors for            highest of any country. EVs including buildings and land                 charging services and
                         stronger growth in e-mobility –          have been supported by          costs. Of these components,            mobility services. For some
                         cost, lack of model variety, and        government for decades,          grid connection makes up a             utilities, this might include
                         lack of knowledge – remain valid.       and incentives mean that         significant proportion. Extending      investing and operating
                         The biggest factor might yet be          they are already cheaper        the distribution grid to build a       charging structure, or
                         the lack of a public charging             than their gasoline and        new connection can cost roughly        even fleets of electric
                         infrastructure for electric                 diesel counterparts.         €350k, depending on the location       vehicles.”
                         vehicles. But it appears that this                                       and country. On the variable cost
                         is about to change, which is an                                          side, the main component is the        On the other hand,
                         exciting proposition, as it creates new investment      electricity itself. Charging station operators need     electricity networks
                         opportunities.                                          to understand electricity markets in order to           companies will be even more
                                                                                 be able to profit from offering charging to their       significantly affected. When
                         However, it also creates challenges for                 customers.                                              looking at the nature of energy
                         companies, as it means that:                                                                                    consumption by electric
                         • non-energy companies need to understand               Lisa Figge, from our Dusseldorf office, has             vehicles, it becomes clear
                            energy markets and networks;                         recently helped an automotive client lay out a          that while adding additional
                         • energy companies need to understand                   plan to design, construct and operate a private         volumes of demand,
                            transport; and                                       electric van charging network in Germany. In her        e-mobility adds even more
                         • new companies will need to be formed and              experience, “clients need support in the analysis       in terms of required network
                            new business models established.                     of regulatory and energy market characteristics         capacity. An EV typically
                                                                                 on the design and operation of DC-fast charging         consumes around 3,000kWh
                         Pöyry Post has spoken with several project              depots for electric vehicle fleets. Especially in the   per year, less than the average
                         managers about their thoughts on these three            early stages of planning, it is important to define     household in most Western
                         areas.                                                  the preliminary parameters in terms of business         European countries. Even if EVs
                                                                                 model and dimensions for charging stations              were to achieve a market share of 50% in
                         NON-ENERGY COMPANIES NEED TO                            with the customer in advance. It has proved             2030 across Europe, electricity demand
                         UNDERSTAND ENERGY MARKETS AND                           particularly helpful to answer questions on the         would only increase by around 70TWh, the
                         REGULATION                                              energy market/grid connection using scenarios.”         size of the Austrian market, or 2% of the
                         For companies outside the sector, dealing with
                         energy can be a tough task. It may seem overly
Pöyry Post JOINING FORCES
PÖYRY POST ENERGY                                                                                                                                                              Pöyry Management Consulting
 16
                                                                                                                                                                                                  Mikael Maasalo
                                                   NEW BUSINESS MODELS NEED                                                        EV charging. At the
                                                   TO BE ESTABLISHED                                                               moment, this is mostly
                                                                                                                                                                                              +35 85 0412 2887
                                                                                                                                                                                       mikael.maasalo@poyry.com
                                                   Rob Lee is Pöyry’s expert for the
                                                   GB electricity market and he has
                                                                                                 85-95%                            done via demand
                                                                                                                                   side management
                                                                                                      While in the long-
                                                   been watching closely as vehicle                                                or response. In the
                                                                                                    term, public charging
                                                   charging has slowly entered his                                                 future, this could
                                                                                                   infrastructure will be a
                                                   area. Since April 2018, more                                                    involve vehicle-to-
                                                                                                  key driver of EV growth,
                                                   than 450 public charging points                                                 grid.” Obviously, the
                                                                                                    85-95% of EV drivers
                                                   per month have been added in                                                    need for revenue
                                                                                                       currently charge
                                                   the UK alone. And this is even                                                  stacking is not a
                                                                                                       mostly at home
                                                   though the sector faces great                                                   new phenomenon.
                                                   uncertainty. “Electric vehicle                                                  Since filling
                                                   charging is a difficult business                                                stations operate
                                                     proposition. There is a consensus that the                   in a very low margin industry,
                                                      sector is growing and companies should be                   their operators have always been

                                                                                                                                                                      Performance
                                                        able to generate strong revenue. However,                 creative in identifying extra ways
                                                         without any history and reference point,                 to make money. It has often been
                                                          it is difficult to attract finance into such a          reported that the sales of coffee
                                                           business”, Rob explains.                               and other drinks and snacks are

                                                                                                                                                                           Booster
                                                                                                                  more important to filling station
                                                              A common feature of many of these                   operators than the sales of fuels.
                                                                ventures is that they do not enjoy the            And it also works the other way
                                                                  luxury of relying on a proven and               around. In an effort to attract
                                                                  well-known business model.                      more customers to spend time in
                                                                  While it is clear that public charging          their stores, super market chains
                                                                  infrastructure requires an influx of            like Tesco in the UK and Aldi in

                                                                                                                                                                                  Bring your
                                                                  investment, it is important that the            Germany have petrol pumps at some of their
                                                                   right mix of charging connectors               store sites. Sure enough, those same players
                                                                     are provided in the right                    have already made an effort to secure a place
                                                                      places. Therefore, any revenue
                                                                      projections for an EV charging
                                                                                                                  at the table in the large banquet that is the
                                                                                                                  electric vehicle charging industry. Tesco have
                                                                                                                                                                       Operational Exellence
                                                                      business are not only influenced
                                                                      by one’s expectations of how
                                                                                                                  joined forces with Volkswagen, to create one
                                                                                                                  of the largest public charging networks in the           to the next level.
                                                                            many people will drive an             UK. Aldi is providing free charging at some
                                                                              electric vehicle, but also          of its stores in Germany. Time will tell if their
                                                                                                                                                                       Digital platform for continuous improvement
                                                                                     about how and where          selection of charging technology will mean this
                                                                                        they will want to         investment can pay dividends.                                           of district heating systems
                                                                                         charge their car.
                                                                                         The companies’           IN THE LONG TERM
                                                                                                                                                                                     Hourly Performance Updates
                                                                                         main concern is          We at Pöyry believe that electric vehicles will
                                                                                       about utilisation of       play a key role in the decarbonisation of the                              Individual Dashboard
                                                                                  their asset, since it           energy sector. Our analysis shows that in a                  Up to 8% of revenue in cost savings
                                                            comes with high up-front investment                   world with >50% renewable penetration, the
                                                                                                                                                                             Measuring the Execution Gap (EXGAP)
                                                           cost. As a result of this uncertainty,                 flexibility from EV charging is key to managing
                                                          companies are looking to stack revenue                  intermittent power supply, and to keeping the
                                                         streams to create a sustainable and                      lights on and power costs down.
                                                       investable business model.

                                                      Reflecting on this uncertainty, Rob thinks
                                                     that solutions are being developed: “One way               DID YOU KNOW?
                                                    that developers and investors could combine                 A new cloud based digital solution from
VEHICLE-TO-GRID                                     electric vehicle charging with more reliable                our new colleagues at ÅF, in a joint venture
EVs can react to price signals and charge          revenue streams is through a business model                  with Volvo Cars, now provides the Swedish
at the right time. And they can even provide       which includes electricity storage projects, with            Transport Administration with slippery
power back to the grid when it is needed.          access to more bankable revenue streams,                     road conditions data. This is one of the
This capability is called vehicle-to-grid (V2G).   alongside vehicle charging. Indeed, commercial               first initiatives in Europe to share data from
V2G could be a key factor in future electricity    propositions along these lines are emerging.”                vehicles in daily traffic with road authorities
markets that will be dominated by intermittent     And Paola explains how business models could                 on a larger scale. The solution provides
generation. It will be interesting to observe      go even further: “EVs are basically mobile                   the Swedish Transport Administration
whether that will be in the electricity market     batteries. Utilities can benefit from scheduling             continuous and comprehensive road data
(i.e. price arbitrage), or in system services      EV charging when prices are low. They can                    to improve winter maintenance, all the while
(i.e. reserve and response).                       also sell services, such as response or reserve,             allowing Volvo Cars to see how data from their
                                                   to grid companies, utilising the flexibility of              cars strengthen traffic safety for all motorists.
Pöyry Post JOINING FORCES
PÖYRY POST ENERGY
 18

ÅF AND PÖYRY

Joining forces
                                                                                                              ÅF Pöyry in numbers

                                                                                                              • ~19,900 MSEK (~1,860 mEUR)
                                                                                                                revenue pro forma*
                                                                                                              • 1,800 MSEK (170 mEUR)
                                                                                                                EBITA pro forma*
On 21st February, Pöyry announced that it had joined forces with                                              • Operating in 50 countries
ÅF to create a leading European engineering, design and advisory                                              • 17,000 employees
services company, employing 17,000 experts around the world.
In this edition of the Post, we share more on the development, the
rationale and the additional value that we are bringing clients.

“In times of great change and challenge, you          contributed their multi-disciplinary capability     combining the vision and tools to create and
have to be clear upon your way forward, and           to form new ideas and received support to           fertilise cross-sectoral ideas, the ambition
stay consistent and brave in your conviction.         commercialise their offerings. Pöyry’s results      to build proprietary solutions, the delivery
As one company, ÅF Pöyry will take our joint          improved significantly since 2016. In parallel,     capability to make it happen and the potential
abilities and possibilities to the next level. Next   the market was consolidating and additional         to make 1+1=3.
level for our business in terms of delivered          delivery capability was needed for Pöyry to         Geographically, we now have a strong
value. Next level for our client relations by         reach the next level.                               European base and international presence in
combining our expertise and insights. And                                                                 over 50 counties, thus enabling international
next level for our employees for personal             WHY ÅF?                                             diversification: many of our energy clients will
development,” says Jonas Gustavsson, CEO &                                                                recognise this storyline.
President of ÅF Pöyry.                                Pöyry’s strong performance development
                                                      was noticed in the market and the company           MAKING FUTURE AND GENERATING
CONTEXT FOR JOINING FORCES WITH ÅF                    received several expressions of interest to         MORE VALUE FOR CLIENTS
                                                      join forces. However, one company had the
Since Martin à Porta became President and             right ingredients – ÅF – a larger engineering       Making Future is the Vision of our new company
CEO in 2016, Pöyry carried out an ambitious           and design company, with its headquarters in        – realised through sustainable engineering
development program. Client focus was put             Stockholm, Sweden.                                  and design solutions and built on a strong
at the heart and many simplifications were                                                                and sector focused management consulting
introduced throughout the organisation.               With a shared Nordic heritage, complementary        division. Bringing sharp insights and deep
Employees were energised and empowered to             sector know-how in energy, industry and             predictive capability, Pöyry Management
‘think and act as if it were their own company’,      infrastructure and its strong digital capability,   Consulting’s 400 world-class consultants,
as part of a modern culture of intrapreneurship.      ÅF was an attractive fit for Pöyry. By combining    help clients to manage transformations and
An environment of innovation was cultivated           expertise with increased scale in resources,        to generate value from future trends, for
and new digital solutions and services were           it will be possible to achieve even more for        example, smart infrastructure & cities, future
brought to market. As part of the company’s           clients. For ÅF, joining forces with Pöyry          mobility, global bio economy and industrial
digitalisation drive an Innovation Platform           brought an international platform upon which        digitalisation. In the rapidly changing energy
was introduced, accelerating cross-company            it could continue to grow in selected niches        sector Pöyry is already being recognised as
collaboration and concept creation. Through           and deliver more exciting client projects. Now      the most recommended advisor for the energy
the platform, experts from different sectors          combined, the ÅF Pöyry synergies are powerful:      transition.

                                                                                                          “Many of our latest advisory solutions and

                                                                                                                                                                       “In times of great change and challenge,
                                                                                                          services embrace digitalisation, enabling
                                                                                                          clients to see the future with greater clarity,
                                                                                                          contributing to better decisions, which increase
                                                                                                          efficiency, performance and flexibility,” says
                                                                                                          Martin à Porta, President of Management
                                                                                                                                                                   you have to be clear upon your way forward,
                                                                                                                                                             and stay consistent and brave in your conviction. “
                                                                                                          Consulting at ÅF Pöyry.

                                                                                                                                                                                                  Jonas Gustavsson
                                                                                                                                                                                                      CEO ÅF Pöyry
PÖYRY POST ENERGY
 20                                                                                                                                                                                                                                                                                                                    21

Unlocking residual                                                                                                                                            Residual value is a                                    The position of the final tariff on the spectrum     (e.g. wind versus thermal generation).
                                                                                                                                                                                                                     between value and cost depends on route-to-

                                                                                                                                                              function of supply                                     market options available to the IPP as well as the
                                                                                                                                                                                                                     approach taken to the negotiation of any new
                                                                                                                                                                                                                                                                          In the absence of a wholesale market, a more
                                                                                                                                                                                                                                                                          sophisticated approach is needed. For example

value for IPPs in
                                                                                                                                                              and demand                                             PPA. Figure 2 shows potential route-to-market
                                                                                                                                                                                                                     options.
                                                                                                                                                                                                                                                                          in Oman, the Single Buyer has provided a
                                                                                                                                                                                                                                                                          system marginal cost curve against which bids
                                                                                                                                                              fundamentals                                                                                                will be evaluated based on their contribution to
                                                                                                                                                                                                                     The potential to use a private (or ‘corporate’       reducing overall system cost.

emerging markets
                                                                                                                                                              In calculating the residual value, the first step is   PPA) as a route-to-market is an increasingly
                                                                                                                                 Brendan Cronin                                                                      interesting option. The desire of large
                                                                                                                      brendan.cronin@poyry.com
                                                                                                                                                              to look at the supply and demand fundamentals
                                                                                                                                                              to determine what value the IPP has to the             companies to purchase green energy makes this        IPPs will continue to
                                                                                                                                                              system. This is effectively the avoided cost for
                                                                                                                                                              the Single Buyer of procuring new capacity
                                                                                                                                                                                                                     particularly relevant for renewables generators.
                                                                                                                                                                                                                     Wholesale market is included, as one may have
                                                                                                                                                                                                                                                                          make an important
The number of Independent Power Producers
(IPPs) has grown rapidly since the early 1990s as
                                                     significantly greater than the PPA, which means
                                                     there is significant life and potential operational
                                                                                                           New IPPs are experiencing high levels of
                                                                                                           competition for new projects and developers can
                                                                                                                                                              and potentially running less efficient plants. A
                                                                                                                                                              dispatch model (such as Pöyry’s BID3 model)
                                                                                                                                                                                                                     been introduced since the IPP was originally
                                                                                                                                                                                                                     developed. An effective wholesale market with
                                                                                                                                                                                                                                                                          contribution
power sectors around the world have liberalised.     value in the asset after the initial PPA expires.     make themselves more competitive in a tender       is used to assess the cost to the Single Buyer in      pricing linked to system marginal cost represents
                                                                                                                                                                                                                                                                          The introduction of IPPs has perhaps been
The introduction of IPP arrangements is                                                                    by increasing their residual value assumption      the absence of the continued operation of the          a promising option to recover residual value.
                                                                                                                                                                                                                                                                          the regulatory intervention that has made the
commonly the first step in permitting greater                                                              which means a lower PPA tariff can be offered.     IPP. This value sets an upper limit on the tariff      Other aspects that can influence the outcome
private sector participation in the power sector     Residual value                                        In many cases residual values have been pushed     of a new PPA and residual value, as the Single         include land rights, grid connection and fuel
                                                                                                                                                                                                                                                                          greatest contribution to decreasing power sector
                                                                                                                                                                                                                                                                          costs in the last 30 years. IPPs will undoubtedly
in emerging markets. Examples can be seen
across Asia, Middle East, Africa, SE Europe and
                                                     assumptions                                           to 25 to 50% of total investment cost (received
                                                                                                           at the point that the PPA expires). Developers
                                                                                                                                                              Buyer is very unlikely to accept a tariff that would
                                                                                                                                                              incur more cost than simply allowing the project
                                                                                                                                                                                                                     supply, fuel procurement decisions, capabilities
                                                                                                                                                                                                                     of the central buyer, regulatory framework and
                                                                                                                                                                                                                                                                          continue to make a large contribution in the
                                                                                                                                                                                                                                                                          future, but there will be increasing focus on
Latin America. In these markets there is usually
a single central buyer for all the power produced,
                                                     are receiving                                         who don’t make this kind of assumption have
                                                                                                           struggled to win new IPP tenders in recent years
                                                                                                                                                              to close.                                              government co-investment.
                                                                                                                                                                                                                                                                          residual value assumptions. Developers must
                                                                                                                                                                                                                                                                          better understand the risk from commodity price
rather than a traded wholesale market.               increasing focus                                      in many markets.                                   The lower limit of the PPA tariff is the future cost
                                                                                                                                                              of keeping the plant operational – below this          Single Buyers                                        uncertainty, demand growth uncertainty and
                                                                                                                                                                                                                                                                          technological change after the PPA expires.
IPPs in emerging markets are typically
underpinned by a strong long-term Power
                                                     This residual value is becoming an area of
                                                     increasing focus for both existing and new
                                                                                                           There are a number of factors (slower demand
                                                                                                           growth, falling technology costs as well as
                                                                                                                                                              the developer would simply decommission the
                                                                                                                                                              project.
                                                                                                                                                                                                                     need new tools
Purchase Agreement (PPA) that limits market                                                                optimism bias) which means residual value has
                                                     existing IPPs.                                                                                                                                                  Single Buyers have traditionally used a levelised     PÖYRY SERVICES
risk and are in effect ‘take-or-pay’ contracts                                                             often been overstated in many markets.             A new IPP needs to take all of this into
                                                                                                                                                                                                                     cost of energy (LCOE) to evaluate bids received       • Market analysis: Providing future market
providing the IPP a predictable income as long as                                                          Pöyry has observed an increasing demand for        consideration when submitting its bid for a PPA.
                                                     Existing IPPs that were developed in the ‘boom’                                                                                                                 in IPP tenders. This was sufficient when bids           insights using our leading BID3 dispatch
the power plant is made available. PPAs of 15 to                                                           independent market advice on residual value
                                                     that followed liberalisation of power markets are                                                                                                               were for a single technology that could be              simulation tool.
25 years are often allocated by the single buyer                                                           for new IPP tenders, PPA extensions and M&A
through a tender process. This allows significant
                                                     now coming to the end of their initial PPA term.
                                                     Residual value assumptions that were made at          transactions in these emerging markets.            Route-to-market will                                   expected have the same operating pattern.
                                                                                                                                                                                                                     However, it is not appropriate to evaluate
                                                                                                                                                                                                                                                                           • Strategy development: Helping
                                                                                                                                                                                                                                                                             organisations adapt to challenges and
leverage through project finance debt.
However, most power projects have a lifetime
                                                     the start of the PPA term will now face a market
                                                     test.
                                                                                                                                                              impact the residual                                    generators with differing cost characteristics          opportunities.
                                                                                                                                                                                                                                                                           • Transaction advisory: Supporting a wide
                                                                                                                                                                                                                     (e.g. an old versus new generator) or
                                                                                                                                                              value that is recovered                                technologies                                            range of M&A transactions and project
                                                                                                                                                                                                                                                                             financings.
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