Aalto 11.10.2017 Fortum Procurement · h Target price for Tesla ... Fortum Procurement Value adding partner to business units ... Innovation Delivery time Order process Transport

Fortum ProcurementAalto 11.10.2017

Pasi Kaukojärvi,

Head of Procurement, Consumer Solutions

Fortum in brief

Our core

Hydro and nuclear

Combined heat and

power production

Circular economy

Energy-related

products and expert

services

2/3 of our

power

production is

hydro and

nuclear

9,000

professionals

in the Nordics,

the Baltics,

Russia, Poland

and India

We are the largest

electricity retailer in the

Nordics with

2.4 million customers.

And one of the leading

heat producers

globally

96 % of our

electricity

production is CO2

free in Europe,

62% in all

operations

The global

megatrends

affecting our

industry

Urbanisation Digitalisation,

new technologies

Active customersClimate change and

resource efficiency

Our focus

going

forward

We drive productivity and

industry transformation

We grow in solar and wind

We create solutions for

sustainable cities

We build new energy

ventures

Solar Economy

IEA has constantly underestimated wind and solar scenarios(2016 wind 487 GW and solar 299 GW)

6

Declining technology costs and more efficient technologies

0

200

400

600

800

2010 2015 2020 2025 2030

€/k

Wh

Target price for Tesla

Battery technology costs have declined faster than estimated

BNEF forecast BNEF observations (€/kWh)

Source: Bloomberg New Energy Finance, 2016

7

Nordic (hourly Nord Pool spot system price)

German (hourly EPEX spot price)

Average power prices in Nordics and Germanywere very close in December 2014 …

8

Source: Nord Pool Spot, Bloomberg Finance LP

Nordic (monthly Nord Pool spot system price)

German (monthly EPEX spot price)

… but hourly prices were very different !Price pattern is getting more important than average price

9

Source: Nord Pool Spot, Bloomberg Finance LP

Nordic (hourly Nord Pool spot system price)

German (hourly EPEX spot price)

December 2014

Value creation in electricity value chain will change dramatically

Future

NowEnergy

Flexibility/Capacity

Environmental/CO2-free

Consumer market

10

We are building smart and helpful

services that give our customers

peace of mind.

Electricity

retail

Smart

living

solutions

Smart

heating

EV

charging

Solar

panels

Virtual

power

plants

Insurances

Our services will change our customers’ lives

We are pioneers in electric vehicle charging

Fortum Charge & Drive is a pioneer in

electric vehicle charging.

Our network consists of 1,500 smart

chargers in 11 countries

In Fortum’s groundbreaking VPP-pilot to balance the system in the Frequency Containment Reserve (N)

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Fortum Procurement

Value adding partner to business units

Scalable and flexible resources to support

procurement needs and synergies between units and

countries

Gaining innovations and efficiency through

partnerships and supplier collaboration

Lean and effective sourcing processes and user-

friendly business tools in use

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What is strategic purchasing?

15

Quality

Purchase

price

Strategic purchasing goes below

the surface…

Specifications

Strategic

need

Make-or-

buyInnovation

Delivery time

Order

processTransport

Inventories

Internal demand

Life cycle

costs

Transactional

focus“Strategic purchasing is a systematic

and collaborative process

for buying commodities and services

at the lowest total cost of ownership

(TCO) and the highest value to our

business”

• Determining supply requirements

• Understand market and products

• Seek business synergies with suppliers

• Selecting the most competitive suppliers

• Calculate life time costs

• Managing supplier performance

Sustainability

Fortum purchasing categories

16

Solar

Wind

Turbines & Generators

Automation

Distribution Network Services

Service & Maintenance

Consumer products & Services

Construction & Civil Works

Electrical Materials

Consulting

Indirect

Real Estate & Facility Management

IT

Fuels

Purchasing value creation

1. Strengthen current operations

• Category Management role

• Cross country & Cross BU synergies

• Volume benefits

• Systematic supplier management

2. New Products and Innovations

• Flexibility vs consistency. Like

contracts and processes

• Time to market. Market & supplier

scouting

• Internal & external collaboration

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Volume Speed

Outsourcing & Collaboration

Focus on core

Partnering

In-house only operations and

people that are strategically

important

Cost Leadership

Market & knowledge

Actively analyze market

information and solutions to

improve efficiency and customer

value creation

New Development

Innovations

Today innovations are created

faster than ever and everywhere.

Managing external resources is increasingly important

competence and process in purchasing

Five steps of good collaborative sourcing

2. Contract

3. Develop

ment

4. Execute / operation

5. Review &

KPIs

1. Synergy / business

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“Win – Win

& Win

mindset”

Join the change!