Fortum

In 2020 Fortum invested EUR 56 million (nearly USD 64 million) in mitigation research and development (R&D), equivalent to almost 5% of its total capital expenditure (CapEx), meeting the expectation that electric utility companies should be investing 5% of CapEx in low-carbon R&D.
Fortum’s R&D activities focused on wind and solar power, energy storages, demand response, bio-textiles, smart solutions for homes and EVs. As part of waste materials circulation research, Fortum has developed a process which enables over 80% of electric vehicle lithium-ion battery materials to be recycled with a low-CO2 hydro-metallurgical recycling process.

Fortum’s target to become carbon neutral by 2050 is not aligned with the ambition of the 1.5°C scenario which requires the company to be net-zero by 2040. Fortum needs to increase by a factor of 1.5 its targeted scope 1 and 2 emissions reductions to align with its 1.5°C pathway.
The company is yet to set regularly spaced intermediate targets to incentivize near-term action on its longer-term goals. Fortum fails to set short-term targets covering 100% of scope 1 and 2 emissions which means the company doesn’t have a clear plan on how to achieve its targets set for 2030 and 2050.

Fortum’s emissions intensity increased by almost 30% between 2015 and 2020. The company is projected to decrease its emissions intensity by 4% annually between 2020 and 2025, while annual decrease by at least 10% is required for the company to align with its 1.5°C pathway. Based on projected emissions between 2020 and 2035, Fortum exceeds its carbon budget by 36%.

Fortum identified several new climate-related business opportunities and is involved in new projects and pilots. For example, Fortum Oslo Varme’s carbon capture and storage (CCS) project is a full-scale pilot to test CO2 capture at the Klemetsrud Waste-to-Energy plant in Norway. The project consists of a full CCS value chain, from capture to transport and storage of CO2, and includes several industrial actors. However, the company can improve by disclosing financial metrics of the new business models, such as size, profitability, growth potential and deployment schedule.

Fortum has developed a transition plan, aiming to phase out coal in Europe by 2035-2038 and become a carbon neutral company by 2050. However, the plan is missing specific milestones, details on the future portfolio, financial considerations and it is mainly focuses on the EU operations. Various scenarios have been considered, transition and physical risks identified by the company, although timescale of the analysis is unclear. The company can improve its disclosure by including the information on the future portfolio and considerations of the current assets in a structured, specific way. The transition plan should also include all Russian operations.

Fortum has about 14.8 GW of low-carbon capacity which represents 45% of its assets. The company is planning to increase its renewable portfolio by 1.5 to 2 GW by 2025 and be carbon neutral by 2050. Currently, scope 1 and 2 emissions reduction targets set for 2030 and 2035 only cover 40% of emissions.

Fortum’s transition plan is missing specific milestones, details on its future portfolio, does not contain estimates of costs associated with the plan and mainly focuses on EU operations. Fortum’s Russia Division will discontinue the use of coal by the end of 2022. Five coal plants are scheduled to be sold or phased-out between 2022 and 2029, Datteln 4 power plant in Germany will remain in operation until at least 2035, Berezovskaya coal-fired power plant in Russia has no clear decommissioning date.

Fortum now has a large portfolio of coal (9%) and gas (45%) assets, which will be difficult to decarbonise. The company is arranging to exit some of its coal plants. The company is developing a scope 3 emissions reduction target addressing its indirect emissions from its gas and coal sales to end users. It also invested 5% of its capital expenditure (CapEx) in mitigation research and development in 2020.

Fortum reducing its emissions intensity, however, taking Uniper into account, between 2015 and 2020 emissions intensity increased by 30%. Continuing reliance on gas will impair the company’s transition to the low-carbon economy.

In 2019, 59% of Fortum’s power generation was low-carbon. However, its consolidation of Uniper raised Fortum’s coal capacity from 1.2 GW to 11.6 GW, and its gas capacity from 5 GW to 24 GW. The purchase of Uniper therefore does not seem compatible with decarbonisation.