— Matti Kaarnakari, Managing Director, Fortum India

Headquartered in Finland, Fortum’s activities cover generation, distribution and sale of electricity and heat, as well as O&M of power plants. In September this year, Fortum opened its India office to explore investment opportunities in the field of combined heat and power (CHP) solutions to industrial clusters. Matti Kaarnakari, in an exclusive interaction, tells us more about the strategic fit between Fortum’s core competence and India’s growing need for clean and sustainable energy. An interview by Venugopal Pillai.

To start with, please tell us on what key energy-related services would Fortum be providing to India in the initial phase.
In our view, there are many positive things that we could bring to the table in establishing ourselves in India.

Firstly, there is the matter of efficiency and reliability. By establishing a CHP plant within an industrial cluster, we can offer very high efficiency and security of both power and steam supply, which differs from the currently used utility service model.

The sustainability of our solutions is an important differentiating factor as better usage of primary fuel energy and also our fuel strategy maximising use of nonfossil fuels will reduce emissions and environmental impact.

We have an excellent track record of project execution and completing CHP projects in time and cost, and with high quality. During the life time of a plant, we can secure high efficiency through using our advanced tools for process operation and maintenance.

Can you tell us more on the investment of €200 million that Fortum proposes to make in the industrial CHP segment in India?
We are currently assessing investment opportunities in industrial CHP. Initially we could be thinking of possibly 2-3 CHP plants. If we take an average size and cost of a possible plant, roughly, that could mean total investment of up to €200-250 million. However, it must be noted that any potential investment will be separately decided on and it must meet our targets and be financially attractive to us.

There is no earmarked investment money for India and we only move ahead if and when we find opportunities good enough.

India represents a strong case of strong energy demand coupled with "environmental responsibility". How do you therefore assess the country as a market for clean and sustainable energy sources?
In Fortum, we are currently doing business development work regarding our possible future role in PV solar production. As we are now based in India and as India is very fast developing in this space having extremely good conditions for direct solar energy-even in a global comparison. We are also interested to understand what role solar energy in India could play for our company in the future.

In Fortum, we believe that the energy system must be developed into a more efficient and more environmentally sustainable one in the long term. We call that a journey towards a Solar Economy. This means that we strive for a future where we see an overall efficiency in production and in the use of fuels. We also strive towards utilising the sun as the primary source of energy production, both directly through solar energy but also indirectly through for example hydropower, wave power etc.

Even if CHP is essentially thermal capacity, we see that it is a crucial part for us on that journeyin the transition phase from current, mostly low efficient and high emitting, conventional capacity to high efficiency with low emissions- both because of the greatly increased efficiency independent of what fuels we use but also due to the extensive experience we have in Fortum as the globally fourth largest company in heat business, not only in combined heat and power production in general, but also in the use of biofuels or waste as fuels.

Even whilst admitting that India is indeed a big energy deficient market, setting up energy infrastructure has not exactly been easy. What are the key challenges that Fortum is anticipating?
We recognise the current issues, e.g. around access to fuel, particularly coal and the need of policy measures required to be implemented. However, we believe that the market and policies will evolve to allow meeting the huge need for new production capacity which is required to meet India's GDP growth aspirations.

We understand that Fortum would provide industrial CHP solutions using local agrobased fuel. Can you describe the business model in some more detail?
Fortum has long experience on fuel flexibility. We design our system configuration in a manner that allows for multiple types of fuel being used.

In addition to upfront design of the system for multi-fuel usage, we always carefully scrutinise opportunities to use available local resources such as waste fuels and various types of biomass. In India this could mean for example coconut shell, cashew shell, rice husk, bagasse etc. CHP is much more energy efficient than conventional thermal production. In CHP we can make use of up to 90 per cent of the energy content of the fuel whereas in conventional, e.g. coal-based production we reach typically well below 40 per cent efficiency in primary fuel use.

Despite being an agrarian economy, India so far has not been able to gainfully use its agro-waste through biomass plants due to high cost of generation. What is your view?
Elsewhere, we have developed good experience in fuel procurement, and we hope to be able to bring this competence to India also. When we are more developed in our potential investment plans, we will also hopefully have a better view on using biomasses as fuel in India. Everywhere, the critical issue is to manage the biomass collection and logistics.

We understand hydropower accounts for a big proportion of Fortum's global business. Do you have plans of tapping this source in India, perhaps in the next phase of your Indian story?
Initially, we are looking at potential opportunities to invest in CHP production for industrial clusters and also assessing potential opportunities in solar PV.

Tell us about Fortum's presence in other emerging Asian economies, mainly China.
Currently, our primary focus in Asia is on India.

As a foreign investor in India, what key policies (or policy changes) do you think would expedite FDI inflows in the power sector, and accelerate project implementation?
Any investment in power generation means that we will invest in assets which are expected to operate for several decades. That is why in India as in any energy market, for an investor, it is very important to have transparency of the policy measures and also in the longer term, the measures should be consistently implemented.

Now that Fortum's engagement with India has begun, what key milestones would you like to cross in the next, say, five seven years?
To set up the first 1-3 CHP plants showing a strong business case and delivering great value to our customers.

Looking ahead, are you confident that India could make a significant contribution to Fortum's global portfolio?
There is great synergy between our core competences and India's energy requirements, both now and over the long term. India needs sustainable supplies of both conventional and clean power to power the growth of industry, urbanisation and infrastructure and as acknowledged global leaders in this industry, we are well placed to be preferred partners. We do believe that our expertise can help enhance India's power infrastructure and by that benefit Indian society and industries also.

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