As Europe’s energy-intensive industries accelerate their transition towards low-carbon production, electricity is becoming an increasingly strategic part of industrial competitiveness. Tapio Korpeinen, CFO of UPM-Kymmene Corporation and EVP of UPM Energy, discusses how one of Finland’s largest industrial electricity producers and consumers is using electrification, flexibility and market-based solutions to reduce emissions, strengthen resilience and support the evolving power system.
UPM is both a major electricity producer and one of Finland’s largest industrial consumers. How does this dual role shape your approach to electricity generation and procurement, risk management and investment decisions?
UPM takes a strongly market-based approach across its businesses, and energy is no exception. UPM Energy is the second largest electricity producer in Finland with 1900 MW assets in flexible hydropower and baseload nuclear.
Meanwhile, our industrial processes are energy intensive and therefore it makes a major difference on how electricity procurement and consumption is managed.
Our position on both sides of the market creates useful synergies and gives us valuable insight when assessing risks and opportunities.
At the same time, it is important to be clear that our businesses operate independently in the electricity market. Electricity production and industrial consumption each need to remain competitive on their own merits.
UPM positions itself as a renewable materials company aiming to replace fossil based inputs across value chains. Where does electrification deliver the biggest decarbonisation gains in your industrial processes, and what barriers still limit faster electrification?
The clearest opportunities are in processes where low-emission electricity can directly replace fossil fuels. Electrification allows us to reduce both fossil fuel consumption and our exposure to the price and availability risks associated with those fuels.
At UPM, the most concrete examples are our investments in electric boilers at paper mills in Germany and Finland. These boilers produce the industrial steam required by the mills while replacing fuel-based production.
Several factors have supported these investments. One is our ambition to reduce CO₂ emissions. Another is the volatility of electricity prices, which creates opportunities for flexible consumption.
We have also seen considerable uncertainty around the future price and availability of fossil fuels.
You’ve highlighted demand side management and new electric boiler investments as key tools for flexibility. How do these assets enable UPM to support system balancing, and what does this reveal about the evolving role of large industrial consumers in the Nordic power market?
They allow us to adjust electricity consumption according to conditions in the power system. When demand and prices are high our paper mills can reduce consumption where the production process allows it. When electricity is more readily available and prices are lower, we can increase consumption.
This capability is becoming increasingly valuable as more intermittent renewable generation enters the electricity system. Greater variability on the supply side means that balancing must come from every available source, including industrial demand.
At our paper mills, electricity-market developments are closely followed as part of daily operations and production planning.
Electric boilers and other flexible assets give us additional ways to respond to those developments. That supports the wider power system, but it also makes economic sense for UPM. Taking market conditions into account can help us manage energy costs while continuing to meet our production requirements.
There is still considerable potential for industrial demand-side management, but it should not be treated as an automatic or simple solution.
Industrial users differ and meaningful flexibility requires long-term and determined development. Companies need the right technical capabilities, energy-market expertise and production-planning processes.
UPM has been vocal about the importance of predictable, market-based frameworks such as the EU ETS. How do current events affect the competitiveness of companies operating across European markets?
For European industry, the central issue is whether companies can remain cost-competitive while making long-term investments in decarbonisation. That requires predictable policies, competitive energy costs and confidence that the underlying market frameworks will remain stable.
We regard the EU Emissions Trading System as a successful example of a market-based climate policy. Since its launch in 2005, it has created a price signal for reducing emissions and contributed to significant emissions reductions in both electricity generation and industry.
It has shown that a well-designed market mechanism can deliver environmental results in a cost-effective way.
The risk comes when political ad hoc interventions create uncertainty around how the system will operate. Industrial investments often have long-term horizons.
Companies need to understand the rules and the likely cost environment before committing capital. Frequent or unexpected changes make those decisions more difficult.
At the same time, climate policy cannot be considered separately from industrial competitiveness. Europe must ensure that its energy-intensive industries can compete. This can include appropriate adjustments to free allocation under the EU ETS, cost-competitive energy taxation and efforts to keep overall energy-system costs under control.
These measures can be taken without undermining the ETS itself. In our view, Europe should preserve the system’s market-based foundations while addressing the wider conditions that determine whether industrial production and investment remain competitive.
You’ve argued that well-functioning electricity markets should not be weakened for political reasons. What are the risks to your business of ad hoc market interventions?
The main risk is uncertainty. When companies cannot rely on the basic rules of the market remaining stable, it becomes harder to make investments, manage risks and plan operations over the long term.
There is no reason to weaken systems that are functioning well simply in response to short-term political pressure. Market-based mechanisms should be strengthened rather than repeatedly reopened or altered.
The Nordic electricity market is a good example. It has continued to support system reliability even during periods of significant fluctuations in electricity supply. UPM’s different businesses i.e. the wood processing mills and power plants operate on a market basis and participate actively in system balancing when flexibility is needed in Finland.
In recent years, demand response from UPM’s production facilities, together with the flexibility provided by our hydropower plants, has been an important resource during tight market situations. This shows that price signals and functioning markets can encourage companies to respond in ways that support the wider electricity system.
The same principle applies to emissions trading. The EU ETS and the CO₂ price give operators a clear economic incentive to reduce emissions. Ad hoc interventions risk weakening those signals precisely when companies need clarity to make long-term investment decisions.
UPM has already achieved major emissions reductions in both energy production and use. Looking ahead, where do you see the next major decarbonisation opportunities, and what policy or market conditions are needed to unlock them?
We have reduced our Scope 1 and 2 CO₂ emissions by 58% over the past ten years. That progress has come from a combination of improved energy and material efficiency, fuel switching and electrification. For Scope 2 emissions in particular, the decarbonisation of the electricity system has played a major role.
Looking ahead, some of the largest remaining opportunities are outside the sectors currently covered by the EU ETS, particularly in transport and in the choices made by consumers across different value chains.
UPM can contribute by offering renewable materials and products that replace fossil-based alternatives. We have developed solutions for applications including transport, packaging, textiles and the automotive industry.
Their climate impact does not come only from how they are produced, but from the fossil-based materials and products they can replace.
For these solutions to grow, companies need a stable environment in which to invest and build markets. European policies should therefore combine long-term consistency with continued ambition.
Businesses need confidence that the direction of travel will remain clear, while customers and value chains need the right incentives to adopt lower-emission alternatives.
The next phase of decarbonisation will depend not only on cleaner energy production, but also on accelerating the replacement of fossil-based products throughout the wider economy.