Company Strategic Production Financial Corporate Shareholder Appendix profile report results results governance and investor 15 ANNUAL REPORT – 2018 engagement MARKET OVERVIEW

Macroeconomic overview

Global markets were highly volatile throughout 2018 due to the political decisions CHANGES IN GLOBAL GDP, of a number of major economies: the United States, the United Kingdom, China, % North Korea, and European Union countries. Despite ongoing negotiations on most 2.8 1.5 4.6 issues, tensions remained fairly high as far as global trade issues are concerned. 2021 2.8 1.6 4.5 This situation, combined with the concerns of major investors about the growth 2020 prospects for the global economy, contributed to a decline in world stock market 2.9 2.0 4.2 2019 prices. The appreciation of the U.S. dollar, greater volatility on financial markets, 3.0 2.2 4.2 and growing export-import risks led to increased capital outflow and foreign 2018 exchange pressure in emerging markets. Significant price fluctuations were seen 3.1 2.3 4.3 2017 on energy and metal markets over the course of 2018. As a result, prices for many 2.4 1.7 3.7 commodities were down at the end of the year, which caused problems for export- 2016 oriented countries. 0 2 4 6 8 10 Global GDP Developing economies The World Bank estimates that GDP growth slowed to 2.2% on average in developed Developed economies economies and to around 4.2% in developing economies in 2018. A number of countries with heightened current account deficits experienced considerable Source: World Bank report, January 2019 pressure on their own financial markets in 2018, which triggered a slowdown in business activity within these countries. The World Bank predicts that global GDP will grow by 2.9% in 2019 and by 2.8% in 2020–2021, with the Russian economy expanding by 1.5% in 2019 and 1.8% in 2020–2021. Changes in the GDP of the Russian Federation

PROJECTED GDP GROWTH RATES IN THE RUSSIAN FEDERATION, % According to the Russian Federal State Statistics Service, GDP growth accelerated 1.8 to 2.3% in 2018 from 1.6% a year earlier, which surpassed both the estimates 2021 1.8 of the Russian Ministry of Economic Development as well as the market consensus 2020 forecast. In terms of different sectors of the economy, industry and construction 1.5 have become key drivers of economic growth (contributing 0.6 p.p. and 0.3 p.p. 2019 2.3 to economic growth, respectively). Retail (0.3 p.p.) and the transport industry 2018 (0.2 p.p.) also made positive contributions to the changes in GDP. 1.6 2017 0.3 2016

0.0 0.5 1.0 1.5 2.0 2.5 Source: Ministry of Economic Development of the Russian Federation, January 2019, [Electronic resource] http://economy.gov.ru/minec/about/structure/depMacro/2019120201. (reference date: March 29, 2019) 16 STRATEGIC REPORT ANNUAL REPORT – 2018

FORECAST FOR THE DEVELOPMENT OF THE ELECTRIC POWER INDUSTRY ON KEY INTERNATIONAL FORECAST FOR THE DEVELOPMENT OF THE ELECTRIC POWER INDUSTRY ON KEY MARKETS MARKETS WHERE THE INTER RAO GROUP OPERATES TWh TWh

3,985 1,843 2040 35,407 2040 3,793 1,617 2035 31,906 2035 3,648 1,407 2030 28,513 2030 3,528 1,223 2025 25,307 2025 3,398 1,101 2020 22,538 2020 3,218 1,043 2015 20,039 2015 3,261 1,025 2010 17,839 2010 3,139 921 2005 15,059 2005 2,837 854 2000 12,637 2000

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 0 1,000 2,000 3,000 4,000

EuropeEurope AsiaAsia Africa Middle East Europe CIS LatinLatin AmericaAmerica CISCIS Pacific North America

Source: Enerdata, EnerOutlook 2018, 2018 [Electronic resource] https://eneroutlook.enerdata.net/ (reference date: March 29, 2019) Source: Source: Enerdata, EnerOutlook 2018, 2018 [Electronic resource] https://eneroutlook.enerdata.net/ (reference date: March 29, 2019)

GLOBAL ELECTRICITY CONSUMPTION COULD GROW THE BULK OF THE GROWTH WILL BE CONCENTRATED BY 40-50% BY 2035 COMPARED WITH THE CURRENT IN ASIAN COUNTRIES, WHILE MODERATE INCREASES INDICATORS. OF 15-20% ARE PROJECTED ON THE INTER RAO GROUP’S PRIMARY MARKETS – THE CIS AND EUROPE

RUSSIA IN THE GLOBAL ELECTRIC POWER INDUSTRY Electric power consumption, TWh Electric power production, TWh

429 596 744 652

China China 934 U.S. U.S. 1,418 India 7,413 Russia Saudi 7,183 Japan Arabia TWh TWh India 2,201 2,499

3,105 2,018

Source: Enerdata, The Global Energy Statistical Yearbook, 2018, [Electronic resource] https://yearbook.enerdata.net/ (reference date: March 29, 2019) Company Strategic Production Financial Corporate Shareholder Appendix profile report results results governance and investor 17 ANNUAL REPORT – 2018 engagement

Changes in the Russian electric power industry

Electricity consumption within the Unified Energy System of Russia amounted INSTALLED CAPACITY to 1.056 trillion kWh in 2018, or 1.5% more than in 2017. Electricity production within MW the Unified Energy System of Russia came to 1.071 trillion kWh, a 1.6% increase 243,243.2 from 2017. The structure of electricity generation has changed significantly in recent MW years as the share of thermal power plants has declined in the UES of Russia, while 52,447 27,592 53,614 24,552 23,536 51,861 9,641 2018 243,243 Installed capacity of UES electricity production at nuclear power plants has increased. In 2018, nuclear power 53,077 27,204 52,715 23,865 21,539 51,911 9,502 of Russia power plants as plants (branches of ) produced a record amount of electric power – 2017 239,812 of December 31, 2018 52,879 27,003 51,132 23,572 20,602 51,970 9,187 204.3 billion kWh, or 0.7% more than in 2017. As of the beginning of 2019, the share 2016 236,343 of nuclear power generation in the overall energy balance amounted to roughly 19% of total electricity generation in the country. A total of 4.5 GW of capacity were put 0 50,000 100,000 150,000 200,000 250,000 into operation in 2018, with nuclear power plants (NPP) and thermal power plants IES Center IES Northwest IES East (TPP) each accounting for 2.2 GW. IES Middle Volga IES South IES Urals IES Siberia 1,950.4 According to the forecast for the baseline development of the Russian economy, Source: System Operator of the Unified Energy System [Electronic resource] industrial production will grow by an average of 3% per year in 2018-2024. http://so-ups.ru/fileadmin/files/company/reports/disclosure/2019/ups_rep2018.pdf (reference date: March 29, 2019) MW No significant changes are expected in the structure of industrial production total power capacity in the medium term. Operational stability is projected to continue in the fuel decommissioned and energy sector. CHANGES IN ELECTRIC POWER GENERATION IN THE UES OF RUSSIA bln kWh Based on the projected trends for the development of the country’s economy, electricity production is expected to amount to 1.129 trillion kWh by 2021. Electricity Indicator 2016 2017 2018 Change INCREASE consumption on the domestic market will increase to 1.118 trillion kWh (an increase 2017/2018, % of 3.1% versus 2017). By 2024, electricity production is projected to total 1.163 trillion IN INSTALLED Total electric power 1,048.5 1,053.9 1,070.9 1.6 kWh, as electricity consumption on the domestic market will increase to 1.194 trillion CAPACITY generation kWh (growth of 6.5% compared with 2017). Even though thermal power plants will continue to account for the bulk of electricity production in 2021, their overall share including: in the structure of electricity production will decrease from 64.4% in 2017 to 63.1% Thermal power plants 673.7 671.3 681.8 1.6 in 2021.1 Hydroelectric power plants 178.3 178.9 183.8 2.7 4,792.1 Nuclear power plants 196.4 202.9 204.4 0.7 MW The main systemic problems hindering the development of the electric power industry are the high depreciation of fixed assets, the existence of cross-subsidies Renewable energy sources 0.01 0.1 0.2 66 through the commissioning between consumer groups, and the lack of a competitive thermal power market. Power plants of industrial 0.1 0.6 0.8 33 of new generating enterprises equipment The installed capacity of UES of Russia power plants increased by 13.6 GW Electric power consumption 1,026.9 1039.9 1,055.6 1.5 in 2016–20182 due to the commissioning of new generating equipment at power plants as well as the modernization of existing equipment. Generating equipment with total capacity of 7.2 GW was decommissioned at UES of Russia power plants over the same period. Source: System Operator of the Unified Energy System [Electronic resource] 294.8 http://so-ups.ru/fileadmin/files/company/reports/disclosure/2019/ups_rep2018.pdf (reference date: March 29, 2019) MW due to relabeling 1 Source – Russian Ministry of Economic Development 2 Source – JSC SO UES 18 STRATEGIC REPORT ANNUAL REPORT – 2018

Market share of the Inter RAO Group

THE INTER RAO GROUP’S RANKING AMONG GENERATING COMPANIES OF THE RUSSIAN FEDERATION IN TERMS OF COMMISSIONING NEW EFFICIENT CAPACITY AND DECOMMISSIONING THE INTER RAO GROUP’S RANKING AMONG GENERATING COMPANIES OF THE RUSSIAN FEDERATION INEFFICIENT CAPACITY AS OF DECEMBER 31, 2018 IN TERMS OF DECOMMISSIONING INEFFECTIVE CAPACITY AS OF DECEMBER 31, 2018

GW GW 3.1 Inter RAO Group 7.3 2.4 Gazprom Energy Holding Group Gazprom Energy Holding Group 6.1 1.5 Inter RAO Group Group 3.0 0.4 T Plus Group PJSC Lukoil 3.0 0.4 PJSC Fortum PJSC Kvadra 2.5 0.2 Group PJSC Russia 1.0 0.2 PJSC Lukoil PJSC Fortum 0.8 0.1 PJSC Siberian Generating Company

0 1 2 3 4 5 6 7 8 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

THE INTER RAO GROUP’S RANKING AMONG GAS AND COAL GENERATION COMPANIES IN THE RUSSIAN FEDERATION AS OF DECEMBER 31, 2018

9.4 41.3 48.2 47.7 11.2 46.6 50.0 Inter RAO Group OGC-2 15.5 55.1 Installed capacity T Plus Installed Generation, utilization ratio 38.2 capacity, bln kWh (ICUR), % GW UNIPRO Enel Russia 47.4 TGC-1 146.5 38.8 40.6 29.5 121.8 52.0

Gazprom Energy Holding Group T Plus Enel Russia Inter RAO Group UNIPRO

Source: company press releases Company Strategic Production Financial Corporate Shareholder Appendix profile report results results governance and investor 19 ANNUAL REPORT – 2018 engagement

SHARE OF THE INTER RAO GROUP IN ELECTRIC POWER GENERATION IN RUSSIA IN 2016–2018 SHARE OF THE INTER RAO GROUP IN THERMAL POWER GENERATION IN RUSSIA IN 2016–2018 bln kWh thousand Gcal

41.6 1 11.2% 1,070.9 3.2% 1,298 2018 121.8 2018 39.8 11.6% 1,053.9 3.2% 1,258 2017 122.1 2017 40.3 11.4% 1,048.5 3.2% 1,269 2016 120.0 2016

0 200 400 600 800 1,000 1,200 0 300 600 900 1,200 1,500 Electric power generation in the UES of Russia Electric power generation by the Inter RAO Group Thermal power generation in Russia Thermal power output from collectors by the Inter RAO Group

SHARE OF THE GROUP’S SUPPLY SEGMENT ON THE RUSSIAN MARKET IN 2016–2018 Key legislative initiatives regulating activities on the market: mln kWh •• The deadline for the licensing of energy supply activities has been postponed. •• A law has been passed to develop smart metering systems for electric power. 2 17.7% 1,076,100 •• The Housing Code of the Russian Federation has been amended to establish 2018 191,908 17.4% 1,059,500 a transition to direct contracts with resource supply companies. 2017 184,069 •• The Federal Law “On Advertising” has been amended to restrict advertisements 17.3% 1,054,203 on payment documents for housing and utility services. 2016 182,645

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Volume of electricity supply market in Russia Volume of electricity supply by the Inter RAO Group

1 The thermal power generation forecast is calculated based on the Company’s market share in 2017 2 Including electricity sales on the wholesale market