MERCER INTERNATIONAL INC.

General

Our pulp mills are large-scale bio-refineries that, in addition to pulp, also produce surplus “carbon neutral” or green energy. As part of the pulp production process, our mills generate green energy using carbon neutral biofuels such as black liquor and wood waste in a cogeneration process. Through the incineration of biofuels in the recovery and power boilers, our mills produce sufficient steam to cover all of our steam requirements and allow us to produce surplus electricity, which we sell to third-party utilities or into the regional electricity market. Our Friesau mill and Torgau facility also generate and sell green energy produced from their biomass cogeneration power plants. As a result, we have benefited from green energy legislation, incentives and commercialization that have developed over the last decades in Europe and Canada along with strong electricity prices. In addition, in recent years we have applied considerable resources to increasing our capacity to produce and sell chemicals, primarily tall oil for use in numerous applications including biofuels.

Our surplus energy and chemical sales provide us with a stable revenue source unrelated to pulp or lumber prices. Since our energy and chemical production are by-products of our production processes, there are minimal incremental costs resulting in our surplus energy and chemical sales being highly profitable. We believe that this revenue source gives our operations a competitive advantage over other older mills or facilities which do not have the equipment or capacity to produce and/or sell surplus power and/or chemicals in a meaningful amount.

The following chart sets out our electricity generation and surplus electricity sales for the periods indicated:

Electricity Generation and Exports(1)

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(2)

Includes results of the Torgau facility since September 30, 2022.

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The following chart sets out our consolidated revenues from electricity and chemical sales for the periods indicated:

Energy and Chemical Revenue(1)

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(2)

Includes results of the Torgau facility since September 30, 2022.

Germany

Our Friesau mill and Torgau facility have the option to sell their surplus electricity at special regulated rates under the Renewable Energy Act. The special regulated rates expire in 2029 for our Friesau mill and between 2029 and 2034 for the four cogeneration power plants at our Torgau facility.

In 2025, our German pulp mills sold energy at market prices while our Friesau mill and Torgau facility primarily sold energy at their special regulated rates which were generally higher than market prices.

In 2025, energy sales at our German mills were approximately $80.5 million or 724,623 MWh.

In connection with our focus on the growing bio-energy market, we sell tall oil, a by-product of our pulp production process, which is used as both a chemical additive and as a green energy source. In 2025, we generated approximately $12.3 million from the sale of tall oil and other chemicals from our pulp segment.

Canada

Our Celgar mill is party to an electricity sales agreement with the provincial energy utility for a ten-year term that expires in October 2030. Pursuant to the agreement, the mill agreed to supply a maximum of approximately 127,000 MWh of surplus electrical energy annually to the utility.

Our Peace River mill sells its surplus electricity into the Alberta market at market prices.

In 2025, energy sales at our Canadian mills were approximately $8.0 million or 131,292 MWh.

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Production Costs