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Scandinavian wind without subsidies?

For nearly a decade, Sweden and Norway have shared the green certificate subsidy system to promote renewable energy development. Simplified, the scheme works so that an owner of a renewable energy project receives certificates as additional income for each MWh of produced energy with the cost paid by consumers. So let’s take a look at whether it’s working…

The system has been very successful in supporting the Swedish and Norwegian wind industry to grow from very small to become a multi-billion Euro industry. At the same time, the value of the subsidy, i.e. of each certificate, has fallen significantly over the period the system has been active – from about 25 EUR/MWh in 2010 to 6 EUR/MWh in 2017.

The significant drop in value of the certificates, combined with a steady decline of electricity prices in the two nations, has caused many wind projects that were built in the early 2010s to suffer from financial difficulties. There is, however, a silver lining: the lowered income has caused developers to work hard to push the costs down to construct and operate their projects. Today, the costs have fallen to 30-35 EUR/MWh for the best projects in Sweden and Norway, which makes them much less dependent on the subsidies compared to only a few years ago.

The approach was different in Finland, where a feed-in-tariff system was in place until the end of 2017. In that system, the owner of a wind farm was paid 83.5 EUR/MWh – about 2-3 times more than what the best projects in Sweden and Norway have cost to build recently. Needless to say, this system did not help push the construction costs down, but quite the opposite. After the system in Finland ended, a new technology neutral auction-based system for 1.4 TWh has been introduced. However, despite the presence of this new auction system, subsidies aren’t necessary for the development of wind power to continue in Finland. A good example of this materialized in October this year when OX2, together with IKEA, announced they will build the Nordic’s largest subsidy-free wind farm in Finland, coming online in 2020.

Investments in Sweden

In 2012, Sweden and Norway set targets of 28.4TWh by 2020. Five years later, Sweden decided to extend the ambitions to 2030 and add an additional 18TWh. They’re already set to meet that this year, a whole 12 years before target. This is largely due to a record high investment pace during Q3 in Sweden with 400MW+ in investment decisions made. Now, less than 1.5TWh remains towards reaching the target and by the end of the year, the electricity certificate system is expected be fully filled up, if investment decisions made are taken into account.

Does this mean the investments in wind energy will end? Considering the fact that the cost of energy for the best projects have come down to a level where they could be realized solely based on electricity price, or price received through corporate PPAs which have become much more common in Scandinavia over the last 4-5 years, then it is fair to bet on that investments will continue, even without a subsidy scheme in place. Foreign financial investors have flooded into the Nordic energy market. Many of these investors – such as Aquila (who won the Swedish Wind Association’s renewable energy award 2018), BlackRock, KGAL, and many more – have declared the Nordics a highly interesting market to invest in. This is largely due to the fundamentally good wind resources, large project sizes and thereby a low cost of energy and a politically stable environment. So it’s not farfetched to imagine that investors like these will continue to contribute to the growth of the wind energy industry in the Nordics, with or without subsidies.

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