Blown off course

Norway could be heading for a slowdown, or even an abrupt halt, in wind power expansion amid growing opposition to onshore turbines. 

This week we discuss the growth in green capacity across the Nordics and the potential impact on wholesale prices in the region and beyond. 

Host:

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests:

• Olav Vilnes, Chief Editor, Nordics, Montel,
• Marius Holm Rennesund, Partner, Thema Consulting  Group. 

Transcript

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:05

Hello listeners and welcome to the Montel Weekly podcast, bringing the most topical Energy Matters in an informal setting. My name is Richard Sverrisson, and I'm joined today by my colleague Olav Vilnes, who's Monte's Nordic, chief Editor. Our guest today is Marius Holm Rennesund, analyst and partner at Thema, an Oslo based consultancy. A warm welcome to you, Marius. Thank you very much. Today we return to the issue of wind power in the Nordic region. Quite a sensitive topic at the moment for several reasons. I think we talked about this early in the year, Marius and things have moved on since there. Since then, sorry, there have been several onshore protests in several regions of Norway. What's the current status? Marius.

Marius Holm Rennesund, Partner, Thema Consulting Group: 0:45

There's now also been established a awin across. So, so the opposition has really gained traction over the, the past four or five months. We also seen that where the the regulator published their national framework on wind power, and that sparked even more opposition, and they, in fact had to, to withdraw that framework. So I think it's it's a more difficult situation for wind investors now than it was the last time we talked.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:14

Okay. Even five months ago. Even five months ago, we, we return to the sort of roadmap that was laid out by the regulator a bit later on, but I, I just want to touch on this, this element. So the protests are building, the opposition is building. Does that mean the companies are getting very nervous here? Are are developers pulling out or has it not quite reached out? I mean, there are some big international companies investing in wind in Norway.

Marius Holm Rennesund, Partner, Thema Consulting Group: 1:36

Well, it's difficult to say. I mean, we had kind of a rush to get the projects online before the end low 2021 to, to be able to get our certificates so. Most of those projects, they're, they're still there. They will be built. They've started to build them. Mm-hmm. Uh, so what's interesting is what will happen beyond 2021. We, in our, you know, best, best view also before this opposition came, thought that it would kind of flatten out the investments in, in onshore wind because you see so much coming the next few years, whether players will withdraw. I, I think that's that's an interesting topic to discuss. What we see is that. Some of the regional Norwegian power companies now actually got mandates to invest in wind. Before this this debate sparked. Some of them say that, well, we're a local, uh, utility. We know the area, we know the people. We can handle the public opposition, and we can involve people in a good way. They will still move forward with these projects. Others are, I think, a bit bit of skeptical and more afraid than they were five months ago on the on the foreign developers and, and foreign pension funds companies. There's also a mixed picture, I would guess some of them. Um, have kind of an arm, arm length distance to this. Mm. And, and I guess we'll still see that the resources are very good here. And we'll try to get the best projects and the projects where the opposition is, is less. While others might might be more reluctant to invest here. We have even had some talks about some of the the foreign utilities that they. Have said that they consider selling at some of their assets. Oh, really? The opposition is is so fierce that it has been.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:22

And just to touch on the opposition I mean, is it mere nimbyism or is it more, you know, is these more kind of, uh, environmental groups who are protesting against potentially the danger to, to bird life or, or the way that they look in sort of areas of natural beauty, you know, is that, is that, are those the main areas?

Marius Holm Rennesund, Partner, Thema Consulting Group: 3:41

Yeah, I, I think both of those areas are important, but we see more of a kind of classical local environment nature reserves, et cetera, versus the, the climate issue. So it's you know, the, the opposition things that we spoil un spoiled nature across Norway, well, for foreign investors building wind power that we don't really need. Because we're moving towards a surplus of power and Nordics, of course. Yeah. So I think the fact that most of the investments or most of the owners are now foreign and that most of the power will be exported even though we, we foresee a increase in power demand in, in oil the Nordics. I think that has kind of put an extra push to, uh, push to the opposition.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:23

Okay. So it's the, the nasty foreigners coming in best boying, beautiful Norwegian nature. Yeah.

Marius Holm Rennesund, Partner, Thema Consulting Group: 4:28

So, yeah, that's. That's what we see. And, and that's kind of the most vocal part of the opposition. At least feels that way.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:35

But then of course you've got, if you've got local communities involved or local and regional power companies, then they should be making the point that a lot of the, the, the revenues from this will be, will be pushed back into local services. And, uh, is that point being made strongly as well?

Marius Holm Rennesund, Partner, Thema Consulting Group: 4:51

Well, I, I don't, I don't think the the utilities have been good enough to communicate this, both in terms of taxes that come back to the local community property tax for now. There's also propositions of, of additional taxes in the future, but it's difficult to tax it too hard when it just have reached kind of, uh, maturity and, and being profitable. Mm-hmm. Measured against the power price alone. I think for the for the local utilities and, and investors, it is important to focus on what it in fact gives back to the, the local community.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:26

Yeah. But of course, that's, it's d difficult to get that message across if it's, you know, it's a very motive issue of course, you know, nature and the environment. So it, it's, it's tricky. It's a, it's a very fine balancing act.

Marius Holm Rennesund, Partner, Thema Consulting Group: 5:37

It's, it's a fine balancing act. And, and also the, the kind of. Local near issues and weight that against the the global climate issues. That's also a balancing act and, and difficult for for all involved parties to do.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:52

I think, you know, a, a large part of the protester's anger was against what they perceived as a roadmap. For the the expansion of wind power in Norway by the regulator, the NNVE. What's happened since then? I mean, you, you mentioned that maybe they've backtracked a bit, they've withdrawn that roadmap. Yeah. What, what are the reasons for that? Is that just in light of the local opposition?

Marius Holm Rennesund, Partner, Thema Consulting Group: 6:12

I think that's one important factor, but I also think it's kind of a, a misperception of what that road roadmap was. It was a roadmap. And not a a plan of how much to build and exactly where to build it. I mean, it was 13 different areas that were, uh, deemed most suitable for wind development, both in terms of, of less environmental impact and good wind resources, et cetera. But I think. It has been perceived as we will build as much as we can in these 13 areas. And we had a TV debate just a couple of weeks ago where the host actually continuously was saying that this, in this 13 areas, we will, that we can build 500 TV, VHO new wind power, which is very far from what would happen. It might be technically feasible. But it will never happen economically and you will never get licenses for five, 500 terawatt hours. Yeah. That, that's the power demand of Germany. Yes, exactly. It's, you know, three, three and a half times the power demand on Norway. So, uh, it doesn't make any sense. But of course, for people who don't know the power market that's a number that, that kind of sticks in your head that we will. Build an incredible amount of new wind power that we don't need. And I think that's also been a problem or a challenge with this roadmap to kind of clearly communicate what it is and what it is not. And it is not a plan for how much and exactly where to build them. And it's not a plan saying that you wouldn't. You will automatically get the license if you build in this area. There's also been a challenge in how this roadmap have been communicated. So,

Olav Vilnes, Chief Editor, Nordics, Montel: 7:52

so in a way you could say that the government saw the public reaction to the roadmap, and then they just, instead of backing the NVA roadmap, they just said, okay, we listen to the people and we withdraw this. Yeah. And start to scratch. So in way, you're back to where you were in before.

Marius Holm Rennesund, Partner, Thema Consulting Group: 8:04

Yeah, I think so. Now, I mean, the, the licensing. System they now said will be revised. So that's an important development after this roadmap was published. And in a way they're, they're saying that it wasn't good enough the way it was. And I think one of the reasons for that is it's been, at least in the public opinion, to easy to to change the layout and the height of of wind towers and wind farms. After you got the license. So many have been surprised. What was agreed when the license were issued was a tower height that was far less than what you actually has been realized. So that has been, been one issue with this. Uh, but yes, they've, they've, they've gone back to basically, uh, the system we had before. You can build all across Norway as long as you get a

Olav Vilnes, Chief Editor, Nordics, Montel: 8:52

license. You, you just presented a long term study where you looked at the potential for. Reducing or if there is a full stop of handing out new licenses to Norwegian Wind Farms. What kind of an impact do you think this new policy environment political environment have for the future of wind power projects in Norway?

Marius Holm Rennesund, Partner, Thema Consulting Group: 9:09

We, we basically run three different scenarios. I. Concerning this wind onshore wind development. And we looked at one case where we actually stopped all wind investments in Norway beyond what has now reached a final investment decision. And of course, if you don't get any other investments, if it's not replaced by other capacity you will have an a power price effect of roughly two euros per megawatts. So it's not huge, but of course it's some. One of the reasons it's not that big is that we also, in our best guess case, expect less wind investments after 2021, when, when the kind of push for getting L certificates are gone is gone. And if it's replaced by either offshore wind or maybe onshore wind in in Sweden, or a combination of that. The price effect will be be less around one euro per megawatts. We also compare that to not our best guess case, but a case where you can invest anywhere, not only in those 13 areas, but across Norway and you get the price effect of roughly three euros per per megawatts. So there's definitely an effect, but it's not that big. And the reason for that is that it's so much wind capacity coming online in Norway over the next year. Year and a half. Yes, it'll definitely have an effect, but it's most likely that it will be replaced partly by wind elsewhere in the Nordics in Sweden, where the opposition is rowing there as well. But it's much less than, than what we see in Norway. And it would also. Most likely see more gas fired power production in, in Germany and, and Northern Europe to, to replace some of that wind that would otherwise come

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:48

in from Norway. Yeah, yeah. Yeah. And what, what, you mentioned Sweden here, marris. I mean, it, it's interesting here. Do you think, and opposition is growing there, are they looking to what's happening in, in Norway, both the opposition and the companies that are developing and the developers may be getting a bit nervous, opposition growing. I mean, what's happening both in Sweden and in Finland?

Marius Holm Rennesund, Partner, Thema Consulting Group: 11:08

Well, I, I think we see some growth in the opposition in Sweden, but Sweden is in a very different situation than way, first of all, they've got a gradual build out since 2003 or wind in Norway. You didn't get much capacity coming online before, you know, the last 18 months or so. So they're more used to this development. They're more used to seeing wind farms and it's a more central, well, people live more centralized. In, in Sweden, so it's less people living where the wind farms in fact are built. So that's also a factor. But we, and of course

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:43

it's

Marius Holm Rennesund, Partner, Thema Consulting Group: 11:43

not as beautiful as nor way, of course it's not. Yes, I think we might see some more resistance also in Sweden. But, but my, you know, best guess is that some of that capacity that. Maybe not will be built in Norway, would be built in in Sweden instead. And that some of the foreign investors will look more to Sweden now than, than just five

Olav Vilnes, Chief Editor, Nordics, Montel: 12:06

months ago. A main driver in Sweden has of course been the Alki, which came early on in Sweden. It came in early two thousands, and then Norway. Joined the market in 2012. But now the last week, the Swedish Energy Minister, he said that Sweden may end the scheme already in 2021. Yeah. Which is the previous plan was to end stopping subsidies in 2030. Yeah. Do you think his statements, what do you make of them? Will they sort of. Could that put a break even to the Swedish development, or is the price of Eler too low for that?

Marius Holm Rennesund, Partner, Thema Consulting Group: 12:32

Yeah, I, I think the price of Eler is too low and even though if you stop it in 2021, you will get an over capacity in that market and, and very low prices. So our advice to any investor over the last I. Two years has been to look upon the L cer as a nice add-on but not put it into your to your calculations on those, on this project. It's too uncertain. And, and prices will go down whether they close it in 2021 or 2030.

Olav Vilnes, Chief Editor, Nordics, Montel: 12:58

Because now it's like sac 30 megawatt hour or something like three euros per megawatt hour. Yeah. Maximum.

Marius Holm Rennesund, Partner, Thema Consulting Group: 13:03

Yeah. And it would, it will be approach zero. Probably not go to zero.'cause there are some costs associated with, with trading them and having the system up and running. And that's also one of the reasons that the Swedish minister would like to, to end it early. Because. Basically, eventually the prices will be so low that, that it's just the cost of having the system going. But I think the investors have seen this for, for quite some time and, and with the cost development for onshore wind which has fallen significantly over the last years and the increased power prices you see now with the CO2 price at 25. And the CO2 market that works. Again I think that's sufficient to, to lead to more wind investments in Sweden.

Olav Vilnes, Chief Editor, Nordics, Montel: 13:48

There is also a, a tricky thing there politically between nor wind Sweden, because as the Norwegian energy ministry, he just told us this week that he would not accept the earliest cloud in Sweden. If it leads to higher altered prices for Norwegian customers. You sense a conflict there or would sort of stop any. Reforms.

Marius Holm Rennesund, Partner, Thema Consulting Group: 14:03

Yeah, it might stop the reform, but again, I don't think he should be too concerned with higher l certificate prices. With an early closure, there are some proposals where you have an early closure and also stop awarding certificates when you reach the 696 million, which is what is stated in the law. That should be issued. If you do that, you might maintain higher prices for some more years. And I think that's the only option where you do in fact, not get an L certificate price going to zero, very close to zero or the next couple of years.

Olav Vilnes, Chief Editor, Nordics, Montel: 14:38

And the bottom of the line is that. The, this joint, Norwegian, Swedish target for 2030 will be reached already now in 20 20, 21. Yes,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:46

exactly. I think one of the key elements in the whole picture, Maurice, isn't it, that you know, the, the prices for building on s she wind, uh, have, you know, tumbled massively. You've got higher power prices. You've got then the, the, you know, partly due to higher CO2 prices, this obviously makes the, the case for building subsidy free renewables, you know, very clear. Yeah. And and instead of looking at the subsidies ways, I mean, then you have the big. PPA market. But at the same time, you'd think with all the environment that the PPA market would still be booming, but it seems to have called off a bit in the Nordics. Is that something you'd share and what, what are the reasons for that? Or is it just a temporary blip?

Marius Holm Rennesund, Partner, Thema Consulting Group: 15:22

That's difficult to say. I mean, some of the larger industrial players, at least in Norway, have now bought what they need for the coming years. But I think there's. Still a number of industries in Sweden where we haven't seen that much of new PPAs being completed over the, over the last few years where there's still a market. And I, I think we also will see different designs of PPAs, maybe more short term PPAs. Maybe more. Pooling of smaller industrial customers to one large PPA. I mean, there's many ways to structure it and, and for the right trailer here, there's, uh, an

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:57

opportunity. But is there, is there a disconnect? Because the, you know, maybe some of the developers want shorter term deals, but the customers would want that price security in the long term, 10, 12 years. You know, is, is, is that an issue here?

Marius Holm Rennesund, Partner, Thema Consulting Group: 16:12

It could be. I mean, it depends on the off-taker. Some are happy with the 5, 6, 7 years. The large aluminum players would like, you know, 50 and 20, so, so there might be a discrepancy there, but, but I think it's, it's possible to overcome that and being actually able to make more deals. I think. One important factor here is that we've had a lot, well, all PPAs almost that's come over the, the last three years has been connected to a specific wind farm and there's a lot of new theme farms now coming online and everybody wants to have a PPA because it's German pension funds staying, being the owners, and they have a lower or can live with a lower expected return. But in order to do so, they need some security. And a PPA serves that security and it's a buyer's market because you have so many new projects coming online. And a number of them say that, well, they won't make money on the PPA. What they will make money on is the period beyond the PPA horizon. So in that way, maybe some of them would like a shorter duration of the PPA as well. Okay. So, and to have more market exposure from year. 7, 8, 9, 10,

Olav Vilnes, Chief Editor, Nordics, Montel: 17:21

so, Hmm. Yeah, there's a discrepancy there it seems, between the prices in the wholesale market and what the analysts expect. Yeah. But in general, you have a higher expectation among most analysts than you see in the market.

Marius Holm Rennesund, Partner, Thema Consulting Group: 17:33

Yeah, I think that's something we've seen over the past years. I mean, it's difficult to, to explain that difference. We can of course explain why we end up with those prices we do and, and the other analysts can as well. But the market doesn't seem to to agree with us. We've been a few euros above the forward market for quite some time. On the other hand going beyond the three years ahead, the liquidity hasn't been very. Good at the financial market. So whether that's a good reference or not can, can of course be discussed.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:01

Sure. But if I understood, understand you correctly, Mari, I think you would, you know, there's, there's gonna be a variety of deals, type of deals out there. Probably growing in complexity. Yeah. Um, with different, you know, it could, like you have the, you know, the pooling similar to maybe the, the finish model with nuclear power, you know, that these could sort of grow and grow. So it's far from slowing. It could, it is just taking different shapes and, and you, you expect it to, to continue

Marius Holm Rennesund, Partner, Thema Consulting Group: 18:26

to grow. Yeah, we do. And it, it takes some time to come up with new models and new ways of doing this. You know, the straightforward deals maybe has been done now for many of the larger customers, but, but there's still room for more. And it also depends on, on the demand growth. Do you, will we see a lot of new data centers coming in that will lead to even more PPAs. And other sectors as well. So, so, you know, what you expect in terms of increased demand will also be important

Olav Vilnes, Chief Editor, Nordics, Montel: 18:53

if you return to the wind issue. Uh, if, if you, you mentioned offshore wind. There's also been a debate in Norway, even in Sweden. Yeah. On, on, on, on expanding offshore. Do you think, do you see more of the new production coming? There instead of onshore

Marius Holm Rennesund, Partner, Thema Consulting Group: 19:05

Across Europe, we see more onshore wind coming online. If you look at Norway or the Nordics we can see some developments in, in the Baltic Sea, but it will be take some time before it's actually profitable. I think often Norwegian calls, it's so deep, so we would have to look at floating wind, which is more expensive. So. If we are to see much more offshore wind development, there subsidies are, are necessary. Mm-hmm. Yeah. What's the price difference today between floating and offshore? Is it, is it very big or, yeah, it's, it's definitely big, uh, onshore is now not a mature technology, but more mature technology. Uh, and you see that when you, when you look at the auctions in Germany, the Netherlands, Denmark, for large offshore wind farms, they often bid zero. A zero subsidy. That doesn't mean they don't get the subsidy because there's some implicit subsidies with, with free grid connections, et cetera. But still, I mean, it, it's now reaching profitability without subsidies and, and you would need a significant subsidies offshoring in

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:10

Norway for floating. But I think, do you think there's a, generally there's a sense of saturation of onshore wind in, in some areas we're seeing it slowing down. Quite a lot in Germany. Is this something that, you know, you, you, as you, you've got the NIMBY issue in Norway of course, but people don't want these, these massive turbines close to their homes and Yeah,

Marius Holm Rennesund, Partner, Thema Consulting Group: 20:30

yeah. I think we see that in Germany as well, and there's eventually there will be some kind of limitation also on the, on the land and then in the areas you can actually build. So I think. That might lead to offshore wind being more necessary. But I think that will be driven by other factors than, than the pure cost. We see that with the opposition in Norway. We see that it sparked a bit debate about onshore, everybody offshore. Everybody wants offshore now, but they, I. Don't have a feeling for how much it will cost. And if you are to subsidize that, I think you, you do it not to to get necessary investments to meet the demand. It's more building offshore wind sector in Norway that could also be exporting techno floating offshore wind sector in Norway. That could also be exporting the technology across Europe and building a home market in, in such a setting might be important.

Olav Vilnes, Chief Editor, Nordics, Montel: 21:23

And of course there are some political drivers as well. If you look at the targets now, Denmark will have a seventies. Percent emissions gap by 23rd. Finland will have claim to be a renewable carbon neutral by 2035. Yep. And then you have the Norwegian project of, of electrifying petroleum installations in North Sea Transport and so forth. But is then that the, is there a case then for perhaps just to more with the hydropower you already have? Does it. Great. It's a good potential there to, to even boost hydropower

Marius Holm Rennesund, Partner, Thema Consulting Group: 21:48

output. But I think also there, there are some misperception, I mean, there's a report out saying that there's a potential in upgrades of 30 40 TVH. We've gone through that report in detail and it's basically based on a master study with very limited data going into it. So we think that that potential is far less a T five TVH potential. Is more likely if you look at what has happened over the last few years where you have actually upgraded 50% of the Norwegian hydropower and received those five TVH and, and, you know, there's probably a potential for, for the equal amount on the, the next or the last 50% that could be upgraded. That's far from enough to, to offset, uh, what you could have gotten in, in onshore wind. But of course a combination of some offshore wind, some upgrades in hydropower, maybe some more small scale hydropower. Although with the, the tax report that came out a few weeks ago, the world looks a little bit more bleach for them. But I think we will get the combination of, of all these technologies and probably also some offshore wind also in Norway, but, but not in the near future. That will come in in the thirties.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 23:01

So I think, um, if I were to sum up, I'd say, you know, there's still a lot of potential for onshore. Mainly for onshore, little bit for offshore. Yeah. But we're looking at, you know, wind being the big driver here in terms of generation capacity. Yeah. And the impact on prices going forward. So I think that's all about, that's about all from me, so, thank you very much, Marius. Thank you. And thank you all of, so. Listeners, please keep up to date with all the, the latest energy stories on Montel News and follow us on Twitter and LinkedIn and you can subscribe on Apple Podcasts and Spotify. Thank you. Goodbye.