Additionality and Cannibalisation

The Nordic region has huge potential for the further expansion of renewable energy as more and more companies seek to procure new or “additional” green energy.

Listen to a discussion on the current trends in PPAs and the risks of “cannibalisation”.

Host: 

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

Guests: 

• Mia Bodin, Head of Analysis, Bodecker Partners
• Paul Orstavik, Lead Originator, Renewable Energy Solutions, Kinect Energy

Transcript

Anna Siwecka, freelance journalist/podcaster: 0:01

How do you mitigate your risk's? Forecasting services cover risks from hours ahead to years ahead. We welcome you to hedge your market exposure with our diverse forecasting portfolio. Contact us at sales@motelnews.com for more info and a free trial.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:29

Hello listeners and welcome to the Montel Weekly podcast, bring Energy Matters in an informal setting. Today we are returning to subjects that will be familiar to many of you, the expansion of renewables in the Nordic region and the financing of green. In particular, we will delve into power purchase agreements or PPAs as they're more commonly known and focus on current trends, what's new, what's hot and what's not. So joining me, Richard Sverrisson, to discuss this are two leading Scandinavian experts in this field. Mia Bodin of Bodecker Partners and Paul Orstavik of Kinect Energy. A warm welcome to you, Mia and Paul. How is life for you guys in this COVID pandemic? How are you dealing with this professionally and personally?

Mia Bodin, Head of Analysis, Bodecker Partners: 1:14

I think from our side in Sweden, we've had less restrictions than many other countries, so probably a little bit easier for us to live our lives. Not normally, but at least a little bit more normal than in other countries. Doing pretty well all friends and family well, so very thankful for that. And work is ongoing as not as usual, but pretty good. At least.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:33

That's good to hear. And you Paul?

Paul Orstavik, Lead Originator, Renewable Energy Solutions, Kinect Energy: 1:34

Most of the same, but what I can say is that we at will connect work with a, so to say, an international team. So we are all based in different locations anyway. Of working and not see each other in person. It's not such a big difference. It's more not saying my other colleagues are hard, but it's not been so much of a difference. Working from home works.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:59

Good to hear Paul, but what does this mean in terms of the PPA market Mia? How has the COVID pandemic affected deals and the pipeline? How do you view that?

Mia Bodin, Head of Analysis, Bodecker Partners: 2:08

I wouldn't say so much actually. The PPA market and especially the the wind. Power build out market has of course been affected last year, but that was mostly due to the low power prices and weather. Then COVID-19. There were of course, some delays in the build out due to workers not being able to come to the sites and so on. But not so much affected actually on the PPA market. I can't really see. Any big differences due to that. So I think the power market and what's happened there has a much larger impact than than COVID from my view.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:40

How do you view the developments in 2021, Paul?

Paul Orstavik, Lead Originator, Renewable Energy Solutions, Kinect Energy: 2:43

In 2021? I think what we saw in 2020, if I go back to that is sure the lower power prices and lower demand that we had all over Europe. But what we also saw that coincide with that low demand was a very healthy wind year last year especially March, April. So we saw kind like a window into the future when we have a lot more renewables onto the grid or meeting demand. Not only that, power prices were depressed, but also the capture prices of that wind. So to say, a lot lower than what we've seen before. And also we saw instances of negative prices also up here in the Nordics. That was not only because of the wind, but also because of the very healthy hydro situation coming on top of that. But what we see is that when we get more renewable energy. Into the market that has a canalization effect on the existing renewables that are in there. So capture prices are definitely a kind of like a hot topic and we see like how that will play out towards the end of the, so to say 2020 we, what we saw in 2020. In 2021, what we see is that power prices rise dramatically upwards. Again, and that's mainly on the back of, I would say carbon prices just doubling. Also very European. So in a carbon heavy market over the terminal generation market, which are carbon intensity, that's where the prices rise the most, and that's going to be favorable for renewable energies going forward. So that's absolutely very much payable for renewables and for PPAs going forward. Then for the ones that have. Been clever enough to already find them.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:33

Mia, is this how you view it as well? If you could just say a few words about your outlook for power prices this year in the coming years, and is this cannibalization of the assets or the prices even? Is that an issue? When we talk about cannibalization I think we're talking about when. Everything's producing at once, then they the prices are lower. Exactly. Those listeners who may not be familiar with that term,

Mia Bodin, Head of Analysis, Bodecker Partners: 4:51

I completely agree that is becoming a big issue, especially for for wind power placed in the northern parts in C one and C two and in those parts in Norway as well, where there's a lot of wind production. That is definitely an issue and that has also affected the PPA price. And I think when we talk about PPAs, it's quite important to differ between the utility PPAs and the corporate PPAs. So if we talk about the utility PPAs, the PPAs so the agreements made between power producer and balancing responsible party or indirect consumer, that has been much affected by the power prices because they are normally market based and also cannibalization or risks of cannibalization and price area differences are included in the prices. They have been extremely low end of last year have gone up a little bit, but in the north of Sweden are still very low and far too low for wind power producers to, to be able to accept them or they are lower than the actual costs for building renewables. That makes it difficult for utility PPAs to be entered with parks in the north of Sweden at least. And I think that's also why we've seen a lot fewer of those kind of PPAs both end of last year and also beginning of this year. We did have expo, for example, announcing then with the PPA with two wind parks here, and I think it was this earlier this week or maybe end of last week, but that was in C3. So that's in, in the southern parts of Sweden where cannibalization is viewed as less of a risk. So it's still harder for it to happen in the north. But looking at corporate ppa, it's, that has not been so affected and is not so affected by the lower power prices. Those are more based on, costs of building wind or solar and what the off-take is willing to pay and what they are willing to pay is more dependent on long-term historical prices and what they believe in the future looking at for costs and so on, more than actual prices at the moment.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:38

Absolutely. Do you have a view, Paul was talking about the rebound in wholesale prices, in line also. With higher carbon prices, what's your view here in the short to medium term for the Nordic region?

Mia Bodin, Head of Analysis, Bodecker Partners: 6:49

The higher carbon prices is not just a, an uptick a temporary uptick that is probably there to hold. There's a lot going on in the EU there, so I don't think we'll see much lower prices from that side. Definitely a better year, the last year. S definitely what we hope for, but it's a little bit too early. The hydraulic balance is still high, so that's of course still there will be for the next few years. Our view is there will still be a risk for pretty depressed prices from now. And then there's a continued very high build out of of renewables. In, in both in Sweden and in Norway also this year and in Sweden also. The coming years. It's better at the moment and carbon will definitely help, but still not safe for the next few years.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:27

What's your view here, Paul? You, we talked a little bit about Northern Sweden and the effect that, high renewables rollout is having there and on the area. Prices in Northern Sweden. Can you say, give some indication what's happening in Norway and the rest of the Nordics as you view it?

Paul Orstavik, Lead Originator, Renewable Energy Solutions, Kinect Energy: 7:40

What we say is carbon prices would mainly affect a carbon intensive, so to say, grid, which is not so much so in Norway and Sweden as the renewable part or share is so high anyway, rather look at the finished prices or Danish prices and see. More of a favorable conditions there and call it Danish prices affect, so to say, Southern Swedish prices as well. But they are going to be higher. In northern Sweden, there has always been, so to say, a surplus of energy production and demand that hasn't really been there. And then you have to have grid connections out of that region to build out new grid connections. Just takes time. And it's a political long term, so to say, process. And politicians are rather not the fastest persons, at least when it comes to expanding or renewing grids. But what we see in Northern Sweden is a massive outfield of potential, so to say, demand. So you have North fault and that battery factory, you have the data centers up in the north of Sweden. You now have the potential, so to say, green steel production sites coming in there, which is then going to. Really push demand up again. So it levels itself out at least in some kind of way.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:57

For you then, Paul, have there any been any kind of standout deals or could you talk about any sort of key trends that you've seen within the PPA sector in the last sort of a year, 18 months maybe?

Paul Orstavik, Lead Originator, Renewable Energy Solutions, Kinect Energy: 9:08

I think you have the Nordics and Norway, Sweden, Finland. What's special about all those three countries are that the wind parks that are being built are rather large. So when a deal happens, it's a large deal. Also, one of the reasons why there are so many wind parks being built because they can scale it to that extent. What I see is there's a lot of activity happening in Finland, a lot of deals happening in Finland. We have seen in Denmark deals that are shorter and they're also connect for solar and. We've also seen solar deals in Sweden, so that's some of the things B. So to see the types of PPAs and how they're being done are pretty much the same as always. But what we've seen also is new definitions of what is a PPA and new. So to say, more clever structures so that you sell ppa more so to say the power is from the grid, but you couple it up with your production portfolio and goos from here and there. So that's some new deals. I think what we've also seen, kind like we've obviously from Germany now is from the post EEG or the 20 plus year wind farms that runs out of subsidy that we see very short term EPA deals. But then again. Is that what we talk about when we talk about the ppa? Because then it comes down to the definition. Is it adding new renewables or are you as a corporate adding or healthy PPA be a bankable PA so that it gets built and that's then not the case. What we also seen is more, or something that we hadn't really seen much of in Europe till now is. Virtual PPAs. So we've seen quite some virtual PPAs, not so much maybe in the Nordics, but also some in the Nordics, but mostly then out of Spain.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:00

Very interesting. I think before, 'cause I'd like to turn to you mi and talked about the issue of additionality or new products versus old established ones, but. Before I go into that topic, could you also give your view on current trends or any sort of standouts for you that you've any sort of deals of that have surprised you or made you think, wow. Yeah, that's that's interesting.

Mia Bodin, Head of Analysis, Bodecker Partners: 11:18

Not really one or two deals specifically that, that stands out. Maybe. I agree with Paul. There's a bigger variety. I think that is one trend. We definitely, we can note on timing everything from. In Sweden at least five years to 15 years. Also smaller volumes coming in with. Had, of course the Google and no kiro and the larger ones for many years. But we've also seen now coming from solar also in Sweden and down to 40 gigawatt hours a year also from wind power. So it's I think the smaller p corporate PPAs are coming and maybe solar is leading the way a little bit there. And if you've done with solar. It's faster. It can be up and running within a couple of years, but learning how the PPA market works and spreading, and that can also spread to PPAs for smaller wind parks. So that's definitely one trend and also more sectors coming in. We've seen local municipalities being interested, real estate, smaller industries, and maybe turning to solar first and also interested in continuing with wind afterwards. And as I said before, the corporate PPAs being overtaking the utility ppa, so more corporate PPAs being done than utility PPAs. Maybe the volumes are larger when it comes to utility, but that's, if you count the number of them, we see that is coming more, maybe not completely related to PPAs, but more on the wind power and then indirectly right into PPAs, at least in Sweden. The attitude I think has. Changed a little bit starting end of last year, beginning of this year towards a bit more positive attitude to wind power build out and to PPAs in, in general, probably related to all the industry announcements of. Industry electrification and that they've shown that we need a lot of wind power and a lot of not only wind, solar, all renewable. We need a lot of renewable power in Sweden and that will draw industries to the country and that it'll help industry reducing their carbon footprints. So I think that has that trend is we start to see, and that will also make it more positive for corporates to enter into PPAs. We've had. Some discussions with corporates who have been previously a little bit hesitant to. Because of they are un unsure that it's only positive, so that it may be seen as not as good in, in a few years. We've had a lot of discussions in Sweden on on the capacity effects and yeah, the nuclear debate and all that. And PPAs has been seen they are worried that PPAs that entering into PA may not only be good, but I think that is changing a little bit and I think that is very good for this year, going this year.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:52

I think, Paul touched on it as well, the concept of additionality is gonna be maybe more, more important for the companies that you mentioned amia. Yeah. When we say additionality, that is, companies want to be seen to be building new plants, new renewable capacity, rather than having deals with older, established units. But is additionality as such outdated as a concept? Should we be thinking more about environmental and social corporate governance? Is that. Coming more, also ESG for short. Another abbreviation for this market. But is that becoming more important, do you think for corporates?

Mia Bodin, Head of Analysis, Bodecker Partners: 14:23

I wouldn't say additional is outdated yet, at least, definitely not. That is one of the very important criteria. And we are currently performing a tender for liquid wind, for example, that will produce e methanol also in the, for the transport sector. I think transport sector may be going a little bit in the forefront here, and because they will put in quite clear criteria on what is needed for the. In energy supplied to actually be called green. So for them to say this is green fuel, what is needed on the renewables there, and additionality is not only one thing mentioned there that it has to contribute to new power, but we also have the geography should it be. From a wind park or solar park nearby. The actual production of the fuel or the steel or whatever the final output it, we have the timing issue that is becoming more and more important. So the matching 24 hour matching or matching on a monthly basis and tracking. And that is also becoming more, more important. And we can see that from the GO market, for example, from France implementing this monthly. Matching that production has to be that, that the geos have to be issued the same month as the consumption is taking place. So that will prob probably spread to other countries and also implement the what you want within a PPA. So no additionality, definitely not outdated, but more issues are there. We've also had discussions with. With corporates when tendering for PPA of, for example, local compensation, that they should be valued higher if it comes from a wind park. You have provided some kind of compensation to the people living in the area. Also with the permitting. What kind of, and the whole value chain of the wind parks to value higher if you have a carbon red, as little carbon footprint as possible in the whole value chain. But it's still in a searching phase and very uncertain. And they don't really know what they are looking for yet. And we don't really know what to value highest. It's, it's I think that will be set in the next years or from the eu, but also nationally. What will be most important. So not very clear, but a lot of different issues playing a role.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:24

Absolutely. And that will probably play a much larger role, as you said in the years to come. Paul, is this environmental and social corporate governance and social responsibilities that becoming more important for corporates of some companies. How is that having an impact on the PPA and geo market markets even?

Paul Orstavik, Lead Originator, Renewable Energy Solutions, Kinect Energy: 16:42

I think the whole yes, G subject is becoming more and more important for corporates, but that encompasses so much. So that's the whole, so to say, the whole scope. When we talk about then environment, then we talk about the scope one, two, and three emissions. And when we talk about the PPA, we mostly talking about the scope two emissions. So the emissions from the energy that is, or electricity that's being bought in. But when we do, so to say screen possible or projects or PPA sellers towards our corporate customers, one of the most important things is also that project is very much a ESG project. So not only that, it's renewable, but also that the project developer. Like adheres to all ESG, so to say, things that the corporate ones say so that it adheres to also the sustainable code of contact of the com corporates that we that we talk to when we also talk about additionality. If I go back to that, that still, so to say, it has to be one of the most important things still because with. The green deal or with what are aiming for. The goal is in 2030 now to become, so to say, almost green. Then we need new renewables. And to get new renewables, we need additional new renewables so that should be. A very important aspect.

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

In recent months, we've seen some very bullish forecasts from analysts and from TSOs regarding Nordic power demand from 2030 onwards. What's your view here, Mia?

Mia Bodin, Head of Analysis, Bodecker Partners: 18:31

It's very interesting reports and extremely difficult to say what will become reality and and not the latest reports from the TSO report on how to what is needed to reach. Agreed climate targets was very bullish as you said, and I think we have seen some concrete plants of it as well from, as you said, the a h two steel. Hydrogen factories being built both in Norway and Sweden and the other Nordic countries and also with the hybrid and maybe the most of it will happen after 2030, so more towards 2040. So I think. Before 2030, we'll definitely see an increase, but the absolute largest parts will probably come after that. But yeah, Sweden has also now proposals to, to plan for double consumption to 2045. And that's that is very different compared to what it looked like only a year ago. Definitely things are happening here that will have a major impact on on the whole energy market in the Nordics. And, maybe a little bit the last could be a little bit too bullish for the UN until 2030. Most will probably come afterwards, but yeah, de definitely a lot is happening.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:36

I know that Boka partners have looked into the potential for offshore wind in sun Sweden. Is that something, you see as feasible? Mia?

Mia Bodin, Head of Analysis, Bodecker Partners: 19:44

Yeah, we haven't been doing any, big analysis on exactly the offshore wind, but looking at the more the overall potential. But yeah, there's a high potential in the Southern Sweden. And as I said before, the attitude, the political attitude and also the attitude among Swedish people in general is changing. And that's very important for that to actually happen as well. And I think also the discussions between the defense area because they, they have a lot of areas, the the military areas and the Environmental Protection Agency, energy Agency, they are discussing a lot more now and have the same view now than they had before. And also the government and most political parties have. Realize that wind power is very much needed and especially in the south of Sweden. There's a lot of potential and attitude is changing to towards a bit more, a lot more positive. There's a lot planned here and that's definitely something we see. Then of course it's not something that will happen as solar within the next two years. It'll take time. And unfortunately the biggest problems we have now between, with the difference between the north and south is before the interconnections are built and they are being built. And the offshore will also take time. Yeah, we would need something quicker. But that's the way it is. But very much potential for offshore.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:57

How about Norway, Paul, I know that, there's very vocal opposition to onshore wind, which seems to be growing in certain certain parts of the country. But what about offshore wind? Is that is there much potential for you or is, are costs still far too prohibitive?

Paul Orstavik, Lead Originator, Renewable Energy Solutions, Kinect Energy: 21:10

The Norwegian coast is so to say, it goes deep and it's deep, so you can't have, so you need floating for most of the coastal areas. So that's still in the development phases, but that's being developed and it will come, but it's a bit down the road and for what they might have. Offshore not floating, maybe in, in the south and southern park between Norway and Denmark. I think we have some areas there that are being looked at to be built out. It's a little bit shallow water, at least. I dunno. Yeah, and that's definitely, but what there again then, so to say, offshore wind will have to compete with oil installations and Norway is just driven by oil and the oil lobby. So now that the wind sector has gained the oil loist, so to say, or they've actually jumped on board, then will mean that I think we will see a build out very soon. So all the oil companies and oil technology companies, oil service companies are now. Very much into the offshore wind and starting up there a little bit late, but it's coming

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:21

so very bright prospects for offshore wind in both Norway and Sweden. Mia, thank you very much for joining the Monte podcast today and also to you Paul, a big thanks. Listeners, you can now follow the podcast on our own Twitter account at ly named the Montel Weekly podcast. Please direct message any suggestions. Questions or, let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montenews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify, or wherever you get your podcasts from. Thank you and goodbye.