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Wind Farm Investment Plunges With Power Prices in Nordic Region

Anna Hirtenstein Rachel Morison, Bloomberg

Investors are pulling back from wind farms in Nordic nations as the lowest electricity prices in 12 years cut the profitability of new projects.

No wind farms were commissioned in Sweden in the second quarter, compared to 50 megawatts in the same period a year earlier, according to the nation’s wind association. Investment in utility-scale Nordic wind assets fell 76 percent to $1.2 billion in the three years through 2014, according to data from Bloomberg New Energy Finance.

“The low purchase price for power is worrying,” Thomas Wrangdahl, first vice-president and head of lending at the Nordic Investment Bank, said in a telephone interview. “We are seeing less investments in new power production in the market, particularly in the wind industry, and we believe that it’s linked to the low prices.”

The Nordic region has the lowest electricity prices in Europe and some of the highest reliance on renewables. The next-quarter contract, a benchmark, slumped 33 percent in the past year, according to data from Nasdaq Commodities exchange in Oslo. Prices dropped to the lowest for at least 12 years in June as wet weather boosted hydropower reserves.

The Nordics were early adopters of renewable technologies, creating the biggest wind turbine maker, Denmark’s Vestas Wind Systems A/S. Lower power prices are undermining those efforts, with Denmark considering a U-turn on its ambitious green energy targets and Finland preparing to cut incentives for wind. Norway’s government-owned Statkraft AS canceled investments in some of Scandinavia’s biggest wind projects in June, citing reduced profitability.

Investment Pause

This year could be a “pause in investment,” according to Niclas Andersson Boberg, a director of M&A at EY in Stockholm. “The number of projects that are good enough to be finalized are fewer.”

The cost of wind power needs to rise to 60 euros ($66.70) a megawatt-hour from about 50 euros a megawatt-hour now to get more projects built, he said.

The drop in investor appetite may become a barrier to reaching goals for reducing greenhouse gases. Part of the problem is uncertainty around how governments will regulate and support the industry beyond 2020, according to Charlotte Unger, chief executive officer of Sweden’s wind-industry trade group Svensk Vindenergi.

Energy Exports

“If the politicians wait too long to decide on a support scheme after 2020 and on measures to improve the current system, this could affect the willingness to invest and hence also the target,” she said. “This will also make it more difficult for Sweden to export clean energy.”

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