GIG and GE team up for Swedish giant

This month, Macquarie’s Green Investment Group and General Electric have partnered to acquire what is set to become Europe’s largest single-site onshore wind park, once completed by the end of 2019. As well as its size, the project is significant for what it tells us about corporate support for wind and the market in Sweden.

Here's the background. GIG has bought the 650MW Markbygden 1 project in Sweden in association with GE. This is its first equity deal since its £2.3bn acquisition by Macquarie in August 2017.

This massive project is located west of Piteå, in northern Sweden, and was originally developed by local company Svevind over the course of 15 years. Markbygden 1 is the first stage of development on a site of 450 sq km that could host an estimated 1,100 turbines.

The acquisition coincided with the project’s €800m financial close, for which the two partners each invested around €150m of equity. The remaining €500m has been provided by financial institutions: this includes a €180m loan from the European Investment Bank, and other loan agreements totalling around €320m, provided by the Export Credit Guarantees of the Federal Republic of Germany, NordLB, KfW IPEX-Bank and HSH Nordbank.

In addition, GE is set to supply 179 of its 3.6MW turbines, which will be equipped with an ice mitigation system provided by GE’s blade specialist LM. The size of the scheme has attracted interest but, arguably, that is the least interesting thing about it.

For one, GIG and GE have signed a long-term power purchase agreement with hydro and aluminum company Hydro Energi for an annual fixed volume of power produced by Markbygden 1.

Hydro Energi is a fully-owned subsidiary of Norwegian aluminium company Norsk Hydro and is set to purchase 1.65TWh of wind power from the project each year from 2021 to 2039, to power its manufacturing aluminium facilities in the region.

This is the world’s largest corporate PPA with a wind project to date, and hugely significant for Europe. Corporate PPAs are seen as key for the future development of large-scale wind projects, but they are not as developed in Europe as in the US, where giants like Amazon, Google and Microsoft have lead the way. In our view, the fact that the largest wind PPA to date is in Europe is a clear sign that PPA activity in Europe is starting to gain momentum.

In addition, the size of the deal and the PPA indicate that there is a promising market for wind in Sweden. We are already seeing activity on other large onshore schemes in the Nordic nation.

For example, in June, Dutch investment company ABP teamed up with Swedish developer Vasa Vind for the construction of the 288MW Åskalen wind project in the Jämtland county. And Reuters reported this month that GE is planning more up-to-100MW wind farms in Sweden and Finland in the near future.

Renewables already have a strong track record in Sweden, where they account for 20% of total energy use, but there is still great potential for growth in wind. The Swedish Wind Energy Association has reported that the country ended 2016 with 3,378 wind turbines installed, totalling 6.5GW. Around 1.1GW of new capacity is under construction and a further 9GW seeking Government consent.

And the Government is keen. In June 2016, it committed to gain 100% of its energy consumption from renewables by 2040 and wind is well-placed to play a key role. The geography of Sweden works well for wind: the interior areas of the country have good wind resources and are scarcely populated, making them ideal locations also for large wind schemes. Also, the country hosts a large number of manufacturing facilities for companies including ABB, SAAB and Volvo, that would be ideal target for PPAs.

But there are still challenges. For example, a municipal veto can stop projects at a late stage, even when funds have already been invested. This could put at risk even large projects where major investment decisions have been taken. Swedish leaders are currently looking at a proposal which seeks to abolish this veto.

This commitment to renewables and the interest of corporates makes us think we may hear of more deals similar to Markbygden 1 in the not-too-distant future.