Sweden mulls green certificate change to protect wind investors

Investors in the booming Swedish wind market could end up as victims of their own success. But why? It’s the country’s Green Electricity Certificates scheme.

Let me explain. Currently, under the Green Electricity Certificates system introduced in Sweden in 2003 and adopted by Norway in 2012, independent power producers are given a certificate by the government for every MWh of renewable energy they produce. They then sell the certificates on the open market to organisations – often utilities – that are required by Swedish law to fulfil a renewable energy quota.

This supports more renewables development and the system has been working well. Annual wind power production in Sweden is forecast to reach 19.8TWh by the end of 2018, up from 17.6TWh in 2017. And the certificate system is almost fully subscribed – as of October 2018, only 2TWh remains available to investors.

Government policy has encouraged this growth and, in October, the Swedish Wind Energy Association said Sweden was on track to reach its 2030 goal by 2021.

However, this rapid market growth has started to pose a problem for policymakers, and it could soon cause major headaches for wind investors too.

Electricity certificates are sold on the open market, and so their value is dictated by supply and demand. As the number of renewables projects across Sweden grows, certificates will flood the market and investors that have benefited from this revenue stream for years could see the value of their certificates nose-dive.

As well as damaging existing investments, this could deter future investors.

In response, Mattias Wondollek of the Swedish Wind Energy Association told us that the organisation plans to propose that the government considers using a ‘stop rule’ to the certificate system before the end of the year.

Under this rule, the system would be balanced so the number of certificates given to new producers would not exceed the number stipulated by the quotas. The rule should align with Norway’s date-based stop rule, set for 31st December 2021. By trying to keep supply and demand in balance, the SWEA is seeking to protect its members from price falls that could damage their investment plans.

We hope the government listens. If independent power producers are no longer able to rely on revenue from the sale of green certificates, they are likely to find that profit margins are squeezed and they need to find the money elsewhere.

One answer could be to push for higher purchase prices from their corporate energy buyers, not that those buyers will likely take notice. They’re businesses too, after all.

Another possibility that could arise from removing this revenue stream is that IPPs might be forced to look to cut costs through the supply chain. But pushing firms in the supply chain to do things cheaper isn’t always the best tactic, or indeed possible.

So, if the Swedish government doesn’t agree to a ‘stop rule’, we are likely so see the IPPs taking the financial hit. Developing in Sweden will suddenly look less attractive.

We’ll try to be optimistic. Introducing a ‘stop rule’ to the green certificate system still looks like the right thing to do, and so we hope the government listens. Investors – both early backers and potential future entrants – must be protected, and rethinking the support systems may be necessary as Sweden’s wind market enters this next phase of its development.