Why is Scandinavia leading Europe on wind PPAs?

How can wind farm owners in Europe win corporate power deals like they see in the US? This was a big question at our Financing Wind conference in London last year.

We are set to cover the topic of corporate power purchase agreements (PPAs) again at this year’s event, on 1st November, but the question will be very different. Namely, why has Scandinavia hoovered up so many large wind PPAs when other European nations haven’t?

Let’s pull on our best Nordic Noir jumpers to look at the evidence.

The most recent of these PPAs was announced this week: Hydro Energi has agreed a 25-year deal to buy all of the electricity produced by Engie and SUSI's 208MW Tonstad scheme in Norway. In addition,Alcoa has signed a PPA at a 197.4MW BlackRock and Zephyr development, also in Norway, last week.

Before this, we saw significant agreements in May, when Facebook committed to a trio of deals for all of the electricity produced by three wind farms that German investment manager Luxcara is developing in southwest Norway. Between them, the three projects make up the 294MW Bjerkreim cluster.

Facebook is set to use the electricity to power a data centre in Odense in Denmark and some of its campus in Lulea in Sweden. Globally, this continues a trend that is well-established in the US: large tech firms committing to renewable energy PPAs in order to lock in long-term power prices and show off their green credentials.

But Facebook isn’t the first. Google signed its debut PPA in Europe in 2013 with OX2 at the 72MW Maevaara wind farm in north Sweden. It followed this with a ten-year deal with Eolus for the power from four projects totalling 59MW; and at Zephyr and Norsk Vind's 160MW Tellenes wind scheme in Norway. Therefore, the first reason for these Nordic PPAs is data centres: growing demand for them in Scandinavia is a key driver of demand.

There are a few reasons why Scandinavia is popular with data centre owners. The first is its cool climate, which makes it a good location for these operations, and the second is the region's strategic importance. Scandinavia benefits from its connections to major countries outside the region, including Germany, the UK and the Netherlands.

However, as the deals with Hydro Energi and Alcoa show, it’s not just about data centres. In Scandinavia over the last year, we have also seen a handful of major industrial players sign wind PPAs too. In the last quarter, Norsk Hydro has agreed to buy 60% of output from the 353MW Blakliden/Faebodberget project in Sweden by Vestas, Vattenfall and PKA; and earlier this year Alcoa signed a 15-year PPA to buy all of the electricity produced by a 330MW Eolus scheme.

Alcoa also signed a deal in late 2017 to buy power from Norsk Miljøkraft’s 281MW Nordlicht project. And then there’s the biggest of them all: Norsk Hydro agreed last year to buy all of the energy produced by General Electric and Macquarie’s 650MW Markbygden 1. For these companies, cost is key.

One of the fundamental attractions of PPAs in this region, when compared to the rest of Europe, is the low electricity prices. This has been caused by a fall in the price of fossil fuels and growing supply from renewables, which has squeezed developers’ margins and forced them to look at long-term PPAs. It is great for the corporates buying the power, though. It gives them secure long-term low prices.

Finally, there is a predictable regulatory structure. The governments in Norway and Sweden have cut energy taxes and backed the rollout of new renewables projects, including onshore giants such as the 4GW Markbygden complex and the 1GW Fosen. These rival the biggest onshore complexes globally.

In Sweden, this regulatory certainty also involves the closure of Vattenfall’s Ringhals 1 and 2 nuclear plants, which are scheduled for 2020 and 2019 respectively. It opens the way for renewable energy developers to bring forward projects to fill the gaps – and these projects need new power deals in place.

That’s why Scandinavia is winning the PPAs. It’s a combination of motivated buyers and willing sell