Sweden’s Free Green Power Is Disabling Its Wind Industry

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(Bloomberg) – Sweden’s wind power industry is in danger of becoming a victim of its own success.

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The country has one of the greenest grids in the world, relying almost entirely on hydroelectricity, nuclear and wind, which now generate about a quarter of its electricity. But more is needed to electrify its entire economy.

The expansion of thousands of wind turbines in Sweden over the past two decades means that there is so much energy that electricity prices are increasingly falling below zero, both daily and hourly, and are expected to remain very low for years.

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Market turmoil is causing investors to stop supporting new renewable projects in the country as ultra-low electricity prices offer little return. Doubts are also growing about future demand as a number of major green industry projects in the north are delayed or canceled altogether.

Sweden, which ended its main subsidy program for new renewable projects three years ago, offers a glimpse of a country where investment in clean energy is driven solely by the price of energy. That makes it stand out in Europe, where countries from the UK to France and Germany continue to offer a range of incentives.

Putting prices aside, Sweden’s wind industry is already facing obstacles – from high turbine costs and interest rates to out-of-my-backyard opponents, municipal and military votes and difficult grid connections.

“It’s definitely a challenging situation,” said Matilda Afzelius, chief executive of the Nordic region at Renewable Energy Systems Holdings Ltd., which develops green energy projects in more than 20 countries around the world. “We are definitely facing storms, everything is moving slower than we would like and expect.”

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The silence threatens Sweden’s ambition to reach zero emissions by 2045, ahead of the European Union’s mid-century target. And it’s not just Sweden: The global goal of tripling the amount of renewable energy by the end of the decade is in jeopardy because the emissions of wind turbines are too slow, according to the International Energy Agency.

No new turbines have been ordered in Sweden since the first quarter, according to the latest data from industry group Svensk Vindenergi, the longest period in two years. It now takes 8.5 years to bring a wind park in Sweden from commissioning to operation, up from 2.5 years in 2010, according to experts Ernst & Young. This extended timeline creates significant challenges for developers and investors, especially in a market where demand for renewable energy is growing rapidly.

As the world’s green technology revolution falters, estimates of how much demand will grow vary among analysts, but the government expects it to double over the next two decades. One thing is clear, more air volume will be essential to meet the explosion. The nation’s installed wind capacity is the fourth largest in the EU, totaling around 16,400 megawatts at the end of last year.

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Some countries still trying to decarbonize with subsidies rely heavily on fossil fuels, which means higher electricity prices. For example, the Nordic average this year is €36 ($37.90) per megawatt hour, or half of Germany, Europe’s largest market.

“The price gap can widen if demand is weak,” said Sigbjorn Seland, senior analyst at StormGeo AS in Oslo, who has followed the market for more than two decades. “Prices could be close to zero for a long time” in parts of the Nordic market from 2025 to 2027, he said.

Although utilities, asset managers and funds that buy wind parks are investing in a much longer horizon than that, it is still a worrying sign.

“Investors are naturally nervous looking at what’s happening in the Nordics, thinking it could happen elsewhere?” said Yinfan Zhang, director of industry consultancy Baringa Partners. “One example would be Spain, where we have a lot of solar development and electricity prices are going down a lot.”

In the first half of this year, 12 out of 16 new wind projects in Sweden were vetoed by local municipalities, while three of the remaining four were stopped by the military, data from Svensk Vindenergi show.

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“From a positive perspective, it’s the most challenging time since I started the business more than 25 years ago,” said Afzelius of RES. “Requests fail.”

Because of this, RES, along with other Swedish developers, are diversifying into technologies beyond wind, including solar, batteries and hydrogen. RES recently sold a green jet fuel project in Sweden to German asset manager Prime Capital AG. “Things take a long time in the wind energy business. We need to quickly convert our currency into words,” he said.

Other countries that have faced opposition to offshore wind projects have turned their eyes to the sea. Surprisingly, Sweden has almost no onshore wind power despite having the longest coastline of all the Baltic countries.

Last month, the government threw a tantrum when it canceled 13 applications for projects in the Baltic Sea, saying they would harm the country’s defense against Russia. That has forced utilities including wind giant Orsted A/S to reassess their Swedish operations. Germany’s RWE AG and global furniture retailer Ikea were also planning to restore offshore wind projects in Sweden’s Baltic waters.

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“We were really confident that we could find solutions to meet the needs of the armed forces and the government because we have a lot of experience in other Baltic Sea countries such as Germany, Poland, and Denmark in cooperation with the military and finding beneficial solutions. ,” Orsted CEO Mads Nipper told reporters on the phone.

Another concern for the wind industry is the government’s plans for new nuclear weapons. The proposals include a 40-year contract price for difference equal to €70 per megawatt hour of output. Even the best wind projects can struggle to compete with that.

For new reactors, the financial incentive for production will be much higher than the market price, said Andreas Ivert, senior manager of corporate finance at EY.

“The result would be lower electricity prices, less sustainable prices, and a market environment where wind and solar may find it difficult to compete with subsidized nuclear power generation,” he said.

—Courtesy of Priscila Azevedo Rocha and Olivia Raimonde.

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