The past few years have been dramatic for the wind-energy sector in the Nordics. Initially, there was a slowdown in project development tied to low electricity and certificate prices. This has been followed by a relative boom in recent years: Natural Power has helped to deliver mega projects, such as Markbygden ETT projects, with very long-term power purchase agreements (PPAs) that far outstrip the average term, and one of the first subsidy free projects in the region. This is despite electricity prices in the area remaining modest and some forecasters predicting that certificate revenue may disappear over the medium term.
Over the last twelve months we have observed an ever-increasing interest in the Nordic market from investors, and we continue to be involved in several landmark transactions in the area. The work carried out by our analysts and our due diligence and construction teams allows us to share some key insights into this market.
Corporate PPAs: good analysis is more important than ever
The Nordic region is generally seen as the most developed market in Europe for corporate PPAs. The graph below, produced by WindEurope, demonstrates this and shows the rapid PPA growth recently seen in Norway, Sweden and Finland.
In markets such as the US, which also has a buoyant market for corporate purchase power agreements (CPPAs), ‘virtual’ PPAs have become popular. These are effectively a contract for difference between generator and offtaker. The parties agree on a fixed price, and the difference between this fixed price and the market price is paid by one party to the other but without any contractual transfer of the generated energy. In the Nordic market, however, we have seen a variety of PPA structures used between generator and offtaker. These include several new structures: a range of fixed volume type agreements; agreements with price caps, floors and hurdles; and agreements demanding a warranted minimum availability from the generator. This highlights the importance of both generator and offtaker being flexible in their approach to structure, price and the allocation of risk. It also reinforces the importance of getting high-quality energy yield analysis and carrying out thorough due diligence of O&M contracts and guarantees. With many projects in the region entering into PPAs with fixed volume delivery obligations over varying time periods, it is important to do comprehensive analysis that looks at all the challenges in this region. These include:
Construction: contracts, management and methods
Sweden, Finland and Norway use a variety of standard contracts besides the common Fédération Internationale des Ingénieurs-Conseils (FIDIC) standard. It is vital to understand how these standards are structured when agreeing supply or construction contracts. Local contractors may also have certain expectations when it comes to agreeing particulars in a contract and how that contract is managed.
It is our experience that contracts in the Nordic region generally tend be more balanced when allocating risk compared with other markets. It is important to think about this when negotiating contracts and managing contractors. This will ensure all parties are happy with the risk allocation, and it will help maintain good working relationships.
We have seen how the relationship between the contract and construction techniques and the methods used to deal with the challenges presented by the locale and climate in the Nordics can influence a project’s success. Contracts need to allocate these risks correctly and capture them in a realistic and achievable plan that all parties can work on together to deliver. Without an understanding of these aspects, the Nordics can be a challenging environment to work in.back to news