Sustaining the onshore wind boom in the Nordics

Excellent economics, government support and an economy-wide decarbonisation drive are key enablers

The Nordic onshore wind market is undergoing phenomenal growth. The region’s operational wind turbine fleet of 21.1 gigawatts (GW), built over the last decades, will grow by more than 50% in the 2021-2023 period. A period of modest growth in the mid-2020s will succeed the growth spurt before the market regains pace in the latter part of the 2020s.

Our regional report, Northern Europe onshore wind market outlook 2021, argues that a set of right conditions may boost the prospects of onshore wind to an unprecedented level. Fill in the form to receive an extract from the full report. Or read on for an introduction.

What is fueling short-term growth?    

Excellent economics of onshore wind power is a key enabler for the expected growth. But a host of factors facilitated the industry attempting to slash the cost of onshore wind. These include liberal permitting regimes, low-cost capital, power imports dependency (Finland) and green certificates (Sweden and Norway). These factors have a varying degree of impact across individual markets. However, developers’ ability to deploy the latest wind turbine technology, requiring taller towers and higher tip heights, is ubiquitous across the Nordics.

Financing posed a little challenge since the prospects for higher power prices improved the commercial viability of merchant projects. Projects in Sweden and Norway could still benefit from the green certificate scheme, whose expected returns looked promising a few years ago. Meanwhile, onshore wind positioned itself as an inexpensive alternative to Finland’s power imports. And several corporates, led initially by American tech giants, went on a spree of contracting wind power in these countries. These developments reinforced each other, yielding a turbine order intake volume of 14.5 GW between 2016 and 2020.

Norway’s new permitting regime will decelerate market growth  

On a broader level, it is Economics 101: higher demand for inexpensive onshore wind spurred higher supply, which, consequently, is putting downward pressure on further additions. Excess renewables capacity in northern Sweden and Norway’s strong hydropower base may soften merchant projects’ future revenue streams. Similarly, as onshore developers plug the demand-supply gap in Finland, the case for unchecked onshore wind buildout will become less compelling.

Regardless of the challenges posed by market forces, the onshore wind sector could continue posting healthier growth in the midterm if this was not for politics, more specifically in Norway. Our recently launched Nordic power model shows that merchant onshore wind projects are commercially feasible in Norway with an expected capture power price range of 25 to 30EUR/MWh. Nonetheless, a new, more stringent permitting regime planned to come into force in 2022 will bring wind installations activity to a standstill, denting the regional market growth in the mid-2020s.

Economy-wide decarbonisation drive will stimulate long-term growth

The region is at the forefront of the energy transition; all countries have set targets for carbon neutrality. The power sector is the cornerstone of this transformation. Although the region’s generation fleet has low carbon intensity – thanks to its vast hydropower portfolio – there is a need to displace existing thermal plants. In addition, the growing focus on electrifying the transport and industrial sectors requires additional renewables.

Thanks to its cost-competitive credentials, onshore wind is a logical choice for additional power capacity. However, its inherent variability – and for that matter of solar PV and offshore wind – will challenge developers in exploiting the unfolding potential to the fullest. The onshore wind industry must collaborate with its industry peers to find solutions for flexibility or fuels such as green hydrogen.

Accelerated growth in industrial demand offers a 34% upside to the outlook

The scale of industrial demand for green power will define the future of the regional market. Norway, for example, will require 32 terawatt-hours (TWh) of additional power a year by 2030 due mainly to new economic sectors. Similarly, energy-intensive industries will generate demand for green energy, which may become difficult to meet without governments’ enabling role. A case in point is the Swedish endeavours to decarbonise the steel manufacturing process. These initiatives alone could require 35 GW of onshore wind capacity – far more than our 10-year outlook of 26.9 GW for the whole region.

Financial institutions will most likely play a supportive role as offtake agreements by major industrial players will support these projects. Moreover, if built primarily to produce green hydrogen, these developments will not impact wholesale power prices significantly.

The role of governments will be critical in providing favourable permitting regimes, most critically in Sweden and Finland. These countries have sufficient project pipelines to support our bull case scenario. However, the success of green steel ventures will need a much bigger project pipeline and possibly, eclipse the growth trajectory of our bull case. There lies a firm possibility of a new era of onshore wind growth that the region will not have experienced before.