Vattenfall: Sweden Must Up Its Offshore Wind Incentive Game

Swedish state-owned power company Vattenfall is hesitant to start any wind projects offshore Sweden due to the country’s incentive scheme being technology-neutral, Peter Tornberg, Vice President of Business Area Wind at Vattenfall, said.

During the coming years, Vattenfall plans to invest around SEK 50 billion (around EUR 5.4 bn) in new wind power projects, onshore and offshore, to achieve 4GW by 2020.

The utility will focus on the existing markets in Europe, such as the UK, Germany and Denmark, but it may also enter new markets in France, Finland, Norway and Poland.

Vattenfall will also keep an eye on emerging offshore wind markets in USA, China and Taiwan.

However, when it comes to building offshore wind farms in their own ”backyard,” Vattenfall does not see any projects coming any time soon, as Sweden offers no separate subsidy for offshore wind, Tornberg said.

”You have to compete on exactly the same terms as onshore wind, biomass or any other renewable generation,” according to Tornberg.

”And since it’s much more expensive to build offshore, it isn’t viable at the moment. It remains to be seen whether specific subsidies for offshore wind will be introduced. If it is, Vattenfall has a strong pipeline that can be expanded. For onshore wind in Sweden, we currently have a levelized energy cost – in other words, the cost of generating one kWh of electricity, of over 45 öre. At the same time the total income, if we include green certificate, is about 35 öre per kWh generated, so it’s hard to make the sums add up.”

Unlike Sweden, a number of northern European countries use auction-based systems to encourage growth and at the same time reduce the costs of new capacity.

Instead of a wind power project planner seeking a permit to build new capacity in a certain area, as in the traditional procedure, the perspective is the opposite in countries which use an auction-based system.

“In Denmark, Great Britain and Germany, the authorities say they want to have, for example, 400MW in a certain area, with the grid connection ready, with the seabed and wind surveys carried out, with the permit in place, and they want the whole thing to be ready by a certain date,” Tornberg said.

”Then we wind power project planners bid for the project. The one who bids and says they want the lowest subsidy wins. There are also auction-based systems in which the developer bids with their own approved project. In this case, too, the winner is the project that needs the lowest subsidy.”

Tornberg believes that a similar action-based system should be adopted in Sweden.

”The advantage of investing in wind power in the auction-based markets is that, as a company, you’re less dependent on the price of electricity. You get a more reliable flow of income with guaranteed subsidies, and it doesn’t matter so much how the price of electricity goes up and down,” Tornberg said.

The auction-based system would bring security and clarity to offshore wind developers as they would be able to calculate their earnings from the project for a period of up to 12 years, according to Tornberg.

”The price pressure is high, which means that the return is lower. But at the same time it’s a stable return with a low risk – a dream scenario for long-term investors,” Tornberg said.