Sweden’s Free Green Power Is Crippling Its Wind Industry

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(Bloomberg) — Sweden’s wind energy industry risks becoming a victim of its own success.

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The country has one of the greenest grids in the world, and relies almost entirely on hydroelectric, nuclear and wind power, which now generate about a quarter of its supply. But more is needed to electrify the rest of its economy.

The expansion of thousands of wind turbines in Sweden over the past two decades means there is so much power going around that electricity prices have increasingly fallen below zero, whether for whole days or odd hours, and are expected to remain very low for years.

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Market turmoil is discouraging investors from supporting new renewable energy projects in the country, as low energy prices offer little return. Uncertainties are also growing about future demand, as a number of major energy-hungry green industrial projects in the north are postponed or cancelled.

Sweden, which ended its main subsidy system for new renewable energy projects three years ago, offers a glimpse of a world where investments in clean energy are driven by energy prices alone. This is what makes it stand out in Europe, where countries from the UK to France and Germany still offer a variety of incentives.

Low prices aside, Sweden’s wind energy industry is already facing obstacles – from high turbine costs and interest rates to indirect opposition, municipal and military objections, as well as dodgy grid connections.

“It’s definitely a challenging situation,” said Matilda Avzelius, CEO 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 headwinds, everything is much slower than we would like and expect.”

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This calm threatens Sweden’s ambitious goal of reaching net-zero emissions in 2045, before the mid-century target set by the European Union. And it’s not just Sweden: the global goal of tripling renewable energy capacity by the end of the decade is in jeopardy because the deployment of wind turbines is 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 such period in two years. It now takes up to 8.5 years to take a wind power plant in Sweden from application to operation, up from 2.5 years in 2010, according to consultancy Ernst & Young. This extended timeline creates significant challenges for developers and investors, especially in a market where demand for renewable energy is rapidly increasing.

As the country’s green technology revolution fluctuates, estimates of how much demand will grow vary widely among analysts, but the government expects it to double in the next two decades. One thing is clear, increasing wind power will be vital to meet the increase. The country’s installed wind capacity is the fourth largest in the European Union, totaling about 16,400 MW by the end of last year.

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Other countries are still trying to decarbonize with the help of subsidies and are relying more on fossil fuels, which translates into higher electricity prices. For example, the average price of electricity in the Nordic countries this year is about 36 euros ($37.90) per megawatt-hour, or half the price in Germany, which is the largest market in Europe.

“The price gap could widen further if demand stagnates,” said Sigbjorn Selland, senior analyst at StormGeo AS in Oslo, who has been tracking the market for more than two decades. “Prices could be close to zero for extended periods” in parts of the Nordic market from 2025 to 2027, he said.

While utilities, asset managers and funds that buy wind power plants are investing over a much longer horizon than that, it is still a worrying sign.

“Naturally, investors get very nervous when they look at what happened in the Nordics and think, could it happen somewhere else?” said Yinfan Zhang, director of industry consultancy Baringa Partners. “One example could be Spain, where we have a lot of solar developments and energy prices are very low.”

In the first half of this year, 12 out of 16 new wind projects in Sweden were vetoed by local municipalities, with the military halting three of the remaining four, data from Svensk Windenergy shows.

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“From a fair point of view, this is the most challenging time since I started working more than 25 years ago,” said RES’s Avzelios. “Orders are not arriving.”

As a result, RES, along with other developers in Sweden, is working to further diversify energy sources to include technologies beyond wind power, including solar, batteries and hydrogen. RES has just sold its green aviation fuel project in Sweden to German asset manager Prime Capital AG. “Things take a long time in wind energy. We simply need to make a faster turnaround of our capital,” she said.

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

Last month, the government dropped a bombshell when it canceled 13 applications for projects in the Baltic Sea, saying they would harm the country’s defense against Russia. This has forced utilities, including wind giant Orsted A/S, to re-evaluate their activities in Sweden. Germany’s RWE AG and even global furniture retailer Ikea were also planning to support offshore wind projects in Sweden’s Baltic waters.

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“We were fully convinced that we could find solutions to serve the needs of the Armed Forces as well as the government because we have many experiences in other Baltic Sea countries such as Germany, Poland and Denmark to cooperate with the military and find mutually beneficial solutions.” Ørsted CEO Mads Nipper told reporters by phone.

Another concern for the wind energy industry is the government’s optimistic plans for new nuclear power. The proposals include a forty-year contract for a difference equivalent to 70 euros per megawatt-hour of production. Even the best wind projects will have a hard time competing with that.

For new reactors, the financial incentive for production will be very high regardless of the market price, said Andreas Evert, senior director of corporate finance at EY.

“The result may be lower energy prices, more frequent negative price increases, and a market environment where wind and solar may struggle to compete with subsidized nuclear generation,” he said.

-With assistance from Priscilla Azevedo Rocha and Olivia Raymond.

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