Why corporate PPAs have put Sweden close to its 2030 renewables target
Sweden is close to hitting its 2030 target for installed wind capacity 11 years early – and corporate PPAs are playing a vital role in this growth. Tabitha Kennedy reports
When the European Union published an updated version of its Renewable Energy Directive in November 2016, to coincide with the ratification of the Paris Agreement on Climate Change, it included a binding target that 20% of EU energy consumption should come from renewables by 2020. That seemed challenging but achievable.
Two years later, most EU countries are on track to meet their national targets – and, specifically, Nordic nations including Denmark, Norway and Sweden are among the most enthusiastic adopters of green projects.
For Sweden, that 2020 target isn’t enough. The Swedish Wind Energy Association reported in July 2018 that the country is on track to reach its 2030 renewable energy target of 49% energy from renewable sources by the end of 2018.
In physical terms, meeting that 2030 target required installed capacity of 7.5GW from an estimate 3,681 turbines producing 19.8TWh of wind power each year. At the end of 2017, the country has installed capacity of 6.7GW, so that 7.5GW is in reach.
On top of that, an extra 18TWh of renewable energy, including from wind farms, is due to be installed by 2030 according to SWEA. Sweden also has targets to achieve 100% renewable energy production by 2040 and net zero emissions by 2045.
How has Sweden achieved this?
So how have the Nordic countries, and Sweden in particular, stormed ahead with their renewable energy targets?
One answer lies in corporate power purchase agreements (PPAs).
We explored this topic in our Finance Quarterly special, called Europe’s PPAs Revolution, in July 2018.
If you’re new to the term, a corporate PPA is a long-term contract under which a business agrees to purchase electricity directly from an energy generator. PPAs have been around in various forms for as long as electricity producers have been selling their electricity, and they were until recently dominated by utilities.
However, over the last five years, corporate PPAs have been growing in popularity in the US – and also, to a lesser extent, in Scandinavia too.
From the perspective of the energy buyer and seller, corporate PPAs give them the financial certainty they need to make their business decisions. They help electricity buyers to reduce their bills by cutting out the middle man – in this case, utilities – and they help developers by giving them the certainty they need to build schemes.
These PPAs will be even more important as governments reduce the subsidies they pay to wind farm owners. In Sweden, we are seeing how developers can use these corporate PPAs to make sure they can build new wind farms, and this has helped to put Sweden within touching distance of that 2030 target. But why Sweden?
There are three main reasons Sweden has seen a proliferation of corporate PPAs.
First, Sweden is experiencing low power prices due to a fall in the price of fossil fuels and the growing supply of renewables. Consequently, a continued surplus of power production is likely. As a result, developers are looking to corporate PPAs to obtain the financial certainty they need to develop projects.
Second, Sweden has become an attractive location for data centre operators, as has the wider Nordic region. This is partly due to the cool climate, which helps to keep the data centres from overheating, and links to other significant European nations. These data centres require a huge amount of energy, which wind farms can deliver.
For example, Google signed its first PPA in Europe in 2013 at OX2’s 72MW Maevaara wind farm in Sweden; followed this with several ten-year PPAs in 2014 with another Swedish developer, Eolus, for the entire electricity output from several wind farms in the south of Sweden totalling 59MW; and yet another deal in 2015 with Eolus for a 76MW wind farm at Jenåsen in Västernorrland County.
And the third big reason for the proliferation of corporate PPAs in Sweden is that the government has given support to wind farm developers. It has cut energy taxes, has maintained a predictable regulatory system, and has supported projects, such as the 4GW Markbygden onshore wind complex. The developers of these projects need to take their projects to financial close – and corporate PPAs help them to do so.
In Sweden, this has supported the development of large wind farms, which is putting the country on the cusp of hitting its 2030 renewables target already. Other nations in Europe can learn a lot from Sweden’s winning combination of certainty, cost and buyer demand – but whether they can emulate it is another matter.