Wind power is a natural part of Sweden’s renewable energy mix. In this interview, Charlotte Unger, the leader of Swedish Wind Energy, Sweden’s trade association for companies working with wind power, shares her insights about the industry, how wind power is gaining broad public support and how to keep wind power profitable and competitive in a constantly changing energy market.
The technology costs for wind energy continues to drop and wind is now cheaper than gas in the Nordic countries. What does this trend mean and how is it affecting your industry?
The technology required to generate electricity from wind power has developed. We are now seeing larger and more efficient turbines. This, combined with strong competition, has driven down wind power production costs with about 20% from 2008 and 2014. This is a significant development.
Even though it is expected that this incredible technology development will continue, there are other elements that impact the energy price such as energy efficiency, commodity costs and the exchange rates. So it is very difficult to predict how the overall cost of energy production will change over time.
As an investor, today’s unpredictable technology development can be a risk factor in investments. If investors perceive technology as a considerable risk, they may delay their investments or choose to invest in other markets. But, we do not believe that this will endanger the industry’s ability to reach the 2020 target. Now looking ahead, it is important that if our politicians decide on a new target for 2030, that the support scheme focuses on reducing the technology risk.
In your view, is the joint Swedish-Norwegian “elcert” market functioning well?
The elcert market has successfully delivered renewable electricity at a low cost for the electricity consumers. But we have identified changes to the system that are needed:
Firstly, the most important explanation of today’s low green certificate prices is that the currently large surplus of certificates can be attributed to discrepancies between forecast and actual electricity consumption. Lower consumption than anticipated and wrong assumptions when Norway joined the market, created a huge surplus of 13 million certificates in 2014. The surplus pushed the green certificate price down although the renewable energy volume has increased as expected. So, in our opinion, infrequent adjustments of these errors have led to lost years of revenue for investors and to a sudden drop in new investment decisions. But we expect that the Parliament’s decision on the new quotas will reverse this trend.
Secondly, after targets have been reached, there is no limit to issuing certificates in Sweden. This means that the surplus continues to grow also after the target has been reached if renewable energy sources are built after 2020. This is a huge risk for the investors and this risk needs to be mitigated as soon as possible if we are going to reach the 2020 target.
Thirdly, the technology risk. When the elcert system was established it was expected that the certificate prices would rise over time due to the gradual exploitation of less advantageous locations for wind farms. Yet, the technology development has been much faster than anyone had expected, which is making new investments possible despite the huge surplus of electricity certificates. Some of those who invested five years ago, when the compensation levels were more than twice as high as today, have even to write-down their investments and this may impact future investments.
Decommissioning of Swedish nuclear power plants are planned. How do these plans (or lack of firm plans) effect wind power investment?
Now this is difficult to say and if I only had the answer… As an investor the decommissioning of Swedish nuclear power is of course important, but as long as there’s an uncertainty when and how much nuclear power will be decommissioned it is difficult to include the higher electricity price in the calculation. Most of the investors today look to reduce risk through power purchase agreements or other hedge-solutions.
At the same time your latest news said that not a single new wind power plant has been ordered in Sweden in the second quarter of the year. Why do you think this is?
We believe that there are several reasons; the low power and green certificate prices, unclear political will for more renewable after 2020, the upcoming parliamentary decision of the control station. We believe that the decision on new quotas will help push the green certificate price up and stabilize the market. But we cannot expect the same development that we have had in the past five years because there’s simply not enough “room” for so much production in the system. Remember we need to also consider the development of other renewable energy sources.
European market figures for the purchase of renewables with Guarantees of Origin (“ursprungsgarantier”) show that the demand for renewable energy surged in 2014. This demand is driven primarily by industry and businesses. How could this evolve in the Swedish market?
In times like these all additional revenue counts. But we don’t consider that the increased interest of Guarantees of Origin has the capacity to be the main driver of development of new renewable energy. This is primarily because of the low compensation levels.
What trends do you see with regards to corporations, perhaps especially Swedish companies, engaging with electricity from wind power?
We welcome larger companies such as IKEA and Google to invest in renewable energy. This contributes to more renewable electricity on the grid and to a larger wind power market. Another interesting trend is that when companies of this size and scale promote renewable energy in their marketing, they also contribute to increasing people’s acceptance for wind power.
Renewable energy requires pragmatic solutions. What is your call to action for companies, governments, civil society and individuals?
We need to find ways to combat climate change. That is the most critical issue of our time. This is your responsibility, my responsibility – it is everybody’s responsibility to do what we can to reduce carbon emissions. And a good starting point: that is starting to switch your electricity from fossil fuels to renewable energy sources – such as wind.