Rise of Corporate Ppas in the Nordics

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Rise of Corporate Ppas in the Nordics EMEA NORDIC PPAS RISE OF CORPORATE PPAS IN THE NORDICS A NUMBER OF RENEWABLE POWER PROJECTS ACROSS THE NORDICS HAVE BEEN FINANCED THROUGH CORPORATE-BACKED PPAS RECENTLY, BUT CONCERNS REMAIN OVER PRICE RISK. BY FREDRIK LINDBLOM, HEAD OF DLA PIPER’S FINANCE & PROJECTS GROUP IN NORWAY. Corporate renewable power purchase agreements Some truly impressive renewables transactions (PPAs) are on the rise around the world. Market have also seen the light of day recently. Several research to date – albeit limited – seems to of these projects have been backed by substantial indicate that the core drivers for corporations and innovative corporate PPA structures. to enter into long-term PPAs with producers of In Norway, the 1GW Fosen Vind project renewable energy are not so much the green reached financial close in late February 20161. footprint they leave, but are rather economic The wind farm is a joint venture between considerations. Corporates enter into PPAs mainly Norwegian state utility Statkraft, Swiss to hedge the power price risk – the green aspect utility BKW and a consortium of European is largely viewed as an add-on benefit. pension funds advised by Credit Suisse Energy Infrastructure Partners AG as well as regional A region apart utility Trønderenergi. Once completed, the So what about the Nordic region – this project will constitute Europe’s largest on-shore northernmost, environmentally progressive wind farm. and economic power-house corner of Europe? The Fosen transaction saw Norwegian Is it a new frontier in the context of renewable aluminium company Norsk Hydro ASA’s fully corporate PPAs? The last 12 months have seen owned subsidiary Hydro Energi AS sign a long- some material contracts being entered into term PPA with the project company, Nordic Wind in conjunction with substantial renewables Power. The agreement covers an annual baseload projects reaching financial close – the largest one supply of between 0.6TWh and 1TWh in the covering a whopping 18TWh of production over period from 2020 to 2039, resulting in around a 20-year period!. What’s happening and what is 18TWh over the 20-year period. The baseload potentially in store? offtake arrangements are innovatively balanced The Nordic region – encompassing Norway, by a variable supply PPA involving Norwegian Sweden, Denmark, Finland and Iceland – may utility Agder Energi to ensure a steady supply seem homogeneous from the outside, but of power to Norsk Hydro’s production facilities despite a number of important cultural, social around Norway. and financial similarities there are also notable Also in Norway in 2016, Google entered differences between the countries. into a 12-year PPA for the entire output from Importantly, when it comes to energy-mix the 160MW Tellenes wind farm to be built in a country like Norway is already 98% green in Norway by Zephyr and Norse Vind Energi to terms of production due to its large hydropower power Google’s European data centres. There is resources, while Sweden’s energy mix includes also speculation that the even larger, 250MW, about 49% of nuclear energy and 48% of hydro, Bjerkreim project close to Stavanger in Norway – wind and other renewable power production. which is likely to see financial close later on this Finland, meanwhile, has about 55% renewable year or in early 2017 – will also be backed by a production, with some 34% of nuclear power substantial corporate counterparty PPA. installed. Denmark boasts about 40% of its Google’s Tellenes deal – which is also the electricity production by wind-power alone – a company’s largest yet in Europe – came on the world record. back of several similar PPAs entered into by Google with developers in Sweden, with Google Recent notable transactions benefiting from Scandinavia’s shared electricity Sustainability and environmental friendliness are as market and grid system. The integrated market synonymous with the Nordic region as sleek pine allows Google to purchase renewable energy furniture, minimalistic hipster design and IKEA. with guarantees of origin from Norway/Sweden Over the past decade there has been a great push and consume the equivalent amount of power by all the Nordic countries’ governments to reduce elsewhere in Europe. carbon emissions, increase sustainability and In 2013, Google entered into a 10-year PPA with promote development of further renewable energy Swedish developer OX2, previously O2, for the production with different incentive schemes. entire electricity output of the 72MW Maevaara 4 Project Finance International EMEA Report September 2016 Book 1.indb 4 15/09/2016 16:22:27 NORDIC PPAS EMEA wind farm in Övertorneå and Pajala municipality solutions; Preem, petroleum; the Volvo Car Group, in northern Sweden, owned by Allianz. cars; Asko and Electrolux AB, both household The Maevaara deal was followed in 2014 by appliances; Telia Company AB, telecoms; Ericsson, Google signing additional 10-year PPAs with another technology; Scania AB, transport solutions; Atlas Swedish developer, Eolus, for the entire electricity Copco, industrial tools and equipment; SCA, pulp output from several wind farms in the south of and paper; Sandvik AB, technology, engineering; Sweden totalling 59MW covering Skalleberg in Hjo SKF industry, bearings; Axel Johnson Group, municipality, Mungserod in Tanum municipality, industry; and Kubal, aluminium. Ramsnas in Laxa municipality and Alered in Finland’s industrial and power consuming Falkenberg municipality. back-bone includes Vaisala, technology; Nokia, In 2015 Google signed a further deal with Eolus IT/telecoms technology; Nordic Aluminium, for a 76MW wind farm at Jenåsen in Sundsvall aluminium; Neste Oil, petroleum products; municipality, Västernorrland County. Stora Enso Oyj, pulp and paper packaging That said, the last years have also seen several solutions; UPM Kymmene, forest industry; Kesko renewables projects reaching financial close Corporation, trading, retail; and Metso, industry. without corporate PPAs forming part of the Last but not least, Denmark is home to structure, the very recent 111MW Raskifte wind large corporate groups such as AP Møller - farm in Norway being one example of that. Mærsk, transport, industry; Novo Nordisk, pharmaceuticals; Carlsberg, beverages; DONG Potential corporate offtakers Energy, energy; Danish Crown, food; Vestas Wind There is no doubt that Nordic corporates are very Systems, energy; DLG, feed compound; Coop serious about their sustainability objectives. There Danmark, retail; Danfoss, industry products, are also some significant consumers of electrical heating; and TDC, telecoms. energy that are also potential offtakers from In addition, international but Nordic born renewable power production – at least in theory – giants such as IKEA, furniture; H&M, fashion, and some of them are already purchasing. clothing; Statoil, oil and gas, energy; Arla Foods, Norway boasts big corporate groups such as dairy products; Nordic Choice, hotels; and Nordea Norsk Hydro and Alcoa Norway, both aluminium; and Danske Bank, both banking groups. They are Yara International ASA, fertilisers; Evry AS, IT entirely pan-Nordic in their presence. solutions; Jotun, paint; Elkem AS, silica/alloys; In speaking with some of the above-mentioned Orkla ASA, consumer goods; Telenor ASA, companies on their respective strategies for the telecoms; Borregaard AS, biochemical; and DNB purchase of electrical power and appetite for ASA, banking. entering into renewable PPAs, while all muster Sweden, the industrial locomotive of the Nordics, pronounced sustainable corporate values and is home to a range of big and power hungry profiles they differ a great deal in both historic corporate groups such as Tetra Pak, packaging and current approaches. Windmills at Kjollefjord, Norway. Source - Statkraft Project Finance International EMEA Report September 2016 5 Book 1.indb 5 15/09/2016 16:22:44 EMEA NORDIC PPAS Some are dedicated purchasers of green energy the Nordic countries and some assumptions, but apply other methods than contracting under whether founded or not, by some market PPAs or purchasing guarantees of origin, having analysts of a fully electrified Nordic car fleet by framework delivery agreements in place that 2030-something and things start to get even more assure them delivery of green power only. Some interesting in the Nordic region, with its total have been buying green energy for years already, population of about 26m people. while others are, not surprisingly, new to the In speaking with market participants it seems game, but are vigorously entering it. clear, however, that a main concern and one Some only rate new renewable projects as “valid” that holds back many potential purchasers is in the context of achieving their green targets, their reluctance to take price risk on long-term while others are entirely agnostic as long as the contracts, both generally and in the current power is generated by hydro or other renewables environment. Some companies also highlight the sources, or originate from markets where that lack of transparency and pricing mechanisms in the “generally” is the prevailing form of production. power market as goes for corporate PPAs as a major One bank looks to PPAs with renewable projects impediment – which is a concern that probably has financed by it as a potential way of fulfilling its own some merit to it in a market that has seen material green corporate targets. Other companies again price differences on contracts entered into. apply a strict “spot” policy and would not consider Interestingly, while almost all respondents long-term PPAs regardless of production source. point to price risk as one of the key risks they Many of the companies seem, however, to see attaching to long-term renewable PPAs, some focus more on their own ability to meet targets respondents also rate that risk as relatively minor. through energy efficiency measures and projects Counterparty risk is the other key risk as well as other sustainability initiatives rather highlighted by close to all respondents. Large- than by committing to purchase power directly scale consumers of electricity are dependent on a from renewable projects or with guarantees of steady supply of the power they need and do not origin.
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