Nordic wind power investment hindered despite elcertificate reform

25 March 2014 13:02 Source:ICIS

Doubts remain over the profitability of investing in new wind farms in Norway and Sweden despite the Nordic green certificates market undergoing quota reform, market participants have told ICIS.

The weak outlook for is still in place despite elcertificate market reforms which are intended to ensure higher certificates values, which should attract investment to the industry.

Quota reforms are expected to be implemented in 2016. On the wholesale power market, the Year 2016 baseload product on the Nasdaq OMX exchange was trading just below €31/MWh on Monday, while ICIS assessment of March ’16 Annual elcertificates was SKr183 (€21)/MWh ( see sister publication ECEM 24 March 2014 ).

This puts total income for Year 2016 delivery on the futures market for wind farm operators at around €52/MWh before any balancing costs are taken into acount – roughly €10/MWh short of the lower end of the average production cost.

Oversupply in the elcertificates market has weighed down the price buyers are willing to pay to fulfill their quotas, squeezing profit margins for developers leading to a weak outlook for future investments.

This encouraged the Swedish and Norwegian energy agencies to recommend a change in forward quotas for the market last month as part of a two-year review of the joint renewable energy scheme between the two countries ( see EDEM 24 February 2014 ).

The investment climate for wind project developers has been plagued by weak returns on the forward market for some time. At first elecertificate prices were deemed too low with (Swedish kronor) SKr250 (€28) considered a catalyst for investment ( see EDEM 27 July 2013 ). But when prices reached this threshold they failed to provoke much interest, coupl3ed as they were with weak wholesale electricity prices ( see ECEM 22 March 2013 ). And despite a change the quotas now being talked up, concerns still remain.

It is widely expected that the amendment in quotas will go some way to supporting prices in the long-term but questions remain as to whether they will be high enough to entice the investment community into the wind power sector.


Despite the quota amendments other bearish signals pose a threat. For example, the fallout of the late-2000s financial and economic crises continues to linger over the Scandinavian economies.

“The main problem is still the financial crisis – we have not recovered yet. We have not seen an increase in electricity consumption. In fact we have had a small decrease in two years,” said Poyry SwedPower section manager Lennart Larsson.

A source at Swedish brokerage firm SKM suggested the crisis would continue to have an impact on wholesale electricity prices: “I do not see signs of significant gains in the power market over the next two years,” he said.

According to the Nasdaq OMX exchange, Nordic annual contracts are backwardated, meaning they are cheaper the further forward they deliver, from 2015 to 2017 before inching higher year on year out to 2020.


A further bearish influence is the deployment of new biomass-fired power production capacity, which generates more elcertificates. Anecdotal evidence suggest a surplus of some 11m elcertificates in the system. To put this in perspective, wind farms earned 1.5m certificates in December, which was a very strong month.

Furthermore, it is uncertain whether the quota changes will even go ahead with the proposal still at the consultation phase. “There is no decision on quotas from the government so it is difficult [for the recommendations] to have an impact on the investment climate,” said one trader.

Not all clean energy resources have struggled, with biomass-fired combined heat and power (CHP) technologies in particular thriving. “Small CHPs have been the new plants under construction. CHP owners can get more from heat sales than from electricity generation. They [convert] roughly two thirds of input fuel as heat and one third as electricity and the price of electricity is just slightly higher than the value of heat,” said Larsson.

In contrast onshore wind has fewer sources of revenue with a production cost in the €60-70/MWh range, according to market participants.

Despite the bleak investment climate for wind farms, there is consensus among market participants that Sweden and Norway will reach their joint goal of producing 26.4TWh of renewable electricity by 2020, and that the investment climate should improve for wind power producers before then. “I am pretty sure prices will eventually be high enough – investing in wind power is important to reach 2020 goals,” said the source from SKM. Christopher Rene

See sister publication European Clean Energy Markets (ECEM) for ICIS assessments of UK ROC/Nordic elcertificate valuations. For more details, call +44 207 911 1919 or email:

By Christopher Rene