Norway should be an ideal location for onshore wind, but due to its cheap, abundant hydro resources, it had only installed 837.6MW of wind by the end of last year.

But this statistic will soon be blown out of the water by state-owned utility Statkraft’s 1GW Fosen project — a monster facility that will not only be the continent’s biggest ever onshore wind farm, but is also likely to have the lowest power production costs ever seen in European wind.

Rock-bottom price

“Fosen is arguably the best wind project in Europe in terms of production costs,” says Andreas Thon Aasheim, special adviser at the Norwegian wind energy association, Norwea.

Assuming a weighted average cost of capital of 8% and 3,500 full load hours per year, a base case typical Norwegian wind farm can produce at a levelised cost of energy (LCoE) of €44 ($49) per MWh, says Norwea.

That is already cheaper than prime locations close to the German North Sea that are considered to be among the continent’s best. But Thon Aasheim estimates the LCoE at Fosen will be even less — €35-40/MWh.

Last year, Statkraft announced it had axed the project — consisting of six large individual wind farms near the Trondheim Fjord in central Norway — saying it was uneconomical.

But since then, Statkraft has reconfigured its plan, swapping lower-wind-speed sites for higher ones, and increasing the expected average full load hours to more than 3,600 per year, with wind speeds close to 9m/s — similar to offshore.

It has also brought in heavyweight financiers such as Credit Suisse and found an electricity buyer, the hydropower and aluminium producer Norsk Hydro.

Obviously, the sheer size of the project creates economies of scale that cannot easily be reproduced elsewhere, especially in densely populated Europe.

“The size is a benefit. With that size, we got competitive bids [for the turbines],” says Steinar Bysveen, Statkraft’s executive vice-president for wind power.

Neither Statkraft nor Vestas, which won the contract for the mega-project, would reveal the exact turbine price for Fosen. But with an overall project cost of €1.1bn, the per-turbine price is likely to be at the lower range of a typical turbine price of €0.8m-1m per MW.

Vestas chief executive Anders Runevald tells Recharge that the company hasn’t bent its regular margin-approval process “in any shape or form for this project”.

A more powerful turbine

The project was also helped by the fact that in the past year, Vestas has created an optimised version of its 3.45MW machine that can generate 3.6MW. Statkraft now only needs to buy 278 turbines, instead of the previously planned 290.

The turbine maker has worked together closely with Statkraft to improve the business case of the project, its president for Northern Europe, Klaus Steen Mortensen, tells Recharge.

“We work together with the customer to optimise it from a turbine perspective and from a connectivity perspective,” he says. “We take into account the totality of the project economics.”

The turbines will be shipped to Fosen by sea, which will be far cheaper than by road, especially given Norway’s rugged geography.

Yet besides repeated assurances by Statkraft and Vestas that Fosen is economically viable for both and a profitable project, doubts linger, due to the extremely low electricity prices in the joint Norwegian/Swedish power market and a far-from-generous renewables support scheme.

Currently, electricity prices in the Nordic system are around €18-20/MWh, while green certificate prices hover around €15/MWh, according to Thon Aasheim. Adding the two — at current prices — gives the operator a maximum of €35/MWh, just at the lower end of what he thinks may be Fosen’s LCoE.

Investors and opportunities

There is a series of additional factors pushing the expected power price at Fosen down.

“We have sold some of the power forward to investors that find the cost attractive. That proves that it is a good project from a commercial point of view,” Bysveen says. “There is also a hedge, the possibility to sell power forward to customers.”

Through a 20-year power-purchase agreement (PPA), Norsk Hydro will buy close to one third of the expected annual output of 3.4 terawatt hours from Fosen, giving the economics of the projects more long-term visibility.

Dominik Bollier, managing partner at Credit Suisse Energy Infrastructure Partners, which leads a European investor consortium that holds 40% in the Fosen joint venture, tells Recharge: “We have already sold a great part of our share in the electricity. Besides, we invest with moderate expectations in regards to the rate of return.”

The remaining output from the project will be sold on the open market, with Bollier pointing out that most studies expect electricity prices to have substantially risen by the time the Fosen wind parks are commissioned in 2018-20.

“Those [higher prices] are expected as Sweden [which operates a joint electricity market with its neighbour] wants to exit nuclear power,” Bollier says.

“Moreover, Norway is building power interconnectors to Germany and the UK.”

Although electricity prices on wholesale markets have reached worryingly low levels across Europe, they are still higher in Germany and even more so in the UK.

The 1.4GW NorthConnect link between Norway and northeast Scotland is scheduled to start operating in 2022, while the 1.4GW NordLink to Germany aims to be operational by the end of 2018.

Norway also plans to push the energy transition further towards the heating and transport sectors, a development that will increase its electricity needs. This could push up electricity prices over the medium term, which would help the profitability of Fosen and other wind projects.

Norway gives generous tax exemptions to buyers of electric vehicles and has the highest e-car penetration in Europe, with more than 50,000 already on its roads — a considerable amount for a population of only five million. As part of its 2018-29 national transport plan, Norway is considering making all new cars and buses emissions-free by 2025, which would further increase the demand for electricity.

Another 1GW in Norway?

Statkraft may not be planning further big wind farms in Norway, but other developers are.

“We expect another 1,000MW of investment decision in Norwegian wind within the next year — all eligible for green certificates,” says Thon Aasheim.

That is partly a consequence of the Fosen final investment decision (FID). After Credit Suisse won the race to become a co-investor in the huge project, several other competing investors have stayed in Norway and are actively working on other projects.

“Know-how of the Norwegian market is in place, and of course, with the 1GW FID, confidence in the market is strong as well. That means access to capital isn’t a constraint,” says Thon Aasheim. He adds that with turbine prices at Fosen reportedly at a record low, other manufacturers have lowered their prices to compete with Vestas.

Some of those projects could also have an LCoE of €40/MWh or less, he reckons.

One project that was recently given the green light by the Norwegian Ministry of Petroleum and Energy is E.ON’s 155MW Songkjølen and Engerfjellet project northeast of Oslo, which has already been five years in planning.

The German utility plans to take an FID on the project by the end of next year, says Anette Blücher, head of development at E.ON Wind.

End of support?

Developers and operators will need to hurry to make sure they can still use the green certificate system.

If the government doesn’t change its view, the incipient Norwegian wind boom could already be ending. Petroleum and energy minister Tord Lien presented a White Paper on energy policy in April that foresees no introduction of new targets under the joint Norwegian-Swedish green certificate system after the current subsidies end in 2020.

Renewables projects that are commissioned during 2020-21 would still be eligible for support for 15 years, but new projects would have to be operated without support. The White Paper still needs to be approved by the Norwegian parliament, where the government coalition does not have a majority.

Bollier considers the construction of new wind projects in Norway without the green certificates or any other support system to be very complicated.

“That will be difficult. Fosen will already work very close to grid parity, but is still dependent on subsidies,” he says.

Additional reporting by Andrew Lee in London and William Steel in Aarhus

Wind

IN DEPTH: Europe’s biggest and cheapest onshore wind project