Nordic countries are ideal for investments in wind in Europe, and Spain in solar, thanks to record low power production prices, strong resources and stable policy frameworks, the head of the renewable energy investment platform backed by Canada's Pension Plan Investment Board (CPP Investments) told Recharge.

Renewable Power Capital (RPC), which develops and operates onshore wind and solar projects for CPP Investments, last month had formed a joint venture with local developer Benbros Solar to develop over 3.4GW of solar power in Spain.

The company, which was only launched in December 2020, earlier this year had already announced the purchase of a 171MW onshore wind portfolio in Finland from regional developer OX2.

Low prices, functioning markets

In both cases, RPC is opting for merchant projects, making both low prices and well-functioning wholesale power markets essential.

“What we look for in a subsidy-free world is large and liquid power markets, which both the Nordics via Nord Pool and Spain via the Iberian power market have,” RPC chief executive Bob Psaradellis said in an interview.

"The Nordics and Spain are logical fits, because they have very strong resources. Wind in the Nordics, and solar in Spain.”

They have “deep and liquid power markets, and are very large on a terawatt basis, and very liquid in terms of frequency and the amount that is traded on a short term basis.”

When competing on the merits of a project and not on the subsidy, then the levelised cost of energy (LCOE) is very important, Psaradellis stressed.

“The Nordics lead the way in Europe on LCOE for wind, and Spain leads the way in Europe on LCOE for solar.”

Nord Pool is a power exchange owned by Euronext and the transmission system operators (TSOs) of the Nordic and Baltic states. Next to its core area, the exchange also trades electricity from nearby markets across Northern Europe ranging from Germany to the UK.

Nord Pool

But thanks to a great amount of cheap hydro and wind power in Norway, Sweden and Finland, Nord Pool prices in recent years at most times have been lower than in the rest of Europe, in some cases threatening the economic viability of wind power projects.

Norwegian renewables giant Statkraft, for example, last year took a near $250m impairment hit due to the expectation of lower future income from giant wind farms in Norway and Sweden, triggered by a toxic mixture of a drop in energy demand due to the Covid-19 pandemic and plunging power prices (due to above average levels in hydro-power reservoirs).

The Nordic system day-ahead price in the early afternoon today stood at €34.98 per megawatt hour, according to Nord Pool, but fluctuates on a daily basis. The system day-ahead price hit a record-low €10.93/MWh on average last year, after an average of €38.94/MWh in 2019.

Asked, how merchant wind projects can be profitable in such low-price power markets, Psaradellis said his company takes a very long-term view in investments, which enables it to compensate for bad years.

"Our strategy is a buy and hold strategy. We look at every investment with the perspective that we will be the owner of that project for 30 years,” Psaradellis said.

"Power prices can go low and stay there for some time, but they generally don’t stay there forever.

"Nord Pool is for us the most attractive power market in Europe. Because it is by far the largest and most liquid.”

Stable framework

Next to market liquidity, good wind or solar resources and projects with a favourable LCOE, Renewable Power Capital is also looking at investing in countries with stable political frameworks that have a history in upholding the rule of law – all of which is the case in the Nordics and Spain, he added.

RPC is already looking at the next four investments in Europe, but Psaradellis declined to go into too much detail as to volumes or exact locations.

“We have a very robust pipeline. We don’t disclose forward looking investment targets as such. But we are backed by a multi-billion dollar strategy that CPP Investments has launched in power renewables.

“We have a lot of appetite to invest, both in the Nordic and Spanish markets that we have now ventured, but also in other markets that we are looking at very carefully."

Wind

'Nordics leading way in Europe on wind and Spain on solar cost of energy'