Power giant set to seize national wind market -- Vattenfall intent on meeting most of Sweden's renewables target

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Sweden's state-owned utility, Vattenfall, revealed last month that it is setting up to dominate the country's wind market. The nuclear-hydro giant said it will be investing around SEK 40 billion (EUR 4.2 billion) in power plant development to produce 10 TWh of renewables generation a year by 2016 -- well over half the 17 TWh goal set by government for that date. Most of the investment, in total leading to 30,000 man hours of work, will be in 3000 MW of new wind power capacity to produce 7.5 TWh, says Vattenfall. About 1.2 TWh will come from new hydro power and another 0.5 TWh from biofuels.

Vattenfall, one of Europe's top five electricity producers, with extensive transmission and generating assets in Germany as well as Sweden, produces around 169 TWh a year, of which around 800 GWh comes from small hydro, wind and biofuels. It also operates in Finland and Poland and in total serves nearly five million customers across Europe. Last month's announcement of the utility's wind plans for Sweden coincides with the launch of a major global media campaign by the company, in which it tells the world, "We have a plan to combat climate change," against a backdrop of a lion stalking penguins in an African landscape. The plan includes a global emissions trading market.

Only modest

To date, Vattenfall's involvement in Swedish wind power development has been restricted to investment in no more than a handful of turbines. The country has just 500 MW of wind capacity, nearly all of it developed by the private sector.

"This announcement, it's going to speed up the development process," says Jan Avall, director of investment in wind power at Vattenfall. "The signals from the Social Democrats and the Greens and even the Conservative party too are that wind is an important part of the production portfolio," he adds.

Avall's enthusiasm is in marked contrast to the reaction of Matthias Rapp of the Swedish Wind Investors and Developers Association. Vattenfall's huge goal could come to dominate domestic development and put a damper on the fledgling market, which is based on a government mandate for green power facilitated by trade in green electricity certificates.

"In my opinion, there are possibly other ways for Vattenfall to promote renewables than just building it all themselves," Rapp says. "Vattenfall is criticised for being dominant in nuclear and being dominant in hydropower and now they want to be dominant in wind power."

Rapp feels Vattenfall's announcement is politically influenced by the ruling Social Democratic party, eager to solidify its base for Sweden's September general election. "It's an election year, after all," Rapp says. "The Social Democrats only want to seem to be popular, to be doing the right thing."

But Vattenfall's Anders Dahl, head of Nordic generation, says that 10 TWh, while a significant goal, is only a moderate increase from Vattenfall's previous forecasts for its wind development ambitions. While Vattenfall may end up as one of the bigger players in Nordic wind, Dahl says there is plenty of market opportunity for others.

Sharing the pie

"We are ready to do our part, but Vattenfall can't do it alone," he says. "Overall we don't have the entrepreneurial resources. The pie is plenty big enough. I expect it will be a mixture of our own development and acquired projects that will get us to the goal."

Avall says Vattenfall has recently reaped considerable wind development know-how after its acquisition of Danish utility Elsam. Through the purchase it gained stakes in offshore wind stations in Denmark and England (Horns Rev and Kentish Flats) and employees with years of experience of operating wind plant. "We're putting our Elsam resources into several new projects," Avall says. "I see my role right now as building up, strengthening the organisation."

In late 2005, Vattenfall contracted with Spanish wind power developer Gamesa to build up to 200 MW of onshore wind capacity in Sweden in a deal that Gamesa said could be worth EUR 240 million (Windpower Monthly, January 2006). Avall says Vattenfall, while still reviewing the list of 12 potential onshore projects Gamesa has offered, expects to give a green light to favourable prospects within weeks.

Restricted market

Rapp and Dahl agree that Sweden's wind power ambitions are still heavily hampered by restrictive project permitting. Environmental and building permits can average around five years. Despite government efforts, not much time has been trimmed from that figure.

In announcing its intentions, Vattenfall says it is also counting heavily on the Swedish government to pass a new law -- now before parliament -- that would extend the country's green certificates market to 2030 by setting a long term mandate.

Vattenfall must also contend with rising costs of wind development. German-owned utility E.ON, which operates in competition with Vattenfall in southern Sweden, announced in May that its Swedish offshore 86 MW Utgrunden II development is facing delays due to high price and tight supply of turbines. "I totally understand E.ON," Avall says. "There are very big problems with trying to look ahead -- the increase to supplier prices is one very big risk we contend with."

More speed, less haste

Avall's caution echoes another concern expressed by the wind association's Rapp. He fears too much government pressure on the utility could lead to an overheated market, particularly with regard to offshore wind development. Rap cites the Lillgrund 110 MW offshore project on which Vattenfall has just begun construction (Windpower Monthly, April 2006). External pressures may have led to hasty decision making, he says. The facility, using 48 Siemens 2.3 MW turbines, is due online next year.

"My point is only that Lillgrund is going to be expensive and they might not make money on it for some time," Rapp says. "Vattenfall must be able to choose projects based on commercial viability. If they build more quickly without meeting commercial criteria, that means lower revenues -- that's not good for the market or for Vattenfall."

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