INTERVIEW: Alight targets 5 GW Swedish PPA-backed solar by 2030

Swedish solar developer Alight aims for 5 GW of installed solar capacity backed by power purchase agreements by 2030, co-founder and Chief Investment Officer Richard Nicolin said.

The first 2 GW will require investment of around Eur1 billion ($1.1 billion), with projects mainly based in southern Sweden's SE3 and SE4 price zones, allowing for higher prices.

"The PPA model is going to be the dominant revenue model for large-scale solar in Europe, while rooftop solar [C&I segment] will be, to a large degree, PPA-backed as well," Nicolin said in an interview with S&P Global Commodity Insights.

Sweden halted subsidies to utility-scale renewable projects in 2021, forcing developers to explore merchant routes.

"PPAs are a way to manage risk for investors and lenders, and thus an enabler for the financing needed for the buildout," he said.

The Swedish solar market has seen a dramatic increase in development activity over recent years, with 30 developers now and up to 30 GW of projects under various stages of development.

"Grid connection queues and permitting queues have built up and resulted in longer development times of two to five years," Nicolin said.

Despite some inevitable attrition, 15 GW of installed grid-connected solar by 2030 in Sweden is not impossible, he said.

The country currently has 4 GW of solar installed, and sector association Solar Power Europe has forecast almost 8 GW to be added by 2027, including residential rooftop and C&I projects.

Premium package including GOs

Alight's focus is on utility-scale ground-mounted projects (10-100 MW), but also some "behind-the-meter" rooftop solar projects ranging from 1 MW to 10 MW.

Most of its planned projects are in Sweden and Finland, which is catching up quickly, while 10% are planned across a handful of European markets, including the UK.

"We're targeting the Fortune 500 type of customers with large power needs spread over many facilities, in some cases spread across countries, but always backed by PPAs," Nicolin said.

Its biggest project, the 100-MW solar farm at Hultsfred in Sweden, jointly developed with France-based Neoen, is set to come online in 2025, supplying electricity for fashion retailer H&M.

The PPA deal includes Guarantees of Origin which makes the power sold under the PPA "premium power," he said.

"The prices we achieve on PPAs reflect that our customers put a high value on buying solar power from a specific solar project."

"You need to be careful when it comes to an artificial construct like a GO -- it's so difficult to anticipate the dynamics of the power markets and regulations 10 or 20 years into the future," he said. "In our investment decisions, we always make an assumption about GO value, but we have taken a conservative approach when assessing long-term values."

GO values for EU solar and wind have fallen below Eur3/MWh after peaking near Eur10/MWh in late 2022.

Platts, part of S&P Global Commodity Insights, last assessed EU solar 2024 vintage at Eur3.04/MWh on Feb. 12.

Longer merchant tail

During 2023, standard 10-year solar PPAs in Sweden's SE4 price zone were signed in a range of Eur60-70/MWh, the Alight CIO said.

That compares with Eur43.54/MWh for the Platts Pexapark index on Feb. 9 for a 10-year solar PPA in Germany.

Capture prices for German solar, a fairly close proxy to southern Sweden in terms of annual sunshine hours, averaged just below Eur80/MWh in 2023, according to S&P Global.

Costs for Swedish solar projects are currently around Eur600,000/MW including EPC and grid connection, Nicolin added, with longer-asset lifespans allowing for lower short-term breakeven prices.

"It's more and more becoming market standard among the developers and investors to look at a 40-year lifetime for the asset," Nicolin said, allowing for a much longer "merchant tail", with the "core value of the grid access basically having a eternal lifetime."

Alight customers typically sign PPAs for three reasons: to save money, to have cost certainty and to secure access to clean renewable power.

"Those three values are fairly eternal. Perhaps green credentials will become even more important in the future," said Nicolin, who founded Alight in 2013.

"Whether the value of the green credentials are expressed in the price of a GO or some other regulatory system, I don't have a strong opinion, but I think there will be value in green credentials. And I think, it will be possible to charge a premium for good power versus bad power in the future."

The company is backed by DIF Capital Partners, which invested Eur150 million in 2022, and Sweden-based Gullspang Invest.