Developers see Nordic solar market emerging from shadows

While developers in mature solar markets like Spain grapple with price competition and grid congestion, project pipelines in Nordic countries are only just getting started, and market players are upbeat about solar's prospects in the region.

Sweden and Finland, which currently have next to no utility-scale solar, each have multi-gigawatt project pipelines under development, data from S&P Global Market Intelligence shows.

As November nights draw in earlier and sunlight hours are few, it may be hard to imagine that the Nordic region allows the solar business case to add up. Indeed, the amount of sunlight hours in Northern Europe is substantially lower than in Spain or Italy across the year.

Yet, profitability for solar development is being bolstered on multiple fronts, one of them being the low market penetration.

"There simply isn't a lot of solar in the market in the Nordics. It's not the same price cannibalization," said Warren Campbell, COO of Stockholm-based developer Alight AB.

Alight is partnering with Neoen SA on Sweden's largest solar farm to date, the 100-MW-peak Hultsfreds project, whose power is being sold to fashion giant H & M Hennes & Mauritz AB (publ).

"Neoen operates on four continents and Sweden is one of our most promising countries," Neoen CEO Xavier Barbaro said in a statement, adding that the company has invested around €150 million in the country since 2020 and plans to accelerate that spending further.

While the Nordic region has fewer annual sunlight hours than anywhere else in Europe, Campbell pointed to other operational factors that are more favorable. For instance, lower temperatures and cleaner air mean the efficiency of panels used in the Nordics is fairly high.

Big projects being announced

Think tank Aurora Energy Research forecasts that solar will generate 5 TWh annually by 2030 in Sweden, a doubling from today's level. This includes both rooftop solar and utility-scale projects.

Behind-the-meter installations are slowing down due to reduced incentives, according to Alexander Esser, head of Nordics and Baltics at Aurora. "But the grid sales, that's really picking up. You see really big projects being announced," Esser said in an interview.

Developers see the addition of solar into their portfolio as a technical hedge across weather periods and seasons, Esser said.

"The low levels of solar [photovoltaic] generation in the Nordics lead to attractive solar capture rates as the generation profile is different than wind, making the cases attractive from a [levelized cost of energy] point of view," said Ibrahim Makdessi, investment manager at Nordic investor CapMan Oyj.

Liquid PPA market

A key driver behind the solar momentum is the expectation of structurally higher power prices in the region and a liquid market for power purchase agreements (PPAs), including offtakers willing to sign pay-as-produced deals, Esser said.

Alight finances its projects exclusively via PPAs. While Nordic heavy industry is a longstanding partner in PPAs for wind and hydro assets, Campbell points to a raft of less energy-intensive sectors which nonetheless are increasingly interested in solar PPA deals given strong net-zero ambitions and rising power prices.

Aside from fashion companies like H&M, such partners are food producers, tech companies and even banks.

While PPA prices have climbed in the past year, Swedish solar PPAs are cheaper than those in most other European markets. According to PPA platform LevelTen Energy Inc., Swedish solar prices averaged €64.50/MWh during the third quarter, compared to the European weighted average of €74.06/MWh.

In Europe, equipment costs for solar have also come down significantly in recent months, due to high imports of cheaper kit from Chinese production. This has also helped Nordic solar projects.

"Solar has a history of economics often being challenging. You have a relatively low return over a relatively long period of time," Campbell said. "So I would say that yes, reductions in cost have helped to get the case to work."

Finland shows solar promise

Norway, Sweden's mountainous neighbor that already boasts ample renewables from wind and hydro, is the only country in the region that does not have a meaningful utility-scale solar potential.

The most advanced Nordic solar market is Denmark, which has 1 GW of operational utility-scale projects, according to Market Intelligence data. The country is linked up to the central European grid, which bolsters power prices.

The build-out of international interconnectors is also improving the price outlook for more remote regions.

Projects in Finland, which sits at the northeastern edge of Europe and in a time zone one hour ahead of central Europe, will be able to send solar power to demand hubs via interconnectors during its noon generation peak, which happens earlier than in central Europe. This could yield more attractive prices, Esser said.

Uptick in M&A activity

CapMan has observed a 20% increase in the number of Nordic solar M&A deals so far this year compared to 2022, despite lower merchant power prices and higher interest rates.

"We believe that is supported by quicker permitting, which is the case as solar is less intrusive than wind," in addition to a drop in the price of panels, said Makdessi.

In Finland, access to land and grid connections is often simpler than in other regions, said Campbell. While it is still in the early days, "we're quite bullish on the Finnish market," he said.

These market fundamentals have enabled CapMan's first investment into Finnish solar platform Skarta Energy Oy, Makdessi said, and more investments into Nordic solar will follow.

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