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Fortum: Phasing out renewables subsidies is 'good development' for Nordic market

Finnish utility Fortum Oyj is optimistic about the future of the Nordic renewables market as it moves away from government subsidies toward merchant generation.

While developers in the region still benefit from state support for renewable power plants, the programs are likely to be phased out in the coming years as green power becomes more competitive.

Sweden is planning to phase out onshore wind farm subsidies by 2021, Energy Minister Anders Ygeman told Reuters on Oct. 23. The country's subsidy program is set up in conjunction with neighboring Norway, whose own program is also set to end by 2021, Reuters reported.

"The renewables market in the Nordics is clearly becoming a merchant market without subsidies," Fortum CFO Markus Rauramo told analysts during the company's third-quarter earnings call Oct. 24.

"We think it's a good development for the market, because it means that the different technologies can compete on market terms," without concerns over the technology favored by policies, Rauramo said.

The onshore wind market in the Nordics is already seeing significant capacity additions, driven in large part by favorable wholesale power prices and strong demand for renewable electricity from industrial off-takers, such as aluminum producers.

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"Turbine orders and market activity suggest we will see significant volumes grid connected in Sweden and Norway in the second semester," industry association WindEurope said in its midyear report. The organization's latest sector outlook projected Sweden will add 7.5 GW, Norway will add 3.1 GW and Finland will add 2.4 GW of onshore wind between now and 2023.

For its part, Fortum is building the 90-MW Kalax wind farm in Finland, set to start producing power in the first quarter of 2021, and the 97-MW Sørfjord project in Norway, where first power is expected later this year.

In an example of the changing landscape in the Nordics, the utility signed a 12-year agreement this week to sell part of the power from Kalax to Finnish oil refiner Neste Oyj.

Gaining control of Uniper

Fortum's optimism around merchant wind development in the Nordics is central to its plan to "create a leader in the European energy transition," which was bolstered recently when it agreed to gain control of German utility Uniper SE.

The company entered into an agreement Oct. 8 to acquire an additional 20.99% stake in Uniper from activist investors Elliott Management Corp. and Knight Vinke Energy Advisors Ltd. for approximately €2.3 billion. In announcing the deal, executives spoke of several potential synergies, including the companies' activities in Sweden and Russia.

But the takeover, subject to approval by competition authorities in the U.S. and Russia, has not been universally welcomed at Uniper, with resistance coming from employees and the company's board.

"We have tried really hard for a long time to build a good relationship, and we are all the time in discussions with board and employee representatives," Fortum CEO Pekka Lundmark said on the earnings call. A reason for the company's decision to commit to a two-year embargo on a dominant share takeover or delisting of Uniper was "to give the organizations time to get to know each other," Lundmark said.

Fortum posted positive results for the third quarter, with comparable EBITDA of €295 million, up from €230 million in the same period in 2018. Comparable operating profit rose to €153 million, from €96 million a year ago.