Insights

09/10/2012

Power from the wind

Wind power offers Finland an attractive means to hit its renewable energy targets. It is estimated that by 2020 some 800 turbines will operate throughout the country, bringing 2,500 megawatts of production capacity. And there are plans for much more wind farms in the pipeline. While the Finnish wind power industry is still in its nascent stage, look for this to change in the near future.

If things go as planned, Finland will increase its share of renewable energy significantly by 2020. Currently, about 30 per cent of the country’s electricity production is from renewables. This amount is set to increase to 38 per cent in the next eight years.

Part of Finland’s package of renewables is an increase of its wind power production to around 2,500 megawatts (MW) of capacity by 2020. Projects already in the works may set this amount even higher than is planned by national targets. The growth of interest in the wind power industry in Finland is thanks to, in large part, the feed-in tariff system that came into force on 25 March 2011. 

Guaranteed revenue streams

The feed-in tariff provides wind power producers with a guaranteed production premium of wind power that is set at the difference between the target price and the three-month average spot market price. 

The current target price is EUR 105.30 for each produced megawatt. This amount is planned to drop to EUR 83.50 at the end of 2015. The total time for the feed-in tariff is a maximum of 12 years. The tariff is available for an installed capacity of 2,500 MW. After this national target is reached, any remaining project will not receive the feed-in tariff, unless the Finnish legislature increases the capacity amount.

This attractive revenue stream has piqued the interest of local energy producers, developers, and new wind power participants in the market.

Regulatory and administrative burdens

But before construction can move forward faster, Finland has regulatory and administrative hurdles. The same rules apply for wind power projects as for any other construction development. Yet, unlike for a typical building project, a whole host of other permits are needed for wind farms. As it stands, multiple governmental agencies require their own processes or permit requirements overlap, adding unnecessary delay and cost to each project.

Construction financing also requires specialised understanding. Banks may have covenants stating financing is subject to a producer getting the approvals for the feed-in tariff subsidy. However, final approval to the feed-in tariff does not come until the wind farm is ready for commercial use. If financing is needed in the build-up stages to get projects up-and-running, banks may have to bear some of the risk that the final tariff approval will, in fact, come once the wind farm is online. 

What remains unclear is how participants in Finland will work around this dilemma once wind power projects reach the tens or hundreds of million euros. To get project started, it is possible that developers will seek a greater share of equity funding, bridge financing or non-bank investment sponsorship in the pre-tariff approval stages. Banks may also look to syndicate financing to spread some of the risk.

Attractive coastal locations

Some of the biggest environmental impacts wind farms cause comes from the noise from the moving propellers and from the shadows the structure creates in neighbouring lands. A wind farm’s presence in an otherwise minimally habited area also is arguably an eye-sore.

Different stakeholders are looking into ways to compensate landowners from any impairment in the value of their property that a neighbouring wind farm brings. Locating projects alongside motorways, in industrial harbours and in other already built-environments also presents an attractive option that helps to combat the not-in-my-backyard effect that has stalled some wind farm projects.

The Finnish government has acknowledged the obstacles and recently commissioned a report that provides solutions to many of the current challenges. 

Compared to neighbouring Nordic countries, Finland’s installed capacity of wind power is currently much lower. By the end of 2011, Sweden already had 2,899 MW of installed capacity in operation, while Denmark had 3,871 MW. At the end of 2011, Finland had just 199 MW of installed capacity.

However, helped along by the Finnish government’s support for the industry’s development – combined with strong public approval (some 90 per cent of Finns are in favour of wind power production) – there are signs that what is now an industry in its early stages of growth will gather strength in the years to come.

Moving wind power forward

In August, the Finnish government allocated EUR 125 million in its 2013 budget to fund the feed-in tariff system for renewables, which is a significant increase from the EUR 97 million apportioned this year. Wind power should benefit from this enhanced funding, but, nonetheless, getting projects started remains problematic. 

In the report Tuulivoimaa edistämään (Moving Wind Power Forward), issued last April, Minister Lauri Tarasti offers 16 solutions to the Finnish government on how it can cut certain pre-construction processes to get wind-farms operating faster. Minister Tarasti updated his study in August with another report that discusses how to streamline permit processes. 

In July, the Ministry of the Environment also issued a comprehensive report that summarises the procedures needed to get a wind power plant constructed. The report does not offer solutions to the current procedural bottlenecks, but, rather, serves a guideline for how the current process works. 

As it stands, Finnish ministries and a working group are figuring out how governmental authorities can implement Minister Tarasti’s ideas on a practical level.

You can see the full report in Finnish (Tuulivoimaa edistämään) by visiting the Ministry of Employment and Environment website: http://www.tem.fi

The firm is regularly involved in leading wind power projects in Finland.

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