How to grow onshore wind capacity?

The Ministry of Petroleum & Energy has issued on June 19, 2020 a long-awaited “Vindkraft på land - Endringer i konsesjonsbehandlingen” - restarting NVE’s concession assessment process for existing and new onshore wind project applications.

What are then the prospects of further development in onshore wind in Norway and what capabilities will enable profitable development of onshore wind within the new regulatory envelope? 

Having worked with many of the actors along the value chain that have enabled the recent growth in wind power capacity in Norway and abroad, we see the value onshore wind power brings to the markets and society, but also the importance of minimising the footprint in nature and taking care of local interests.

Significant potential

Norway has an ambitious decarbonisation agenda ^1. While in a normal year it has excess power, 2019 illustrates the value of being interconnected ². to the Nord Pool power market and developing additional power capacity. As more of the industry, transport sector and remaining society undergoes electrification, the demand for electricity will increase ³. 

We believe onshore wind has a significant potential to satisfy the anticipated growth in electricity demand. Further hydro power expansion at some point will reach its limits without major natural interventions, and other technologies such as offshore wind need more time to undergo the same learning curve as onshore wind, for their cost to decrease further. 

Onshore wind is currently the most cost-competitive alternative to develop in Scandinavia and its LCOE is expected to decline even further. The 90+% hydropower-based Norwegian power system has a complementary production profile with wind power and can balance the short-term cyclicality of a wind based power system. Further development and incorporation of onshore wind into the grid can also stimulate the sector knowledge in Norway. In addition, further growth in onshore wind will position Norway and its businesses towards development of ancillary energy storage solutions (including green hydrogen4), smart grids5 and other opportunities along the energy transition process as part of the European Green Deal and beyond. 

How to succeed with onshore wind

Going forward, the capabilities that we see as more important for the players who are likely to succeed in developing onshore wind include:

• Local presence throughout the full lifecycle of the wind project 

• Political and economic clout to effectively manage the interests and concerns of different stakeholders

• More flexible investment mandates towards solutions beyond a single asset / energy source that optimise the regional opportunities (supply and demand development within transmission constraints)   

We expect that the current business model behind onshore wind will continue on a select project level. However, to develop the full onshore wind potential in Norway profitably will require a mix of the above capabilities. While the energy utilities and large offtakers are amongst the natural players to develop this sector, we expect new partnerships and innovative solutions to evolve from other market participants. 

Onshore wind development to date and its development potential to 2030

Norway has experienced  significant growth in onshore wind capacity over the last years. Since the start of the El. Certificate support scheme in 2012, Norway added 1.7GW capacity; the second fastest increase across the EU28+3 countries relative to its starting 2012 capacity6. In addition, there is 1.5 GW of capacity being either under construction or approved for completion in 2020 and 1.4 GW for 20217, before the support scheme ends8. 

Both the NVE and Statnett have over the past 12 months  published a number of scenarios9 how both the demand and supply of electricity could evolve in Norway towards the carbon-free, fully electric economy. The economic rationale of onshore-wind along other energy sources is clear but the development estimates vary from a couple of additional TWh/a to 15+TWh of new projects by 2030 beyond today’s in-construction and approved NVE pipeline.  

Synthesis of the new regulation

Given the recent pace of development and growing local resistance to new onshore-wind projects, the new regulation focuses on making future wind development:

• more inclusive for local municipalities to balance social, environmental and economical impact through initiatives such as  greater involvement of local municipalities/county governor in the application review process by NVE (including early rejection, requirement for maximum height and better impact assessment), more emphasis on terrain interventions, reindeer herding/bird life and considerations of potential compensation scheme for municipalities;
• considerate of regional and national energy balance and available alternatives such as refurbishment of existing and build up of new hydropower, concentration of onshore wind projects within a region and coordination between production and network capacity; and 
• more transparent in terms of process steps, and time for application and development by introducing a two year deadline for impact assessment from the date of notice announcement. Introducing a two year deadline for detailed plan after being given a concession, and a two to three year deadline for once the detailed plan is approved. In addition, there will be stricter requirements of on-the-ground presence for the owners during the construction phase.

Additionally, the government has promised to return to the parliament with suggestions on any potential compensation scheme for municipalities including changes to the taxation. 

Evolving space with a room for innovation

To what extent, how quickly and where onshore wind will be developed going forward in Norway depends on how the traditional onshore wind players - developers, utilities, offtakers, traders and investors - can evolve and combine their business models. Going forward, the growth will need to handle the delicate balance of being more sustainable and inclusive, whilst being competitive and profitable in an international context given the risks involved (such as area specific merchant price variability reflecting grid capacity constraints, especially in NO4).  

This is a dynamic space, evolving at a high pace. We are in discussions with various players about how they see the future attractiveness of the Norwegian onshore wind market and will be publishing further insights throughout the autumn.