(Bloomberg) — Situated on a blustery plateau simply south of the Arctic Circle in Sweden, Markbygden Ett turned the crown jewel of Europe’s largest onshore wind improvement when it went on-line late final decade. Regardless of a long-term contract assumed to be secure, it turned an costly lesson within the risks of constructing offers primarily based on the predictability of vitality costs — or the climate itself.
Most Learn from Bloomberg
Within the years because the 179 generators began spinning, operator Markbygden Ett AB has racked up lots of of hundreds of thousands of euros in losses and suffered a heavy reputational blow. That traces again to a essential misstep: signing a 19-year contract referred to as an influence buy settlement that included unrealistic expectations about how a lot electrical energy the farm would produce across the clock. When there wasn’t sufficient wind, or the generators have been offline, Markbygden Ett needed to make up the distinction by shopping for electrical energy on the spot market, the place hourly costs are dynamically decided by availability.
Russia’s invasion of Ukraine compounded the issue. That triggered energy costs to soar, triggering the mission’s spiral into monetary misery.
The scenario that Markbygden Ett discovered itself in isn’t distinctive. The operators of not less than two different large Swedish wind parks have ended up in comparable positions on account of disastrous energy buy agreements, and photo voltaic parks in Chile have been pressured to cancel contracts amid vitality market upheaval. Different instances in Germany and the Nordic nations haven’t been made public but, analysts say. Consequently, the phrases of those multi-year offers are getting extra versatile.
Energy buy agreements are purported to be a win-win. Main industrial shoppers like Norwegian aluminum producer Norsk Hydro ASA, which signed the take care of Markbygden Ett, are assured years’ value of regular energy, and wind farm homeowners in flip can leverage these contracts to safe financial institution funding and, in concept, keep away from the turbulence of the electrical energy spot market. Within the case of Markbygden Ett, analysts and trade sources say that banks required an formidable PPA to supply funding.
The issue with these preparations was that, even when the wind didn’t blow, the parks have been nonetheless contractually obliged to supply vitality.
Markbygden at first appeared like a secure guess. Plans for the mission got here into view many years in the past when Hans Bergstrom, now a professor emeritus in meteorology at Uppsala College, was employed by a wind developer to search out appropriate places. When he found the realm the place Markbygden would later be constructed, he discovered that wind speeds on the plateau have been as much as 40% greater than within the surrounding river valleys.
“It was a surprisingly massive space,” he recalled. “In the event you wished to construct in northern Sweden, with out going into the mountain vary itself, it was a fairly distinctive place.”
The mission suffered from years of delay on account of crimson tape. In 2017, Macquarie Group Ltd.’s GIG arm and GE Vitality Monetary Companies closed on the Markbygden Ett mission for €800 million. It will be the flagship mission within the Markbygden advanced of wind farms. It was anticipated to ultimately generate the equal of 8% of Sweden’s annual energy consumption. In 2018, China’s CGN took management of the wind park as a part of an growth into Europe.
The PPA that Markbygden Ett’s homeowners signed with Norsk Hydro blew all different PPAs out of the water. Whereas the precise business phrases are intently guarded secrets and techniques, trade sources pegged it at a really low degree, round €25 per megawatt-hour, reflecting market perception on the time that vitality costs would stay low. At 19 years, the contract was additionally for much longer than most on the time. By comparability, a 2023 BloombergNEF survey put the typical 10-15 yr PPA worth for onshore wind in Sweden at simply over €60 per megawatt-hour.
“We have been all very enthusiastic about it when it was agreed. It was groundbreaking, pioneering stuff,” recalled Giles Dickson, CEO of trade group WindEurope. The deal doubled the amount of energy contracted underneath new company PPAs in Europe that yr, based on a GIG assertion on the time.
Markbygden Ett began delivering the contracted energy in 2021. However solely a yr later, Russia invaded Ukraine, sending electrical energy costs to document ranges. That may usually be good for a generator, however since Markbygden Ett wasn’t in a position to ship on a relentless foundation the 1.65 terawatt-hours it had optimistically promised to provide yearly, it changed into a catastrophe. To fulfill its obligation, it had to purchase electrical energy on the spot market, based on the agency’s 2022 annual accounting.
As electrical energy costs skyrocketed, the alternative energy that Markbygden Ett wanted to purchase turned extra of a monetary burden. Losses ballooned from €24 million in 2021 to €175 million in 2023, based on annual accounts. A restructuring plan was permitted late final yr, and the PPA was voluntarily canceled.
Hydro is due €248 million, based on a court docket doc. And as of the top of 2023, liabilities to credit score establishments totaled €381.5 million. Final possession of Markbygden Ett was transferred to a Dutch basis as a part of the restructuring.
Different corporations that signed comparable offers have additionally suffered. The Aldermyrberget wind park, about an hour’s drive south from Markbygden, fell into monetary misery after a PPA with mining firm Boliden AB pressured it to purchase further electrical energy on the open market. Even additional south, the Overturingen wind park has been underneath restructuring since August. It too racked up enormous losses after a PPA with Hydro pressured it to start out shopping for alternative energy.
Cloud Snurran AB, which owns Overturingen, wrote in a 2023 report that the park was producing as a lot as 15% much less electrical energy than had been anticipated. And on the top of the vitality disaster in late 2022, Aldermyrberget struggled with low wind and ice on turbine blades, its proprietor mentioned in an annual report. Citing “extraordinary climate circumstances,” EB EEE LHI Vindkraftpark Aldermyrberget AB described its deal as “extraordinarily unfavorable.”
Representatives for the homeowners of Overturingen and Aldermyrberget declined to remark for this text.
The working firm behind Markbygden Ett is planning to ultimately promote the wind farm, mentioned David Hargrave, a UK-based restructuring specialist who joined final September as chairman and director. He’ll have a look at coming into a brand new deal “possibly of a PPA nature” or comparable, he mentioned in an interview. “In an excellent world you’ve obtained extra certainty in your revenues than simply being reliant on the day-to-day service provider costs,” Hargrave mentioned.
PPAs will however stay essential. In September, the European Fee’s Draghi report highlighted their position in boosting European competitiveness by providing worth certainty to massive industrial gamers.
Having seen wind parks wrestle, mentioned Alexander Esser, head of Nordics at Aurora Vitality Analysis, operators are embracing “extra versatile offtake agreements with extra safety in opposition to quantity and worth dangers.”
Clients are additionally altering their method. Whereas Hydro secured three new long-term PPAs within the fourth quarter, based on its final annual report, it additionally acknowledged in an e mail remark that the period of lengthy and huge PPAs is “most likely over.” The corporate now plans to “work actively out there and construct a broad portfolio of smaller contracts.”
Matilda Afzelius, chief government officer for the Nordic area at Renewable Vitality Programs Holdings Ltd., mentioned the trade must get smarter in terms of financing huge inexperienced initiatives. “We’re coping with a pure useful resource right here that’s at all times altering,” she mentioned. “In fact issues can occur and go unsuitable.”
Even after Markbygden Ett’s failure, nonetheless, the geographic space hasn’t misplaced its attract. Norway’s state-owned utility Statkraft AS snapped up a brand new wind mission there as a part of a portfolio in 2023. In December, it signed a memorandum of understanding with iron ore large LKAB to promote energy from the deliberate park. If it goes forward, it may very well be prepared by 2029.
The placement is superb, mentioned Jakob Norstrom, CEO of Statkraft in Sweden. However when signing a PPA, he struck a notice of warning: “It’s essential to search out the precise stability so that you don’t promise an excessive amount of.”
Most Learn from Bloomberg Businessweek
©2025 Bloomberg L.P.
