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Friday, Oct 17, 2014

World

Wind blows away fossil power in the Nordics

Reuters | Friday, Oct 17, 2014

Bals-Fiord near the village of Mestervik.

OSLO - Wind power is blowing gas and coal-fired turbines out of business in the Nordic countries, and the effects will be felt across the Baltic region as the renewable glut erodes utility margins for thermal power stations.

Fossil power plants in Finland and Denmark act as swing-producers, helping to meet demand when hydropower production in Norway and Sweden falls due to dry weather.

The arrival of wind power on a large scale has made this role less relevant and has pushed electricity prices down, eroding profitability of fossil power stations.

"Demand for coal condensing power in the Nordic power market has decreased as a result of the economic recession and the drop in the wholesale price for electricity," state-controlled Finnish utility Fortum said, booking an impairment loss of about 25 million euros($31.67 million).

Nordic wholesale forward power prices have almost halved since 2010 to little over 30 euros per megawatt-hour (MWh) as capacity increases while demand stalls on the back of stagnant populations, low economic growth and lower energy use due to improved efficiency.

Short-run marginal costs (SRMC) of coal generation were 28.70 euros per megawatt-hour (MWh), the Nordic power regulators said, while costs of gas-fired power generation were much higher, at 53 euros/MWh in 2013.

"The Nordic system price will likely more often clear well below the production cost for coal fired power production," said Marius Holm Rennesund Oslo-based consultancy THEMA.

"This will, in our view, result in mothballing of 2,000 MW of coal condensing capacity in Denmark and Finland towards 2030," he added.

Adding further wind power capacity at current market conditions could lead to power prices dropping towards as low as 20 euros per MWh, the marginal cost for nuclear reactors, Rennesund said.

PART OF A PLAN

Denmark and Finland have about 11,000 MW of coal, gas and oil-fired generating capacities, Reuters estimate shows.

Pushing fossil-fuelled power stations out of the Nordic generation park is part of government plans across the region.

Denmark wants to phase all coal use in power generation by 2030 and to generate all power and heat from renewables by 2035.

Wind power is expected to meet half consumption in Denmark by 2020, up from 33.4 per cent in 2013.

In neighbouring Sweden, wind meets about 8 per cent of total consumption, and installed capacity has more than doubled to about 5,000 MW in 2014 from 2010. Its wind power association predicts the capacity to rise to some 7,000 MW by 2017.

In Norway, the government has pledged to change tax rules to catch up with Sweden.

These plans are beginning to bear results.

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