Sweden eyes offshore wind reform to unlock massive queue of projects

Sweden has substantial offshore wind potential and a bulging queue of projects vying for permits. With the market in its infancy, developers are awaiting policy recommendations that could overhaul how sites are allocated.

Unlike its neighbors, Sweden has an open-door planning system, with developers pitching for plots and subsequently shepherding projects through permitting processes. So far, the country has no significant operational capacity, and many project proposals overlap geographically.

Sweden's climate ministry in March ordered a policy adviser to come up with suggestions on how an orderly spatial planning system could be implemented. The report is expected to be published in November, and it will be up to politicians to decide whether and how to implement its findings.

The permitting process needs to become more predictable, while the impact on other stakeholders such as defense and fishing needs to be considered, according to Minister for Climate and the Environment Romina Pourmokhtari.

Tasked with the report is Magnus Hermansson, senior judge at the Land and Environment Court in Nacka, who said the country's existing marine planning regime is not aligned to the specificities of offshore wind.

In building a view on best practices and designing a system for Sweden, Hermansson has looked at neighboring European countries like Denmark, Finland, Germany and the UK, whose governments designate areas of the seabed for development and tender sites in competitive processes.

"We did thorough foundational work by visiting [these countries], building a network and gaining an understanding of how their systems work," Hermansson said in an interview.

In Swedish waters, developers have proposed more than 100 GW worth of projects at various stages of development, according to the Swedish Wind Energy Association. Some 2 GW have received permits, 52 GW are in the permitting process and 46 GW are under consultation. Most of the capacity is in power price zones SE3 and SE4 in the southern part of the country.

"The question is how one handles these ongoing projects if one changes the system," Hermansson said.

Preserving the queue

According to Emelie Zakrisson, head of offshore wind at Swedish developer OX2, policymakers should work to preserve existing projects in the short term while finding a structured system in the longer term.

"How can we reap the benefits of all the work that has been done without wiping the slate clean?" Zakrisson said in an interview. "The open-door system has a lot of benefits. Developers have been able to bring projects forward at a much quicker pace."

Still, the issue of overlapping projects has been a problem for some, including OX2.

On the Swedish west coast, the company resolved an overlap with a site owned by state-owned utility Vattenfall by splitting the area, and Zakrisson said something similar could be done in southern Sweden where OX2's Triton project overlaps with a site being developed by Denmark's Orsted.

The existing open-door system can waste developers' time, with years of work often ultimately ending in a veto by the defense ministry or local municipality, according to Henrik Ny, associate professor at Blekinge Institute of Technology in Sweden.

"Sometimes they need to reopen the bid again and change it" because technology in the initial proposals has become obsolete, Ny said in an interview.

Hermansson's team has heard developers' concerns about project development resources being wasted in a system change. "I fully understand that this perspective would come up, and we are trying to find a way to acknowledge it [in our recommendation]," the policy adviser said.

Transitioning to a system of straightforward seabed auctions would be a more manageable step for developers, Zakrisson said. "If you would set up a whole system where the state would do the permitting, that would be quite a large transition," the developer added.

Investability in question

Some industry observers think fixing the planning and seabed allocation systems will not be enough to solve the biggest problem in Swedish offshore wind.

"The Swedish government needs to look at [investability] as well," Alon Carmel, renewable energy expert at PA Consulting, said in an interview.

In all of Europe's major markets, governments either provide a revenue stabilization mechanism such as a contract for differences, or they cover the cost of grid connection, Carmel noted.

To that end, Vattenfall on Sept. 2 shelved the development of its Swedish Kriegers Flak offshore wind farm, pointing to a lack of funding for the grid connection.

The incentivization question is not part of Hermansson's investigation.

According to Tomas Kaberger, energy professor at Chalmers Institute of Technology in Gothenburg, the Swedish government's plan to build 10 new nuclear reactors could pose a major obstacle in incentivizing offshore wind and negate the need for much of the planned capacity. Subsidies slated for the nuclear push are also likely to be substantial.

The government in August proposed a financing model for nuclear, involving state loans, contracts for differences and a mechanism to give commercial investors a minimum return on equity. According to a policy report, between 4 GW and 6 GW of capacity could be financed in this way.

The average cost of the new capacity would be about 800 Swedish kronor per megawatt-hour, the report said. Assuming 5 GW is built under the proposed model, Swedish public debt would increase by about 300 billion kronor.

Kaberger is skeptical about the delivery of the nuclear fleet. Indeed, new nuclear projects in Europe have been plagued by cost overruns and multiyear delays.

"It is likely that the government would continue to spend a lot of money on these nuclear developments, but in the long run it is almost impossible to make it into a reality," Kaberger said in an interview. If the higher cost were shifted onto billpayers, power-hungry industry players would simply not run their activities in Sweden, the academic added.

"A one-sided focus on nuclear is not good for the system. We need to think about how the different types of energy can complement each other," Zakrisson said, noting that Sweden is targeting a doubling in power consumption by 2045 through the influx of clean industrial projects.

Meanwhile, a Sept. 9 policy presented by the government will improve conditions for onshore wind developers by allocating more than 1 billion kronor until 2027 for local municipalities that accept new onshore wind farms.

The incentive for onshore wind is likely to help the approval of projects and a similar approach to offshore wind would be positive, Carmel said.