A wind farm in northern Sweden. New onshore wind additions will slow as permitting becomes more challenging, according to market observers.
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Long a renewable energy powerhouse, Sweden is facing a shift in supply and demand patterns that are pushing the limits of the country's electricity system.
With most of its 10 million inhabitants living in the south and the majority of its renewables generation in the sparsely populated north, the Nordic nation has had longstanding issues connecting the two regions along its nearly 1,000-mile spine.
With electricity demand projected to rise in both parts of the country, Sweden is now eyeing up its untapped offshore wind potential as well as nuclear power in a sweeping electrification drive.
"We haven't really developed our energy system for a long time," said Hillevi Priscar, country manager for Sweden at Stockholm-headquartered wind developer OX2 AB (publ). "We have become slower in the last 10 years, [though] now higher energy prices are increasing the speed and awareness."
Game-changing capacity additions are expected to come from offshore wind, a resource that is so far still untapped in Sweden.
OX2 is developing a 9-GW Swedish project pipeline with Ikea owner Ingka Group, while Danish wind giant Ørsted A/S recently announced a 15-GW offshore wind plan for Sweden.
"Our offshore wind projects are strategically located to deliver power directly to where it is needed most and can help reduce the need for expensive onshore transmission upgrades from northern Sweden to these key load zones," Jesper Kühn Olesen, development project director for Ørsted's offshore wind farms in Sweden, said in a Jan. 16 statement.
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But grid connections will not be able to feed all of this new electricity into southern Sweden's grid, so plans for new capacity are also homing in on power-to-X — a range of technologies that converts electricity into other energy carriers, such as hydrogen.
"There is demand for energy solutions, more complicated assets," Priscar said in an interview. OX2 is now studying demand from potential off-takers of e-methanol or ammonia, for instance in the maritime shipping sector.
Swedish industrial players have long been willing to pay a premium for sustainable solutions, according to Priscar. "We are really close to nature, we are living it," Priscar said of Swedish society. "The biggest trend is this fossil-free journey, especially how the industry is pushing it. They are taking huge technical leaps."
Indeed, Sweden is home to several pioneering projects aiming to decarbonize heavy industry, such as H2 Green Steel, a project in Boden, in northern Sweden, that will produce steel using renewable-powered green hydrogen. The group has signed a deal with Norway's Statkraft AS for hydroelectric power to supply its site.
Other decarbonization projects like HYBRIT, the electric furnace steel venture between Vattenfall AB, SSAB AB (publ) and Luossavaara-Kiirunavaara AB, are also attracted to the wind-rich north of Sweden, where prices remain lower and grid power is already green.
Meanwhile, refiner Preem AB is looking to produce sustainable fuel using hydrogen in Sweden, again in partnership with Vattenfall.
A rendering of the H2 Green Steel plant in northern Sweden.
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Need for more grid investments remains
While models of the extent of demand growth vary, the electrification of industry is set to drive demand for electricity in Sweden in the coming decades.
"One green steel producer alone consumes around 10 TWh, and additional consumers are moving north," said Alexander Esser, head of Nordics at consultancy Aurora Energy Research.
At the same time, renewables capacity is growing in the more densely populated south, Esser noted.
Price differences between the cheapest regions in the north and more expensive areas in the south will narrow as a result, said Augustin Borelle, senior research analyst at S&P Global Commodity Insights. Despite this, most experts still see a need for further interconnection across the vast country.
"Interconnections are always a tricky topic ... Sometimes you may need huge capacity at peak time, but you don't always have the load factor. It's hard to have very profitable interconnections," Borelle said, adding that state-owned grid operator Svenska Kraftnät AB will be on the hook to make the necessary investments.
There is also a need for interconnectors between future Swedish offshore wind farms and states around the Baltic Sea, to distribute electricity efficiently across demand centers including Germany and Poland, according to Justin FitzHugh, who sits in the renewables corporate finance team at advisory firm Arctic Securities. However, in the absence of a regulatory framework for such an "energy system of the future," FitzHugh sees question marks over ownership and business cases of such cables.
Prospective owners of energy infrastructure in the Baltic Sea may also be wary of sabotage risks. In September 2022, both the Nord Stream 1 and Nord Stream 2 gas pipelines were damaged by explosions in Danish and Swedish waters, attributed to Russian actors.
Onshore wind slowed by permitting struggles
Sweden has one of Europe's most mature markets for renewable power purchase agreements, with projects developed entirely subsidy-free, but adding new capacity has become more difficult.
For onshore wind, the permitting process is particularly challenging due to local opposition and wildlife conservation concerns, market watchers say. Coupled with the administrative hurdles are limitations to grid connections. "It's not easy to bring projects through, ... particularly in the south of Sweden," FitzHugh said in an interview.
Capacity growth will slow after 2024 due to the lack of permits, according to the Swedish Wind Energy Association. Today, Sweden has over 14 GW of onshore wind capacity, and by 2025 the lobby group expects the fleet to exceed 18 GW.
Part of the answer to a lull in onshore wind growth is a drive for more solar projects, which are less controversial to develop. Like all EU nations, Sweden has also been given a push by EU lawmakers to find ways to shorten permitting processes for renewables.
"We haven't seen real progress on that yet," said Andreas Zettergren, partner at Stockholm law firm Mannheimer Swartling.
Objections to projects are typically made on environmental grounds or due to local municipality concerns. The military in Sweden also holds sway over the zoning and distancing requirements for new projects, particularly offshore.
"With the geopolitical situation right now, Sweden's application for NATO, I would believe that the interest of the military currently wins over self-reliance on energy," Zettergren said in an interview.
Nuclear's way forward still unclear
While much of the focus in Sweden is on building new renewables capacity, the country also continues to rely heavily on nuclear power, which in 2021 made up 31% of Sweden's generation mix.
The country began operating commercial nuclear power plants in the mid-1970s, but support for nuclear technology has shifted over time, sometimes more favorable and sometimes less. Six reactors have been retired, most recently two at the Ringhals kärnkraftverk plant, in 2019 and 2020.
Sweden currently has two operating reactors at Ringhals, majority-owned by Vattenfall and with Fortum Oyj and its affiliate Uniper SE owning the remainder; one at Oskarshamn kärnkraftverk, owned by Fortum and Uniper; and three at Forsmark kärnkraftverk, in which Vattenfall owns a 66% interest and Fortum owns most of the remaining share.
The country's newly elected right-wing government pledged to build more nuclear reactors to shore up supplies where they are needed, with a specific emphasis on small modular reactors, or SMRs.
State-owned Vattenfall is currently assessing business cases for new nuclear projects in Sweden. "We are convinced that all zero-carbon sources of generation will be needed," company CEO Anna Borg said Jan. 18 during the Handelsblatt Energy Summit in Berlin.
With Sweden planning to reach net-zero greenhouse gas emissions by 2045, the time frame for nuclear to play a role is tight. "There are questions over the lead time, costs, but also how you integrate these new technologies into the market," Esser said. Sweden does not have a capacity market through which to fund reactors, and lawmakers would need to explain why nuclear power can receive subsidies when renewables cannot, the analyst added.
"The government of Sweden has gravely underestimated the time and money that it would take to build these power plants and the speed at which these can be commissioned," Zettergren said.
Lessons from ongoing or recently completed nuclear projects such as the U.K.'s Hinkley Point C or Finland's Olkiluoto 3, both of which were late and over budget, mean SMRs are dominating the conversation about nuclear in Sweden. However, the technology is not expected to reach serial production until the 2030s.
"It's not a near-term solution," FitzHugh said about nuclear power in Sweden. "You've got a clear and present energy crisis that you could help solve by smoothing the permitting processes onshore. It's hard to see why it's an answer."
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