Wind: Business models and future trends
September 2022

Wind power in Finland: Business models and future trends

Thanks to advantageous wind conditions and constantly evolving technology, wind power has become the most competitive form of electricity production in Finland. As a result, projects do not need to rely on governmental support anymore but are regularly implemented subsidy-free.

Revenue models

Some of these projects will be operated following the so-called “Mankala”-model, whereby electricity is generated for the benefit of the company shareholders at cost price. This is a model commonly used by Finnish utilities.

Most commonly, long-term revenues are being secured with the help of PPAs. The first corporate PPAs were concluded with large multinational companies (such as Google), but in recent years PPAs have become more and more attractive for Finnish industrial offtakers. In addition to meeting their green agenda and sustainability goals, the decision to procure green energy is increasingly driven by commercial considerations and the desire to protect against bullish spot prices and price volatility. This has also resulted in a considerable uptick in long-term PPAs being concluded by utilities and other suppliers.

While some developers procure PPAs as part of the project development, it is increasingly common for projects to be sold without a PPA, either at ready-to-build stage or as a turnkey project upon completion. It will often be the investors who conclude a PPA for the operation phase based on their requirements and risk appetite. Given the recent electricity price development, running projects as purely merchant is also becoming an increasingly attractive option.

Wind to hydrogen

Wind power is key in unlocking Finland’s potential for green hydrogen production and its ambition to become a major hydrogen exporter Europe. The European Hydrogen Backbone Initiative (EHB) estimates that Finland, Sweden and the Baltic countries will be able to produce a total of 127 TWh of green hydrogen as early as 2030. This corresponds to around 20% of the overall target of the RePowerEU and 38% of the planned EU production. At the national level, estimates are even more optimistic.

To exploit this potential, Finland is making significant efforts to create a hydrogen infrastructure. This includes the construction of a joint pipeline with Sweden (the "Nordic Hydrogen Route"), through which green hydrogen will be transported on a large scale from areas with high wind power production to industrial customers. The pipeline is planned to be operational by 2030. Over the longer term, an expansion of via the Baltic countries and Poland all the way to Germany is planned.

A wide-ranging cooperation between commercial enterprises and other stakeholders aims at developing the economic and regulatory framework conditions as holistically and effectively as possible. This includes a joint project of the TSOs in the gas and electricity sector, the aim of which is to facilitate sector integration between hydrogen, gas and electricity transmission.

Wind power and reserve markets

As the share of wind power in the energy mix is growing, the increase of variable production creates challenges in terms of grid stability. However, wind power can also be part of the solution with wind farms providing flexibility on the reserve power markets.

The Finnish TSO, Fingrid Oyj, procures different kinds of reserves from reserve markets to balance the grid. Reserves are power plants, consumption units and energy storages that can adjust their power in accordance with the needs of the grid. The reserve markets are based on auctions and the bulk of compensation is paid for maintaining the reserve capacity, regardless of whether the reserve is activated or not. In some reserve products, changes in the energy production caused in case of the activation of the reserve are also compensated.

Wind power is especially suited for reducing power production for down-regulating purposes. Additional income generated in the reserve market can be an attractive option for example in times of low electricity prices. The Finnish TSO has identified wind farms as interesting resources for offering reserve power and is striving to adapt its various products to make them more suitable and lucrative for the sector. Possibilities to create stable revenues via long-term agreements are also being explored.