Fortum’s plans to grow in the wind sector


January 27, 2017

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This month, Fortum completed the purchase of three wind farms in Norway with total capacity of 172MW. This is one of the Finnish utility’s biggest deals in wind thus far.

It is also indicative of a shift at the company towards wind, and we expect Fortum to conclude more deals like this in the coming years. We spoke to the company’s vice president of wind, Philippe Stohr, about Fortum’s plans to grow in the wind sector.

Historically, Fortum has shown a marginal interest in wind. Founded in 1988 with the merger of state-owned Imatran Voima and listed company Neste Oyj, it was not until 2010 that Fortum concluded a significant deal in the wind sector as it bought 40% of the 99-turbine 247.5MW Blaiken scheme in Sweden. It retains 15% of that project.

For the five years after that, until 2015, Fortum preferred to focus on its core sectors of hydro and nuclear, with projects located in Nordic and Baltic countries, Poland and Russia. But since appointing Pekka Lundmark as chief executive in 2015, the firm has shifted its strategy and it is now looking to grow a 1GW wind and solar portfolio.

Stohr says there are a couple of main reasons that Fortum has decided to expand in wind and solar. First, the falling cost of power in both sectors has made them more competitive with conventional fuel sources, and cheaper than nuclear; and second, because it expects competition in the market to keep driving down costs.

“We believe wind will be one of the most competitive ways of generating energy into the future… so we have decided to enter with more force and ambition,” he says.

Fortum’s operational wind portfolio currently measures 69.5MW. Its 15% stake in the Blaiken wind farm, which it developed with Swedish power company Skellefteå Kraft and completed in 2015, represents 37.5MW of this; and it also owns the 32MW Nygårdsfjellet project in Norway, which is one of the three schemes that it bought from Nordkraft earlier this month.

The Finnish firm is set to add 117.5MW to this by the end of 2018.

It is building the first utility-scale wind farm in Russia, the 14-turbine 35MW Ulyanovsk scheme, which is currently under construction; and is set to complete the 22-turbine 75MW Solberg wind farm in Sweden by early 2018. Fortum owns 50% of Solberg, which it is constructing with Skellefteå Kraft. It is also planning to complete work on the 50MW Ånstadblåheia scheme that it bought from Nordkraft this month.

And after this, in 2019, it plans to complete the 90MW Sørfjord scheme in Norway, its third from Nordkraft. Its final project at present is the 200MW Kölvallen in Sweden with developer Arise, though the partners have mulled selling the development.

Stohr says Fortum will continue to invest in new projects in its core markets, and we expect to see more deals over the next couple of years as it targets that 1GW. He says that Fortum’s main rule when choosing which projects to invest in is that they should be the most competitive wind farm in operation in their chosen markets.
He says: “Our strategy is to be an industrial player so, when we are investing, we are conscious about finding where wind will play a good part of our industrial strategy.”

We will only be able to tell how close the company is to delivering on this strategy as we see the deals it completes in the next two years, but it has a solid base on which to build. We will keep a particularly close eye on the Ulyanovsk scheme in Russia.

Fortum is an experienced player in the Russian power market. It owns power plants with total electricity capacity of over 4.4GW, mostly gas-fired power stations, and a 29.5% stake in hydro and thermal power network specialist TGC-1. Meanwhile, its 35MW Ulyanovsk scheme is backed by the Russian power market regulator through a system that gives Fortum a guaranteed return. If Fortum cannot make a success of the project with this backing and its track record, it should be a warning for investors.

But, if it can, that will only help raise its growing profile in wind.

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