The Nordic region, consisting of Norway, Sweden, Finland, Denmark and Iceland, is a leader in renewable energy. These countries have been at the forefront of renewable energy since the start of the 20th century. We examine what factors have contributed to the likes of Norway and Sweden’s rise to the top of clean energy generation and the opportunities that lie ahead for the region.
Renewable energy is a growing sector in all five Nordic countries. Globally, wind power has been the fastest-growing source of renewable energy in recent years and installed capacity is expanding in the region. In 2000, Sweden generated only 0.5TWh of wind energy but today there are more than 4,300 wind turbines equating to 27.4 TWh - generating 17% of the country’s electricity. Finland is also ramping up its capability in wind and it is predicted that by 2025 more than 28% of the country’s energy will be generated from this source - a sharp increase from 1% recorded less than 10 years ago.
When it comes to solar energy, Norway has limited resources in solar energy, but it is one of the world’s largest producers of solar-grade silicon and silicon solar cells. Similarly, in Sweden, solar makes up a minority of the renewable energy capacity – although the Swedish government has ambitious plans to increase the share of solar power in the Swedish energy mix from 1% to 10%. Creating a mix of renewable energy sources is a practical means of producing a consistent power flow.
But hydropower is considered the renewable energy technology that is most synonymous with the Nordics. Norway, Sweden and Iceland’s landscapes are cut with numerous rivers, waterfalls and fjords and these natural water features all provide numerous opportunities to harvest hydropower.
Norway has been a major player in hydro energy for almost a century. There are nearly 1,700 hydropower plants in Norway, which provide over 90% of the country’s power production. Similarly, Sweden is a titan in this sector. There are approximately 1,800 hydro plants equating to 45% of Sweden’s electricity production. The Scandinavian countries are leading the way in terms of hydro but other renewable energy technologies are also becoming increasingly prominent.
Technology that stands the test of time
An attractive feature of hydropower in particular is the longevity of the technology. Numerous plants across the Nordics have been established for almost 100 years and can still efficiently generate renewable energy.
For example, Vallhaga is a run-of-river hydropower plant owned by Downing Renewables and Infrastructure Trust (DORE) located on the Voxnan river in Edbysn, Ovanåker municipality. It produces around 12 GWh an average year. Vallhaga’s first generator was commissioned in 1932 with a second put into operation in 1989.
A run-of-river hydro plant generates power by channelling river water into a generator house. The force of the moving water spins a turbine and drives a generator. The water is then fed back into the main river downstream.
A focus on diversification
Across the Nordic countries, two-thirds of electricity production is from renewable sources, which is enabled by the diversity of technologies. We’ve spoken about hydro, solar and wind, but biomass also makes a meaningful contribution in all Nordic countries. Diversification is vital to maintaining portfolio performance and can also be an attractive prospect for investors.
Different technologies produce energy at different times – when it isn’t windy and sunny, water still runs in the rivers. By investing in multiple technologies, investors will know that the assets will be creating energy more robustly, creating an opportunity for stable returns.
Additionally, by looking across the whole Nordic region, investors can benefit from a diversification of geography. Natural resources and prices of energy are different between locations within the Nordic region. The Nordic countries also export some of their electricity production to the UK and continental Europe through inter-connector cables, which connect the electricity grid systems in different countries. Through a diversified investment strategy across the Nordic region, investors can spread regulatory, pricing and policy risks that may occur when invested in only one country or area.
The fundamentals of investing in the Nordics should not be overlooked. As renewable energy is the main source of energy in the regions, there is a long-term pipeline of projects and investment opportunities. As the UK is a far more crowded investor space than the Nordics and power prices are affected differently between the UK and the Nordics, diversifying with these two areas can reduce risk for investors.
Downing in the Nordics
We are fortunate to have been invested in the Nordic region for well over a year now. We see it as a significant opportunity for growth due to the reasons mentioned above. Our investments to date have focused on Swedish and Norwegian hydro and Swedish wind, but we are looking to expand our investment footprint geographically and across technologies to cover solar, geothermal and biomass.
Handling this portfolio is our expert team of asset managers, along with a team of four professionals located in the Nordics themselves. We believe having a local presence is important to ensure the efficient performance of the assets.
Keeping it clean
The renewable energy momentum in the Nordics is continuing strongly with all Nordic countries setting ambitious targets. Norway has pledged to be carbon-neutral by 2030 and Sweden wants 100% renewable electricity by 2040. The Nordic region continues to be the blueprint for a clean energy future and with such inspiring growth plans in the sector, the future of renewable energy generation appears greener and cleaner.
Please note: Capital at risk. Returns not guaranteed. Changes in exchange rates may have an adverse effect on the value, price or income of investments. Opinions expressed represent the views of the fund manager at the time of publication, are subject to change, and should not be interpreted as investment advice.