13 Jun 2024

Has the Nordic-Baltic wind power success story come to an end?

By Martin Lundström, Associate Director of Project Finance at NIB

The first electricity generating wind turbine is believed to have been constructed by Austrian engineer Josef Friedländer for the 1883 Vienna International Electrical Exhibition. Friedländer’s turbine had a rotor diameter of 6.6 metres and powered a few light bulbs. Today, the largest 20MW offshore turbines have a rotor diameter of nearly 300 metres and can power 150,000 homes on a good day. While the story does not tell us in which direction the blades on Friedländer’s turbine turned, a piece of trivia is that all modern wind turbines rotate clockwise.

The Nordic and Baltic success

Decades later, the Nordic and Baltic countries are leaders in wind energy development and integration.

Denmark emerged as a pioneer in the wind turbine industry. The country’s journey to wind power began in the 1970s, following the oil crisis, which prompted a global search for alternative energy sources. Danish manufacturers that had been producing agricultural machinery and glass fibre boats saw an opportunity to design and build wind turbines. Denmark is still home today to two of the world’s leading wind turbine manufacturers, Vestas and Siemens Gamesa, the world’s number one rotor blade manufacturer, LM Wind Power, and the world’s largest developer of offshore wind, Ørsted. The world’s first offshore wind farm, Vindeby, was also built in Denmark in 1991.

A paradigm shift occurred when wind power first became viable in Denmark without subsides and competitive with fossil fuels in the early 2000s. Between 2012 and 2022, wind power capacity in NIB’s member countries more than doubled. Sweden now boasts the highest per capita wind power generation capacity, with Finland experiencing the fastest growth at 373% between 2015 and 2022. Estonia and Lithuania have also taken advantage of the favourable wind conditions along the Baltic Sea coast and are investing heavily in wind energy.

The share of wind energy in our power systems has thus increased remarkably, although the picture is different across countries. Denmark generates over 55% of its electricity from wind, followed by Lithuania at 38%, making them the number one and two countries worldwide. Conversely, Latvia and Iceland, rich in hydro and geothermal resources, generate only 4% and 2% from wind respectively.

Is the success story over?

After a decade of growth, the Nordic-Baltic region faced a severe headwind in 2022–2023 that halted new investments. Challenges like increasing capture rate discount[1] and negative prices, grid constraints, and oversized power purchase agreements (PPAs) stemmed from rapid renewable adoption. External factors such as cost inflation, market volatility, and soaring interest rates aggravated these issues. A study by Jönköping International Business School found 1,000 of Sweden’s 5,200 wind turbines belonged to projects currently facing financial difficulties.

Increasing wind power penetration led to capture rates falling below projections. Today,  an onshore wind farm is expected to sell electricity at 15–30% below the average market price. Negative price hours in Sweden (SE3) increased from 30 in 2022 to over 400 in 2023, and on 24 November 2023, consumers in Finland were paid 500 euros per MWh to use electricity.

The Covid-19 pandemic, global supply chain crisis and geopolitical challenges gave rise to a severe cost inflation, driving up the average prices of wind turbines by 38% in two years. The extreme cost increase hurt not only the developers of wind power projects but also put further pressure on turbine suppliers that had been grappling with poor profitability and technical challenges.

Russia’s invasion of Ukraine in 2022 introduced extreme volatility and uncertainty in the energy market. The increased volatility hit wind farms that had entered into long-term fixed price and volume PPAs[2] particularly hard. These agreements were originally developed to reduce revenue uncertainty and have traditionally been required by lenders providing debt financing. Now the situation has been turned on its head, as wind farms may need to buy electricity at extremely high prices when there is no wind in order to fulfil their delivery obligation, thereby incurring severe financial losses that cannot be recuperated when the wind blows again.

Lastly, after a decade of low or negative interest rates, the situation was completely reversed in 2022 when interest rates started to soar. As a large portion of the entire cost during the 25–30- year operating life of a wind farm is paid for up front in the form of capital expenditure (the operating costs for a wind farm are very low), the total cost for and return on a wind power project is significantly affected by the interest rate.

Why good times may still lie ahead

Given the long list of challenges, why is NIB still financing wind power? The answer is quite simple really. Both our planet and economies need it. Renewable energy financing is aligned with NIB’s mandate to improve member countries’ environment and productivity. The current geopolitical tensions also highlight the need for energy independence and resilience.[3]

To preserve hope of meeting our climate targets, a lot more renewable energy—both to replace polluting generation and to support the electrification of society—is needed. Although electricity prices and consumption are notoriously difficult to predict, the sheer scale of these tasks means it is implausible that we will not see a significant increase in demand going forward. On average across the eight Nordic and Baltic countries, projections show demand doubling by 2050. However, the grid operator Fingrid expects that this may already happen in Finland within a decade.

Two examples of such NIB-financed green transition projects are the Swedish Northvolt battery factory and H2 Green Steel mill. The electricity need of these projects alone corresponds to more than 10% of total Swedish consumption, which is enough to affect electricity prices in the neighbouring countries as well—according to some studies, even significantly. A large pipeline of extremely electricity-hungry Power-to-X[4] projects is also under development across the region.

Onshore wind, alongside solar power, is one of the cheapest forms of electricity generation.[5] As a mature technology, wind power can support increasing demand. Most Nordic-Baltic countries have good conditions for further wind power development, both onshore and offshore. In our region, wind power complements solar energy well, especially during the winter months and at night.

As the limitations of baseload PPAs have become exposed, and the short-term predictability of electricity markets can be very low, there is a growing acceptance among financial institutions of offering products more suitable for a volatile price and revenue environment. Such solutions may include flexible debt repayment schedules, revenue sharing mechanisms (between equity holders and debt providers) and reserves to be built up at times of high electricity prices.

Moreover, the positive side of volatile electricity prices is that they encourage flexible consumption and provide the necessary market signal to invest in storage solutions. In addition to renewable energy, energy storage is necessary in a fully decarbonised electricity system. Market experts widely expect increasingly flexible consumption and build-out of energy storage to stabilise electricity prices and support capture rates over the mid to long term. Today, the energy storage solutions that are being built consist mainly of batteries with short storage capacity, but longer-term storage is also being developed in NIB’s member countries.

Moreover, governments recognise that existing climate targets require their involvement. The EU’s 2023 Wind Power Package aims to support the wind power sector and improve competitiveness. Hopefully, state-level discussions will further support decarbonisation targets.

All this suggests that the story is far from over. From the pioneering turbine industry in Denmark to leading renewable energy implementation, the region remains committed to sustainable energy and a greener future. Despite current challenges, there are reasons to be hopeful about the future.

And if you were wondering why wind turbines rotate clockwise—it is an established industry standard. According to one story, Danish brothers Erik and Johannes Grove-Nielsen decided this through a competition. When Erik was about to complete his first wind turbine design, he consulted his wife, who said the blades should rotate clockwise.

Martin Lundström

Associate Director of Project Finance at NIB


[1] The “capture rate discount” occurs when the market value of wind power decreases as its share in the electricity system increases. This happens because wind farms produce electricity simultaneously when it is windy, leading to high supply and lower prices. Conversely, when there is no wind, prices are higher, but wind farms cannot capitalise if they are not producing power. This effect generally becomes more noticeable when wind power exceeds 20–30% of the electricity mix, though this varies based on a power system’s specifics.

[2] Commonly referred to as “Baseload PPAs”. While there are multiple variations, the common feature in this kind of agreement is that the electricity producer commits to delivering a fixed volume of electricity (often measured hourly during the life of the agreement) to the buyer in exchange for a fixed price.

[3] Since the beginning of 2022, NIB has financed 1,330 MW of wind power in Estonia, Finland, Lithuania and Sweden. One recent project is the 264MW Pagėgiai wind farm in Lithuania, which will power green ammonia production.

[4] Power-to-X is a collective term for conversion technologies that turn electricity into carbon-neutral synthetic fuels such as hydrogen, synthetic natural gas, liquid fuels or chemicals. These can be used in sectors that are hard to decarbonise, or they can be stored for later use.

[5] Defined as the Levelized Cost of Electricity (LCOE), which is a measure used to compare the per-megawatt cost of different electricity generation technologies and projects over their assumed life cycle.