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Finland’s offshore wind opportunity takes shape

Finland has for years been planning to exploit its extensive Baltic Sea waters to complement its mature onshore wind sector with offshore power. Increased energy security concerns in the wake of its neighbour Russia’s invasion of Ukraine have given renewed impetus to these plans.

Last year in the wake of the Ukraine invasion, the eight EU countries with Baltic coasts vowed to increase their offshore wind capacity from 2.8 GW at the time to 19.6 GW by 2030, noting that this would help to decrease their reliance on Russian energy.

Finland does not have specific targets but wants to have its first large-scale offshore wind farm online by 2027 and another by 2028.

The 42 MW Tahkoluoto wind farm in the Gulf of Bothnia, backed by a group of municipally-owned energy companies, is Finland’s only operational offshore wind farm. In onshore wind by contrast, Finland by the end of 2022 had nearly 5.7 GW of capacity, 2.43 GW of which came online in 2022.

Aside from contributing to Finland’s decarbonisation, increasing energy production through sources such as offshore wind can improve Finland’s energy security because it has historically been a net importer of electricity, albeit by a small margin.

In 2021, net imports of electricity to Finland approached 70,000 terrajoules, compared with total energy consumption of around 1.36m terrajoules according to the statistics agency. Renewables, mostly wood fuels but also including hydro and mostly onshore wind power, accounted for 42% of electricity consumption.

While Finland is, according to transmission grid operator Fingrid, predicted to become self-sufficient in electricity this year or next year due to new nuclear production, factors such as increased use of electric vehicles will create the need for more capacity. According to one study, electricity consumption will double by 2050.

Such predictions underpin the business case for investment in offshore wind and rapid cost decreases in developing offshore wind power mean it is now financially viable in Finland in a subsidy-free environment, the Finnish Wind Power Association (FWPA) has noted.

Stockholm-listed OX2, Swedish state-owned Vattenfall and Omnes Capital-backed Ilmatar are the main players eyeing the sector, together plotting projects that will together provide enough power for millions of households. Others are likely to follow as the sector develops.

Major offshore wind plans in Finnish waters
Project Sponsor Location Size
Korsnäs Vattenfall Territorial waters 1.3 GW / 5 TWh a year
Tyrsky OX2 EEZ 1.4 GW / 11 TWh a year
Halla OX2 EEZ 12 TWh a year
Voima Ilmatar EEZ 1.6 GW
Norrskär Ilmatar EEZ 1.8 GW
Vågskär Ilmatar EEZ 1.96 GW
Väderskär Ilmatar Åland 460 MW
Stormskär Ilmatar Åland 2 GW
Noatun North and South OX2/ Ålandsbanken Åland 10 GW
Sources: Ilmatar, OX2, Vattenfall

Major players’ preparations

While the three renewables developers’ plans are of similar scales, they are pursuing distinct strategies, with Vattenfall focussing on the territorial waters close to Finland’s coast and OX2 and Ilmatar targeting waters further out to sea in Finland’s exclusive economic zone (EEZ).

OX2 and Ilmatar are also targeting the waters around the Åland Islands, a Swedish-speaking autonomous community that is part of Finland and has control over its own territorial waters.

While Finland’s territorial waters have the advantage of being closer to the shore, meaning water is shallow and connection costs to land are lower, Ilmatar and OX2 see greater freedom of manoeuvre in the EEZ.

Mikko Toivanen, executive director and co-founder of Ilmatar Energy, says that despite being further from the shore, waters in the EEZ are attractive from a depth and seabed point of view. He adds that operating in these areas “also gives developers more freedom to choose development timeline according to their own needs and resources.” In contrast, in territorial waters developers’ timelines are dictated by auction processes, he notes.

Despite such restrictions, Vattenfall sees major opportunities in territorial waters and late last year announced plans to build Finland’s first major offshore wind farm off Korsnäs in the central part of Finland’s west coast. The Swedish utility expects to invest up to EUR 3bn in the project, which will have a capacity of 1.3 GW and annual production of around 5 TWh and be operational in the early 2030s.

Vattenfall is building the project under a tender held by the state-run land and water resources management company Metsähallitus, which recently announced a further 6 GW of tenders to be held for Finland’s territorial waters by up to the end of next year. In the EEZ meanwhile, OX2’s current plans comprise the 1.4 GW Tyrsky wind farm in the Bothnian Sea; in the Bay of Bothnia the Laine wind project with 150 turbines and annual production of 11 TWh; and the Halla project with up to 160 turbines and annual production of around 12 TWh.

The Bothnian Sea is the southern portion of the Gulf of Bothnia that separates Finland and Sweden while the Bay of Bothnia is the northern part.

In a sign of early investor interest in Finland’s burgeoning offshore wind sector, Ingka Investments, the investment company that owns most of furniture retailer IKEA’s stores, on 12 May announced it has agreed to acquire a 49% stake in the three projects from OX2 for EUR 30m.

Ilmatar is also planning nearly 5GW of projects in Bothnian Sea and Bay of Bothnia

The Åland Islands opportunity

Ilmatar is also like OX2 targeting the territorial waters around the Åland Islands, which will be auctioned by the autonomous government in a similar way to the Finnish waters managed by Metsähallitus.

According to a report in 2021 by the consultancy Afry, the islands’ waters could realistically host up to 10 GW of wind power. Water depth and seabed soil conditions around the islands are also suited for offshore wind and Åland also benefits from less severe ice conditions than for example the Bay of Bothnia, the report notes.

The Åland government is planning to tender wind projects that could deliver up to 40 TWh a year, enough to power 8m households in Åland, mainland Finland, Sweden and potentially Estonia.

OX2 is working with the Bank of Åland to target building of around 700 turbines to the north and south of the islands, providing 40 TWh a year, enough to power 8m households. It faces competition from Ilmatar, which is planning to bid for tenders in the northern part of Åland’s waters, where it is targeting two projects with more than 2 GW of capacity.

Bothnian benefits

According to Finland’s “Maritime Spatial Plan 2030”, Finland benefits from the waters close to its shore being shallower than in other Baltic countries, something that will be of benefit to Vattenfall and others targeting territorial waters.

The fact that the territorial waters are managed by Metsähallitus, unlike in Sweden for example where they are under municipal control, is also an advantage because it means offshore development faces fewer political hurdles.

The 2030 plan also notes that the shallowness of the Bay of Bothnia is conducive to building large-scale wind farms “quite far out to sea”. The Bothnian Sea is deeper, meaning that potential offshore wind power areas are on average closer to the coast, the plan notes.

Aside from the Gulf of Bothnia and Åland Island waters to Finland’s west, Finland also has the Gulf of Finland to the south, but this is a less promising area for wind development because building wind turbines there would hinder Finland’s ability to defend itself at sea in the case of a conflict.

As the 2030 plan notes, national defence needs in the Gulf of Finland, which shared by Finland, Russia and Estonia, “severely limit” the opportunities for development of wind farms.

Nevertheless, with most of Finland’s offshore waters offering suitable conditions for offshore wind development, the opportunity is huge.

Hydrogen opportunity

Given that Finland has a population of just over 5m, some may question whether there is a need for such large-scale plans for offshore wind. One way such concerns are being addressed is by developing plans to use wind energy for production of green hydrogen, which can be used to replace fossil fuels in industries such as steel production in Scandinavia.

Producing hydrogen also offers the opportunity for exports. OX2 last year announced that it has teamed up with Copenhagen Infrastructure Partners and the gas transmission operators for Finland and Sweden, Gasgrid Finland and Igneo Infrastructure Partners-backed Nordion Energy, to explore developing a hydrogen pipeline system connecting Finland, Åland, Sweden, Denmark and Germany.

The Finnish government in February outlined its goal to become “the European leader in the hydrogen economy”, noting that Finland has the capacity to produce at least 10% of the EU’s emissions-free hydrogen in 2030.

“Large scale offshore production will be required,” to produce enough green electricity to meet this goal, says OX2’s head of offshore wind Anton Embäck.

A Wild West for wind?

While the opportunity for Finnish offshore wind development is large, it is still in its early stages and whether it will attract the attention of further major financial investors remains to be seen.

Toni Siimes, head of the law firm Roschier’s energy and infrastructure practice in Helsinki, believes that some fine tuning of the regulatory landscape will be needed to attract major investment.

“Investors don’t like risk and at the moment for the EEZ is a bit like the Wild West with the possibility for two companies to start doing studies on the same areas,” he says, noting that countries such as the Netherlands have used the tender model for wind development in their EEZs.

However, OX2’s Embäck says that while it is possible for different companies to pursue development in overlapping areas, this “developer-led” permitting framework could lead to faster development of offshore wind “at no cost to the Finnish government”.

Under the existing system the government can give developers rights for specific seabed areas if they make an application, he notes.

The FWPA has called on the government to give developers “an earmarked area for the development of offshore wind” to avoid “double work” in environmental impact assessment and seabed research that could emerge if two operators are active in the same area.

It is also pushing for lower taxes for offshore wind development. Offshore wind developers are liable for larger taxes than onshore developments due to the foundation work and other construction costs that they incur.

Finland is set for a new government after a heavy defeat for current prime minister Sanna Marin’s Social Democratic Party in April. How the next government will seek to foster the sector’s development remains to be seen. But with Finland seeking to cater for expanding domestic electricity consumption and to become a green hydrogen hub, a major boom in offshore wind in coming years seems almost certain.