The new reality for the Finnish energy sector – strong growth outlooks for wind power, solar power and green hydrogen

In August, the International Panel on Climate Change (IPCC) unveiled the first part (the scientific part) of its sixth climate report. The report looks at the forecast effects of climate change in this century by using five emission scenarios. In each of them, global surface temperatures will continue to rise until at least the middle of the century.

However, the authors of the report are optimistic that global warming can still be slowed down – although it will require swift action and, in particular, the reduction of greenhouse gas emissions.

Several studies have highlighted the substantial emissions reduction potential in the energy sector through the use of renewable energy sources _^1,2,3, since almost three-quarters (73.2%) of global greenhouse gas emissions come from non-renewable energy use in industry, transport and buildings⁴. As greater attention is paid to renewable energy sources globally, the Finnish energy sector will also undergo major change.

Below is a short overview of the Finnish energy sector’s ongoing transition to renewable energy.

The Finnish energy system is experiencing a rapid transition driven by simultaneous shifts in the regulatory landscape, consumer preferences, technological developments and investor sentiment. The percentage of Finland’s total energy consumption accounted for by renewable energy sources has risen from around 27% to approximately 36% in the past decade. According to Finland’s National Energy and Climate Strategy, the goal is to increase the use of renewable energy so that its share of final energy consumption will exceed 50% by the end of 2030.

Currently a large proportion of renewable energy production, 74%, is generated from wood raw material, while 9% comes from hydropower, 5% from heat pumps and 4% from wind power. Only 0.1% of renewable energy consumption is generated by solar power. 

_{1. Assessment of Sectoral Greenhouse Gas Emission Reduction Potentials for 2030 by Blok, Afanador, Hoorn, Berg, Edelenbosch, and Vuuren (2020)}

_{2. Pathways to a Low-Carbon Economy, McKinsey & Co (2009)}

_{3. EU policy options for climate and energy beyond 2020 by Koelemeijer, Ros, Notenboom, Boot, Groenenberg and Winkel}

_{4. World Resources Institute – 4 Charts Explain Greenhouse Gas Emissions by Countries and Sectors (2020)}

Upon looking at the average growth figures, two clear high-growth segments stand out: wind power with 40% and solar power with 31% average growth (CAGR) over the 2010-2019 period. In Finland, there is an ongoing boom in the construction of wind and solar power plants in order to achieve the 2030 climate targets. In addition to these two fast-growing sectors, green hydrogen has received a lot of media attention. However, the segment is still in the pilot phase and therefore does not appear in Statistics Finland's data.

Below is a short overview of the three existing renewable sectors in Finland: wind power, solar power and green hydrogen.

Wind power

The outlook for wind power in Finland is very encouraging. The number of wind turbines increased at an average growth rate of 10% during 2016-2020:

The short and medium-term outlook for wind power in Finland is stable, driven by predictable processes that support the national climate strategy and also the availability of financing from investors that are increasingly international and professional. The number of wind turbines under construction in 2021, 2022 and 2023 amounts to 207, 130 and 108 respectively. Thus, the current 2,600 megawatts of capacity will more than double in the next few years.

Most of the current wind power plants, and also most of the plants under construction, are onshore wind farms. There is only one active offshore wind farm in Finland – Tahkoluoto in Pori. Nevertheless, the Baltic Sea has major potential for offshore wind plants, which is expected to be realized over the next decade or longer, as 9 projects are currently “in the pipeline”. However, due to uncertainties affecting all of these projects, it is realistic to expect that only 3-4 projects will actually be in service by 2030.

Solar power

The adoption of solar panels has increased rapidly in recent years. At the end of 2020, the cumulative installed solar electricity capacity was 288 MW, and the market has exhibited strong 69% average growth since 2015. 

The number of new solar power plant installations is forecast to continue to grow in the short-term, fueled by government incentives (which cover 20-40% of the investment cost, depending on the buyer) and cost reductions related to solar technology. Illustrative of the accelerating momentum are new solar farm installations on production plants and store rooftops of companies such as Atria, Kesko and the S Group.

Green hydrogen

Although the technology readiness for green hydrogen is high, the CO2-intense grey hydrogen still dominates both the global and Finnish markets. Green hydrogen plants are still only at the pilot phase, as their production technologies have so far not been sufficiently cost-efficient to compete with other existing production technologies.

However, green hydrogen will assume increasing capacities by 2030. Reductions in renewable power costs will drive a higher adoption of green hydrogen. Early signs of an increase in the green hydrogen share in the Finnish market are the project processes of:

P2X Solutions  - Production of green hydrogen. The target is to construct a 20 MW electrolyzer plant running on electricity produced by renewable energy.

Vaasan Sähkö, EPV & Wärtsilä: Vaasa project – The goal is to jointly build a so-called Power-to-X-to-Power system in Vaasa. The system will produce hydrogen from renewable energy, which will then be stored and further processed.

Vantaan Energia & Wärtsilä: Porvoonväylä project  – This plant, when completed, will produce carbon-neutral, synthetic methane from recovered carbon dioxide, and hydrogen from renewable energy sources. It is expected to be operational by 2025.

Due to the increasing demand for decarbonization, and, as a result of COVID-19, there is now an opportunity to define a new future for the energy industry. According to the KPMG 2021 Energy CEO Outlook Pulse survey⁵, three areas will play an increasingly important role in short-term business success:

1. Sustainability - 43% of the respondents reported that environmental/climate change will pose the greatest risk to their organization over the next 3 years, and that their ability to manage this risk will determine their success over this period.
2. Digitalization - Energy company CEOs will continue to invest in digitalization, with 63% prioritizing automation, 57% focusing on artificial intelligence, and 50% committed to digital communications. Over two-thirds (71%) of energy business leaders report that their primary reason for investing more in these technologies is to help reduce costs.
3. M&A activity – 46% now expect moderate M&A activity over the next three years, although it initially seemed – after the pandemic started – that M&A activity would be low. Our findings indicate that the primary driver for M&A will be to acquire disruptive technologies and to increase market share.

The KPMG Global Strategy Group supports organizations and executive teams in all of the above areas – from the updating of strategy to reflect today’s markets, to projects relating to digital strategy and deal strategy.

Have you taken a moment to reflect on how energy transition can affect your own business strategy?

_{5. Energy Industry Insights, 2021 KPMG CEO Outlook Pulse Survey}