Huge metal maker closes in on Facebook in power-deal ranking

(Bloomberg) — Europe’s biggest maker of aluminum products is narrowing Facebook Inc.’s ranking as the second-biggest corporate buyer of electricity in long-term deals.

Norsk Hydro ASA sealed a power purchase agreement to buy electricity for 29 years from an offshore wind farm planned in Sweden. It’s the longest duration for deals of that kind in Europe, according to data compiled by Bloomberg New Energy Finance. The metal producer has already overtaken Apple Inc., Amazon.com Inc. and Microsoft Corp. in the global PPA league table.

Companies of all kinds are taking advantage of technology-cost cuts in the utility business to arrange their own long-term deals for energy supplies, as governments seek to reduce subsidies paid for renewable power. That both locks in prices they will pay and often allows them to ensure electricity comes from clean sources, something that buttresses their green credentials.

“Expect to see more of this,” said Ed Northam, head of Macquarie Group Ltd.’s Green Investment Group in Europe, which put together the deal. Hydro “is fixing a large proportion of its electricity costs — without their support, this project may not have happened.”

The move takes Norsk Hydro within a whisker of Facebook’s 1.7 gigawatts of total capacity under long-term contract. Alphabet Inc.’s Google is the biggest corporate buyer of PPAs with almost double that capacity, according to data compiled by Bloomberg.

Onshore wind power costs have dropped to such an extent that Norsk Hydro realized it could cut its energy-price risk by buying directly from projects that are still in planning. The company already mostly uses hydropower for its needs and is looking for ways to cut costs. It also wants to be able to sell aluminum made with a less-polluting power source.Wants to be able to sell aluminum made with a less-polluting power source.

Power makes up about a third of Hydro’s expenses. Nordic power for delivery in the fourth quarter of this year has more than doubled so far in 2018 to near a record. The companies declined to detail the price Hydro will pay for the electricity.

“It’s a price that we find commercially attractive,” said Tor-Ove Horstad, who’s in charge of power negotiations at the company. “It gives us a lot of certainty.”

When the wind doesn’t blow, power is supplied by the grid, which is most likely hydropower, Horstad said. It was “extremely unlikely” there would be wind and hydropower shortages simultaneously, but the wind project takes on risk if the wind blows less than expected — it needs to buy in the market to fill the contract with Hydro.

For wind-power developers, corporate PPAs lock in a price they will pay over the life of the project, helping them finance construction costs.

Companies in Scandinavia including Hydro and its rival Alcoa Corp. are boosting efforts to avoid volatile power prices, said Kyle Harrison, an analyst at BloombergNEF. They’re “also incentivized to sell low carbon — low-carbon aluminum is considered premium.”

Macquarie to Spar With Centrica in Energy Market Revolution

Norsk Hydro’s existing power purchase contracts range from 10 to 25 years. Wind eventually will supply about a quarter of the company’s yearly needs, with hydroelectric dams supplying much of the rest.

The deal enabled GIG to reach financial close on 270 million euros ($314 million) of funding for the 235-megawatt onshore wind farm in central Sweden. The project includes 56 Siemens Gamesa Renewable Energy SA turbines with a tip height of 220 meters, making them among Scandinavia’s tallest structures.

Construction of the project in the northern part of the country will commence “imminently” and is expected to be completed by December 2019.

Europe, the Middle East and Africa have lagged the Americas in arranging corporate PPAs, signing a third of the deals by volume, according to BNEF. Those deals are growing, driven by activity in Sweden and Norway.

“BloombergNEF expects this growth to be further supported by other promising markets such as Spain and Ireland,” said Helen Dewhurst, an analyst at the research company in London.

(By Mathew Carr and Helen Robertson)