Wind power projects Kvitfjell and Raudfjell enter into long-term power agreement, guaranteed by GIEK
(Oslo, 26 October 2017) Aluminum company Alcoa Norway has secured renewable power from the wind power plants at Raudfjell and Kvitfjell, to be built by Prime Capital on Kvaløya, 30 km west of Tromsø. GIEK issues a guarantee for the power purchase contract.
The long-term power purchase agreements between the Raudfjell and Kvitfjell wind farms (Project Nordlicht) and the buyer Alcoa are guaranteed by the Norwegian state agency GIEK. This is the first time GIEK's power guarantee scheme is used. GIEK has provided guarantees to power sellers to meet Alcoa Norway's obligations under the power agreements, to the amount of EUR 55.8 million (approximately NOK 530 million).
The wind turbines at Raudfjell and Kvitfjell are collectively one of the major land-based wind power projects initiated in Europe this year, consisting of 67 wind turbines with a total production capacity of 281.4 MW. The production of the two wind turbines corresponds to the annual power consumption of 50,000 households.
- Giek's power purchase guarantee scheme has enabled us to enter into a long-term power purchase contract with the highest level of security. The predictability provided by GIEK is crucial for realizing projects such as the Nordlicht project, and helps us to gain access to renewable power in Norway at nearly globally competitive prices. We are very grateful for the security that GIEK provides, so that we can focus on our goal of delivering more green and recyclable aluminum to world markets, said Kai Rune Heggland, Norway's chief executive officer, Alcoa Norway.
In Norway, Alcoa’s activities include the operation of smelters at Lista and in Mosjøen.
GIEK reduces the risk in power purchase agreements
- Industrial power purchase agreements usually involve large amounts, and the development in power prices can mean a lot for the residual value of the agreement. The guarantee benefits both parties~;~ The buyer may enter into a predictable and long-term power purchase agreement, while the seller may limit his risk of loss should the power buyer fail to fulfill his payment obligation, said Ms. Wenche Nistad, CEO of GIEK.
- Investors and banks that finance wind power need a high degree of predictability. Therefore, they prefer to establish long-term power contracts with counterparties with a particularly high credit rating. A GIEK power purchase guarantee, rated AAA, secures payments from power purchasers throughout the term and thereby helps reduce risk. In the future, GIEK power purchase guarantees can help create a more efficient market for long-term power contracts because more power buyers and sellers may be eligible as counterparties, said Karl Magnus Maribu, adviser to DNB Markets which has assisted Prime Capital with the establishment of the power agreements.
First guarantee issued under the power purchase guarantee scheme
This is the first guarantee issued by GIEK under the Power purchase Guarantee Scheme, that was approved by the Storting (Norwegian Parliament) in 2009. The scheme was established to allow GIEK to provide guarantees to power sellers and to financial institutions in connection with the power-intensive industry's purchase of power under long-term contracts. The scheme has a total upper limit of NOK 20 billion.
- We are proud to issue our first guarantee under the power purchase guarantee scheme. It is important that the power-intensive industry can enter into new long-term power purchase contracts, since this helps this industry to further develop its businesses in Norway, said Mr. Odd Solheim, First Vice President at GIEK.
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