Like all the major utilities in Europe, Vattenfall has vowed to become carbon neutral by 2050. But the Swedish government-owned company is ploughing a unique furrow, with a focus on offshore wind and a pioneering role in the decarbonisation of heat and industrial processes.
Arguably, Vattenfall has one of the most optimistic outlooks on offshore wind, winning the recent zero-subsidy tender in the Netherlands for the 684-760MW Hollandse Kust South project — an auction that the world’s leading offshore wind developer, Orsted, decided not to enter, arguing that the economics of the project were uncertain.
In an interview with Recharge, Vattenfall chief executive Magnus Hall points out that offshore wind is a largely untapped resource in many parts of the world and could be a solution to the seemingly growing problem of opposition to onshore wind farms and their transmission lines.
“One of the most significant changes in renewables during the last two, three years, in my view, is the cost reduction that we’ve seen in offshore wind because offshore wind opens up a totally different pathway compared to onshore wind,” he says. “There is a resistance to onshore wind in many places and I think that has to be taken into account.
“The potential that you see now in cost reduction for offshore wind will make it a viable and available alternative [to the Nimbyism problem] for politicians, because they don’t have to take the fight on land.”
Hall admitted that Vattenfall “could be” more optimistic about offshore wind than rival players. “You could have a different view on the expected cost situation and you can also have a different view on your expected price situation… but I think that a lot of companies are now pondering: ‘How can we prepare ourselves for this [zero-subsidy] next step?’” he says.
“We’re confident that what we have in terms of our cost expectations to build this [Hollandse Kust South] and the expectation for the pricing development makes this a case which is beneficial to us and that’s why we are participating.”
So is Vattenfall going to be relying purely on the wholesale electricity price to recoup its forthcoming investment in Hollandse Kust South post-2023?
“Well, we are from the beginning, yes, but we will also look to create [an] offtake [agreement] where we will connect some big user,” he tells Recharge. “And, of course, preferably that will be more or less on a fixed-term contract. The corporate PPA business is coming up, we are seeing users who want to cover themselves in terms of price.”
Hall is clear that he expects the wholesale electricity price to rise in the coming years — due at least partly to increased demand from electric vehicles and electric heat, as well as decreased supply as coal and nuclear plants are closed.
“And then, what do you expect prices for gas to be? Probably we’re looking at a very much gas-driven pricing situation in the coming years,” he explains.
“I think we are about to see totally new, different ways of handling the sort of levelling out of demand response and storage.”
Hall says that electric vehicles will do more than just increase the demand for electricity — he believes they will also play a central role in balancing a renewables-reliant grid.
While Vattenfall is actively involved in the growing standalone battery sector, particularly in the ancillary services field, he explains that “by far the biggest storage that you will actually see would be in the car fleet”. He agrees with International Energy Agency chief economist Laszlo Varro that there may be ten times more battery capacity than the electricity industry needs just from EVs connected to an increasingly digitalised grid.
“I think we are about to see totally new, different ways of handling the sort of levelling out of demand response and storage. You will have storage that’s flexible, you will have demand that’s flexible and then you will not have so much flexible production anymore.”
Vattenfall is investing in a power-to-heat district heating unit in Berlin, which would be able to act as a kind of thermal demand-response system.
“We expect that you might see high and low prices during a day, and during those low-price times, we should be able to buy electricity and load that into our heat system,” says Hall. “District heating is a big inert, high-volume system so you can actually take temperatures up and down in that system while still supplying customers with stable heat. You can store energy and take it out in that system, which is interesting because it’s rather a cheap way to store electricity.”
He adds that, in future, the district heating system could also take excess energy from third-party generators such as data centres and other industrial players.
“We will also introduce many more high efficiency heat pumps into the system rather than today just supplying it with one or two big [coal or gas-fired] CHPs [combined heat and power plants].”
Vattenfall’s desire to create new business opportunities from sector coupling even extends to the electrification of industrial processes — which is widely seen as one of the hardest sectors to decarbonise.
In a €150m ($174m) pilot project with Swedish steel maker SSAB and mining company LKAB — co-funded by the Swedish Energy Agency — Vattenfall is replacing coal (which is used to remove oxygen from the iron ore) with hydrogen.
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“Coal produces CO2; hydrogen produces water,” explains Hall. “Our part of that project is of course to make sure that we supply electricity, run the hydrolysis part, which is sort of the separation of hydrogen and oxygen from water, and then to store the hydrogen.
And then we must see whether — and this is interesting because we don’t know if we can do it — if we can build in flexibility there, where we can actually take our consumption of electricity up and down if that is possible, and then use the storage of hydrogen, sort of as a flexibility, that would of course create an additional benefit to the grid in terms of the demand-supply balance.
“Now I don’t know if that is possible — it’s not certain that it is. As a business we would look to run that part of the operation, so we would supply hydrogen to the steel plant and that we can do in some other applications as well.”
Hall concedes that water electrolysis to produce hydrogen is currently expensive, but he believes that the price of electrolysers could fall in a similar way to solar panels as the demand for the equipment increases.
Vattenfall is also working on a pilot project to create green cement, in partnership with Swedish company Cementa. Together, they aim to create a carbon-neutral manufacturing process by 2030, which, if achieved, would alone reduce Sweden’s carbon emissions that year by a staggering 5%.
“You can electrify the heating part of making the cement, but the CO2 leaves the minerals in the process,” explains Hall. “[But] you could capture that CO2 stream and then combine it with hydrogen and make methanol or something else.”
He later adds that the captured CO2 could also be used as a feedstock for the plastic industry.
Vattenfall may be one of the leaders of the energy transition, but its move into non-traditional sectors is emblematic of something bigger – the evolution of the electricity industry.
Soon, it may seem strange to describe companies such as Vattenfall as simply ‘utilities’. A new vocabulary may be needed for a new era.