4. Challenges in the Nordic PPA market
introduction
Decreasing trend in the Nordic PPA market
The Nordic PPA market has decreased 43% from 2021 to 2024, according to AFRY's database.. Many factors impact the PPA market, but increased uncertainty and delays in RES development following the energy crisis is generally considered a major driver for the decline. The size of the Nordic PPA market is dependent on the activity in the broader economy, the general development of RES and more PPA-specific challenges.
Key message: The size of the Nordic PPA market is dependent on the general activity in the economy, the development in the RES sector and more PPA-specific challenges
Source: AFRY Management Consulting.
A variety of challenges might affect the PPA activity
In this chapter, the goal is to identify and describe challenges specific to PPAs. The mapped challenges primarily relate to the period following the decision to pursue a PPA, i.e. from the planning and negotiation stage and during the PPA tenor. While there are numerous other obstacles in the broader economy and in the RES sector, affecting the rollout of new RES and as a consequence, the volume of PPAs, however these are not PPA specific, and therefore not within scope of this study.
Key message: The challenges in the Nordic PPA market are mapped via a market survey, by monitoring debates and by using AFRY’s internal capabilities.
Source: AFRY Management Consulting.
Sources of information for the mapping of challenges
The primary source of information has been survey responses from interest organizations and market participants across all Nordic countries. The survey included 40 questions covering a range of topics related to both regulatory and market matters. 22 respondents participated in the survey:
While the survey is not statistically representative of the Nordic PPA market, it offers a strong indication of market participants’ perspectives on the Nordic PPA market between May and June 2025. A large share of the major PPA sellers and buyers, was part of the survey. | Between March 2025 and September 2025, the project team consistently tracked and documented various current discussions related to PPAs and associated subjects. Additionally, the team reviewed news coverage from the past two years in relevant media outlets to gain further insight into the latest debates. | AFRY Management Consulting operates 28 offices across five continents, with consultants worldwide possessing experience and expertise in the field of PPA. Our global PPA Network convenes monthly to exchange knowledge, share experiences, and discuss data sources. The project team has engaged multiple experts from the broader PPA network to identify and address Nordic-specific challenges encountered during the project. AFRY Management Consulting brings GWs of experience from various PPA projects, including transaction support, market analysis, and strategic advisory. Through these projects, we have also identified and incorporated relevant challenges and viewpoints. |
Challenges in the Nordic PPA market
MARKET
1. Price transparency: The lack of price transparency in the Nordic market creates challenges in market comparability.
2. Price volatility and forecasting risk: Creates challenges for counter-parties seeking to agree on pricing and regulate underlying market risks.
3. Bidding areas and basis risk: The large number of bidding areas in the Nordics limit the pool of PPA counterparties and basis risk has increased for cross price area PPAs following high price area differences in recent years.
4. Counterparty risk: Inherently challenging long term PPAs, and especially if counterparty operates a less mature business model.
5. Contract duration: Differences in preferred PPA durations reduce the pool of suppliers and offtakers with aligned interests.
6. Flexibility: Certain PPA structures may limit flexibility of underlying assets in PPAs.
Key message: 12 challenges in the Nordic PPA market have been identified. They are split into market challenges and challenges related to policy and regulation.
Policy and regulation
7. Changes in regulatory landscape: The perceived regulatory risk has increased in recent years, undermining investor confidence.
8. Uncertainty in RES subsidies: Subsidies for RES may reduce the need for hedging or introduce uncertainty and distort price signals for PPAs.
9. Accounting treatment: Accounting for PPAs is complex due to the uniqueness of electricity as a commodity and market volatility.
10. Environmental reporting: The discussions around market-based versus location-based scope 2, and the ongoing debate on GOs, create uncertainties.
11. Tax: There are generally not any major tax issues specific to PPAs in the Nordics, except resource rent tax limiting the supply of PPAs in Norway.
12. EU regulation: EU’s attempt to promote RES and reach climate targets, has made some regulations complex and challenging for PPAs.
Notes: The listed challenges on this page are limited to certain types of PPAs or geographies. See further details on the following pages.
Market
1. Price transparency
There is a lack of price transparency and standardized reference points across countries, which hinders market comparability and reduces confidence for players in the PPA market. This challenge is particularly acute for isolated systems like Iceland's, where bespoke bilateral PPAs dominate and there is limited visibility into broader Nordic or EU-level price formation. Without standardized products or reference indices, it's difficult to benchmark PPA prices or assess the competitiveness of different market options.
Key message: The lack of price transparency and benchmarking options in the Nordic PPA market creates challenges in market comparability.
Four complicating factors for price benchmarking in PPAs
1. Low liquidity in futures market | Limited liquidity in financial forwards market in the Nordics, particularly at price area level. |
2. PPAs are not standardized contracts | PPAs are negotiated bilaterally and price is rarely disclosed to the public. Even if prices were disclosed, long term PPAs are not standardized contacts but rather complex and often tailor-made and negotiated to regulate the relevant risks to the specific situation. Comparing the price of two PPAs is therefore in many cases comparing apples to oranges. |
3. No marketplace for PPAs | While there are examples of PPA market platforms in Europe Examples of platforms: LevelTen Energy, Renewable Exchange, Zeigo, Sanza, and Pexapark. |
4. Uncertainty around price projections | Forecasting power price is inherently challenging and forecasts may differ significantly between specialized providers. |
Case study: Price transparency naturally forms in markets of homogenous goods
An example is the so-called ‘Vestre-avtaler’ in Norway. In 2023, a standardized 3-, 5, and 7-year fixed-price PPA for commercial offtakers was launched to increase availability of fixed price contracts for SMEs. These are commonly referred to as ‘Vestre-avtaler’.
Under these contracts, hydro and onshore wind can use contract price instead of spot price in resource rent tax calculation (see challenge 11).
The contracts are typically sold to commercial offtakers via electricity retailers, and prices are standardized and transparent on the retailers website.
2. Price volatility and forecasting risk
In the absence of transparent PPA price benchmarks, counterparties must establish a common view of the value of future deliveries. The two key value drivers are baseload electricity price outlook and future price cannibalisation.
Baseload electricity price outlook
Forecasting power prices and pricing the future market risk is inherently difficult due to the inherent complexity of the power market and, as recent years have demonstrated, its susceptibility to unpredictable market distortions.
While there are several providers of long-term electricity price forecasts, there is no ‘commonly agreed future outlook’, hence price negotiations can be challenging.
Key message: Price volatility and forecasting risk create challenges for counter-parties seeking to agree on pricing and regulate underlying market risks.
Monthly electricity price in selected bidding areas
Source: Entso-E, Nord Pool
Future price cannibalisation
The value of intermittent deliveries depend on the expected capture rate of the volumes produced. This is driven by the penetration of the intermittent generation technology as well as the ability of the system to absorb short term oversupply.
The counterparties may have very different expectations of the build-out of intermittent generation over the duration of the PPA, which may complicate price negotiations for as-produced PPAs.
Capture rates for onshore wind in selected areas (%)
Capture rate is defined as the capture price divided by wholesale electricity price. The capture price is the price that a given producer is able to capture in the wholesale electricity market.
Source: Entso-E, Nord Pool
3. Bidding areas and basis risk
There are 12 bidding areas in the Nordic region plus Iceland
The large number of bidding areas in the Nordics, reduce the size of each separate area/market. This increase the challenge of finding counterparties within the same area. Although it is possible to enter into PPAs for two counterparties in separate bidding areas, this introduces a basis risk caused by the price area differences which has increased significantly as shown below.
Key message: The large number of bidding areas in the Nordics limit the pool of PPA counterparties.
Electricity consumption per price area in the Nordics 2024 (TWh)
Source: Danish Energy Agency, Finnish Energy Authority, NVE, Swedenergy
Bidding areas and basis risk cont
Basis risk is the risk that there will be a difference in electricity price between two bidding areas and is inherent to financial PPAs where counterparties are located in different bidding areas. The basis risk has increased significantly in recent years, especially in the between north and south in the Nordics. There is generally a lack of instruments to hedge long term basis risk in the Nordics.
Key message: The basis risk has increased for cross price area PPAs following high price area differences in recent years.
Monthly wholesale electricity price difference to system price for selected bidding areas
Notes: Basis risk is not relevant on Iceland because it is an isolated island system.
Source: Nord Pool.
4. Counterparty risk
Counterparty risk is inherent to PPAs
In any PPA, there is an inherent risk that one of the parties involved will default or fail to fulfill their contractual obligations as defined in the PPA without having the financial strength to compensate the opposing party. When financing renewable investments, lenders are particularly aware of and diligent in assessing counterparty credit risk prior to granting loans, since they ultimately carry the cost of defaulted payments. A lack of mechanisms to manage counterparty credit risk can limit the size of the market, as only top-rated entities can participate
When deciding on how to manage the counterparty risk in a PPA, the parties agree on a credit guarantee setup. This process is different from deal to deal and can not be streamlined. In contrast, clearing services in standardized contracts, e.g. futures on exchanges, standardised OTC contracts, may simplify the process. Though, these types of services are challenging when contracts are non-standardized, e.g. bespoke PPAs
Key message: Inherently challenging long term PPAs, and especially if counterparty operates a less mature business model.
There are limited guarantee schemes available
In Norway, Eksfin offers an insurance product (Eksfin Power Guarantee Scheme) to mitigate counterparty credit risk in the form of credit guarantees. However, based on the survey results, these guarantees are rarely utilized due to high costs and specific requirements that limit their applicability, see fact box below
Currently, there are no similar products available in other Nordic countries, although the European Investment Bank (EIB) is piloting a comparable solution with €500m funding.
Source: EIB, https://www.eksfin.no/no/produkter/kraftgaranti/
Fact box: Eksfin's Power Guarantee Scheme in Norway
Purpose: Cover the risk of an offtaker defaulting payment obligations under a PPA
Eligibility: Specific Norwegian industry: wood processing, chemicals, and metals
Duration: PPAs in 7-25 year range
Volume requirement: Offtakers with 10GWh p.a. consumption and PPA volume of at least 35GWh total PPA volume over contract duration
5. Contract duration
RES developers usually aim for a minimum 10-year term to ensure stable cash flows aligned with long-term debt obligations. Utilities tend to be more flexible but may have specific board directives regarding hedging duration and volume that they must comply with. Corporate offtakers' hedging needs vary widely, influenced by both their internal policies and mechanisms in related upstream or downstream markets. Some companies have a board mandate on business planning horizon limited to 1-3 years, while others may have decades long horizon
Key message: Differences in preferred PPA durations reduce the pool of suppliers and offtakers with aligned interests.
Duration mismatch is most common between RES developers and corporate offtakers with short term business planning horizon
6. Barriers to flexibility
Flexibility in this context refers to market participants deviating from planned or intended production or consumption schedule in response to a system need. This can be long- or short-term deviations and the flexibility can be triggered explicitly (activation of products/services) or implicitly (in response to price signals).
The dynamics of balancing supply and demand differ between the mainland Nordic region and Iceland, yet PPAs are generally not a barrier for most volumes:
Mainland Nordics: The majority of supply and demand balancing is carried out on the wholesale electricity market, operating under marginal pricing principles. PPA volumes are typically nominated in the day-ahead auction and contribute to price formation, although some bids may be submitted at minimum price levels
Iceland: Most balancing of supply and demand is managed bilaterally through PPAs between producers and industrial consumers. Flexibility options are typically included in the PPAs where consumers or producers curtail depending on system needs (mostly in response to hydrological conditions)
The impact of PPAs on ancillary services depends on the PPA’s design and incentive structure. In some cases, incentive mechanisms may limit the flexibility of one or both parties. In rarer instances, specific contractual clauses may explicitly restrict activities such as participation in ancillary services.
Key message: Certain PPA structures may limit flexibility in underlying assets of PPAs.
Case study: Example of PPAs limiting flexibility
Consider a physical PPA between a wind farm and a corporate offtaker:
Volume structure: as Produced
Price: €40/MWh fixed price
In this arrangement, the wind farm is paid a fixed price for all energy produced, with settlement based on metered output. Consequently, the producer is incentivised to maximise generation regardless of spot market prices, typically bidding at the minimum price in the day-ahead market. Moreover, it is disincentivised from offering downward regulation in ancillary services (such as aFRR down or mFRR down).
If a sufficiently large share of production volumes in the system operates under such incentives, the result can be persistent oversupply, leading to frequent negative price events in the market and increased system services cost for the TSO.
Policy and regulation
7. Changes in regulatory landscape
Given the long-term nature of PPAs, it is crucial to ensure predictability in regulations that impact the PPAs market directly or indirectly. This includes market design reforms, tax policies, accounting standards, and sustainability reporting obligations, etc.
The Nordic market has traditionally been known for its stable and transparent regulatory framework with low regulatory uncertainty and strong investor confidence.
In recent years, particularly following the energy crisis, there have been several examples of state interventions and regulatory shifts that have impacted the PPA market. As such, the perceived regulatory uncertainty is increased among market participants in the Nordics and has – to some extent – impacted investor confidence and willingness to commit to long term agreements.
Key message: the perceived regulatory risk has increased in recent years, undermining investor confidence.
Examples of changes in the regulatory landscape
Windfall taxes | In response to the energy crisis, there were significant push to reallocate the extraordinary revenues collected by power producers. As such, wind fall taxes in various designs were implemented in all Nordic countries except Iceland. |
RES subsidies | Ongoing changes in RES subsidy amounts and design create uncertainty, affecting electricity price forecasts and potentially reducing PPA demand. Further details on these challenges follow on the next page. |
Changes to bidding areas | Bidding areas are under regular review and are changed when deemed necessary. While there are clear benefits to optimize boarders of bidding areas to reduce congestion and equalize prices across areas, it also represent a significant market risk for PPA players and affect hurdle rates. |
8. Uncertainty in RES subsidies
One of the main reasons why PPAs has been and is a key driver behind the RES development in the Nordic region is a subsidy free environment. Some subsidy schemes tend to reduce the price risk, which again reduces the need for hedging tools like PPAs.
RES subsidies can range from feed-in-tariffs, CfDs, certificate schemes or variations in between. Especially feed-in-tariffs and CfDs reduce the need for hedging, thus the need for PPAs. Certificate systems on the other hand, may go hand-in-hand with PPAs. The Swedish-Norwegian El-certificate scheme played an important role in deploying onshore wind in Sweden and Norway, increasing the revenues for new projects and making them more profitable. The scheme did not directly support PPAs, but when prices collapsed in the late 2010s, the role of PPAs became more important due to a larger need for revenue certainty from investors.
When governments discuss the need for subsidising RES, they often discuss several different alternative schemes. The final choice of subsidy scheme highly affect the need for a PPA. As an example, in the offshore wind auction for Utsira Nord in Norway, the government first indicated a CfD support mechanism, but ended up with an upfront, direct grant mechanism. Suddenly, the market participants who were in the process of bidding for Utsira Nord needed to change their strategy towards a setup where PPAs played a crucial role for price hedging.
Key message: Subsidies for RES may reduce the need for hedging or introduce uncertainty and distort price signals for PPAs.
Illustrative: The Utsira Nord offshore wind case
9. Accounting treatment
The complexity in accounting treatment of PPAs is a barrier for PPA players. For SMEs, national accounting standards apply, and for large groups and listed companies, International Financial Reporting Standard (IFRS) apply. These are generally not designed in a way which accommodates the characteristics of electricity as a commodity. In some cases, the accounting treatment can lead to an artificial volatility in the financial reporting (not necessarily reflecting underlying revenues and costs) which may be difficult to explain to boards and owners. At a high level, accounting standards differentiates between physical and financial PPAs, the latter of which is considered the most challenging.
Key message: Accounting for PPAs is complex due to the uniqueness of electricity as a commodity and market volatility.
Challenges under IFRS | Description | Relevant for |
1. Identifying correct accounting treatment | Identifying the correct accounting treatment for PPAs can in some cases be tricky as the purpose of the agreement and surrounding context must be assessed. Electricity is a unique type of commodity that can not be stored directly, and there can be significant volatility in both volume delivered and the underlying market price. The bespoke nature of PPA design further adds to the complexity, and the relevant accounting treatment may vary significantly from case to case. Generally, physical PPAs are considered ‘easier’ than financial PPAs as financial PPAs often qualify as derivatives under IFRS 9. | Both sellers and offtakers, but particularly offtakers |
2. PPAs classified as financial derivatives | Under IFRS 9, financial derivatives are subject to Fair Value through Profit or Loss (FVTPL) accounting, meaning changes in their fair value must be reported in the income statement, leading to potential volatility. The volatile nature of electricity prices causes significant swings in reported earnings and complicates financial planning and reporting. Additionally, accurately measuring fair value is difficult due to complexity in forecasting the electricity market. | Mostly financial PPAs, but also some physical PPAs (e.g. if ‘own-use’ exemptions does not apply) |
3. ‘Own use’ exemptions | The own use exemption under IFRS 9 can simplify accounting for buyers of physical PPAs but can be difficult to apply due to restrictive criteria. For example if there is the need to sell excess electricity due to volume deviations (i.e. net cash settlement), the own use exemption may not apply. | Offtakers of physical PPAs |
4. Hedge accounting | Applying hedge accounting reduce volatility in the income statement, but it there are restrictive requirements to qualify. PPAs often involve volume risks in addition to market price risks, which can complicate the application of hedge accounting. | Mostly financial PPAs, but also physical PPAs (e.g. if ‘own-use’ exemptions does not apply) |
5. Lease accounting | In some cases, PPAs may be considered leases under IFRS 16 with the associated challenges. This is however less common. If the offtaker obtain all of the economic benefits generated by the asset and has the right to control how the asset is used, lease accounting may apply. The former criteria is often fulfilled in (physical) as produced PPAs, but the latter is rarely fulfilled. | Offtakers of physical PPAs |
10. Environmental reporting
Background
A key driver for the demand of PPAs, has been the need for corporates to claim the renewable attributes for environmental reporting purposes. The Greenhouse Gas Protocol is the most important standard for environmental reporting globally.
Environmental reporting is often divided into scope 1, 2 and 3. Scope 2 refers to indirect emissions from the generation of purchased electricity and is the relevant scope when discussing PPAs.
In Europe, The EU Commission adopted in 2023 the European Sustainability Reporting Standards (ESRS) for use by all companies subject to the Corporate Sustainability Reporting Directive (CSRD). The ESRS, following the principle of GHG-P, state that undertakings shall apply location-based and market-based methods and provide information on the share and types of contractual instruments (e.g. Renewable PPA, unbundled GOs, etc.). All Nordic countries have incorporated CSRD directly as EU members, or via their EEA obligations (Iceland and Norway).
Key message: The discussions around market-based versus location-based scope 2, and the ongoing debate on GOs, create uncertainties
Fact box
Scope 2 emissions should be reported using two methods, according to the Greenhouse Gas Protocol (GHG-P):
Location-based: Based on the average emissions intensity from the generation in the grid, where the electricity is consumed
Market-based: Based on emissions from electricity generation that the company has purposefully chosen through contractual instruments, e.g. Guarantees of Origin in Europe
Source: Corporate Sustainability Reporting Directive, The Greenhouse gas Protocol and AIB.org
Challenges and discussions
One important discussion with regards to PPAs in the Nordics, especially in Norway and Iceland, is the need for including GOs or not. Some power intensive industries have not included GOs in their PPAs and focused their scope-2 reporting mainly on a location-based method. This again has led to a discussion on so-called double-counting, if the given renewable energy is claimed twice – both by the PPA buyer and by the buyer of the unbundled GOs. This was the case when AIB banned Icelandic GOs in 2023, and similar tendencies have been discussed in Norway, where the GO system has been a never-ending debate. The CSRD/ESRS has made reporting standards clearer but has still not removed the issue with double counting.
Another important challenge, is the risk of changes in EU regulation, national regulation or changes in reporting criteria from important market initiatives like RE100, Science-based targets initiative (SBTi) or the Greenhouse Gas Protocol. There are several examples of these risks and challenges which can be barriers for PPAs:
Method: If location-based methods are more valuable than market-based methods, a PPA with GOs might be redundant.
Additionality: If a PPA linked to new RES is defined to be more attractive than a PPA linked to existing RES, it might reduce the value of the latter.
Temporal correlation: If more granular reporting (e.g. 24/7) is requested, it could change the PPA market.
Geographical correlation: If local PPAs are more valuable than long-distance PPAs, this could affect the PPA market.
11. Tax risk
Resource rent tax in Norway
Hydro and onshore wind power are subject to resource rent taxation in Norway. The resource rent tax is applied to ‘extraordinary’ profits after corporate income tax. As of August 2025, the effective tax rate for resource rent is 45% and 25% for hydro and onshore wind respectively.
In most cases, the resource rent tax is calculated based on the day-ahead spot prices, regardless of the producers achieved price through a fixed price agreement. However, for volumes delivered on certain PPAs (see conditions below), the producer may use the achieved contract price as basis for the resource rent tax calculation. This gives increased predictability and as a result, increasing hedging capabilities with respect to the eligible PPAs.
Key message: There are generally not any major tax issues specific to PPAs in the Nordics, except resource rent tax limiting the supply of PPAs in Norway
Hydro power | Onshore wind |
New PPAs with duration of minimum 3 years, where the total power delivery is at least 150 GWh during the contract term and the power is consumed in certain power intensive industries. | New PPAs with duration of minimum 3 years, where the PPA is entered into in the period 2024–2030 with the purpose of hedging production from new onshore wind power plant projects established in the same period. |
PPAs with duration of 3, 5 or 7 years that are entered into on certain statutory, standardised terms, and with a cap on the premium added by any intermediary distributors (commonly referred to as ‘Vestre-avtale’). | |
Source: Norwegian Tax Law (skatteloven) §18-3.
Resource rent tax may reduce PPA supply
Since resource rent tax is usually linked to spot market prices, hydro and onshore wind producers must take this into account when entering long-term fixed priced PPAs. If producers over-hedge, the tax can pose a considerable downside risk. As such, the resource rent tax affects the extent to which they are willing to hedge their production. The hedge level that minimize volatility in earnings after tax for producers is reduced depending on resource rent tax level as illustrated below:
The hedge level minimizing volatility in earnings after tax..
Source: Norwegian Tax Law (skatteloven) §18-3.
12. EU regulation
Good intensions, complex regulations
In general, the EU has been promoting PPAs as a key tool in several regulations in recent years. Intuitively, this is a positive trend for the PPA market. Even with these obviously positive intensions, some of regulations has ended up as quite complex and unclear. This again, adds uncertainty and complexity to the PPA negotiations, which might cause delays or a full stop to the agreement.
In the survey responses, market participants did not point out one single EU-regulation as a key challenge for the PPA market, but more the general challenge of adding layers of complexity without following up with a clearly defined framework. The latter creates uncertainty and delays in negotiations.
This tendency is also one of the essential discussions of the Draghi Report, which was published in 2024. The report provides a diagnosis of Europe's declining competitiveness and proposes a new economic strategy. Critically, the report links industrial competitiveness directly to decarbonization, advocating for a joint plan to ensure the energy transition is a source of strength, not a burden. As a side note, the Draghi report also explicitly highlights the PPA as a key tool.
Key message: EU’s attempt to promote RES and reach climate targets, has made some regulations complex and challenging for PPAs
Examples of regulations which creates complexity
RFNBO rules: The EU’s Delegated Act for Renewable Fuels of Non-Biological Origin outlines how such fuels (e.g. green hydrogen) can be defined as renewable. The PPA is an essential tool in these rules, but it must be structured to meet strict criteria on additionality, as well as temporal and geographical correlation. The challenge is two-sided, both as these rules adds layers of new structures to the PPA (complexity), but also that the rules have not been clear and defined (uncertainty).
CISAF: The EU's Clean Industrial Deal State Aid Framework is a new set of rules designed to streamline state aid for the green transition. It aims to make it easier for Member States to support clean energy, industrial decarbonization, and clean technology. While CISAF is intended to accelerate the clean energy transition, it could complicate the PPA market. It can create market distortions by favoring subsidised projects, introduce complexity in combining different funding mechanisms, and incentivise businesses to pursue government aid over market-based solutions like PPAs, potentially slowing the growth of the PPA market.
Case study: Uncertainty surrounds Swedish hydrogen producers over RFNBO PPA requirements
EU regulations mandate that hydrogen producers must secure PPAs with renewable energy plants no older than three years to have their production recognized as green. An exemption applies to companies operating in bidding zones where renewable energy accounts for more than 90% of the supply. However, the rules remain unclear about whether hydrogen producers in areas with high renewable energy output—such as northern Sweden’s SE1 and SE2 zones—are required to purchase Guarantees of Origin (GOs) to confirm their use of renewable energy. To avoid double counting, either the hydrogen producer must obtain and cancel the GOs, or the power producer must do so. This ambiguity has sparked debate, with some hydrogen producers contending that GOs are not necessary for RFNBO compliance.
Source: european-union.europa.eu, fornybarnorge.no and energiforetagen.se