Hydro has announced a settlement agreement relating to its long-term power purchase agreement (PPA) with Markbygden Ett AB, associated with the 653MW Markbygden onshore wind park in northern Sweden. Under the agreement, Hydro will be entitled to a compensation of up to €248 million for voluntarily terminating the PPA.
The original PPA, signed in 2017 by Hydro Energi AS, ensured a baseload power supply of 1.65TWh annually from 2021 to 2039. This agreement played a pivotal role in financing the Markbygden wind park, which had an expected annual output of 2.2TWh. However, production levels at the site have been lower than projected, which Hydro stated contributed to Markbygden Ett AB's financial challenges.
The wind park ceased supplying power to Hydro as of February 6, 2023, and the operator entered a reorganization process in November 2023. According to Hydro, non-delivered power since February 2023 has totaled approximately 2.5TWh.
Hydro explained, “According to the approved plan, Hydro is entitled to a total compensation of up to €248 million as a settlement for the ongoing dispute over the company's non-performance under the PPA and as compensation for Hydro's voluntary termination of the agreement.” The final compensation, however, depends on the future sale of the wind park, with proceeds shared based on a pre-agreed mechanism.
Hydro noted that the sourcing situation for its Norwegian smelters remains stable through 2030, supported by its hydropower production of 9.4TWh annually and a long-term contract portfolio of around 10TWh per year. The company is also exploring options, including onshore wind, to secure cost-effective renewable power for its operations.
Pending certain closing requirements, the settlement plan is expected to take effect in November 2024.
