Will the price of electricity go up? The price of electricity in Finland will go up. Right now, a remarkable increase in electricity consumption can be seen. Data center news comes out daily. New capacity must be built on the production side, and above all, it is significant that data centers and other new industrial production will specifically source their electricity from renewable production, which will have an upward effect on the price of electricity.

How is your fund doing?

Thanks! The fund is doing well. Now perhaps some latest positive news from a few development fronts. A few on the development front. We have a couple of different development projects. They have progressed really well. So during June and July, the environmental impact assessment for the Tervakangas project was completed. Then during August, the environmental impact assessment for a wind project called Tuulijoki was completed. From there, we will proceed to the zoning draft and construction permits quite soon.

Then for one other project, a solar and battery project, construction permits were received a couple of weeks ago. So remarkably positive things on the development side there. And then in our Kemijärvi battery project, commissioning tests are currently underway, and we expect positive news from those too very soon. And yesterday we were visiting our solar project in Estonia.

Yes, we had the official opening there, and it consists of operational. Or it has two. It is in two phases. The first phase is 10.5 megawatts, and then the expansion that was just completed and put into operational use. In July it is 63.3 megawatts, and we had the opening ceremony there yesterday. It was quite a lot. It was quite nice, or generated a lot of interest. Starting from ministers. All the press and others were on site. On the scale of Estonia, however, it is such a large project package, and an investment decision has now also been made to hybridize it, meaning batteries will be built into it. That project is not finished yet.

A lot of events and projects. Let's talk a bit more about them later. But how much are your fingers itching right now when these new data center projects keep coming into the news? They feed directly into your fund.

They are itching from a couple of different angles. So first of all, of course, from a very long-term perspective, our fingers are itching because of our production pipeline and outlook. So we have around 6,700 megawatts of wind production coming up. In addition to that, there is solar production, and timewise they coincide well with the moment when the first data centers are expected to start sourcing electricity. There is. There is remarkable synergy there.

And then the second thing to add to that is our own energy park projects, where the needs of data center operators can be taken into account already in the zoning phase. So we also combine production and consumption in the same location, and several projects are currently underway.

In the best case, they are on the exact same property. Wind production and data center zoning work.

Indeed. A fun background for the listeners still, what is UB Renewable Energy actually?

We are an open-ended special investment fund that, as the name suggests, invests in renewable energy projects. In our case, that means production, transmission, and storage, and activities supporting them. On the production side, we have operating wind and solar. In the development phase, there is wind and solar, and in transmission, there are batteries.

Indeed, commissioning tests are ongoing now, and then towards the late spring there is data center zoning, meaning we are zoning plots in the vicinity or connection of our current production areas, which we then intend to sell to a data center operator before starting construction work.

That zoning of data centers seems to be quite a new piece in this. I don't remember hearing about it from you before, or how is it?

Well, we've been doing it for a while, so these projects don't just appear out of nowhere before we talk about them, but now we have talked about them openly.

So the first zoning initiatives on the data center side became public for us, would it have been in July-August 25. And before that, preparatory work has of course been done for a while. Since the beginning of the year, and they hadn't been whispered about until they became public. Partly because there is certainly quite fierce competition for that electricity, and we have been able to choose our locations in a way that gives us a good grip on the land and hopefully allows us to secure the availability of the grid connection.

But maybe still to add to what UB Renewable Energy is and what we do, we have talked about having such development projects and operating projects. And that is how we started with the strategy. So we are kind of an evergreen fund, permanent, and we are a significant electricity producer to some extent now, but in the future very significant. And we look at our capacity through two clear angles. One is what we develop ourselves and that development phase. Right now the fund is in a clear value creation phase for our investors. Everything is in one and the same fund, and the projects we have invested in that are operational. We would raise cash-flow-based projects in the fund. So a clear division there.

But we are now development-focused, constantly moving more and more towards the operating mass. But that development. The piece will follow along in the fund all the time, meaning new projects are constantly being obtained. What we bring to the beginning of development or to that pipeline. That is not going anywhere in the fund's operational and operating philosophy.

Do you ever sell these projects or is it always like this, develop, operate and then keep, or do you ever sell these projects?

We haven't sold a single project so far, but the answer is no. That is also a possibility.

Okay, and particularly data center projects will be sold.

Yes, absolutely these zoning plans.

Exactly. So the fund's mandate doesn't even require building a data center there; it's purely about bringing benefits to our wind power production and combining consumption and production.

Now there has been a lot of news about these data center projects, and it feels like this AI boom has truly materialized for the general public as these new data center projects constantly make the news. A couple of weeks ago Google announced this giant investment, and this week. AtNorth announced a 10 billion data center investment in Salo, and today this French operator also announced a 10 billion data center project. And apparently there are around 100 of these data center projects, as I understand it, at least on paper in Finland, so can you answer how many of these projects will actually go live?

Impossible to say.

Impossible to say.

Hard to say. The percentage is certainly small, but even if the percentage is small, it still has a significant impact on electricity consumption and investments coming to Finland. So that's one thing that is wanted.

Another thing that will significantly affect this is the new legislation or bill currently in the consultation round concerning the granting of grid connections based on new criteria, and actually only when we finally see what those new criteria will be, meaning the removal of the current... Small political risk, then I would perhaps take a new answer to that question.

Right, let's keep following that situation. Why are there so many of these data center projects coming to Finland? I saw some news headline, was it Sesterce, saying that Finland is the new Texas in these data center projects, so why are so many coming to Finland?

Well, there are several factors why Finland is currently an interesting place. Of course, data centers are being developed and built in other countries too, but we have a good grid, or we have an exceptionally good grid. We have space. We have electricity right now. We have sufficient availability of green or emission-free electricity. It is emission-free. Since I'm referring to Google, those are the biggest components. Then we have a reasonably sensible situation, as we haven't had significant political risk in developing them, and Finland has validated itself as a good place to build data centers. That is it in short. There you go.

Does this climate have any significance?

Yes, the efficiency is better after all.

Yeah yeah. So that is a clear benefit of them being in Finland versus Texas, where the climate is a bit warmer.

Yes, and when we get to a really refined facility, the utilization of that heat is also much more sensible here than in Texas.

Right? Wasn't it Microsoft's or was it Google's data center in Espoo where the waste heat goes into heating use in Microsoft's projects?

Then right, let's go back to the United States. There has been a lot of talk about these data centers in the United States. Many of them have been built there, and there is a lot of stuff planned to be built. And one big theme there has been this energy need or electricity need. With these data centers, and in the US we have seen that the electricity used by these data centers is not connected to the public or general grid at all, but goes purely for the data center's own use. So that diesel generator or those Bloom Energy units or whatever else is used for electricity generation goes solely for the data center's use and not to this public grid. Can the same thing happen in Finland someday?

Well, I have to refer again to the fact that we will be a tiny bit wiser at the beginning of the year when we see this law, which is currently just in its starting phase. Which affects the granting of connections. One requirement or criterion there will probably be whether the data center has the capacity to feed flexibility into the grid as well, commensurate with its own power. And I would perhaps have a rather negative or pessimistic attitude towards a completely off-the-grid setup being possible in Finland in the same way as in America. After all, both our grid... Or let's say that the grid in Finland differs significantly from the situation on that other continent.

So just to make the point clear. You said connection. And that is actually quite a keyword, that in America they don't have the opportunity to get a connection. They don't have the power grid or generation that warrants building data centers of that size. So their only option is to generate that electricity on-site. And in Finland it's completely the opposite. We have that very strong grid and good electricity generation. And also the capacity to build new, additional electricity generation capacity. So that is the big difference. In America they don't have many options. They would gladly also commit and connect to the grid.

How easily does this connection happen for these data centers? Now this French operator that announced this investment decision today is going to the old Kaipola paper mill, so is there a reason why these go to industrial areas rather than some more remote location?

Well, those are individual cases. No, perhaps we cannot take a stance. However, I dare say this much, that they haven't had a ready-made connection there either. That it will now utilize for this moment.

Exactly. Staffan, you wrote in your blog a while ago that according to Fingrid's estimate, electricity consumption will rise from the 2025 level of around 86 terawatt-hours to as much as 103–123 terawatt-hours by 2030. So how can such a large electricity generation capacity be brought online if electricity consumption grows by as much as 30 percent? Nuclear power cannot be brought online in 10 years, so how is this massive energy or electricity need actually met?

So, energy infrastructure. Everyone knows it. Nuclear power as a zero-emission energy source is a good alternative. Extremely long construction and development times. But those will come too, and then there is renewable energy, which can be built in Finland on a significant scale quickly enough. These are based on Fingrid's research on the situation, and they in turn look at grid agreements that have been made and negotiations that have progressed far. They hold that investment view from their side. And the big question is the balance between consumption and production, how that will go. And in Finland, it certainly looks like consumption is growing a bit faster than production.

Meaning prices will rise.

That would be ceteris paribus.

Indeed. Are these data center investments already showing in PPA agreements?

They are, they are at least, let's put it this way. What we can talk about is what has been seen in public. Meaning up to the present moment. Mostly Google's PPAs, where some of course have also been made for wind, and specifically already existing wind.

So now once again we have to refer to the upcoming legislation, which will likely set a requirement for an 80% share of electricity produced with renewables, and possibly also that it must be new production, so that will have a considerable impact. Let's say that a large part of that future demand will likely target renewable energy.

And would you like to explain the term PPA a bit more, what it actually means, in case the listener doesn't necessarily know?

Yes, so Power Purchase Agreement, meaning the data center operator buys from the electricity producer through a 10-, 15-, 20-, 30-year contract all or a significant part of the electricity that the producer generates. That is usually the key on the data center side. Meaning they don't necessarily start advancing the investment before there is certainty about the availability of electricity and also to that. I would see that legislation will drive this, meaning there will be a mandate to secure that electricity beforehand before the data center can start moving forward.

And the reason why they make these specific agreements is within the framework of electricity availability, but above all so that they have a clear picture of what the price of electricity will be for them 10, 15, 20, 30 years into the future. So that is the electricity price. Price and availability, which is the core question for them, because that is what data centers run on, electricity.

It is a raw material.

It is a raw material. Renewable energy was all the rage during the zero-interest rate era and then new capacity at least on paper. There were really a lot of projects, but then a couple of quieter years followed. So now taking into account even Fingrid's estimate that electricity consumption will rise so much. So how? Are there enough projects like this so that the future need for electricity consumption, which will increase significantly, so are there enough projects like this for us to get enough electricity for this growing demand?

Well, from what UB Renewable Energy does, one dares to say that there is a big factor there that perhaps distorts the statistics a bit. Meaning, let's say there are a huge number of permitted, construction-ready projects, and that may be, but in quite a few of them the situation is that they might have been permitted for turbines that are a bit too low, which anyway in 2028 or 2030 will no longer be what the electricity consumer wants to buy and order, which brings up the problem that even if wind projects are permitted and construction-ready on paper, they might not be commercially viable for construction.

At that point then once again there is a situation like UB Renewable Energy's, where projects have been permitted recently and made sufficiently future-proof. A project that has been done, so an advantage comes from there.

Yeah, or it is just quite concretely that with old permitted projects, turbines of those sizes. When talking techno-economically, it simply does not make sense to build. The projects that can be advanced, it is worth advancing them. They have been sized precisely according to modern wind turbines.

Is this a bit like energy storage or old solar panels? That if you have an old, old-style system in use, it might not suit current needs as well, that the battery needs to be more efficient or the panel's efficiency needs to be high.

That question comes down to the fact that if there is an existing old facility, then that old facility's. It can continue its operations. It doesn't necessarily need new ones, because it is an old facility. It has likely paid for itself by now. So, it can continue until it is technically possible. Continue with it. So I don't sign off on that directly.

The problem arises if in 2028 we start building something that was designed according to 2015 standards and plans.

Indeed.

There is 13 years of development difference, which just doesn't.

Match.

That is not possible. And if projects of that type can be cleared out of that pool, from which it is said that there are a huge number of renewable energy projects in Finland, then suddenly that number is a bit smaller.

There has been a sort of chicken-and-egg problem in electricity production and demand. For example, if you look at Fortum's investor presentations, there has been. It is seen that electricity demand has actually been a very flat curve for 20 years. It hasn't moved anywhere at all. But then a hockey stick is expected, meaning that electricity demand will start to grow strongly in the coming years. And here was this chicken-and-egg problem of which one moves first, the industry or the renewable energy producers, so could you comment on how things stand with you? How many inquiries do you get from data center and project companies about how quickly you can get new capacity on the lines?

Well, that is easy for us to answer. The fact that our first wind project under our own development is currently estimated to start construction in 28–29. Meaning that we have had to say that we are not yet starting discussions. I dare say that I will be wiser in answering that at the end of the year. 27. When will we actually have that process underway and by when? We have also seen that the data center investments that are on the table now have started procuring that electricity.

In addition to Finland, you also have at least this one operating in Estonia, the one you just talked about at the beginning, this solar power plant project, so we wanted to open this up a bit in terms of how this has developed and now it is apparently operating on the lines.

Now it is operating on the lines. Estonia is of course an interesting market area, but it is clearly a smaller market than Finland, but the price of electricity has on average been better. There, with the technical solution, all of this phase two expansion of over 60 megawatts was done on trackers, which means that the solar panels follow the movement of the sun throughout the day, and the first advantage of that is a slightly higher production, but above all a considerably higher production during the morning hours, the first hours, and the late evening hours. If you compare it to a fixed-mounted panel park, the electricity price is considerably more valuable precisely during these morning and evening hours, because they then differ from the normal production profile that other solar power plants have. In addition, hybridisation, meaning bringing a battery into that project package, then makes it possible again to concentrate much more on at which stage of production can be stored and at which stage it is worth selling.

Would you like to explain the economic dynamics of that battery, how it works in practice? Meaning that during cheap hours it is presumably charged and then during the most expensive hours it is discharged into the grid.

When the battery works. Also in capacity and reserve markets. It serves both, both the charging of the park when there is cheap electricity or overproduction, and discharging that charge to the market when the electricity price is higher. But equally it operates in the capacity and reserve market, which then protects the hertz frequency of the local grid in the same way as Fingrid offers services and marketplaces for these. So the battery dynamically does multiple different jobs instead of just one. It serves two different markets.

Right, you originally operated exclusively in Finland, as I understand it. Now you have this one project in Estonia. But what if, for example, the price of electricity in Sweden were to rise significantly, would you have the readiness or desire to enter the Swedish electricity market?

The fund's mandate. The geographical mandate is Europe, and we have looked at projects in Denmark, Sweden, England. So far there has been no reason to go to Sweden, for example. And if the price of electricity rises in Sweden, whether due to industry or data centers, then yes, yes, that is technically possible. What I have tended to say in these discussions usually, that as long as we have good transmission connections to Sweden, then. The rise in electricity prices happening particularly in northern Sweden certainly serves production located in Finland as well.

Would you like to elaborate on the fund? Other project flow.

Regarding other project flow. Perhaps now the most significant are indeed these couple of data center projects that are currently public, and then there are a few that are not yet public. Specifically regarding hiding the location until the zoning initiative has been approved, and on the data center side there are both contract negotiations and environmental impact assessments underway. In practice, zoning drafts are already being prepared for both, and hopefully next year we will reach positive decisions at a substantial level in those.

In addition to this, we also have more wind power coming into that development pipeline. So yes.

What is this entire portfolio of yours like? How many projects do you have in the development phase and how many do you currently have?

Well, on the lines we have in practice. We have in production, we have one wind power project in Finland. We have solar power in Estonia, which are on the lines. We have the Kemijärvi site. Very soon they will be on the lines, and in principle everything else is a development project at the moment, but is constantly approaching the construction phase and that investment decision.

How do these different markets differ from each other? In Finland in 2005 we had some of the cheapest electricity in Europe, if I remember correctly. In Estonia you said that the morning and evening hours are very good, so what kind of differences are there between different markets in Europe, for example? Do you have a fund mandate? It is all of Europe after all.

Well, at this stage we have focused so strongly on Finland, meaning practically the Nordic region and then the Baltics, that it is perhaps not worth going into exact details about how the market actually works in Germany or the Iberian Peninsula right now. What we must remember when considering how far or what will happen to the price of electricity in Finland, is that it is worth looking at markets that are close by. For example, the German market and what electricity costs there right now, and that's where it comes in. I expect some kind of leveling off so that the price level of the cheaper electricity pricing area, meaning practically Finland and northern Sweden, will rise closer to the Central European level.

Through that you own a great deal of these forest lands, so there is probably quite a clear synergy here with UB Renewable Energy, that acquiring that land is probably much easier when you can ask from the next desk whether a project could potentially be built on it.

All of these arrangements happen entirely on market terms. We are not the only operator operating on UB Forest Funds lands. But what we have done holistically is that we have tried to look at the entire mass of the forest fund from our perspective and also maximize the return potential of the forest fund in it. So instead of a sort of inside-out viewing framework, it is more from the outside in. And of course it is much easier when it is at the neighboring desk.

True. Once that is specifically created. And one cannot emphasize market terms too much here, both in pricing and contract terms. But once a market-based pricing mechanism and market-based contract terms have been created, then it is really much easier. Instead of having to talk to several different landowners, each of whom always brings new negotiations lasting several months, through that the synergy is significant.

Right. If an investor is currently considering the UB Renewable Energy fund, what should the investor understand about this fund?

Consumption will increase, it is increasing day by day. As you said yourself, nuclear power is not a short-term solution for it, nor perhaps a long-term one. The idea that Finland would suddenly start producing electricity with fossil fuels, personally I find that an unrealistic option. It is also expensive, and in addition there are environmental problems that often prevent its implementation, and that drives all demand into UB Renewable Energy type funds. Specifically and preferably into us, who have future-proofing for the future. A good pipeline and above all, in terms of timing, we are able to meet the rising demand from data centers and why not other consumption as well.

Thank you very much for the interview!

Thank you.