Google-Fortum Deal Sends Mixed Signals for Nordic Power Market
Finland's utility company Fortum has signed a 22-year power purchase agreement (PPA) with Alphabet's Google. The deal, which is worth a €30-€35 per megawatt-hour premium, will improve Fortum's earnings visibility and support the extension of its Loviisa nuclear plant. According to Berenberg, the German investment bank that maintains a hold rating on Fortum, the contract adds approximately €130-€140 million to the company's annual earnings before interest, taxes, depreciation, and amortization (EBITDA). This is equivalent to a 1.4% increase in return on net assets (RONA).
Berenberg believes that the deal sends a strong signal about the attractiveness of the Nordics as a location for data centers. However, it also raises concerns about supply security and the potential for government intervention in the market. If electricity prices or availability become politically contentious, investors may factor in a higher chance of price caps or other interventions, which could cap the valuation rerating even when forecasts rise.
The impact on the broader power market is uncertain, but Berenberg suggests that the increased commitment to private contracts could lead to tighter supply and support the forward power curve. On the other hand, if investors become concerned about supply security, they may apply a bigger 'regulatory risk' haircut to utilities, reflecting the chance of price caps or windfall taxes.