General Structure of the Norwegian Power Industry and System
The Norwegian power industry and energy supply system comprise entities in the domestic energy sector that produce, trade and distribute energy to consumers. The Norwegian power production mix can be divided into the following main renewable sources:
Hydropower accounts for the greatest part of the power supplies in Norway, currently consisting of approximately 96% of the total energy production. Within Europe, Norway has the highest share of electricity produced from renewable sources. Norway has more than 1,000 hydropower storage reservoirs and 1,660 hydro power plants, and the hydropower source is categorised as both flexible (due to the reservoirs) and intermittent (due to cycles with less or more precipitation and inflow).
Wind power has only been a relevant production source the past two decades in Norway (since 2002). Despite constituting a moderate share of the total production capacity (approximately 3.6 TWh in a regular year), a trend of increased investments in Norwegian wind parks from national and foreign investors is emerging. The Norwegian Water Resources and Energy Directorate ("Norges vassdrags- og energidirektorat" or NVE) and the Norwegian Ministry of Petroleum and Energy ("Olje- og energidepartementet" or OED) have issued licences of approximately 7,400 MW wind power equal to an expected production of approximately 26 TWh (please note that it is not expected that all of these wind farm projects will be realised). A total production of approximately 16 TWh from wind power is expected when Norway withdraws from the el-certificate system in 2021, constituting around 10% of the energy production.
Electricity Grid Division
The Norwegian electricity grid has traditionally been divided into three levels:
Both bullet points two and three are comprised by the "distribution system" definition in the EU legislation.
The Norwegian authorities, municipalities and counties in Norway own approximately 90% of the Norwegian electricity sector and production capacity. The Norwegian state owns approximately 35% of all production capacity via the wholly-owned state enterprise Statkraft SF ("Statkraft"). The Ministry of Trade, Industry and Fisheries is responsible for following up the ownership of Statkraft.
The Norwegian state owns approximately 98% of the transmission grid via Statnett, and OED is responsible for following up the ownership. The remaining part of the transmission grid is owned by regional grid companies, however, Statnett is currently in the process of taking over transmission facilities from these entities. The regional and local distribution grids are mainly owned by county and municipal authorities through various public undertakings.
Up to date, foreign ownership interests have been limited, but there is an increasing trend that foreign investors are investing in the Norwegian energy power sector. Foreign ownership is most prominent within small scale hydro power production and wind power production.
The Norwegian legislation related to hydropower production and utilisation of waterfall rights faces specific restrictions compared to production from other renewable sources.
Private ownership in the production of large scale hydropower is restricted, see the Waterfall Rights Act. In 2008 the water resources legislation was amended with the purpose of strengthening public ownership of the hydropower nature resources in Norway. The consequence is that new licences for ownership of waterfalls and licences to transfer already licensed waterfalls of 4,000 natural horse powers (which in general corresponds to a yearly production of approximately 40 GWh) can only be granted to public developers, including state-owned enterprises, municipalities and county authorities, or to a partly-owned company, being held by such public undertakings with at least two-thirds of the capital and the votes.
In addition, the ownership should indicate such genuine public ownership (chain). Private owners/investors may own up to one-third of such companies. Small-scale hydropower plants are exempted from these regulations.
A specific key element related to Norwegian hydropower to note is the so-called "right of reversion to the state" ("hjemfall") for licences issued to private companies after 1917 for large scale hydro power plants. This right implies that by expiry of a licence, the Norwegian state assumes ownership of waterfalls and any hydropower installations free of charge. The date of reversal is set out in the licence, and within this deadline, the relevant private power plants will either be sold to companies fulfilling the two-third requirement of public ownership, or the ownership will be transferred to the Norwegian state on said deadline. Note that the ownership limitations mainly apply to large scale hydro power plants of 4,000 natural horse powers.
Vertical Integration, Legal and Functional Unbundling, etc
"Vertically integrated companies" means grid companies being involved in both electricity production, transmission and/or trading. The current requirement is that all grid companies with 100,000 grid customers or more must be legally unbundled, ie, grid operations and production and/or trading activities must be carried out by separate companies, and a grid company may not own or be owned by an entity that is engaged in electricity production or trading. Changes in the Energy Act that will enter into force and effect 1 January 2021 implies that this requirement will apply to all grid companies.
Thus, in accordance with the new rules, it is a requirement within 2021 that all grid companies are subject to legal unbundling, and all grid companies with more than 10,000 customers are subject to functional unbundling (a person with management responsibilities in a grid company may not be involved in the management of other companies within the group with other functions, and the parent company or ultimate owner is not allowed to be involved in day-to-day management, operations or investment decisions. The legal and functional unbundling requirement currently applies to grid companies with more than 100,000 customers.
Principal Laws – Legal Framework
Norway is a member of the European Economic Area (EEA) and the Norwegian legislation in the power sector is in compliance with the provisions of the Directive 2009/72/EC concerning common rules for the internal market in electricity (Third Electricity Directive). The directive provide common rules relating to the organisation and functioning of the electricity sector, including requirements on access to the market, granting of authorisations for the construction of new generating capacity, and operation of systems. Directive 2009/28/EC on promotion of the use of energy from renewable sources (Renewable Energy Directive) establishes a common framework for the promotion of energy from renewable sources.
Below is an overview of the most principal Norwegian laws and regulations governing the power industry:
The following companies are at present the largest in Norway within the relevant energy segment (generation/production, transmission and distribution):
There is no national overview of the electricity suppliers in Norway arranged by size, but the ones mentioned above are the major ones. All suppliers operate with standard terms and conditions must register at a web page.
Under current legislation licences and concessions pursuant to the Waterfall Rights Act is the only licenses where ownership restrictions apply. These licenses apply to large scale hydro power plants of 4,000 natural horse powers (which in general corresponds to a yearly production of approximately 40 GWh) and may only be issued to Norwegian public undertakings (owning at least two-thirds of the capital and the votes in the project company). This represents an indirect regulatory restriction and protection of the Norwegian power industry.
However, private investors (including foreign investors) may own up to one-third of such companies, and there are no ownership limitations on the acquisition of small scale hydro power that is not in need of a licence pursuant to the Waterfall Rights Act.
Foreign investments in the power industry the past decades have in general been relatively limited. The exception is the considerable share of foreign investments (PE funds, pension and insurance companies, etc) in wind power projects and small scale hydropower projects. Until recently, almost all wind power projects have been partially or wholly-owned by foreign entities.
New Security Law
The relatively new Security Law allows Norwegian authorities to screen investments in Norwegian businesses on the basis of national security. The law uses a wide definition of national security interests, including financial stability and autonomy. If an investment causes a “not insignificant” risk to national security, the government may block the acquisition, or impose certain conditions. The screening regime is not limited to specific sectors, such as the power sector, and will apply to both EU-based investors and non-EU investors.
The act applies regardless of the acquirer's nationality, ie, without discrimination. Note that a company is only covered by the act if the relevant ministry has issued an administrative decision in that regard.
The same regime applies to both national and foreign entities with regards to protection against seizure, confiscation and expropriation, access to courts, arbitration, etc. Operating in Norway, an entity will in general have the same protection as Norwegian companies, either on the basis of the EEA-agreement or on the basis of bilateral or multilateral investment agreements. The Norwegian Government encourages foreign investments in Norway, and the investment regime is in general liberal and open for all nationalities. Norway is ranked number seven on the World Bank "Ease of doing business-ranking" for 2020.
There are certain restrictions regarding the sale of power industry assets/ businesses and shares in transactions, depending on which licences that are relevant for target and the structure of the transaction.
Transfer of a licence issued pursuant to the Energy Act, including a facility licence ("anleggskonsesjon"), trading licence ("omsetningskonsesjon") and/or area licence area licence ("områdekonsesjon"), to a third party requires approval and consent from NVE. This also applies to transactions in which more than 90% of the shares in the company holding the facility licence (and owning the relevant facility) is transferred, since such share transfer is considered by NVE as a de facto transfer of the licence.
Licences issued pursuant to the Waterfall Rights Act require consent (and potential issuance of a new licence) from NVE and/or OED, provided either of the following takes place:
Licences issued pursuant to the Water Resources Act and the Watercourse Regulation Act normally require that the parties (typically the seller and the buyer) involved in the transaction notify NVE and/or OED and other relevant Norwegian authorities about the transaction.
Statnett SF is the transmission system operator (TSO) in Norway and has the overall national responsibility for frequency control. Statnett has the authority to impose restrictions on power consumption and production on all other licensees in the power system. Since both production and consumption of power is organised in the power market, the TSO's responsibility and authority concerns balancing production and consumption to ensure frequency control.
The Norwegian Parliament ("Stortinget") determines the political framework for how to manage the energy resources in Norway. OED has the overall responsibility for the energy and water resources, and the regulatory and supervisory responsibility is mostly delegated from OED to NVE. NVE is the central regulatory authority for the power sector, and is responsible for managing the Norwegian water and energy resources.
Furthermore, NVE shall ensure that the energy resources are developed in an environmentally friendly way and to the best interest of Norway's energy system. This includes, eg, issuing licences, planning and overseeing development, building and regulation of electricity production facilities and grid infrastructure, research and development, international co-operation, etc.
The Norwegian Energy Regulatory Authority ("Reguleringsmyndigheten for energi" or RME) is an independent regulatory authority for the electricity market. RME shall monitor and supervise the entities operating the transmission and distribution system, ie, the regulation that involves monopoly control (income cap regulations, tariffs and market behaviour). Furthermore, RME monitors the physical electricity market (OTC-trade, wholesale and supply to end-users).
Both NVE and RME operates in close connection with their European peers and the entities that organise and develop the integrated European electricity market. RME is a member of the Forum of Nordic Energy Regulators (NordREG), the Council of European Energy Regulators (CEER), and participates as a non-voting member in the Agency for the Cooperation of Energy Regulators (ACER).
The Norwegian Parliament has adopted changes in the Energy Act that will come into force and effect on 1 January 2021. The changes imply that all grid companies will be subject to the legal unbundling requirements. The law also requires that all grid companies are subject to the functional unbundling requirements.
However, the Government has proposed a change that suggests that only grid companies with 10,000 grid customers or more will be subject to the functional unbundling requirements. The change is expected to be approved by the Norwegian Parliament and will come into force and effect on 1 January 2021.
In 2016, the Government announced its energy policy towards 2030 in a white paper to the Norwegian Parliament. The Government points to four distinct areas of priority:
Policies and Regulations
A number of energy related policies and regulation processes are currently being investigated or are in motion in the political system. Many of them are principal and could have great impact on the power industry; some of the most important listed below:
In January 2020 RME proposed changes in the regulation of tariffs in the distribution system. The proposition regards the introduction of power tariffs that take into account the load and the available grid capacity incentivising the consumers to spread the load at different times during the day.
The most distinct aspect of the Norwegian power industry, is the fact that Norway has the highest share of electricity produced from renewable sources in Europe, and the lowest emissions from the power sector. Furthermore, Norway's energy market was one of the first to be liberalised with the introduction of the Energy Act in 1990. Apart from the grid companies, the whole sector is liberalised.
The Norwegian power supply system is very flexible, reducing vulnerability to fluctuations in production between seasons and years, due to a combination of close integration with the Nordic countries’ power systems, a well-developed power grid system and a high capacity of the hydropower storage reservoirs.
Also, worth mentioning is the investment opportunities in especially small scale hydropower projects, wind projects, grid companies, district heating and solar.
As of June 2020, the COVID-19 situation has not had a major direct impact on the renewable energy sector in Norway. Indirectly, the price drop of electricity, which is due to both weather events (low temperatures combined with large amounts of snow in the mountains) and the COVID-19 situation causing low consumption, implies that electricity producers now operate under record-low electricity prices in Norway. However, this has not resulted in a reduction of investments in renewable energy projects so far, although it remains to see the effects in the long-term perspective.
Projects Under Development
With respect to projects under development, the main concern has been the availability of foreign labour supply. The Regulations relating to infection control measures, etc, in connection with the COVID-19 outbreak (the COVID-19 Regulations) prescribe the rules regarding quarantines (subject to frequent and rapid amendments). Currently, a general quarantine of see days apply upon arrival in Norway (with some exceptions, eg, for persons who are essential for safeguarding a proper operation of critical social functions).
Furthermore, the Regulations relating to refusal of leave to remain for foreign nationals without a residence permit stipulates that foreign nationals without a residence permit may be ordered to leave the country. These regulations do, among others, not apply to EEA nationals who reside or work in Norway or are about to take up a job in Norway. The rules on quarantine upon arrival nonetheless apply to such persons.
However, since workers in quarantine may to a large extent be involved in construction works as long as certain social distancing requirements are met, there has to our knowledge not been any major delays in construction projects in the renewable energy sector so far.
In Norway, the electricity is sold on an open market, either through the power exchange market, "Nord Pool", or through bilateral power purchase/sales agreements regulating the specific volumes of electricity at an agreed price for a certain and often long-term period (eg, 10-20 years).
Overall, the power market is divided between wholesale and end-user markets. Basically, one can divide the wholesale market into the following markets in which prices are determined:
For the day-ahead and the intra-day markets trading of electricity prices take place on the market place Nord Pool. For day-ahead, Nord Pool will each day calculate the power price for the next day for the Nordic market. The largest volumes are traded in Nord Pool's day-ahead market by brokers, producers, suppliers etc. The trade comprises delivery of power hour-by-hour the next day. In practice, participants in the wholesale market places their bids in the Nord Pool system between 08:00 and 12:00 CET each day.
Electricity Prices and Balancing Markets
The electricity prices in the end-user market are determined by what the consumers are willing to pay for the power from power suppliers in the market. There is high competition between the power suppliers. The end-user may choose between contracts where the terms are "fixed price", "standard variable price" or "spot price" (market price plus mark-up).
The balancing markets are regulated by Statnett (the TSO), with the aim to create a balance between production and consumption (system in balance at 50Hz) and ensuring that the system has sufficient balancing capacity for up and down regulation.
Imports and exports of electricity to/from Norway are permitted to/from other jurisdictions. Norway is closely linked with the other Nordic countries and Norway is part of a Nordic power market, which includes Sweden, Finland and parts of Denmark. The Nordic system is connected with the rest of European countries through interconnectors, including inter alia to the Netherlands, the Baltics, Germany, Poland and Russia.
For 2020 and 2021 two new interconnectors to UK and Germany are planned to be completed.
Oversupply of Power
Norway is one of the countries with the highest degree of hydropower access in the world, including large reservoir capacity. Consequently, Norway has a considerable surplus of power in periods with high precipitation. During such periods of oversupply, it is typically profitable to export power from Norway to other countries.
Countries like Denmark, leaning heavily on wind power, has high productions and low prices when conditions are windy. In such conditions, it is often profitable for other countries to import power from Denmark. The Norwegian hydropower producers may save water in the hydro storage reservoirs for later, when the water has a higher value. The price difference between two countries will decide whether it is profitable for a country to export or import (or not) at a given timing.
The production of mix of electricity in the Norway was in 2019 as follows:
Norway issued (see the Renewable Energy Directive) in 2018 as follows:
Norwegian power suppliers must either buy guarantees of origin to market their sales as renewable, or they may refer to the national electricity disclosure. Since only 14% of the electricity sales in 2018 comprised guarantees of origin, the national electricity disclosure differs considerably from the physical reality of the consumption.
There are currently no specific concentration limits regarding the percentage of electricity supply that is controlled in the market by any entity. However, there is a general prohibition on anti-competitive behaviour, see 2.5 Agency Conducting Surveillance to Detect Anti-competitive Behaviour.
RME is responsible for supervising market behaviour and transparency in the power market (prohibition of market manipulation and insider trading), in particular related to trading of physical electricity power. RME may require disclosure of all data, information and documentation necessary to carry out their supervising function.
In case of a breach of the legislation and illegal behaviour, RME may require that the illegal behaviour shall immediately cease, issue a compulsory fine in addition to a penalty for violations of the relevant new regulation provisions. Further, breach of regulations pursuant to the Energy Act may also lead to criminal liability, and be reported to the prosecuting authority.
Reporting and Investigations
Provided the Norwegian legal requirements and thresholds for merger filing are fulfilled, the parties and companies involved are required to report mergers and acquisitions to the Norwegian Competition Authority. The Competition Authority may intervene in acquisitions and mergers that may impede competition in a way that could weaken competition to the detriment of consumers and society at large. Procedural rules related to the investigation of anti-competitive behaviour are provided in the Competition Act and Regulations adopted pursuant to this Act.
The Competition Authority may conduct investigations, request information, arrange interviews and may also adopt decisions imposing administrative fines of up to 10% of the company's turnover in its last fiscal year for wilful or negligent violations of the cartel prohibition. The Competition Authority may also obtain a court order to seek evidence through an unannounced inspection, and may initiate criminal proceedings.
Relevant regulations include the Regulations on grid regulation and the energy market ("Forskrift om nettregulering og energimarkedet").
Norway has adopted several climate change policies and laws, also affecting the power industry.
On a policy level, a tax on industries emitting carbon dioxide (the "CO2 tax") and regulation through the emissions trading system (EU ETS) are the main instruments for reducing greenhouse gas (GHG) emissions. These apply mainly to emissions from the use of fossil energy sources. Approximately 50% of all greenhouse gas emissions in Norway are subject to the quota regime or greenhouse gas taxes, as per the Greenhouse Gas Emission Trading Act ("Klimakvoteloven").
The Norwegian Parliament has adopted the Climate Change Act ("Klimaloven") which sets legally binding targets for the reduction of greenhouse gas emissions by 2030 and 2050, and demands annual reporting from the Government to the Norwegian Parliament on the progress. Section 3 of the Climate Change Act makes the INDC of the Paris Agreement legally binding as a target.
Targets and Prohibitions
Another example is the official target that all new passenger cars and light vans sold should reach zero-emission by 2025. The target is promoted by a combination of taxation rules and incentives benefiting electric vehicles. Norway's incentive programs energy efficiency and electrification of transport implies considerate investments in batteries and grid infrastructure.
Furthermore, direct prohibitions have been imposed on certain specific practices, such as bans on flaring (except for safety reasons) and the use of mineral oil for heating. There are also specifies requirements for the sale of biofuels, including sustainability criteria, in the Product Regulations ("Produktforskriften").
Although 98% of the electricity production in Norway comes from renewable energy sources, the Norwegian economy continues to a large degree to be reliant on oil and gas production. There are currently no laws or policies targeting a transition from oil and gas to renewable sources. However, there are several policies targeting transitions to renewable energy in other areas.
Decarbonisation and Battery Technology
Decarbonisation is one of the main goals of the Government's white paper "National Transport Plan for 2018–2029". A specific goal is that all new passenger cars and light vans sold should reach the aim of zero-emission by 2025. In 2019, the level was 43%. This will be achieved through taxation rules and a wide range of incentives, including exemption of purchase tax and VAT for electric cars. Other benefits include free parking on some public parking spaces, no road toll, free access to ferries connecting national roads and the use of public transportation lanes.
The Government has also released a report detailing its ambitions on transitioning to battery technology for shipping and has recently announced its strategy on hydrogen.
The Government, after a vote on the issue in the Norwegian Parliament, recently set out criteria for the Norwegian Oil fund, requiring the fund shall phase out investments in companies dealing with coal. The policies include a ban on investments in companies that extract more than 20 million tonnes of thermal coal or use more than 10,000MW of power from coal. Some of these resources will instead be invested in renewable energy projects.
There are several national programmes in place to encourage the development of alternative energy sources. The governmental agency Enova has contributed NOK2.3 billion to Equinor for supporting the construction of the floating wind power project "Hywind Tampen", located 90 miles offshore of the North Sea. The wind park will provide electricity for the "Snorre" and "Gullfaks" offshore field operations.
Regarding onshore power production on a large scale, there are currently not any governmental subsidy schemes. Companies producing renewable energy receive funding from the end-user consumers of electricity through the guarantees of origin and el-certificates. These electronic documents are granted to producers of renewable energy for each MW of power produced.
The el-certificates programme commits consumers to buy el-certificates when they consume electricity. The guarantees of origin originates from the Renewables Directive and provides the producers with guarantees of origin that they may sell in the market. None of these programmes are considered as governmental funding.
On a smaller scale, Enova has means to promote the implementation of alternative energy production for smaller businesses through limited financial contribution for implementation of for example solar power and heat pumps.
Depending on the dimensions and type of generation facility, several licences may be required to own and operate generation facilities in Norway. Small scale hydro power plants must be licensed under the Water Resources Act. Larger hydropower plants over 40 GWh, as well as regulations and channelling of water, must have a licence under the Watercourse Regulation Act. Acquisition of large-scale hydro power fall rights may also require a licence under the Waterfall Rights Act.
In addition, electrical installations of high voltage (1 000 V AC/1 500 V DC or above), such as transmission lines, generators in hydropower plants, transformer stations and power lines must have a facility licence pursuant to the Energy Act, Section 3-1. For wind farms and wind turbines, the primary licence is the facility licence pursuant to the Energy Act, Section 3-1. Furthermore, all entities trading energy, eg, producers that sell energy peer-to-peer or to the power market, must obtain a trading licence pursuant to the Energy Act, Section 4-1.
NVE is with some exceptions the licensing authority. Licence procedures differs depending on variables such as project size and expected impact. The NVE's licensing decisions can be appealed to OED. If necessary, OED will carry out an inspection of the site as part of the appeal process. OED's decision is final and cannot be appealed.
Principal Laws and Regulations
In general, constructing or operating a facility at voltage levels at or above 1000 V AC/1 500 V DC, requires a licence pursuant to the Energy Act, Section 3-1. There are no formal conditions in the Energy Act to obtain a facility licence, however, NVE will perform a cost-benefit analysis to assess whether the costs related to the environmental and social impact are acceptable. NVE has the authority to reject applications and to require changes in the framing and design of the facility.
Pursuant to the Energy Act, Section 2-1, a public consultation is performed for all applications for facility licences, unless NVE decides that consultation is unnecessary. Furthermore, an environmental impact assessment must always be conducted for hydro power facilities that will generate a yearly production of 40 GWh and for dams and other facilities that store water if the amount of stored water will exceed 10 million meters cubed. For wind farms, an environmental impact assessment must be performed for facilities at or above 10 MW. The process for conducting an environmental impact assessment includes a public consultation.
The concession is issued by NVE. The local municipal government may submit its comments to the application during the licensing process. The municipal government has no formal authority to prevent a licence from being granted. Parties and other persons (legal/natural) directly affected, public authorities, environmental organisations etc may appeal NVE's decisions to OED. Once a concession has been granted by NVE and reaffirmed by OED, the decision is final. Neither OED nor NVE may in principle (with certain exceptions) overturn or revoke a concession at a later stage.
Furthermore, all generation facilities must comply with local (municipal) zoning regulations and plans. Compliance is either achieved through a revised zoning plan decided by the municipality, or by the municipality issuing a dispensation from the current zoning regulations. If the municipality neither revises the zoning plan nor gives dispensation, OED may decide that the facility licence shall be regarded as a governmental zoning plan.
Pre-project Plans and Public Involvement
Prior to construction start, the licensee must prepare a detail plan and an environmental, transport and construction plan for the facility, and these plans needs to be approved by NVE.
Before the facility can deliver electricity to the grid, a trading licence must also be obtained pursuant to the Energy Act, Section 4-1. Such trading licence is issued by RME. This process is a regulatory formality, and will at normal terms be granted. To obtain a trading licence pursuant to Section 4-1, one must apply through Altinn.no, the governmental portal for communication between businesses, private individuals and public agencies.
OED and NVE may impose a number of conditions in the facility licences and the licences pursuant to the laws that regulates licences for hydro power facilities (the Waterfall Rights Act, the Water Resources Act and the Watercourse Regulation Act).
Conditions will in general have the aim of protection against damage to people, the environment and property. Standard conditions in licences pursuant to the Water Resources Act and the Watercourse Regulation Act conditions on minimum water flow, removal of intake or outlet, reduction of swallowing capacity or reservoir size, and to remove the requested channelling of water to safeguard environmental and user values. A standard condition requires the licensee to submit detailed plans on information, estimates and costs for the facility. The Norwegian Environment Agency may impose further conditions for the protection of fish and fish habitats and the natural environment. Standard conditions on the protection of cultural heritage, the facilitation of hiking and outdoor activities and threatened birds and endangered species.
Furthermore, there are a number of other laws and regulations that may have an impact on the construction and operation of generation facilities. Relevant regulations, for example, are regulations related to emergency preparedness, operational safety, dam safety and taxation.
Facility licences for the production of wind power will in general have conditions relating to the impacts of the wind turbines on birds, bats, endangered species and their natural habitat. Furthermore, standard conditions on noise and shadow flicker applies. Through the standard conditions that require the licensee to develop the project through a detail plan and an environmental, transport and construction plan for the facility, NVE may provide strict and detailed requirements as regards the design of the facility, including turbine type and turbine location.
The licences will also include conditions on removal of the facilities and restoring of the landscape to its natural state in case of closure.
A proponent for the construction and operation of a generation facility must enter into agreements on acquisition or lease with all relevant landowners. If an agreement is not possible to achieve, the necessary rights can be obtained through expropriation permits. This is granted by NVE in accordance with regulations in the Expropriation Act.
Compensation is determined through judicial assessment, and the compensation must reflect the real financial loss for the landowner. Compensation is typically an annual fee for rent in addition to an annual percentage of the facility's production revenue.
In case of decommissioning, permission must be sought from NVE. The Energy Act Regulations impose several requirements for the decommissioning of facilities upon closure: The licensee is obliged to remove all equipment and facilities, and as far as possible return the landscape to its original state. Decommissioning must be made in accordance with a plan approved by NVE.
In order to secure sufficient funding for the work on decommissioning, new concessions to build wind power facilities also require the provision of financial guarantees. Such a guarantee must be submitted to NVE by the end of the 12th operating year.
The Energy Act governs the renewable energy sector, including the generation, conversion, transmission, trading, distribution and use of electrical energy and district heating. The Energy Act grants competence to OED to provide further regulations.
To construct and operate transmission lines, a utility must obtain a facility licence pursuant to the Energy Act, Section 31, granted by the NVE and a trading licence pursuant to Section 41 granted by the RME. Further, the utility must be certified as a transmission system operator (TSO). Statnett SF is the only certified TSO in Norway. For large scale transmission lines (voltage levels at 300 kV or more and length of 20 km or more), only the Government has the authority to grant facility licences.
Facilities at voltage levels higher than 22 kV are excepted from the Planning and Building Act apart from the regulations regarding environmental impact assessments and the requirement to provide maps for the facilities.
RME governs the approval of the terms and conditions for the connection to the transmission and distribution system and the revenue cap model that regulates the allowed revenue for Statnett SF and the distribution system operators. RME is responsible for the regulation of the monopolies (the transmission- and distribution system) and the monitoring of the physical electricity market (OTC-trade, wholesale and supply to end-users). RME has the authority to grant trade licences, and may to some extent impose additional requirements in the licences. Energiklagenemnda is the appealing body for RME's decisions.
Principal Laws, Regulations and Regulators
To obtain a facility licence pursuant to the Energy Act, Section 3-1, one must apply directly to the NVE. There are no formal conditions in the Energy Act to obtain a facility licence, however, NVE will perform a cost-benefit analysis to evaluate whether the costs related to the environmental and social impact are acceptable. The NVE has the authority to reject applications and to require changes in the framing and design of the facility.
The NVE may, for instance, require assessments of alternative transmission routes. Parties and other persons directly affected, public authorities, environmental organisations, etc, may appeal the decisions regarding facility licences.
The Energy Act, Section 2-1, states that applications for facility licences shall be sent on a public hearing, unless NVE decides that consultation is unnecessary, see the Energy Act, Section 2-1. An environmental impact assessment must always be conducted when applying for a licence for a transmission line at voltage levels of 132 kV and more, and this assessment will include consultations and a public hearing. As regards lower voltages, an environmental impact assessment must be conducted if the facility will imply considerable impact on the environment or society.
The entity applying for a facility licence must comply with strict requirements regarding the competence of the personnel (high-voltage competence, etc). Only Statnett SF is allowed to own and operate transmission facilities (see below).
NVE's estimated timeline for approvals of facility licences depends on the dimensions of the projects. Minor applications that are not sent on public hearing: three to six months, minor applications with public hearing: six to 12 months, larger projects: one to two years, and projects that need environmental impact assessments according to the Regulations regarding Environmental Impact Assessments: two to four years.
The Energy Regulations impose standard terms and conditions for facility licences. Most importantly, the licensee is obliged at all times to maintain the plant in a satisfactory reliable condition, including having plans for systematic maintenance of facilities, comply with norms adopted regarding electrical installations and documenting the above.
The licensee must (during planning, construction and operation) ensure that the project implies the least possible damage to the environment and the landscape (to the extent that this can be done without unreasonable costs or inconvenience). Further, the licensee must take emergency preparedness into consideration. Closing of facilities may not be conducted without the permission of the NVE. Upon closure, the licensee is obliged to remove the facility and, as far as possible, return the landscape to its natural state.
Terms and Conditions
The licence includes a set of standard terms and conditions imposed by the NVE that supplements the conditions in the Energy Regulations: the standard term of the licence is 25 years, but renewal may be granted upon application. Changes in the legal person operating the facility requires a transfer of the licence. The NVE may impose changes to the licence in case considerable social considerations so requires. If bankruptcy proceedings or dept negotiations are introduced, the NVE may withdraw the licence. If the licensee infringes any of the licensing terms or applicable regulations, the NVE may impose the sanctions applicable at all times.
Also, the NVE may impose distinct terms and conditions if needed, eg, if needed for the protection of the environment. In general, such conditions must be proportional and not imply an arbitrary discrimination of the licensee.
The licensee may apply to the NVE for an amendment in the said terms and conditions. Since these are standard terms and conditions, the NVE may not perform such amendments unless strong considerations imply that the licensee should be treated differently from other licensees.
With respect to the trading licences, the RME may impose conditions on the following aspects, eg: the internal organisation and accounting of the concessionaire (ie, the unbundling of the monopoly functions from the functions that are liberalised); the market access for customers (eg, as regards offering non-discriminatory and objective terms and conditions); the neutrality of the grid companies; the determination and calculation of tariffs; and revenues for the sale of transmission and distribution services, information to customers.
Historically, the RME has imposed conditions regarding the unbundling of the grid (eg, separation in different judicial bodies) as conditions in trading licences. However, these regulations are now to be found in the Energy Act, Sections 4-6 and 4-7.
When applying for a facility licence, the licensee usually apply for an expropriation permit, either in the same or in a separate application. If a licence is granted, NVE also grants an expropriation permit. However, the licensee is requested to attempt amicable settlement before the expropriation permit is used.
The compensation is agreed through amicable settlement or through judicial assessment in the court of appraisements. The general requirement is that the land owner is granted full compensation for the economic loss the transfer of land rights implies. An assessment must be made with respect to the probable land use had the transfer of land rights not incurred.
The land owners shall be compensated for the economic loss related to not being able to use their land areas as foreseen.
No legal entity may exercise control over a TSO and over an entity performing the functions of generation or supply, according to the Directive 2009/72/EC concerning common rules for the internal market in electricity that has been incorporated in Norwegian law and came into force and effect on 1 November 2019.
Statnett SF is the only TSO and the only legal person allowed to own and operate transmission lines and associated facilities in Norway. The monopoly is obtained through the Energy Act, stating that the owner of the TSO may not exercise control over an entity performing the functions of generation or supply, cf. the Energy Act, Section 4-8. It is stated in the preparatory works that Statnett SF is and will continue to be the only legal entity performing the tasks related to the operation of the transmission system, including having the responsibility for the frequency in the electricity system in close cooperation with the other Nordic TSOs.
The Energy Act governs the provision of transmission and distribution service and the regulation of transmission and distribution charges and terms of service . The Energy Act Sections 3-4 and 4-4a states that every facility licensee must facilitate the connection of grid customers (electricity consumers or producers) to their facilities. Furthermore, the Energy Act forms the legal basis for several regulations that govern the provisions regarding charges and terms more in detail: The Energy Regulations, the and the Regulations on grid regulation and the energy market, the Regulations on financial and technical reporting, revenue cap for grid operations and tariffs forms the basis for the regulation of transmission charges (tariffs) and terms of service.
RME shall as regulator monitor the compliance with the provisions regarding grid connection, including tariffs and terms. RME may resolve disputes between the grid owner and the grid customers (consumers or producers) by way of administrative decision. The decisions may be appealed to Energiklagenemnda, the appeals body for RME's decisions.
The TSO and the distribution service companies establish the charges and terms of service on the basis of the Regulations on financial and technical reporting, revenue cap for grid operations and tariffs as referred to in 5.2.1 Principal Laws Governing the Provision of Transmission Service, Regulation of Transmission Charges and Terms of Service. The tariffs are established within the framework of the revenue cap model. The transmission or distribution system operator may not collect tariffs from the grid customers that exceeds the revenue cap.
The allowed revenue shall cover operating cost and depreciations and provide a reasonable return on investments given efficient operation, utilisation and development of the grid. Section 13-1 in the Regulations on financial and technical reporting, revenue cap for grid operations and tariffs provides the basic regulatory principles when the tariffs are established:
Terms and Conditions
Until recently, the RME has approved or disapproved the terms and conditions, including tariffs upon appeal by a customer. After the incorporation of the EU Directive 2009/72/EC concerning common rules for the internal market in electricity in the EEA-agreement and the implementation in the Energy Law that entered into force 1 November 2019, the RME is in the process of approving the terms and conditions in advance.
As regards the regulator's authority and the right of appeal, see 5.2.1 Principal Laws Governing the Provision of Transmission Service, Regulation of Transmission Charges and Terms of Service.
The TSO, as all other facility licensees, are obliged to allow new grid customers (electricity consumers or producers) on non-discriminatory and objective terms. Furthermore, all facility licensees are obliged to invest in and upgrade the transmission and distribution system if needed to connect new customers (provided that the customers finance all or parts of the needed investments).
However, only a fraction of the customers are connected directly to the transmission lines; the customers are, in general, connected to the distribution system. Payment for and the use of transmission services is performed indirectly through the agreement with the distribution system operator. The agreement and the payment of tariffs pursuant to the agreement provide the right for the customer to make use of both the transmission and distribution systems.
The RME is the regulator and may approve both the terms and conditions and may decide on the outcome by way of administrative decision, see 5.2.1 Principal Laws Governing the Provision of Transmission Service, Regulation of Transmission Charges and Terms of Service and 5.2.2 Establishment of Transmission Charges and Terms of Service.
In 6 Distribution, the factors that deviate from the regulation of the transmission system, as detailed in 5 Transmission, will be described.
In the distribution network, a distribution system operator (DSO) has a so-called area licence, where the DSO has exclusive rights to build and operate the distribution network.
In addition to the above-mentioned laws, the Planning and Building Act applies for facilities constructed under the area licence (voltage levels up to 22 kV). The object of this act is to facilitate the coordination of central government, regional and municipal planning and area use, including providing the basis for conservation of land resources, and to regulate private parties' construction of buildings and use of land.
See 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities.
At voltage levels up to 22 kV, the area licensee does not need a separate approval from NVE to construct and operate distribution facilities. Norway is divided into approximately 115 areas where the area licensee operates the distribution network, see below in 6.1.5 Distribution Service Monopoly Rights.
At voltage levels higher than 22 kV, NVE sends the application on a public hearing. Municipalities, County Councils and the County Governor are always invited to participate, as regards environmental organisations and other interest groups, it depends on the dimensions of the project. When the planned facility is expected to have minor consequences for the environment, NVE may decide that consultation is unnecessary, see the Energy Act, Section 2-1. Applications for expropriation permits must always be heard by interested parties.
At voltage levels lower than 132 kV, NVE may not require a full environmental impact assessment being performed unless NVE finds that the facility may have a significant adverse effect on the society and environment.
See 5.1.3 Terms and Conditions Imposed in Approvals to Construct and Operate Transmission Facilities.
The area licensee has both an obligation to facilitate the connection of new customers on objective and non-discriminatory terms and conditions, and an obligation to supply customers with electricity if the customer has not entered into a supply agreement with an electricity supplier, see the Energy Act, Section 3-3. The area licensee functions as a supplier of last resort.
See 5.1.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.
Construction of facilities with a voltage level up to 22 kV is effectuated under the area licence. Thus, the licensee shall not apply for a facility licence. However, if the licensee is not able to obtain amicable settlement, it may apply for an expropriation permit. The County Governor grants expropriation permits for distribution lines up to 22 kV.
Norway is divided into approximately 115 areas where one area licensee has the exclusive right to build and operate distribution facilities. The area licensee is admitted to build and operate distribution facilities at voltage levels up to 22 kV without applying for a facility licence for each facility, see the Energy Act Section 3-2. The area licence is granted by the NVE.
In principle, only the area licensee may construct and operate distribution lines in its area. The exception is when a production or consumption unit wishes to own and operate a radial line from the unit to the distribution system or if private owners want to operate the distribution system within a closed system, eg, a business park. The applicant must apply for a facility licence, see above, and the NVE may decide that a facility licence is not granted and that the line shall be constructed, owned and operated by the area licensee.
See 5.2.1 Principal Laws Governing the Provision of Transmission Service, Regulation of Transmission Charges and Terms of Service.
See 5.2.2 Establishment of Transmission Charges and Terms of Service.
Investing in the Norwegian Alternative Energy and Power Sector
The investment climate in Norway is liberal, open and the authorities have in general a positive view on foreign investments. Foreign investments are welcome in the power sector, mostly without restrictions. This applies to ownership in and development of onshore wind farms, hydropower plants, power grid, district heating and other infrastructure relating to the alternative energy and power sector, where there are no ownership limitations.
The only ownership limitation in the power sector regards large scale hydropower plants of 4,000 natural horse powers (which, in general, corresponds to a yearly production of approximately 40 GWh). For these hydro power plants, concessions and licences can only be granted to entities owned and controlled by public authorities and/or public undertakings with at least two-thirds of the capital and the votes.
The power sector in Norway is under an ongoing public debate. Along with the rapid technological development seen in all areas, this results in a regulatory framework in continuous development. This article will elaborate on some of the most recent and important trends and developments in the alternative energy and power sector in Norway, including the latest propositions and changes in the regulatory framework.
Onshore Wind Farms: Conflicts and Policy Renewal
During 2019 and 2020 Norway has seen an uprising in the conflict regarding onshore wind farm development. In several municipalities the local authorities are in open opposition to the Government regarding the development of wind farms in their areas. In some cases the local authorities have changed opinion and do no longer want the development of wind energy in their Municipality; in other cases the local authorities protest against the what they see as a lack of involvement in the design of the wind farm.
Furthermore, protesters have taken action against wind farm projects, either through litigation or by blocking access roads and/or by vandalising machinery and equipment. However, the Government has repeatedly stated that the wind farm developers may rely on their facility licenses, since these permits in general may not be withdrawn. Where the developers have all necessary permits to perform the construction work, they will be assisted by the police if needed.
There have so far been few cases where the validity of the facility licenses has been tried in court. In March 2020 the activist group Motvind Norge requested Jæren District Court to temporarily halt the erection of wind turbines at Vardafjellet Wind Farm in Sandnes Municipality until the validity of the facility license had been tried in court. The ruling was announced 5 June. The court states that the licenses are valid and that there were no procedural errors conducted during the licensing process and subsequent administrative decisions. Motvind Norge has announced through media that they will appeal the ruling.
Norway has a long history both in civil disobedience against the development of new, renewable energy and the judicialisation of such decisions. Both the Mardøla campaign in 1970 and the Alta campaign in 1979 were important historical events that resulted in changes in policies regarding both nature conservation and considerations on Sami culture and involvement in political decisions. In the Alta campaign, the protesters tried the administrative decisions regarding the construction of the hydro power plant all the way up to the Norwegian Supreme Court, however, the court found that the Alta hydro power plant could be constructed.
When such administrative decisions are tried in court, the court will perform a legality assessment, that is, consider whether the authorities have satisfactory legal basis for the decisions, if procedural requirements have been fulfilled, if all parties and interests have been considered etc. The courts may not decide whether the wind farm or hydropower plant etc should have been granted a license.
Review of the licensing system
The conflict on onshore wind farms has resulted in a broad request for a review of the licensing system. In response, on 19 June 2020, the Government presented a white paper with proposals for changes in the current licensing system for wind power on shore in relation to future applications. The aim is to provide an even more predictable framework for long-term development of onshore wind power. The proposed changes include tighter deadlines for commencement of the construction works and commissioning, the inclusion of height restrictions on wind turbines in the licenses, as well as measures to ensure increased local and regional involvement in the licensing process.
However, the government does not propose changes in the basic structure of the licensing system, eg, in that the governmental authorities (the Ministry of Petroleum and Energy and the Norwegian Water Resources and Energy Directorate) will have the final word as to whether a license should be granted or not.
Furthermore, in time, the government has indicated that there may be certain changes in the taxation system for wind farms. The most likely scenario is that the government will introduce a form of natural resources tax to the local authorities that corresponds to the natural resource tax that exists for hydro power plants with generators of 10 MVA and upwards. The natural resources tax may be deducted from the ordinary corporate tax and thus its only function is to redistribute tax income from the state to the local authorities.
Offshore Wind Farms: Development of a Regulatory Framework
Norway has an extensive coastal line and an offshore petroleum sector that is looking for new opportunities in renewable energy. The potential for investments in offshore wind power in Norway is significant, however, the industry is awaiting the required regulatory clarifications. On 12 June 2020 the Government presented the opening of two areas for offshore wind farms: "Utsira Nord" and "Sørlige Nordsjø II", and determined the new regulations on offshore energy production pursuant to The Offshore Energy Act. On 1 January 2021 developers may apply for a license in the said areas.
Due to the COVID-19 situation, the Government has announced a Green restructuring package that includes measures to promote offshore wind amongst other things. The Government proposes to use MNOK 15 for the establishment of a new research centre for renewable energy and MNOK 10 for the development of supply chains and supply models for offshore hydro power.
New and Proposed Interconnectors
Norway has approximately half of Europe's regulation capacity in hydropower dams. Furthermore, Norway is connected to the other Nordic countries through interconnectors, and may export both power and especially regulation capacity. The Norwegian hydropower system may thus be combined with other, less flexible, renewable energy sources, eg, wind and solar power.
This has resulted in a view, both contested and encouraged, that Norway may function as "Europe's green battery". However, the export of power is a politically sensitive issue, especially because of Norway's power intensive industry which benefits from Norway's low electricity prices.
The capacity in the interconnectors is currently approximately 6,200 MW. This corresponds to approximately 20% of Norway's installed production capacity. In 2020 and 2021 two new interconnectors to Germany ("NordLink") and UK ("North Sea Link"), respectively, will be completed. Both have a capacity of 1,400 MW each, resulting in a significant power trading capacity as a share of installed production capacity compared to other European countries.
As regards new interconnectors, an application for a license for an interconnector to Scotland ("North Connect") drew political attention in 2019 and 2020. The application became the basis for at debate on interconnectors and their implications for electricity prices in Norway (which in general are low compared to other European countries). The Government has decided to put the application on hold because of a wish to draw experience from the said interconnector that are under construction before evaluating whether further interconnectors are wanted.
Grid Companies: Unbundling Requirements and New Tariff Models
More comprehensive requirements regarding legal and functional unbundling of the distribution system operators (DSOs) will take effect 1 January 2021. Currently these requirements apply to DSOs with more than 100,000 grid customers, whereas from 1 January 2021 the requirement of legal unbundling will apply to all entities and functional unbundling to entities with more than 10,000 grid customers. Furthermore, the Ministry of Petroleum and Energy will by 2021 establish regulations that further determine the requirements of legal and functional unbundling.
The Norwegian Energy Regulatory Authority has proposed regulations that imply an even stricter level of functional unbundling than what follows from the Energy Act and the Directive 2009/72/EC concerning common rules for the internal market in electricity. The new regulations will be finally determined by the Ministry of Petroleum and Energy.
With respect to grid tariffs, there is an ongoing debate about how the tariff model should be drafted. Payment for peak load consumption is one important factor in this debate. According to the latest proposition from the Norwegian Energy Regulatory Authority, the grid companies should be able to decide their tariff model as long as it complies with some basic principles which shall incentivise customers to reduce peak load.
The grounds for the proposition is that new technology, batteries etc. permit a more flexible use of the grid, eg, reduced consumption during peak hours. This may replace the need for investments in new capacity.
However, the proposition has been met with substantial objections. Since the tariffs shall be based on the capacity the customers are requiring, the customers will have lower incentives to establish solar power on rooftops (since the customers will require all their load from the grid when the load is at the heaviest and the solar production is at the lowest, that is, during wintertime). Furthermore, with the proposed principles, the customers will have lower incentives to reduce energy consumption at off-peak hours.
The regulations of the tariff model will be finally determined by the Ministry of Petroleum and Energy.
Today, the hydropower industry in Norway is subject to a number of different taxes, and, depending on the type of hydropower plant, the taxation level may be very high. In addition to ordinary corporate and property taxes, the large-scale hydropower plants are subject to natural resource extraction taxes and concession tax, and they are obligated to supply subsidised power to the hosting municipality.
The high tax level of the industry is hindering investment in expansions and technological upgrades that would increase the production and efficiency of hydropower energy. Such investments are needed: the large Norwegian hydropower plants have an average age of 50 years, with the median age being 59. Apparently, there is a strong cross-party political consensus that changes in today's tax schemes is needed in order to ensure the profitability of investments in the hydropower sector.
A government-appointed expert committee recently proposed changes to the current taxation scheme, but was met with strong disapproval from a majority of Norwegian municipalities and the Parliament. The Government decided not to implement the proposed changes, and it is not known if and when they will propose a different taxation scheme.
Electrification of the Transport Sector
The transport sector is the largest source of greenhouse gas emissions in Norway, accounting for 32% of the country’s total emissions. The Government's white paper "National Transport Plan for 2018–2029" aims for a 50% reduction of emissions from transport by 2030. Since Norway has a virtually emission-free electricity supply system, electrification results in immediate reductions in greenhouse gas emissions.
In order to achieve electrification of the transport sector, several measures are being taken. Many of them targets road traffic, which accounts for 55% of the emissions from transport. A specific goal is that all new passenger cars and light vans should be zero-emission vehicles by 2025.
This will be achieved through favourable taxation rules and a wide range of incentives and benefits such as free parking on public roads and parking spaces, no road toll, free access to ferries connecting national roads and the use of public transportation lanes. The Government has also invested heavily in extensive charging infrastructure. Private companies are now taking over charging operations, with much interest from foreign investors.
Electrification of marine transport is another area of priority; in its action plan for green shipping, the Government has announced its target to reduce emissions from domestic shipping and fishing vessels by 50% before 2030.
In some areas, such as heavy-duty or long-haul transport and certain industries, limits to the present battery technology makes electrification difficult to implement. Several alternatives to fossil fuels are being developed in this regard:
The Government recently released its new national hydrogen strategy. The strategy reiterates the Government's focus on subsidizing the development of new hydrogen technology. By increasing its funding, mainly through the state-owned funding agency Enova, the government seeks to further strengthen several support-schemes for emerging hydrogen technologies, such as hydrogen solutions for the transportation industry.
The strategy has been met with criticism for lacking measurable goals, and for not providing funding for more mature hydrogen technologies.
The government has initiated plans for a full scale and full chain carbon capture, transport and storage (CCS) programme in Norway. The two capture facilities, Norcem AS' cement factory in Brevik and Fortum Oslo Varme AS’ waste-to-energy plant in Oslo, each plan to capture approximately 400,000 tonnes of CO2 annually. The captured CO2 will be transported by sea to an onshore facility on the Norwegian West coast for temporary storage. From there the CO2 will be transported via a pipeline to a subsea reservoir on the Norwegian continental shelf in the North Sea for storage. The energy company Equinor, where the Norwegian state is the largest shareholder, is responsible for the planning of the storage facility, together with Shell and Total. The government has yet to decide whether a full-scale project is to be realised in Norway. The final investment decision is expected when the Government presents its national budget for 2021 on 7 October 2020.