Contributed By Advokatfirmaet Hjort DA
Norway has the highest share of electricity produced from renewable sources in Europe. In 2016, 98% of the electricity production in Norway came from hydropower plants and wind farms. While 96% was hydropower, 2% was derived from wind farms and about 2% from thermal power plants. The Norwegian hydropower system has a high storage capacity, accounting for half of Europe’s total. More than 75% of Norway’s production capacity is flexible, meaning that production can be rapidly increased and decreased according to needs and at a low cost.
The Norwegian parliament (Stortinget) decides on the political framework for energy and water resources management in Norway. The Government executes the decisions made by the parliament.
The Norwegian power industry is managed through five different ministries:
The Ministry of Petroleum and Energy has the overall administrative responsibility for energy and water resources.
The Norwegian Water Resources and Energy Directorate reports to the Ministry of Petroleum and Energy and is responsible for managing domestic energy resources. It is also the national regulatory authority for the electricity sector. The Directorate is involved in research and development, as well as international development co-operation. It is also the expert body on national hydrology.
Municipalities, county authorities and the State own approximately 90% of Norwegian hydropower production, due to legislation on ownership to waterfalls, see below. Windpower production, without such restrictions, has more private and also foreign owners. .
Pursuant to the Industrial Licensing Act, the developer of hydropower must obtain ownership rights to waterfalls prior to exploiting the water for electricity purposes. The same act requires that only public entities obtain such rights. These entities may be state-owned enterprises, municipalities or county authorities, as well as companies where public bodies make up at least two-thirds of the capital and the votes. Private actors may thus only account for one third of ownership in such companies.
There are no requirements for the public ownership of wind power plants, transmission or distribution facilities. However, the Norwegian state owns approximately 90% of the central grid through a state-owned company, Statnett SF. Municipalities and public authorities, on the other hand, overwhelmingly own the regional and distribution grids.
Many of these grid companies are part of vertically integrated companies. However, by 2021, all must become legally unbundled and some functionally unbundled. Presently, these requirements apply only to grid companies with more than 100,000 customers.
The principal state-owned authorities or investor-owned companies that own and operate generation, transmission and distribution facilities are Statkraft SF, a state-owned hydropower company and Norway’s largest energy producer, and Statnett SF, a state-owned enterprise in charge of building and operating the central grid. Statnett is the transmission system operator for the central grid. Hafslund Nett AS is the largest owner and operator of the grid at the lower level.
The principal investor-owned companies that sell electricity to end consumers are Hafslund Strøm AS and Fjordkraft ASA. Fortum AS owns Hafslund Strøm, while Fjordkraft is mainly owned by BKK Kraftsalg AS and Skagerak Energi AS, but recently listed on the Oslo Stock Exchange.
Only public entities can obtain rights to own and exploit large hydropower projects. There are no further restrictions as far as foreign investment is concerned. While private actors may not own more than a third of large hydropower production facilities, this requirement does not apply to smaller power-producing installations. Private actors may also own wind and solar power facilities. See also 1.4 Principal Law Governing the Sale of Power Industry Assets.
The principal laws that govern the sale of generation, transmission and distribution assets, and the amalgamation or merger of power industry entities, are as follows:
Pursuant to the Industrial Licensing Act, only public entities may obtain the necessary licence to exploit large waterfalls. The entities may be state-owned enterprises, municipalities or county authorities, as well as companies where public bodies make up at least two-thirds of the capital and the votes. Private actors may thus only account for one third of ownership in such companies. These requirements also apply in the event of sales of assets or business, as well as in conjunction with amalgamations and mergers. The essence of the matter is that private ownership of waterfalls may not exceed one third.
The Norwegian Water Resources and Energy Directorate has the overall responsibility for maintaining national power supplies, while Statnett SF is the Norwegian energy system operator.
The Norwegian electricity grid consists of three levels: the transmission grid, the regional grid, and the distribution grid. Interconnectors with other countries are part of the transmission grid.
Statnett operates the transmission lines nationwide, and is responsible for the satisfactory security of supply at all times. This necessitates maintaining a power grid with adequate transmission capacity. It also involves being in charge of managing peaks in electricity consumption, and allowing for the import of adequate quantities of electricity.
Should the need to ration electricity arise, the Norwegian Water Resources and Energy Directorate is responsible for planning and administering the appropriate measures.
In March 2018, an alteration in the Energy Act reversed the previous requirement that all grid companies must be functionally unbundled. The recent legal amendment led to an exemption from this requirement for all grid companies with fewer than 30,000 subscribers. The original requirement for unbundling was enacted in 2016.
The Norwegian parliament has recently adopted the European Union’s Third Energy Package, including the regulation establishing the Agency for the Cooperation of Energy Regulators. However, the package was adopted with a total of eight conditions and prerequisites.
In conjunction with handling the implementation of the European Union's Third Energy Package, the Norwegian parliament decided that the State must operate and own all future interconnectors. This legal amendment will be made in the Energy Act.
The Norwegian Water Resources and Energy Directorate will present a national framework for onshore wind power by the end of 2018. It will point out the areas best suited for the development of wind power, and which areas are unsuitable for future wind projects. It will also include updated information on the impact of wind power. The framework has no legal consequences, but will serve as a consultative basis on which decisions on future developments will be made.
The electricity certificate scheme, comprising the Norwegian and Swedish markets, was initiated in 2012 and is a market-based support scheme to promote the development of renewable energy in the two countries. The programme entails producers of renewable electricity receiving one certificate per MWh of electricity produced for a period of up to 15 years. All forms of renewable electricity production qualify for the electricity certificates. Norwegian facilities must be in operation by December 31, 2021 in order to be entitled to electricity certificates. The scheme will end on April 1, 2036.
The Norwegian Water Resources and Energy Directorate will present a national framework for onshore wind power by the end of 2018. It will point out the areas that are best suited for the development of wind power, and make clear which areas are unsuitable for future wind projects. It will also include updated information on the impact of wind power. The framework has no legal consequences, but will serve as a consultative basis on which decisions on future developments will be made. As the framework visualises the areas that are potentially available for wind power projects, it may be of interest to companies considering investments in this sector. While the hydropower potential is exhausted to a significant extent, wind power is still in a rather nascent phase in Norway. Simultaneously, Norway is in a unique position as it enjoys a regular power surplus. An expansion will therefore primarily enhance Norway’s export capacity.
The hallmarks of the Norwegian hydropower industry include the right of reversion to the State of licences granted to private entities after 1917. The right necessitates a shift to state ownership of waterfalls and installations when a previously granted licence expires. This change in ownership is free of charge and predicated on an aspiration to retain natural resources as a public good. Due to legal amendments in 2008, new licences or the ownership of waterfalls and licences for the transferring of existing licensed waterfalls may only be given to public entities. The prima facie challenge of reversion is solved by transferring the production to a company that fulfils the requirements for public ownership.
The Energy Act is the principal law governing the structure and function of the wholesale electricity market.
The Nordic countries are closely integrated in terms of physical interconnectors and of financial market integration through Nord Pool, which is an Oslo-based company that facilitates the exchange for physical power trade in the Nordic and Baltic countries.
Power trading in Norway is market-based. Norway has a wholesale electricity market where markets, producers, suppliers and large consumers meet to trade. The prices depend on bids and offers from the participants and available grid capacity, and are calculated by Nord Pool power exchange on an hourly basis for the following day. Nord Pool’s calculated system price is the same all over the Nordic market. Besides supply and demand, prices are influenced by market developments outside the Nordic region.
Imports and exports flow to and from Norway via interconnectors to Sweden, Finland, Russia, Denmark and the Netherlands. Further interconnectors are planned to Germany, England and Scotland.
Because of Norway’s significant hydropower capacity, it has a sizeable surplus of power during periods with good hydrological conditions. When supply is abundant, Norway exports power to other countries. Denmark is a major producer of wind power and has a high production of power with low prices in windy periods. During such periods, it is profitable for other countries to import Danish power. This import enables Norwegian hydropower producers to stock up and retain water until export prices go up.
In 2016, 98% of electricity production in Norway came from hydropower plants and wind farms. While 96% came from hydropower, 2% was derived from wind farms and about 2% from thermal power plants.
The Norwegian energy market was deregulated in 1991, so there are no concentration limits with regard to a percentage of electricity supply controlled by any one entity in the market.
The Competition Act prohibits anti-competitive behaviour and establishes the process for market surveillance and enforcement.
The Norwegian Competition Authority has overall responsibility for ensuring efficient competition between actors in the power market, and has a wide array of powers at its disposal to enforce the Norwegian Competition Act. It may require information from actors that is necessary to carry out its responsibilities and functions pursuant to relevant legislation, and to fulfill Norway’s obligations emanating from international agreements. The Authority may also require information from actors in conjunction with investigations.
In case of violations, the Authority may impose various fines and fees. Violations of specific provisions in the Competition Act are also subject to criminal liability and sanctions.
The financial forward market is regulated by the Financial Supervisory Authority of Norway, and is placed under financial legislation.
The Norwegian Water Resources and Energy Directorate conducts surveillance of the physical distribution of power, as well as the neutrality of the grid companies.
Finally, the Consumer Authority supervises the rules and regulations pertaining to the sales and marketing conduct of the power market players, and strives to exert influence on traders to respect the regulatory framework.
The Norwegian parliament enacted a new Climate Act in 2017, which includes binding emission targets for greenhouse gases by 2030 and 2050, respectively. It also requires the government to make carbon budgets. The act applies to all greenhouse gas emissions included in Norway’s contribution to the Paris Agreement of 2015.
Pursuant to the Act, Norwegian emissions are to be reduced by 40%by 2030, and by 80-95% by 2050, compared to 1990 levels. However, the law does not require that all cuts are made domestically. The effect of Norwegian participation in the EU Emissions Trading System will be taken into account.
As renewable energy sources account for virtually all production of electricity in Norway, emissions are low. Nevertheless, Norway has several energy-related taxes. Fuel oil, kerosene and natural gas are subject to carbon tax, which also applies to the use of natural gas and LPG12. Other taxes include a base tax on fuel oil and a sulphur tax.
The tax on electricity consumption applies to electricity delivered to consumers and is collected by the grid companies. The industry is exempt from this tax.
Norway does not generate coal-fired electricity and therefore has no laws or policies pertaining to its early retirement.
Subsequent to the implementation of the EU Renewable Energy Directive, Norway committed itself to fulfil at least 67.5% of its total energy needs with renewables by 2020. Norway fulfilled its commitment in 2014.
In conjunction with the advent of the green certificates scheme in 2012, Norway and Sweden set a joint target of 26.4 TWh renewable energy capacity increase by 2020. It is expected that the vast bulk of this increase will come from hydro and wind power.
Enova is a state-owned enterprise that manages assets in the Energy Fund and is in charge of promoting a shift to more environmentally friendly consumption and production. Enova is also responsible for the development of energy and climate technology.
The Research Council of Norway reports to the Ministry of Education and Research and is responsible for managing the funding for energy research allocated by the ministries. The Council receives most of its government funding from the Ministry of Petroleum and Energy.
The principal laws that govern the construction and operation of generation facilities are the Industrial Licensing Act, the Energy Act, the Watercourse Regulation Act, the Planning and Building Act, and the Water Resources Act.
Pursuant to the Industrial Licensing Act, the developer of hydropower must obtain ownership rights to waterfalls prior to exploiting the water for electricity purposes. As far as large hydropower projects are concerned, this act requires that only public entities obtain such rights. These entities may be state-owned enterprises, municipalities or county authorities, as well as companies where public bodies make up at least two-thirds of the capital and the votes. Private actors may thus only account for one third of ownership in such companies. The public ownership requirement does not apply to smaller hydropower projects, so private actors may own and operate hydropower projects of a lesser magnitude. The same applies to wind and solar power projects, which private actors may own and operate, regardless of the dimension of the project.
The purpose of the Energy Act is to ensure that energy is generated, converted, transmitted, traded, distributed and used rationally. The Act constitutes a framework for electricity generation and trading competition. It also states that the building and operating of power grids is a monopoly and sets forth the regulation of grid companies.
The developer of wind farms must obtain rights to build and produce power pursuant to the Energy Act. While hydropower represents the backbone of renewable energy production, wind power is the fastest growing renewable energy source in Norway. The rules applicable to the development and exploitation of wind power are also less rigid than those that relate to large hydropower projects. As the requirement for public ownership does not apply to wind power, the development of wind farms is particularly conducive to private investment.
The Watercourse Regulation Act regulates flows in rivers and transfers between river systems in conjunction with power generation, and outlines the requirements for obtaining licences for such regulation. Pursuant to the Watercourse Regulations Act, the licences include a delimitation of the highest and lowest permitted water levels in reservoirs, the requirement of establishing a business development fund in a municipality where the development takes place, and the rules for reservoir drawdown. The licences may also contain conditions pertaining to licence fees and mandatory sales of power.
The purpose of the Planning and Building Act is to promote sustainable development in the best interests of individuals, society and future generations. It does not apply to marine pipelines for the transport of petroleum, and only certain chapters of the act apply to installations for the transmission or conversion of electric power.
The Water Resources Act regulates the abstraction of water for fish farms and the extraction of deposits. It also applies to small-scale power projects. The licences given pursuant to the Act include conditions to guarantee compensation for or mitigate damage.
The Norwegian Water Resources and Energy Directorate is in charge of processing applications for licences for the construction of power plants, dams and other installations in the watercourses, major power lines and other energy installations that require permission pursuant to the Energy and/or Water Course Act.
The Directorate issues licences to the companies applying for them. If granted, the companies obtain a right to build and operate power installations and accessories as specified in the licence. The licence typically includes standard conditions and rules of operation, which reflect the need to consider various interests. As the exploitation of renewable resources has an impact on the environment, the Directorate needs to ensure that the benefits of the proposed project are greater than the disadvantages, prior to granting the licence. The Directorate’s supervisory department ensures adherence to the conditions and rules of operation after approval of the licence.
The steps in a regulatory process may be summarised as follows:
The decision made by the Directorate can be appealed to the Ministry of Petroleum and Energy, but the appellant must have a legal interest in doing so.
In large hydropower projects, the project must be approved by the King in Council.
For smaller projects with only marginal environmental impact, the process is subject to simplified procedures.
Approvals granted pursuant to the Industrial Licensing Act on hydroelectric power typically include conditions on licence fees and mandatory sales of power to the State and municipalities in which the waterfalls are located.
The licences pursuant to the Watercourse Regulations Act typically include a delimitation of the highest and lowest permitted water levels in reservoirs, the requirement for establishing a business development fund in a municipality where a development takes place, and the rules for reservoir drawdown.
The licence under the Industrial Licensing Act also states conditions and rules of operation. The supervision department in the Directorate follows up and supervises the fulfilment of the conditions.
In order to construct and operate a generation facility, the developer must apply for the expropriation of property rights pursuant to the Expropriation Act. Depending on the circumstances, relevant provisions in the Cultural Heritage Act, the Pollution Control Act and the Reindeer Husbandry Act must be taken into consideration in the licensing process.
Compensation is due to the owner of the relinquished property. The owner is also due compensation for any damage or inconvenience brought upon the remaining properties. Pursuant to the Expropriation Compensation Act, the reparation is determined based on the selling price or the service value, whichever is higher.
Facilities relating to the production, transmission and distribution of electrical power may not be decommissioned without prior approval from the Norwegian Water Resources and Energy Directorate.
Should the holder of the licence wish to terminate the operation of the facility during the licence period, they must apply to the Directorate for a decommission approval. If the holder wants to prolong the licence period or terminate the operation, they must file an application with the Directorate one year ahead of the licence’s expiration.
In the event of decommissioning, the holder of the licence is obliged to remove the facility and restore the landscape to its original state.
The Norwegian grid system consists of three levels: the central transmission level and two levels of distribution – the regional level, and the local distribution level. The transmisson lines are lines with 300 or 420 kV voltage, and includes also connection lines abroad.
Many of the relevant laws and regulations apply to all three levels. In addition, the terms and conditions to licences for constructing and operating the grid system are enforced equally on all levels.
The principal law that governs the construction and operation of transmission lines is the Energy Act, the purpose of which is to ensure that energy is generated, converted, transmitted, traded, distributed and used rationally. The Act constitutes a framework for electricity generation and trading competition. It also states that building and operating power grids is a monopoly and sets forth the regulation of grid companies.
A construction and operating licence is required in order to construct, own and operate power lines. A licence to build and operate transmission lines must be approved by the King in Council.
The licensing system aims to ensure a uniform practice for the construction and operation of electrical installations. The goal is also to assess and alleviate the potential impacts of these installations. Thus, socio-economic considerations and various public and private interests are taken into account during the licensing procedures, as well as environmental impacts.
Approvals to construct and operate a transmission line and associated facilities are typically supplemented with various requirements, including applying for renewal of the licence within a set time before its expiration, initiating the operation of the lines by the end of a set period, being acquainted with the relevant rules and regulations, and being responsible for decommissioning the facilities subsequent to such measure being granted by the Directorate. There are also requirements devised to prevent or limit any detriment to the natural environment and cultural heritage. If necessary due to fundamental interests, the terms and conditions may be supplemented at a later stage. All terms and conditions serve to fulfil the purpose of the laws on which the granting of licences is predicated. It is the Directorate’s responsibility to monitor the adherence to the terms and conditions of the licence under the supervision of the Ministry of Oil and Energy.
The construction and operation of the transmission grid constitute a natural monopoly. In Norway, the transmission lines are (with a few exceptions) owned and operated by Statnett SF, at state-owned company.
The proponent for the construction and operation of a transmission line will thus have eminent domain, condemnation or expropriation rights in the area to which it earns access. In order to obtain this exclusive right, an application must be filed with the Ministry of Petroleum and Energy, which then decides whether the licence is granted. The rights to the surface of land are obtained through expropriation.
The owner of the property is to be compensated for the relinquishment of the building and operation of transmission lines, as well as for any damage or inconvenience brought upon any remaining properties. Pursuant to the Expropriation Compensation Act, the reparation is determined based on the selling price or service value, whichever is higher.
Transmission entities have an exclusive right to construct and operate transmission facilities within a defined territory; see 5.1.4 Proponent's Domain, Condemnation or Expropriation Rights.
The most important laws and regulations governing the provision of transmission service and the regulation of transmission charges and terms of service, are as follows:
.As the building and operation of transmission lines are a natural monopoly, the Directorate decides on an annual income cap for each company operating them. The income is supposed to cover the costs of operation while generating a reasonable profit on investments.
All grid services must be offered at non-discriminatory conditions and objective point tariffs.
As grid companies are monopoly companies, the authorities regulate their revenues. Consequently, the Directorate decides on a revenue cap for each grid company every year. The grid company must set its tariffs so that net earnings from grid operations over time do not exceed the permitted level.
It is generally required that grid tariffs are objective and non-discriminatory, as well as designed and differentiated based on relevant grid conditions. As far as possible, the tariffs should be fashioned to provide long-term signals that encourage efficient use and development of the grid.
The tariffs for consumption should cover a share of the costs that accumulate at the relevant grid level and higher levels. The tariffs for consumption vary between consumers connected to the distribution grid and consumers directly connected to the central grid (transmission lines). The prices may also fluctuate between different companies on lower levels.
The Directorate for Water Resources and Energy is responsible for the inspection and enforcement of grid operations, and may issue orders to ensure compliance with regulations and licensing terms. All grid services must be offered at non-discriminatory conditions and objective point tariffs. Due to being a monopoly, the grid companies on all levels are obliged to provide services to all consumers within the geographical area covered by the licence.
The Norwegian grid system consists of three levels: the central transmission level and two levels of distribution – the regional level and the local distribution level.
The regional and local distribution level are normally lines with 132, 66 or 22 kV voltage.Many of the relevant laws and regulations apply to all three levels. In addition, terms and conditions to licences for constructing and operating the grid system are enforced equally on all levels.
The principal law that governs the construction and operation of distribution lines is the Energy Act, alongisde the Planning and Building Act.
The purpose of the Energy Act is to ensure that energy is generated, converted, transmitted, traded, distributed and used rationally. The Act constitutes a framework for electricity generation and trading competition. It also states that building and operating power grids is a monopoly and sets forth the regulation of grid companies.
The purpose of the Planning and Building Act is to promote sustainable development in the best interests of individuals, society and future generations. It does not apply to marine pipelines for the transport of petroleum, and only certain chapters of the Act apply to installations for the transmission or conversion of electric power.
The construction and operation of distribution lines necessitate an approval to build and operate them. The local area licence is needed to construct, own and operate power lines and electrical installations for the distribution of electricity carrying a voltage on lower levels. The local area licence permits the holder to build, own and operate necessary lines within that geographical area.
The application for licences must be filed with the Norwegian Directorate for Water Resources and Energy. However, if the projects are of a certain magnitude, they must be approved by the Government.
The construction and operation of electric distribution facilities necessitate prior approval in the form of two potential licences. The local area licence is necessary to construct, own and operate power lines and electrical installations for the distribution of electricity carrying a voltage of 22 kV or less. The local area licence obviates applications for each individual installation, instead permitting its holder to build, own and operate necessary lines within that geographical area.
The construction and operating licence is required in order to construct, own and operate facilities that are not covered by the local area licence. However, this type of licence is only needed where the producer of power wishes to be connected to the distribution facilities and the holder of the local area licence does not engage in any construction of the sort. The construction and operating licence necessitates applications for each individual installation. The installations may include facilities associated with both wind farms and hydropower plants.
The application for licence must be filed with the Norwegian Directorate for Water Resources and Energy, but the government must approve projects of a certain magnitude.
The Directorate grants both the local area licence and the construction and operating licence needed prior to the construction and operation of distribution facilities. The licensing system aims to ensure a uniform practice for the construction and operation of all electrical installations, and to assess and alleviate the potential impact of these installations. Thus, socio-economic considerations, various public and private interests, as well as environmental impacts are taken into account during the licensing procedures.
See 5.1.3 Terms and Conditions Imposed in Approvals to Construct and Operate.
See 5.1.4 Proponent's Domain, Condemnation or Expropriation Rights.
See 5.1.4 Proponent's Domain, Condemnation or Expropriation Rights.
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.