Renewable energy in Norway

A large share of the electricity consumed by Norway is produced by renewable energy sources. Hydropower remains the backbone of the Norwegian power system, being Europe’s largest producer of hydropower. During the last decade, also onshore wind power has become part of the energy mix.

Norwegian industrial consumers and households have historically benefited from low electricity prices. However, due to factors such as increasing demand, low water levels in hydropower reservoirs, and European energy prices, Norwegian electricity prices have increased significantly in the last couple of years. This has brought security of supply and affordable prices to the top of the political agenda.

Norway has excellent offshore wind resources and the Norwegian Government has an ambition to allocate areas for 30 GW offshore wind production by 2040. Currently, no offshore wind licenses for commercial offshore wind production have been granted. However, offshore wind is used to supply electricity to offshore oil and gas platforms as part of the petroleum activities. The ‘Hywind Tampen’ wind farm, Norway’s first and the world’s largest floating wind farm, started power production in November 2022.

In 2023, the Government announced the first offshore wind tender competitions. These competitions are expected to result in the award of four project areas. One, an area referred to as ‘Sørlige Nordsjø II’, is located in relatively shallow waters off the southern coast of Norway and will be granted a capacity of 1,400-1,500 MW. The other three are in deeper waters, clustered off the coast of Rogaland County in the ‘Utsira Nord’ area, and will each have a capacity of 460-500 MW, with potential increase to 750 MW. The power from these four project areas will fully or mainly be transmitted to the Norwegian mainland. For future licensing rounds there may be potential for hybrid export cables, enabling transmission to both Norway and Europe. This is still being debated politically and will be assessed on a case-by-case basis. The next licensing round for new project area awards is expected to be announced in 2025.

The development of commercial offshore wind farms requires state financing. The project area in Sørlige Nordsjø II will be granted on the basis of a monetary auction for a 15-year, two-way Contract for Difference (CfD). The CfD will be capped at 23 billion NOK over the contract period. For Utsira Nord, the project area award will be based on qualitative criteria, and a competition for state aid will only be held after a project maturation period of approximately two years following project area award. It has been indicated that maximum two out of the three awarded Utsira Nord projects will receive state aid. All state-aid is subject to approval by the Norwegian parliament and the EFTA Surveillance Authority (ESA). The ESA approval process has proven to be more time-consuming than allowed for in the initial application and award schedule. The Ministry in August 2023 announced a deadline extension of a couple of months for both Sørlige Nordsjø II and Utsira Nord due to a delay in the process vis-à-vis ESA. In October 2023, the Sørlige Nordsjø II prequalification criteria were adjusted, and the prequalification deadline further postponed to 15^th November 2023. In addition, and more concerning, the Ministry postponed the application deadline for Utsira Nord indefinitely. The revised deadline is not expected to be announced in 2023.

Norway further aims to stimulate the development of offshore wind technology by designing incentives for future suppliers of components to offshore wind farms. In August 2023, state enterprise ENOVA launched an investment aid scheme for floating offshore wind projects in Norway. The objective of the scheme is to accelerate the rollout of floating offshore wind technology by supporting several small-scale commercial projects. The total budget of the scheme is NOK 4 billion, and grants are expected to be awarded based on competitive bidding in two rounds, one in 2023 and one in 2024/2025. The scheme is approved by ESA under the EU Temporary Crisis and Transition Framework.

Despite grid capacity and power being prerequisites for the green transition, several regions in Norway experience or expect grid and power constraints. In August 2023, the Norwegian Government launched a plan to promote increased grid capacity as well as renewable power production in the region of Finnmark, in the north of Norway. The plan was launched in connection with the Government’s much debated decision to approve electrification of the Hammerfest LNG plant, which is estimated to require up to 3.6 TWh of extra electrical energy per year. Electrification of the Hammerfest LNG plant with renewable power from the onshore grid is expected to cut around 850,000 tonnes of CO2 emissions annually. The successful implementation of this measure will therefore entail a large-scale contribution towards Norway meeting its emissions reductions targets.

Increased power production and the establishment of new industry initiatives in Finnmark relies on strengthening the grid capacity in the region. The Norwegian Government’s aim is that new infrastructure for electrical energy in Finnmark should be in place by 2030, and that renewable energy production shall cover at least the extra energy needed for the electrification of the Hammerfest LNG plant by 2030.

The Government’s plan to achieve these goals involves granting a licence for the construction of two new power lines to strengthen the power infrastructure. The expectation is that the governmental focus on increasing grid capacity will result in new onshore wind projects. Reportedly, applications and notifications of onshore wind power projects equalling the production of 3,000MW have already been submitted. Projects equalling the production 670 MW may, according to the Minister of Petroleum and Energy, be carried out by 2030. Projects equalling the production of 170 MW have already been granted a licence, but grid capacity is currently too limited for these projects to be realised. Several new areas in the Barents Sea have been identified as potentially suitable for offshore wind and so offshore wind projects are also anticipated in the area.

The Government has sent four key governance signals: 

1. The Norwegian Water Resource and Energy Directorate (NVE) will prioritise licence applications relating to grid and power production in Northern Norway, especially in Finnmark;
2. The Minister of Petroleum and Energy, Terje Aasland, will through dialogue with Statnett (the state-owned grid transmission system operator) ensure that Statnett prioritises grid development in Northern Norway, especially in Finnmark;
3. Norwegian geopolitical interests and considerations will form part of the Ministry of Petroleum and Energy’s assessment of the economic basis of measures which increase grid and production capacity in Finnmark; and
4. The Norwegian Government will establish a security policy forum for the development of energy systems in Northern Norway.

The plan for Northern Norway is considered controversial. Critics have claimed that the plan appears unrealistic, not least due to local resistance against grid expansion and power production projects and conflicts with the reindeer herding of the indigenous Sami population. There is also a fear among local politicians that electricity prices in the region will increase.

On 28 September 2022, the Norwegian Government announced a new special taxation regime for onshore wind farms consisting of more than five wind turbines. The background for the proposal was expectations of persistently high energy prices and steadily falling cost levels, based on estimates from NVE showing that onshore wind power has become the most cost-effective energy technology. Introducing the new special taxation regime would enable the Government to compensate municipalities hosting wind farms for the environmental consequences this entails.

The new taxation regime was originally proposed with effect from 2023 and would consist of two parts. Firstly, a special tax rate of 40 per cent was to be applied as a resource rent tax, which would be in addition to the existing 22 per cent corporate income tax. This would result in a marginal tax rate of 62 per cent. Secondly, a temporary non-deductible duty calculated as 23 per cent of the average electricity price per month in excess of NOK 0.70 per kWh, referred to as the ‘high-price contribution’.

The proposed resource rent tax for onshore wind farms met strong opposition from the renewable energy industry. New investments in the sector came to a complete stop, and international investors voiced severe criticism stating that the new tax could be detrimental to investors’ trust in Norway as a country to invest in. As a result of the backlash, the implementation of the resource rent tax was postponed and relaunched as part of the 2024 Annual Budget, as presented 6 October 2023. The new proposal is that the resource rent tax rate shall be 35%. A previously proposed natural resource tax is not upheld, but the local municipality shall instead receive steady tax revenue in the form of a production fee of NOK 0,023/kWh. The production fee is fully set off against assessed ground rent tax. The high-price contribution shall be appealed with effect from 1 October 2023.

Several more lenient transition rules were also proposed. The norm-price basis for determining taxable income subject to ground rent tax shall not apply for hedging contracts entered into before 28 September 2022 (the date of the original proposal).

Offshore wind farms on the Norwegian continental shelf will be subject to the ordinary Norwegian corporate income tax regime. The Government has also presented new rules to ensure that Norway extends taxation rights to cover non-Norwegian companies owning offshore wind farms on the Norwegian continental shelf. Oil and gas companies investing in electrification of their own production by installing an offshore wind farm connected to the production site may be taxed under the special petroleum tax regime, depending on the facts and circumstances.

The debate regarding the implementation of a resource rent tax on wind naturally extends to offshore wind. Strong forces within one of the governmental parties are also pushing for the implementation of resource rent tax for offshore wind farms. However, in March 2023, the Government guaranteed that a resource rent tax would not be applied to the currently tendered projects at Utsira Nord and Sørlige Nordsjø II. Whether such a tax will be applied to future projects and areas is undecided.