An extract from The Renewable Energy Law Review, 5th Edition
The policy and regulatory frameworki The policy background
The overall aim of Norway's energy policy is to ensure high levels of value creation through the efficient and environmentally friendly management of the country's energy resources.22 In essence, Norway shall:
- continue to provide for abundant and affordable access to power;
- reduce the industry's greenhouse gas emissions;
- continue to convert to increased electrification of industries as part of cutting emissions; and
- develop and grow new renewable energy industries.23
Four main goals for Norwegian energy policy have been established:24
- improving security of supply;
- profitable development of renewable energy;
- more efficient and climate-friendly energy consumption; and
- value creation based on Norway's renewable energy resources.
The largest share of renewable energy in Norway is related to hydropower. In addition to preserving and further developing hydropower, Norway has large potential for development of other renewable energy production due to its geography, topography and sea areas. The government has emphasised its particular commitment to facilitate large-scale investment in offshore wind power, and to further the development of CCS, the establishment of value chains for hydrogen and the establishment of a battery production industry.
A number of support schemes are in place to support renewable energy projects, including the distribution of funds through various state-owned companies and administrative agencies such as Enova, Innovation Norway and the Research Council of Norway. In addition, the Norwegian state provides direct support through state aid, such as for the Longship project, to which the Norwegian state will contribute approximately two-thirds of the costs.25
The main instruments to reduce greenhouse gas emissions are the CO2 tax and the emissions trading system. Another incentive is the guarantee of origin, which documents electricity that is produced from renewables. Other incentives include the joint Norwegian–Swedish market for electricity certificate schemes where producers of renewable electricity receive one certificate per MWh of produced electricity up to a period of 15 years, although this is about to be phased out as further outlined in Section IV.ii. The right to straight-line depreciation of wind turbines over a five-year period also ended after 2021.26
The tax regime consists of a corporate income tax at 22 per cent for hydropower and wind power. For hydropower, there is also a ground rent tax of 47.4 per cent (corporate income tax is deductible so that the total effective tax rate is 59 per cent). Wind power is not subject to ground rent taxation unless offshore installations are part of the electrification of the oil sector and financed by oil companies. A municipal property tax is tied to all three, but for offshore wind power installations, it applies only to possible assets attached to land. Hydropower is also subject to a natural resource tax or duty, which only serves to produce tax revenue for the local municipality without increasing the effective tax burden for companies.
As a general principle, the cost price for a fixed asset that functionally and physically constitutes one unit should not be divided into different subclasses of assets with different tax depreciation rates. The Norwegian Tax Administration has concluded that an onshore wind turbine is not such a combined fixed asset, and that it consists of different components that may be separated and replaced at different times. Therefore, the different components in wind turbines have varying tax depreciation rates.
Ground rent tax for hydropower is assessed on a cash tax basis, whereby all investments are immediately tax deductible by 100 per cent and any negative ground rent tax is refunded annually. Such cash tax-based systems do not apply for corporate income tax purposes to any type of business.ii The regulatory and consenting framework
Norway has a comprehensive legal framework related to renewable energy. As part of the European Union's internal energy market through the European Economic Area agreement, Norway is bound by several directives and regulations related to the industry, including the European Union's three energy packages.
The Energy Act concerns the production, conversion, transfer, trading, distribution and use of electrical and thermal energy, except in territorial waters.27 There is a substantial body of regulations and administrative guidelines that derive from this act.
The Offshore Energy Act concerns the production of renewable energy, and the transformation and transfer of electrical energy offshore.28 A comprehensive set of regulations and most likely amendments are, however, required before the act can become operational.
The Waterfall Rights Act lays down the conditions for obtaining licences to acquire waterfalls exceeding a certain generating potential. The Water Resources Act concerns the use and management of watercourses and groundwater. The Watercourse Regulation Act concerns licences for interventions in watercourses (e.g., dams and diversions).
Although not specific to renewable energy, the Planning and Building Act is one of the most important acts for the industry. Norway's land use shall be managed through plans. Plans for land use must therefore be researched through planning programmes, descriptions of plans and environmental impact assessments (EIAs). Some plans always require an EIA, while others only require an EIA if the project may have adverse effects on the environment, society and nature conservation.29 It is worth noting that these requirements are in addition to those that follow from the Energy Act, the Water Resources Act and the Watercourse Regulation Act.30
The principal responsibility for Norwegian energy policy lies with the MPE. The NVE is subordinated to the MPE. The NVE is responsible for managing the energy resources and is the licensing, preparedness and rationing authority. The Norwegian Energy Regulatory Authority (NVE-RME) is the regulatory authority for the electricity and natural gas markets. The Norwegian Electricity Appeal Board is an independent appellate body for complaints filed against the NVE-RME's decisions.
The Norwegian power grid is divided into three levels: the transmission grid, the regional grid and the distribution grid. The transmission grid is owned and operated by Statnett, a state-owned enterprise subordinated to the MPE. Statnett is the TSO and responsible for ensuring balance between power production and consumption. On the distribution level there are over 100 distribution system operators (DSOs), each responsible for power distribution in their geographical areas.
Building, owning or operating power plants and grid installations over a certain capacity or voltage onshore requires a plant licence pursuant to the Energy Act.31 The authority is the MPE, although licences for smaller projects are granted by the NVE.32 For new and large grid installations as well as electrical installations in conjunction with hydropower plants, licences are granted by the King in Council.33 Power plants and grid installations require EIAs if the projects may have substantial effects on the environment, society and nature conservation.34 The requirements depend on the scale and effect of the projects.
On the distribution level, the DSO will – instead of plant licences – for each installation be granted an area licence within its geographical area for building, owning and operating installations in the distribution grid.35 An area licence licensee is obligated to deliver electrical energy to all customers within the licence area.36
As the right to exploit hydropower resources is vested in the public (i.e., the state), the acquisition of leasehold or ownership rights to waterfalls for power production by anyone other than the state requires a licence from the government pursuant to the Waterfall Rights Act.37 Waterfalls with a generating potential less than 4,000 horsepower are exempted.38 Only publicly controlled entities may be granted a licence, which means that one or more public entities (i.e., the state and local or regional municipalities) must directly or indirectly combined hold at least two-thirds of the ownership interests and the voting rights in the licensee. Hydropower plants that do not require licences pursuant to the Watercourse Regulation Act are regulated by the Water Resources Act.39
Watercourse regulations and transfers for hydropower production over a certain capacity, or that substantially affect natural conditions or other public interests require licences pursuant to the Watercourse Regulation Act40 or the Water Resources Act, as applicable. The licensing authority is the MPE.
Watercourse projects that may be of notable damage or disadvantage to public interests normally require a licence from the NVE.41 All licences presuppose that the advantages exceed the damages and disadvantages to public or private interests.42
The state has the right to exploit renewable energy resources offshore.43 Building, owning or operating production facilities and grid facilities offshore requires a licence pursuant to the Offshore Energy Act. The MPE is the licensing authority, but licences will only be granted in areas opened for licence awards by the King in Council. Licences can be given for up to 30 years, but extensions are possible.44 An EIA is generally required as part of the licensing process.45 The MPE has recently proposed several changes to the Offshore Energy Act and it is expected that the licensing process will be adjusted prior to the first licensing round for offshore wind power.
To engage in the trading of electricity, anyone but the state will need a trading licence.46 This includes producers, grid companies, wholesalers and retailers. Licences are granted by the NVE-RME.
Owning or operating interconnectors requires a special licence pursuant to the Energy Act.47 This licence may only be obtained by the TSO, Statnett. Licences for interconnectors from offshore production facilities may, however, be granted to other entities. The MPE is the licensing authority. Organising and operating marketplaces for the trading of electricity requires a licence from the NVE-RME.48
Building, owning or operating district heating facilities with an output that exceeds 10MW requires a district heating licence from the NVE.49 The municipal zoning authority may mandate connection to the district heating grid for new buildings within the district heating licence area. This places an obligation on the building owner only and the district heating company has no duty to connect new customers. The building owner must cover the cost for physical connection to the grid and pay the annual connection fee. There is no duty to purchase energy from the district heating company once connected, but the district heating company has a statutory obligation to deliver energy to all connected customers. Where connection is mandated, the price that the district heating company may charge is limited to a statutory maximum price, equal to the price of electricity in the area.
The time frame for obtaining approval for the development of utility-scale renewable energy projects may vary depending on the project. A requirement for EIAs or public hearings, or both, will typically prolong the process. For example, the case processing for onshore wind power projects may take as long as 10 years due to long-lasting conflicts, and comprehensive processes and hearings.50
The process for offshore wind power is based on the framework onshore but with additional steps and is thus expected to be longer. The government is, however, working to streamline the licensing process.
In 2021, the NVE:
- approved 39 plants for electricity certificates;
- granted 245 plant licences for grid installations (of which 154 licences were new); and
- adopted decisions in 27 district heating cases (of which most decisions regarded rebuilding or expanding existing installations) and 22 hydropower applications (of which 12 applications regarded licences).51
Injection and storage of CO2 in geological formations require permits from the Norwegian Environment Agency and the MPE.52 Additionally, installations built in relation to injecting and storing CO2 require EIAs and planning programmes or notifications.53 CO2 from the offshore petroleum industry is regulated in the Regulation on the Petroleum Act Chapter 4a, while CO2 from other industries is regulated in the CO2 Storage Regulation. Despite this regulatory distinction, the regulations are largely identical. Applications for survey licences must be directed to the MPE, while exploration and exploitation licences presuppose approval by the King in Council. The exploitation licensee must also submit a plan for development and operation for the applicable subsea reservoir intended for CCS to be approved by the MPE.
Norway does not have a complete framework covering the hydrogen value chain. The production, storage and transport of hydrogen are not covered by the Energy Act. However, plants for the production of hydrogen must comply with the Energy Act.
The importance of considering environmental matters relating to renewable energy developments is emphasised throughout the renewable energy framework. Key instruments for environmental considerations in licensing processes are the requirement for EIAs and the use of public consultations prior to award.
Renewable energy developments must be carried out in accordance with, among other things:
- the Norwegian Nature Diversity Act;
- the Pollution Control Act;
- the Cultural Heritage Act;
- the Outdoor Recreation Act; and
- the Reindeer Husbandry Act.
Norway is also part of several international frameworks, including the Ramsar Convention on Wetlands of International Importance Especially as Waterfowl Habitat, ILO Convention No. 169 on the Rights of Indigenous Peoples, and the European Human Rights Convention.