Electricity regulation in Norway: overview
A Q&A guide to electricity regulation in Norway.
The Q&A gives a high level overview of the domestic electricity market, including domestic electricity companies, electricity generation and renewable energy, transmission, distribution, supply and tax issues. It covers the regulatory structure; foreign ownership; import of electricity; authorisation and operating requirements; trading between generators and suppliers; rates and conditions of sale and proposals for reform.
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Norway is part of a common Nordic wholesale market for electricity together with Sweden, Denmark and Finland. The Nordic power market is also integrated into the European power market through interconnections to Germany, The Netherlands, Estonia and Russia.
The Nordic physical power exchange is Nord Pool Spot AS (Nord Pool), where large power volumes are bought and sold. The players include:
Nord Pool calculates hourly prices based on buy and sell bids submitted by the market players. It has long been regarded as one of the best functioning power exchanges in the world.
The retail markets for electricity are national in which the customers can choose their electricity supplier. Since the grid operations are considered a natural monopoly, the local grid company transfers the electricity of any electricity supplier the customer chooses. The retail market in Norway is divided into three equal parts:
Medium-sized consumers such as hotels and shops.
An important prerequisite for an effective power market is a connected and well-developed power grid with access for all players. Since electricity distribution is a natural monopoly, Norwegian grid companies are strictly regulated by the authorities through revenue cap regulation and rules for stipulating tariffs for electricity transportation. All consumers and producers connected to the electricity grid pay tariffs to their local grid company for the transportation of electricity.
Statnett SF (wholly owned by the Norwegian state) is the transmission system operator in Norway. It has the practical responsibility for control of the balance between:
Consumption of power.
In addition to the physical wholesale market, there is an efficient financial market in the Nordic countries. Financial trading can take place both bilaterally and on the power exchanges. A significant share of financial trade in the Nordic countries takes place on the NASDAQ OMX exchange. Players can hedge prices for the purchase and sale of power up to ten years into the future. NASDAQ OMX uses the system price determined at Nord Pool Spot as the underlying reference price in financial contracts. Financial products include:
Future and forward contracts.
Contracts for difference.
The electricity market is well-established, with no new significant trends in the last 12 months. However there are interesting political signals indicating stronger initiatives for consolidation in the distribution sector. The distribution grid is largely publicly owned, but there may be important changes and market possibilities in the coming years. In addition, the promotion of new renewable energy has led to an increasing use of wind power in Norway. However, hydropower remains the dominant factor in the energy mix.
The energy sector and water resource management are subject to a quite extensive legislative regulatory framework that requires public permits in many cases.
Strict regulation has been deemed necessary to avoid conflicts between user interests and environmental interests that may arise in connection with:
Planning, building and operation of a generation or transmission facility for electric energy and district heating.
Water resources management.
The legislation seeks to secure the effective management of Norwegian resources. Important considerations when interpreting the legislation are the need for a well-functioning power market and secure supply of energy.
The Energy Act. The Energy Act sets out the framework for the organisation of power supply in Norway. Under the Act, every technical facility must obtain a licence for the generation, transmission and distribution of electric energy from the power station to the consumer. The generation, conversion, transmission, distribution, trading and use of energy must be performed in a socio-economically efficient manner, including taking into account relevant public and private interests.
The Energy Act imposes an obligation to acquire a trading licence for all trading of electric energy. Further, a distribution grid operator must obtain an area licence which is a "catch all" licence granted to grid companies for the operation of installations below 22kw within an area, resulting in a monopoly situation.
Requirements for separation under the Energy Act. To provide an efficient distinction between the natural monopoly grid operations and production and retail, the Energy Act includes requirements for:
Unbundling and neutrality on the grid companies in line with Directive 2009/72/EC concerning common rules for the internal market in electricity.
Legal unbundling of grid companies with more than 100,000 customers.
Functional unbundling. The management of a grid company cannot participate in generation or retail business. This means that parent companies or controlling owners cannot instruct the grid business with respect to daily operations or decisions with respect to new build or upgrade of the grid. NVE, which has regulatory powers (see below) enforces these requirements, for example, by issuing fines for illegal compositions of boards of directors.
Provisions on neutrality and confidentiality obligations are set out in the 1999 Regulation on Electricity Sale and Grid Services under the Energy Act. Grid companies must in all respects ensure neutrality towards all electricity suppliers and end users.
The Industrial Licensing Act. The Industrial Licensing Act mainly relates to acquisition and use of waterfalls. Its objective is to ensure that hydropower resources are managed in the best interests of the public through public ownership of hydropower resources at national, county and municipal levels.
The Industrial Licensing Act imposes an obligation to obtain a licence if parties other than the state acquire ownership interests to waterfalls which, in connection with water regulations, could deliver more than 4000 natural horsepower (NHP). New licences and licences for transfer of existing licences are only granted to public sector purchasers which mean that only municipalities, county municipalities and state-owned enterprises can be granted a licence. Private parties can acquire up to one-third of the shares in companies holding such production assets.
The Water Course Regulation Act. In addition to the concession for the ownership of the waterfall, the Water Course Regulation Act imposes licensing requirements for the use of the water in a regulation reservoir for power generation. Transferring water from a water course also requires a licence.
The purpose of the Act is to protect both public and private interests in the water course. The concession will usually only be granted if any damage to these interests is deemed to be outweighed by the advantages entailed by the regulation. The concessionaire is also given the right to expropriate necessary properties and rights to carry out the regulation measures.
The Water Resources Act. Smaller power plants without regulation and without a licence under the Water Course Regulation Act can be obliged to acquire a licence under the Water Resources Act. Under the Act, anyone who performs water course measures that may cause damage or disadvantage to public interests in water courses or the sea, must acquire a licence. The purpose of the Act is to ensure a socio-economically prudent use and management of river systems and ground water.
Offshore Energy Act. The Offshore Energy Act relates to renewable energy production and conversion, and transmission of electric energy offshore. The aim of the Act is to:
Facilitate exploitation of offshore renewable energy resources in accordance with socio-economic objectives.
Ensure that the planning, building and management of such facilities safeguards:
commercial and other interests.
The Electricity Certificate Act. The aim of the Electricity Certificate Act is to contribute to increased production of electric energy from renewable energy sources in Norway and Sweden. The Act established a Norwegian market for electricity certificates linked (from the effective date of 1 January 2012) to the Swedish electricity certificate market. The electricity certificate market is a market-based support scheme (see Question 7).
Management of protected areas. The Protection Plan for Water Courses permanently protects many river systems in Norway. The Plan constitutes binding instruction for the public administration not to grant licences for the regulation or development of specific river systems for power production purposes.
Other relevant legislation. There are a number of other statutes that are significant for energy and water resources, such as the:
Planning and Building Act.
Nature Diversity Act.
To list every act that may be relevant would however make a very comprehensive list and this description is therefore limited to describe the most relevant Acts for energy and water resources in Norway.
Relevant EU legislation. Norway is subject to EU rules within the electricity sector through the Agreement on the European Economic Area 1992 (EEA Agreement). Due to inherent delays in EEA procedures, the "third energy package" is not yet implemented in Norwegian law, but implementation is in progress. However, the second energy package is implemented in Norwegian law. Other relevant Directives that apply to Norwegian law include:
Directive 2009/28/EC on the promotion of the use of energy from renewable sources (Renewable Energy Directive).
Directive 2010/31/EU on the energy performance of buildings (Energy Performance Directive).
Directive 2004/8/EC on the promotion of cogeneration based on a useful heat demand in the internal energy market (CHP Directive).
Ecodesign for Energy-Related Products Directive 2009 (ErP Directive 2009).
Directive 2010/30/EU on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products (recast) (Energy Labelling Directive 2010).
Directive 2005/89/EC concerning measures to safeguard security of electricity supply and infrastructure investment (Security of Electricity Supply Directive).
Directive 2000/60/EC establishing a framework for Community action in the field of water policy (Water Framework Directive).
Directive 2004/35/EC on environmental liability with regard to the prevention and remedying of environmental damage (Environmental Liability Directive).
The Norwegian Parliament (Stortinget) is responsible for the legal framework of the Norwegian electricity sector. However, important issues are delegated to the Ggovernment, which exercises its powers through the:
Ministry of Petroleum and Energy. It has overall administrative responsibility.
Ministry of Environment. It is responsible for the external environment and planning legislation.
Ministry of Finance. It is responsible for power plant taxation, various taxes on energy and the state's expenditures.
Ministry of Trade and Industry. It has ownership responsibility for Statkraft SF.
The Norwegian Water Resources and Energy Directorate (NVE) acts as the agency for the management of energy and water resources, and has regulatory powers in crucial areas.
The Norwegian Environment Agency is a separate regulatory body for health, safety and the environment.
See box, The regulatory authorities.
The three fundamental functions of the power supply in Norway are generation, transmission/distribution and trading. These stages are reflected in the organisation of the sector into:
The grid (transmission and distribution).
Trading of power.
In addition, there are a considerable number of district heating suppliers that have been established over the last decades.
Power production in Norway is diverse involving a large number of producers. The ten largest production companies by MW installed capacity in Norway are, as of 1 January 2012:
Statkraft Energi AS.
E-CO Energi AS.
Norsk Hydro AS.
Agder Energi Produksjon AS.
BKK produksjon AS.
Lyse produksjon AS.
NTE Energi AS.
Eidsiva Vannkraft AS.
Hafslund Produksjon AS.
Statnett is the single transmission system operator (TSO) responsible for the national transmission grid (seeQuestion 1, Overview). The transmission grid has a voltage level normally between 300kV to 420kV.
The two underlying grid levels beneath the transmission grid are the regional grid and distribution grid. The regional grid is the link between the transmission grid and the distribution grid, and consists of power grids of 66kV and 132kV. The distribution grid consists of local power grids that normally supply power to end users and has a normal voltage of up to 22kV which is reduced to 230V for delivery to the general electricity consumer.
There is a significant number of distribution grid companies, to a large extent owned by local authorities. The ten largest distribution grid companies as of 31 December 2010, by the number of customers and final deliveries, are:
Hafslund Nett AS.
Skagerak Nett AS.
BKK Nett AS.
Agder Energi Nett AS.
Eidsiva Nett AS.
Lyse Elnett AS.
Fortum Distribution AS.
Trøndelagenergi Nett Trondheim AS.
NTE Nett AS.
Troms Kraft AS.
The trading companies purchase power in the market for re-sale. There are 245 companies involved in supply/power trading and 96 of these have trading as their sole activity. The ten largest suppliers of electric energy by delivery to end users as of 31 December 2010, are as follows:
Statskraft Energi AS.
Norsk Hydro Produksjon AS.
Hafslund Strøm AS.
Norges Energi AS.
Lyse Handel AS.
Statoil Norge AS.
There are requirements for the separation of transmission/distribution operations and generation/retail business under the Energy Act (see Question 2, Regulatory framework).
There are private (national and foreign) ownership interests within all activity areas of production, the grid and trading.
There are no statutory restrictions for the ownership of grid installations or generation assets, save for waterfalls and large hydropower assets. Licences for the ownership of waterfalls are only granted to public developers under the Industrial Concession Act (see Question 2, Regulatory framework).
Although Qualified Entities (entities that are at least 67% directly or indirectly owned and controlled by Norwegian state corporations, counties or municipalities) have a particular position in the Norwegian concession scheme, there are several possibilities for private entities (including non-Norwegian entities) to invest in Norwegian hydropower production. Selected alternatives for private/foreign investment include the following:
Participation through a Qualified Entity. A private investor may participate in the acquisition of any Norwegian private power company by owning up to and including one-third of the Qualified Entity acquiring the power company. The change of status from a private power company to a power company owned by a Qualified Entity also enables the private power company's concessions to be unlimited in time and without the condition of reversion.
Acquisition of 20% or less of the private power company. A private investor may generally acquire 20% or less of any Norwegian private power company holding waterfall rights without triggering any concession requirements under the Industrial Concession Act.
Acquisition of between 20% and 90% of the private power company. A private investor may acquire up to and including 90% of any Norwegian private power company holding waterfall rights subject to a share ownership concession from the Ministry of Petroleum and Energy under the Industrial Concession Act. According to the Ministry's practice, share ownership concessions have been granted without particularly burdensome conditions. However, concessions including conditions of time-limitation and reversion will continue on existing terms, unless the target company changes its status from private entity to a Qualified Entity.
The Norwegian state currently owns about 90% of the transmission grid, which is managed through Statnett as the system operator. New unbundling requirements mean that the transmission grid must be separated from other business. Statnett is the only company that is licensed as the system operator and there is no indication that a licence will be granted to others. The rest of the transmission grid is owned by private companies, county authorities and municipalities that have obtained the necessary licences. There are no restrictions concerning foreign ownership of distribution companies.
Several foreign companies have been granted trading licences in Norway. There are no restrictions concerning foreign ownership of trading companies.
Import of electricity
Norway has transmission interconnectors to Denmark, Finland, The Netherlands and Russia (see Question 1). The total trading capacity between Norway and other countries is currently about 5400MW. Statnett is currently planning the development of new interconnector capacity to Germany and the UK, in co-operation with TenneT and National Grid respectively.
Norway is largely a net exporter of power, but has occasionally been a net importer, such as in 2010. Since the power system is based on hydropower, the level of export and import of electricity depends on annual precipitation levels.
The large international interconnections in Norway are owned by Statnett and operated by Nord Pool by means of implicit auctions or price coupling.
Electricity generation and renewable energy
Sources of electricity generation
Norway has large energy resources, both fossil resources such as oil and gas, and renewable resources such as water, wind and bio-energy. However, the main source of Norwegian electricity generation is hydroelectric power. In 2012, 99.6% of total energy generation came from hydropower.
In 2011, Norwegian electricity production totalled 128TWh. Of this about 4.8TWh was produced in gas power plants and other thermal power plants.
Of the total electricity production of 128TWh in 2011 about:
122TWh was produced in hydropower plants.
1.3TWh in wind power plants.
In line with Directive 2009/28/EC on the promotion of the use of energy from renewable sources (Renewable Energy Directive), Norwegian authorities have made an action plan on how to achieve Norway's national target of an overall renewable share of 67.5%.
Electricity certificates are the most important single contribution towards achieving this goal. A joint certificate market between Norway and Sweden grants producers of renewable electricity one certificate per MWh of electricity they produce for 15 years. Norwegian and Swedish authorities require all electricity suppliers and certain categories of end-users to purchase electricity certificates for a specific percentage of their electricity consumption. This implies that producers of renewable electricity will earn an income from the sale of electricity certificates in addition to revenues from the sale of electricity. By implementing the system of electricity certificates, Norwegian authorities have given a strong incentive for increased use of renewable energy.
In addition, the activities of the state-owned enterprise Enova contributes to achieving the target. Enova's objective is to promote environment-friendly conversion of energy consumption and generation, as well as development of energy and climate technology, through programmes that offer financial support for renewable energy and energy saving for industry.
Finally, the system of guarantees of origin for generation of electric energy that was introduced in the CHP Directive is an important incentive to encourage the use of renewable energy.
Renewable energy targets
Further to the Renewable Energy Directive, the proportion of energy derived from renewable sources is predicted to amount to 67.5% of Norway's gross consumption of energy within 2020. The target is legally binding.
See box, Renewable energy sources.
Hydropower is the main source of electrical energy (see Question 6). As a result of the new incentive schemes, the introduction of new renewable energy is speeding up. However, there have been certain limitations with respect to planning and licensing procedures, as well as grid capacity. A large number of new wind farm projects are now in various stages of development.
Authorisation and operating requirements
The first and most crucial step to acquire authorisation for the construction of hydro power plants and wind power stations, is to apply for the necessary licences.
For the construction of hydropower plants the main types of licences are:
A licence for the ownership of a waterfall under the Industrial Licensing Act. This is necessary for the construction of larger power stations.
A water course licence under the Water Course Regulation Act (larger power plants) or Water Resources Act (smaller power plants) for the use of water in a regulated reservoir.
A construction licence under the Energy Act for the construction of hydropower or wind power stations.
A trading licence under the Energy Act for the trading of electric energy (see Question 2).
For the construction of wind power stations, only the licences under the Energy Act referred to above are necessary. After sending the necessary licence applications, the Norwegian Water Resources and Energy Directorate (NVE) assesses, together with affected municipalities, whether the measure is subject to an impact assessment under the rules of the Planning and Building Acts on notification and impact assessment.
In addition to the licensing issues there are a number of regulations setting out compliance requirements.
There are currently no requirements for carbon capture and storage. The majority of production in Norway is based on hydropower and only a very limited number of gas fired power plants are in operation.
However, Norway has engaged in active work in terms of CCS technology, particularly at the Mongstad Test Centre. It is unlikely that a licence to any potential gas power plant would be granted without compliance with CCS requirements.
The legislation referred to in Question 10 is also relevant to the operation of electricity generation plants. The licences granted under the Acts typically set out further conditions for operation. In addition the following regulations set out requirements for the operation of electricity generation plants:
Regulation on Quality of Supply in the Power System.
Regulation on System Responsibility in the Power System.
Regulation on Planning and Carrying out Requisition of Power and Forced Reductions in Power Supply Rationing.
Interconnection of generation to the transmission grid requires a (Energy Act):
Area licence (electricity distribution).
In addition to compliance with the legislation referred to in Question 12, all grid operators that are subject to a construction licence must connect new power generation plants and new plants for the offtake of electric energy and, if necessary, must invest in new grid stations.
Grid companies may require a construction contribution (no: anleggsbidrag) from the production company either (Regulation on financial and technical reporting, revenue cap and tarrifs):
To cover the capital costs of the grid connection.
For reinforcement of the grid of existing customers.
Authorisation and operating requirements
The transmission system operator must apply for a construction licence and trading licence for the construction of new electricity transmission networks. In addition, Statnett must have a licence as system operator for the transmission networks. In practice there is only one system operator.
In addition, chapters 2 and 14 of the Planning and Building Act set out requirements for map and location information for the applicant and impact assessment for measures and plans. The purpose of these provisions is to ensure that the environment and community are taken into consideration.
All grid operators subject to a construction licence have a connection obligation pursuant to the Energy Act to connect new power generation plants and new plants for the extraction (uttak) of electric energy and are, if necessary, obliged to invest in new grid stations.
As a result of their position as natural monopolies, grid companies are subject to detailed regulations with respect to permitted income, for example, the Regulation on financial and technical reporting, revenue cap and tariffs.
The revenue cap regulation ensures that monopoly operations are carried out in an efficient manner to obtain rational socio-economic development and use of the grid infrastructure. The regulation provides for the grid companies to cover their costs and secure a reasonable rate of return on invested capital, assuming efficient operation, use and development of the grid.
The income frame for the transmission system operator, Statnett, is determined by the regulator, the Norwegian Water Resources and Energy Directorate (NVE) each year (retrospectively) by an individual assessment. The transmission system operator is regulated by a revenue cap that includes both costs associated with its own grids and costs related to the performance of the system responsibility. However, many of the provisions and conditions that apply to distribution grid companies when determining the income frames also apply to the system operator (see Question 19).
Authorisation and operating requirements
The authorisation requirements to construct electricity distribution systems under the Energy Act include obtaining the following licences:
The distribution grid operator must obtain an area licence which is a "catch all" licence granted to grid companies for ownership and operation of installations below 22kW within an area, resulting in a monopoly situation.
The area licence is granted subject to:
To the extent a company has electric installations not covered by the area licence, a separate facility licence must also be obtained to own and operate such installations.
The income frames for the distribution grid companies are determined each year (retrospectively) by the regulator, the Norwegian Water Resources and Energy Directorate (NVE), based on:
The company's reported costs.
A comparing efficiency analysis where each grid company's relative efficiency is measured.
40% of the cost basis is included in the calculation of each grid company's income frame while the remaining 60% constitutes the cost norm. A particular regime (CENS) for compensating interruptions in the supply has been established to incentivise the grid companies to strive for security of supply.
Since the revenue caps are determined retrospectively, it is not possible for grid companies to determine the tariffs charged on customers with accuracy. NVE therefore allows for excess/too low revenues in certain years, with a right to collect the balance for too low revenues in later years. With respect to excess revenues, the grid companies must aim to keep the tariff income in balance. Therefore, in cases with excess income, tariffs are reduced (section 7-5, Revenue Cap Regulation).
Authorisation and operating requirements
The main requirement for the supply of electricity systems is to acquire a trading licence (Energy Act). In the licence, the Ministry of Petroleum and Energy can impose conditions for the internal organisation and accounting of the licensee, such as obligations to ensure neutral behaviour with respect to grid operation (relevant in vertically integrated businesses).
Trading between generators and suppliers
Trading takes place largely via Nordpool Spot AS, but there is also bilateral trading under various contract formats. Save for the licensing requirements outlined in Question 20 and competition law issues, there is no particular regulation applicable to energy trading.
Rates and conditions of sale
Like other industries, all power companies are subject to 27% income tax in accordance with their annual results.
In addition, a particular power tax regime is in place. Hydropower producers pay economic rent tax (no: grunnrenteskatt) on 31% of the income that is higher than a calculated tax-free income. The objective of the tax-free income is to protect the alternative yield.
Currently, work is taking place to implement the third EU energy package (see Question 2, Regulatory framework). It is especially important for the power industry to have clarification on:
The definition of the transmission and distribution network.
Distribution system operators' (DSO) responsibility.
Organisation aspects related to the position of the transmission grid and regional grid.
The regulatory authorities
Ministry of Petroleum and Energy
Main responsibilities. Overall administrative responsibility for the electricity sector.
Norwegian Water Resources and Energy Directorate (NVE)
Main responsibilities. Acts as the Ministry's agency for the management of energy and water resources and has regulatory powers in crucial areas.
Norwegian Environment Agency
T +47 73 58 05 00
F +47 73 58 05 01
Main responsibilities. The Norwegian Environment Agency plays a key role in preserving nature, reducing pollution and shaping Norwegian environmental policy.
Description. Official website containing statutory acts.
Description. Website providing unofficial translations.