The profits of electricity production are taxed as general income, in the same way as the profits of other businesses. The tax rate for general income is 22 per cent in 2023. In addition, a tax on resource rent is levied on hydropower plants with generators rated at least 10 MVA. Hydropower production can often results in profits exceeding normal returns to capital. Through the tax, a proportion of the profits is returned to society as a whole. The effective rate of the resource rent tax is 45 per cent in 2023.
The resource rent tax is designed as a neutral tax, so that projects that are profitable before resource rent tax, are also profitable after resource rent tax. Hydropower plants with generators below 10 MVA are exempted from resource rent tax. The resource rent tax is calculated based on standardised market value of the power generated (actual power generated multiplied by spot market prices), less operating expenses, licence fees, property tax. As of 2021 the resource rent tax is designed as a cash flow tax, with immediate recognition of expenditures of investments. Investments prior to 2021 are still subject to deduction through depreciation and uplift (return on investment). The uplift is used to compensate for investments prior to 2021 that are depreciated and will not be deducted immediately.
The resource rent can be positive, negative or zero. The resource rent is coordinated for companies who own several hydropower plants, which means that any negative resource rent in one hydropower plant is subtracted from positive resource rent from another hydropower plant. The resource rent tax is unlike other taxes in that tax value is paid out to companies if the resource rent is negative.
Corporate tax is calculated before resource rent tax on hydropower, and resource rent-related corporate tax is deducted from the basis for resource rent tax. An effective resource rent tax rate of 45 per cent means that the formal resource rent tax rate is 57.7 per cent.
A natural resource tax of NOK 0.013 per kWh, paid to the municipalities and counties, is also levied on power plants rated at more than 10 MVA. Natural resource tax is deductible against the assessed tax on general income.
In addition, power producers normally pay property tax to the municipalities where their plants are situated. The property tax base is calculated according to specific rules for hydropower plants. The taxable value of a hydropower plant larger than 10 MVA is based on the plant's market value by estimation of an indefinite net present value calculation. However, the property tax base must be between a minimum of NOK 0.95 per kWh and a maximum of NOK 2.74 per kWh of the average production over a seven-year period at the plant in question. If a hydropower plant has been in operation for less than seven years, the period during which it has been operating is used as a basis. The property tax is deductible when calculating the economic rent. For hydropower plants smaller than 10 MVA, the property tax is calculated on the basis of the value of the investments.
Hydropower companies must also pay a licence fee and meet requirements for obligatory sales of power to the municipalities where their plants are situated, for more details see below.
Owners of large hydropower plants are required to pay a licence fee to the state and to the municipalities affected by the hydropower developments. The size of the fee depends on the theoretical capacity of the power plant and is calculated independently of the actual production capacity. The theoretical capacity is expressed in natural horsepower and calculated from the rate of flow after regulation and the head of water. The normal fee rates are NOK 24 per natural horsepower to the municipality and NOK 8 to the state for new licences but vary considerably for older licences. The fee rates are normally adjusted at regular intervals. In 2022, the municipalities and the state received about NOK 900 million in licence fees.
Owners of large hydropower plants are required to deliver power corresponding to up to 10 per cent of the theoretical capacity to the municipalities affected by the hydropower developments. The purpose of this arrangement is to ensure that municipalities where there are large-scale hydropower developments obtain electricity for general consumption at a reasonable price. If a municipality is entitled to more electricity than is used for general consumption, the county is entitled to buy the surplus. The parties are free to agree on the price of power sold through these arrangements. Unless otherwise agreed, the price is as a general principle based on production costs. For licences awarded after 10 April 1959, the Ministry of Energy calculates a price based on the average production costs for a representative selection of power plants. In 2023, this price is NOK 0.1177 per kWh.
Counties and municipalities receive about 8.8 TWh of electricity through these arrangements every year, about one-third of which currently goes to the counties. The difference between the price of electricity sold through these arrangements and the normal market price is a source of revenue for the municipalities and counties.
The profits of electricity production are taxed as general income, in the same way as the profits of other businesses. The tax rate for general income is 22 per cent in 2023. A linear five-year depreciation rules were introduced in 2015. The rule applied to fixed assets acquired up to the end of the approval period for plants under the electricity certificate scheme, i.e. up to and including 31. December 2021.
Wind farms can be subjected to property tax by the municipality. Valuation of wind farms are set equal to technical value, equivalent to replacement costs less deduction of wear and tear and untimeliness. The wind farms can also be valued by return value if this reflects the valuation better. A production fee on onshore wind power was introduced as of July 1st 2022. As of 2023 this fee is NOK 0,02 per kWh. The fee is fiscal and paid directly to the state, but the income is redirected back to the municipalities through NVE.
Valuation of grid assets is based on the legislation on municipal property tax. This means that the objective sales value must be used, and the valuation must be carried out by the municipalities. The valuation is based on the replacement value of the assets.