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 2019. In addition, a tax on resource rent is levied on hydropower plants with generators rated at more than 10 MVA . This is because hydropower production 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 rate of the economic rent tax is 37 per cent in 2019.
The resource rent tax is calculated on the basis of standardised market value of the power generated (normally the actual power generated multiplied by spot market prices), less operating expenses, licence fees, property tax, depreciation and uplift (return on the investment).
The resource rent tax is unlike other taxes in that tax is paid out to companies if their deductions exceed the value of production (i.e. the resource rent is negative). This means that companies are certain of receiving the tax value of deductions from the economic rent tax for investments. The uplift is therefore calculated as the risk-free return on the recorded tax value of operating assets. These arrangements ensure that the net present value of the investment related tax deductions corresponds to the investment cost.
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, krone by krone, 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 .
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.
Power companies must also pay a licence fee and meet requirements for obligatory sales of power to the municipalities where their plants are situated.
Wind farms are subject to ordinary taxation rules. If a municipality has introduced property tax for industrial installations, it will also apply to wind farms.
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 2017, the municipalities and the state received a total of NOK 837 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 Petroleum and Energy calculates a price based on the average production costs for a representative selection of power plants. In 2018, this price is NOK 0.1120 per kWh.
Counties and municipalities receive about 8.7 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 revenue fluctuates substantially with electricity prices. In 2017, it is estimated that the total value of obligatory sales of power was NOK 1.4 billion.