Everything you need to know about the Norwegian energy sector

Norway's energy supply system

Energy supply
Reinfors dam, Mo i Rana

Electricity production

Norway has the highest share of electricity produced from renewable sources in Europe, and the lowest emissions from the power sector. At the end of 2020, the total installed capacity of the Norwegian power supply system was 37 732 MW, and normal annual production was 153,2 TWh. 

In 2020, Norway set a new electricity production record of 154,2 TWh. This is about 10 TWh more than the average over the last 5 years. Good access to water in the reservoirs and increased wind power capacity were among the reasons for the record high production.

Norway is now developing more renewable power production capacity than it has for decades. Wind power currently accounts for 10 % of the production capacity, and is now dominating investments.

Features of the Norwegian power supply system

Hydropower accounts for the most of Norwegian power supplies, and the resource base for production depends on the precipitation in a given year. This is a significant difference for the rest of Europe where security of supply is mainly secured through thermal power plants, with fuels available in the energy markets.

One special feature of the Norwegian hydropower system is its high storage capacity. Norway has half of Europe’s reservoir storage capacity, and more than 75 % of Norwegian production capacity is flexible. Production can be rapidly increased and decreased as needed, at low cost. This is important because there must be a balance between production and consumption at all times in the power system. The growing share of intermittent production technologies, such as wind and solar, makes it even more vital that there is flexibility available in the rest of the system.

The power market in Norway was deregulated in 1991, when few countries had market-based power systems. The market is now a fundamental element of the Norwegian power supply. Electricity prices provide long-term investment signals and also play an important part in  short-term balancing of supply, demand and transmission.

Renewable power plants are generally sited where there is access to resources. Production capacity is therefore unequally distributed between different regions of Norway. A well-developed power grid is vital for transmitting electricity to consumers in all parts of the country.

The Norwegian power system is closely integrated with the other Nordic systems, both in physical terms and through market integration. In turn, the Nordic market is integrated with the rest of Europe through cross-border interconnectors to the Netherlands, Germany, the Baltic states, Poland and Russia. Integration with other countries’ power systems, the well-developed power grid and the characteristics of hydropower production make Norway’s power supply system very flexible, reducing vulnerability to fluctuations in production between seasons and years.

Hydropower

Hydropower is still the mainstay of the Norwegian electricity system. At the beginning of 2021, there were 1 681 hydropower plants in Norway, with a combined installed capasity of 33 055 MW. In a normal year, the Norwegian hydropower plants produce 136.4 TWh, which is 90 % of Norways total power production. At the beginning of 2021 a further 2.3 TWh was under construction.

Water inflow and installed capacity determine how much hydropower the Norwegian system can produce. Inflow varies considerably during the year and from one year to another. It is highest in spring, normally declines towards the end of summer but increases again during the autumn. Inflow is generally very low in the winter months. In the period 1990–2019, annual inflow to Norwegian hydropower plants has varied by about 65 TWh.

Norway has more than 1000 hydropower storage reservoirs with a total capacity of more than 87 TWh. The 30 largest reservoirs provide about half the storage capacity. Total reservoir capacity corresponds to 70 % of annual Norwegian electricity consumption. Most of the reservoirs were constructed before 1990. Upgrading and expansion of hydropower plants has made it possible to utilise the reservoirs more fully.

Precipitation, consumtion and production of electricity in Norway, 2019

Updated: 17.02.2021

Source: NVE

Print illustration Download data Precipitation, consumtion and production of electricity in Norway, 2019 Download PDF Download as image (PNG)

Precipitation, consumtion and production of electricity in Norway, 2019
Flexible and intermittent capacity

Electricity production capacity is generally split into two categories, flexible and intermittent. If production is flexible, power plants can adjust production to market developments. Many power plants in Norway have storage reservoirs and production can therefore be adjusted within the constraints set by the licence and the watercourse itself.

Wind and solar power are intermittent; electricity can only be generated when the energy is available. The same applies to run-of-river power plants and small-scale hydropower plants. However a number of the large run-of-river power plants in Norway lie downstream of storage hydropower plants in the same river system, and this influences their production patterns. Some small hydropower plants make use of the head of water between reservoirs.

More than 75 % of Norway’s production capacity is flexible.

By using storage reservoirs, flexible hydropower plants can produce electricity even in periods when there is little precipitation and inflow is low. The large available reservoir storage capacity makes it possible to even out production over years, seasons, weeks and days, within the constraints set by the licence and the watercourse itself.

A high proportion of the energy used for heating in Norway is electricity, and electricity prices and production from storage hydropower plants are therefore generally highest in winter.

Production of intermittent hydropower automatically varies with changes in water inflow. Production is high during spring and summer, when consumption is lowest.

The flexibility of power plants and reservoirs varies. Some hydropower plants with small reservoirs offer short-term flexibility, and can transfer production from base-load hours (at night) to peak-load hours (daytime). Hydropower plants with larger reservoirs can store water for longer periods so that they produce electricity in winter, when consumption and prices are highest. Norway’s largest reservoir, Blåsjø, has a capacity of 7.8 TWh and can hold three years’ normal inflow. However, when the hydropower plants are working at full capacity, the reservoir could be emptied in 7–8 months. Very large reservoirs like Blåsjø are intended to store water in years when precipitation is high for use in drier years. Much of Norway’s reservoir capacity is concentrated in the mountains in the southern half of the country (in the counties Telemark, Rogaland, Hordaland and Sogn og Fjordane), and further north in Nordland.

Reservoirs make it possible to manage water use to maximise income from the available water resources. For society as a whole, the aim is to spread production so as to make optimal use of water inflow over the year, or in some cases over several years. To ensure that this happens, there must be financial incentives for producers that reflect the underlying physical conditions. The market therefore plays an important part in ensuring efficient management of water stored in the reservoirs.

Market adaptation by producers

The variable costs of hydropower production are low, since water, the actual energy source, is free. An owner of a run-of-river power plant will therefore be willing to generate electricity even if the prices is only just above zero. The same principle applies to intermittent production technologies such as wind and solar power. Intermittent production is generally independent of price, but varies with weather conditions. Thermal power production, for example at coal-fired, gas-fired and nuclear power plants, is profitable provided that the electricity price covers the production costs at the time of production. These depend to a large degree on the prices of coal, gas and CO2 emission allowances.

Hydropower producers who can store water will assess the situation differently. They constantly need to consider whether to produce electricity immediately, or to retain the water in reservoirs. It is the difference between the current and the expected electricity price that determines whether it is profitable to store water for short or longer periods.

It is challenging to manage storage reservoirs, because it is impossible to be sure how inflow will vary in future or how market conditions will develop. Reservoir management therefore requires considerable local knowledge and the ability to interpret changing, complex and uncertain information on inflow, consumption and market developments.

At Norwegian storage hydropower plants, production is also regulated in line with short-term price developments, which are closely related to the volume of intermittent power production in the other Nordic countries and the rest of Europe.

It is also necessary to maintain a balance in the power supply system as a whole as production and consumption change during the day and within each hour. Hydropower production can be rapidly regulated up and down at relatively low cost. In thermal power plants, on the other hand, it can be time-consuming and costly to regulate production. This means that Norwegian power plants are useful for meeting the short-term need for flexibility, which is growing because the share of intermittent production is increasing in Nordic and other European power supply systems. Well-functioning, integrated markets and a well-developed power grid are an essential basis for this.

Wind power

At the beginning of 2021, there were 53 wind farms in Norway, with an installed capacity of 3 977 MW. This corresponds to about 13.1 TWh in a normal year. Production from wind power plants fluctuates with weather conditions. Wind conditions can vary a great deal between days, weeks and months.

During 2020, 1 405 MW of wind power was put into operation in Norway. This contributed to 9.9 TWh of wind power being produced in 2020. This is an increase in production of 4.4 TWh from the previous year and a new production record in Norway. In 2020, wind power accounted for 6.4 per cent of total electricity production in Norway. A total of 59.3 TWh of wind power was produced in the Nordic region.

Norway’s first wind farm has only been operating since 2002. Smøla wind farm originally had an installed capacity of 40 MW, but this was increased by 110 MW in 2005, after the second construction phase. Investment in wind power has increased substantially in recent years. At the end of 2017, almost 5.4 TWh was under construction.

Solar power

At the beginning of 2021, the total installed capacity for solar power was 160 MW in Norway. Statistics from Elhub shows that almost 90 per cent of the installed capacity, which corresponds to around 7 000 photovoltaic systems, was connected to the Norwegian power grid. The statistics also show that even though 85 per cent of the photovoltaic systems are plants of less than 15 kW, these account for only a third of the production capacity. 28 per cent of the grid-connected solar power capacity is located in Viken county. After Viken comes Vestfold and Telemark and Trøndelag with 12 and 11 per cent of the production capacity, respectively.

During 2020, around 40 MW of new solar power was installed in Norway. This corresponds to the installation of 350 solar panels every day in 2020. The increase of 40 MW means that solar power capacity increased by 40 per cent during the year. The increase was higher in 2019, when the capacity increase was estimated at 50 MW.

Development in installed capacity for solar power in Norway

Updated: 19.03.2021

Source: Elhub and NVE

Print illustration Download data Development in installed capacity for solar power in Norway Download PDF Download as image (PNG)

Development in installed capacity for solar power in Norway

Thermal power plants

Norway’s thermal power plants accounted for about 2 % of total production capacity in 2020. Many of them are located in large industrial installations that use the electricity generated themselves. Production therefore often depends on the electricity needs of industry. These power plants use a variety of energy sources, including municipal waste, industrial waste, surplus heat, oil, natural gas and coal.

There are 30 thermal power plants in Norway, with a total installed capacity of about 700 MW, and for the past fewyears their production has been relatively stable at 3.4 TWh.

The power balance

The power balance expresses the relationship between production and consumption and indicates whether the Norwegian power system is a net exporter or importer in a particular year. There are wide variations from year to year, and the results have varied by about 25 TWh in the last five years alone. Generally, consumption fluctuates with temperature and production with water inflow and wind conditions. The underlying situation in the Norwegian power supply system can be illustrated by comparing Norwegian production capacity in a normal year with electricity consumption corrected for temperature, as in the figure below.

At the beginning of the 1990s, there was a considerable surplus in the Norwegian power supply system, which became apparent when the market was deregulated. This was followed by a period of falling investments in new electricity production and relatively high growth in consumption, resulting in a reduction in the power surplus by the early 2000s. After the 2008–2009 financial crisis, the power surplus has increased again as a result of weaker growth in consumption and higher electricity production.

The difference between mean annual production capacity and consumption corrected for temperature has varied from 5 to 11 TWh per year. New investments have largely been driven by the electricity certificate scheme.

At the end of 2020, about 6.2 TWh of new production capacity was under construction. Of this, 4 TWh is wind power and 2.2 TWh hydropower.

Normalized production and consumption of electricity 1990-2020, TWh

Updated: 23.02.2021

Source: NVE, Nordpool

Print illustration Download data Normalized production and consumption of electricity 1990-2020, TWh Download PDF Download as image (PNG)

Normalized production and consumption of electricity 1990-2020, TWh

Even if the power balance is good, power supplies can at times be affected by low water inflow and events outside Norway. Security of supply was in focus in winter 2009/2010, when there was a combination of cold weather, low inflow and a substantial reduction in the availability of power from Swedish nuclear power plants. In winter 2010/2011, reservoir levels were extremely low, and in certain specific hours, electricity prices reached record levels after a long period of low temperatures and low inflow. However, the power supply system was able to meet demand. High prices were important in encouraging lower consumption, higher production and more import of electricity.

Wide variations in inflow are becoming less of a problem with the increase in power exchange capacity with systems dominated by other energy sources. Power trade therefore plays a key role in the Norwegian hydropower system, and is important both for security of supply and for value creation.

Heat supplies

In addition to the power supply system, Norway’s energy supply system includes several other segments based on the production of various energy carriers and their transport to end users. The segments include district heating, natural gas and bioenergy.

District heating

In 2019, district heating deliveries totalled 5.9 TWh, an increase of 2 percent since the record year 2018. This is equivalent to about one tenth of the total need for energy to heat buildings and water in Norway. District heating has a total installed effect of  around 3 600 MW.

District heating is most widely used in Norway’s largest towns. In 2017, consumption of district heating in Oslo totalled 1.7 TWh

Fules for district heating

District heating can be produced using many different types of fuel. In 2019, about 50 % of district heating was produced from waste. The share of bioenergy in the production of district heating has increased in the last ten years, at the same time as the use of fossil fuels has decreased. In 2019, fossil gas and diesel and heating oils accounted for 4.3 % of district heating production.

About two-thirds of district heating production is used in buildings in the service sector, such as hospitals, buildings used for cultural and research activities, and office buildings. District heating is also used in blocks of flats and in the manufacturing sector.

District heating consumption and district heating investments

Updated: 02.03.2021

Source: SSB

Print illustration Download data District heating consumption and district heating investments Download PDF Download as image (PNG)

District heating consumption and district heating investments

District heating is a useful supplement to electricity. District heating can replace electricity consumption for heating purposes in winter and thus limit the need for investment in the power supply system. District heating systems can use electricity as an energy source when prices are low and other energy carriers when electricity prices are high. In Oslo, district heating can meet 25 % of peak energy demand.

District cooling

In 2019, district cooling deliveries in Norway totalled 192 GWh. This is 13 per cent down from 2018, which was a year with record high district cooling consumption. In 2019, services industries accounted for 87 per cent of district cooling consumption, while the rest was used in the industry.

The number of suppliers of district cooling in Norway rose from three in 2001 to about 20 in 2013. Most of them also supply district heating. Most district cooling production uses heat pumps. The customers are all in the service industries

Consumption of district cooling

Natural gas

In 2017, Norway produced 128 billion standard cubic metres (Sm3) of natural gas from the Norwegian continental shelf. About 95 % of this was exported through the North gas pipeline network to the UK and continental Europe.

 

Heating with gas is not common in Norway. There is little infrastructure for gas distribution and form 2017 it is prohibited to install heating installation based on fossil fuels. Most of the domestic gas consumption in Norway is related to industrial use.

Gas is delivered to five onshore facilities in Norway: Melkøya, Tjeldbergodden, Nyhamna, Kollsnes and Kårstø. Gas delivered to these facilities is available for use in Norway. One large consumer is Tjeldbergodden, which has a methanol plant using natural gas as feedstock.

There are also power plants at these facilities which use gas to produce electricity and heat. They include the combined heat and power plant at Mongstad and the gas-fired power plants at Melkeøya (Hammerfest). In 2015, natural gas was used in Norway to produce a total of 4.5 TWh electricity and heat. 4.7 billion Sm3 was used for various processes during oil and gas extraction.

In 2015, a further 4.9 TWh of natural gas was distributed to end users in Norway or used for small-scale distribution of liquefied natural gas (LNG). Pipeline distribution accounts for about 40 % of this, through two pipeline networks in Rogaland county. One network is 120 km long and supplies end users in the north-western part of the county, and the other is 620 km long and supplies gas in the Stavanger district. The volume of gas supplied through the two distribution networks has been stable in recent years. The customers are mainly commercial and use the gas for heating buildings and water.

In the past ten years, a market for LNG distribution has developed in Norway. LNG is produced at four plants in Rogaland and Hordaland, which have a total production capacity of 440 000 tonnes per year. In addition, the LNG plant at Melkøya produces a considerable volume of LNG, almost all of which is exported.

LNG can be transported in road tankers or by sea in LNG carriers to customers’ receiving terminals, where it is regasified. The gas can then be used for industrial or other purposes. LNG can also be used directly as fuel for shipping or heavy goods vehicles

Bioenergy

Bioenergy is an important energy source for heat production in Norway. It can add to the flexibility of the energy supply system and be instrumental in reducing greenhouse gas emissions. If bioenergy is used to produce heat, 85–90 % of the energy in the fuel is used. Annual consumption of bioenergy in Norway rose from 10 TWh in 1990 to 15,3 TWh in 2019. Fuelwood consumption in households accounts for the largest proportion of biofuel consumption, and totalled more than 5 TWh in 2014. The next largest user is the manufacturing sector, where chippings and other wood waste are used as fuel in production processes.

Security of electricity supply

Security of supply means the ability of the power system to provide end users with an uninterrupted supply of electricity and a specified quality of supply, and includes energy security, adequacy and operational security.
Norway enjoys high security of electricity supply

Security of electricity supply is vital for a modern society, and requires a smoothly functioning power market. The market plays a key role in maintaining a constant balance between production and consumption. Both production-side and demand-side flexibility have a positive effect on security of supply, as do hydropower storage reservoirs and foreign trade in power. In addition, there must be a power grid with adequate transmission capacity.

Energy security in the power system

Energy security in the power system

In this context, energy security is defined as the capacity of the power supply system to meet the demand for electricity. Energy shortages or energy insecurity can arise when electricity production is reduced because supplies of primary energy (water, gas, coal, etc.) are in short supply.

Hydropower accounts for most of the Norwegian power supplies, and the resource base for production depends on the precipitation in a given year. This is a significant difference for the rest of Europe where security of supply is mainly secured through thermal power plants, with fuels available in the energy markets.

By using storage reservoirs, flexible hydropower plants can produce electricity even in periods when there is little precipitation and inflow is low. The large storage capacity makes it possible to even out production over years, seasons, weeks and days, within the constraints set by the licence and the watercourse itself.

Norway has half of Europe’s reservoir storage capacity, and more than 75 % of Norwegian production capacity is flexible

Norway has a sound power balance and high power trading capacity, and therefore enjoys high energy security in the power system. Nevertheless, low water inflow and events outside Norway can make the situation difficult at times.

Statnett is responsible for developing measures to deal with highly strained power situations energy situations. These are known as ‘SAKS’ measures, and their purpose is to reduce the likelihood of rationing. In winter 2015, Statnett analysed whether ‘SAKS’ measures are likely to be needed in the years ahead. The results indicate that it is very unlikely that rationing will need to be introduced in the next ten years, either at regional level or in Norway as a whole.

The Energy Act includes rules on electricity rationing, including enforced reductions of supply and requisitioning. Rationing can be introduced if required by extraordinary circumstances. The Norwegian Water Resources and Energy Directorate is the rationing authority and is responsible for planning and administration of any measures needed in connection with electricity rationing. The Directorate has issued regulations relating to rationing.

Adequacy

Adequacy

Adequacy is defined as the capacity of the power supply system to meet the instantaneous load, and is measured by the installed production capacity or grid capacity available. Capacity shortages arise in specific hours when consumption is high, in contrast to energy shortages, which may last for several weeks.

Electricity consumption means the amount of electricity used over time; electricity consumption at a specific moment in time is called the load. The power balance shows the relationship between the electricity supply and consumption at a particular moment. Although the load fluctuates with temperature, it has also shown a rising trend in line with the general rise in electricity consumption. In 1990, the maximum load in the Norwegian system was 18.42 GW. On 21 January 2016, a new consumption record was registered, and the load reached 24 485 MW in the morning (08:00–09:00). Thus, the peak load has risen by 33 % since 1990, and has risen more rapidly than electricity consumption. This trend is expected to continue.

The installed capacity of the Norwegian hydropower system is more than 33 755 MW, split between about 1609 power plants. The production record was reached on 6 January 2016, when total Norwegian hydropower production was 26 766 MW in one hour (19:00–20:00).

The electricity grid is critical infrastructure, and interruptions in the power supply have serious consequences for end users

Satisfactory security of supply requires a power grid with adequate transmission capacity. To ensure that electricity supplies can be maintained in all circumstances, the grid system must be able to cope with both short- and long-term variability in production and consumption. It must be designed both to handle peaks in electricity consumption, which generally occur on the coldest days in cold years, and to allow for import of sufficient quantities of electricity for extended periods, for example in dry years.

To ensure security of supply, investments in the transmission grid are normally planned on the basis that a failure of one component in the system should not result in the interruption of supplies to end users (this is known as the N-1 criterion). However, this criterion is not a replacement for the cost-benefit analyses that are carried out when specific power lines are being planned. More information on how investments in the grid are planned can be found here.

Operational security

Responsibility for system operation and operational security

Operational security means the capacity of the power supply system to withstand disturbances so that they do not lead to power outages or frequency or voltage deviations.

Operational security is concerned with avoiding interruptions to continuous operation of the power system right down to a time horizon of minutes and seconds. Faults in power lines, substations and control systems can affect operational security and result in service interruptions. There are various reasons why components of the system may fail, but weather-related incidents are an important reason for interruptions. You can read more about this below.

Statnett is Norway’s transmission system operator (TSO), and coordinates the operation of the power supply system

Statnett is responsible for coordinating the operation of the power supply system, capacity calculation, dealing with congestion, and facilitating power trade with other countries. As TSO, it must also take steps to ensure that the power market is efficient and that the quality of supply is satisfactory. The continual process of balancing the electricity system is vital for operational reliability. If an imbalance arises, the TSO takes steps to restore the balance, for example by adjusting production or consumption.

Electricity cannot easily be stored, so production must equal consumption at all times. This is called the instantaneous balance in the electricity system. The power market is an essential tool for maintaining the balance between electricity supply and demand. Statnett uses the results of daily price determination in the day-ahead market as the basis for planning and maintaining the instantaneous balance in the following 24-hour period.

The TSO is responsible for maintaining the instantaneous balance between electricity production and consumption at all times

The system frequency is a measure of the instantaneous balance in the power system, and is the same throughout the Nordic synchronous area, which comprises Norway, Sweden, Finland and parts of Denmark. The nominal system frequency is 50 Hertz (Hz), with a normal range of 49.9–50.1 Hz. The common system frequency means that an imbalance anywhere the synchronous area will affect the whole area. In addition, one country’s choices as regards grid investments, market solutions and operational security measures will affect the entire synchronous system. This makes it essential for the Nordic countries to cooperate closely.

Frequency quality can be measured using frequency deviations expressed as the number of minutes outside the normal variation range of 49.9–50.1 Hz. Frequency deviations can be caused by faults, imbalances related to changes in flow along interconnectors, or sudden changes in electricity production. To ensure that the instantaneous balance is maintained and prevent sudden changes or faults from causing frequency deviations or even power cuts, the TSO need to have reserves available. Reserves are often provided by flexible hydropower plants, where production can be regulated up or down to stabilise the system. To maintain operational security, TSOs must be able to access sufficient reserves through the balancing markets.

Kraftbalanse
Statnett 50 Hz

Many problems that can arise in the power system as a whole can also affect distribution grids. As people use electricity for more and more purposes, vulnerability to power cuts and problems related to quality of supply are increasing. For example, appliances such as induction hobs that draw more power are becoming increasingly popular, and more electricity produced from intermittent sources is being fed into lower grid levels. These trends are making operation of the distribution grid more challenging.

Investments in the distribution grid and measures to prevent the interruptions are important for security of supply. New technological and market solutions can also make the power supply system more resilient in future. You can read more about technological developments in the power supply system here.

Continuity of supply and interruptions

The continuity of the electricity supply is depends on both the frequency and the duration of interruptions in the supply. In Norway, continuity of supply is stable and very good, and is close to 99.99 % in years without extreme weather events. It has never dropped below 99.96 % in any year since 1996, see the figure below.

Extreme weather events affect continuity of supply. In the figure, this is particularly obvious in 2011, when a winter storm caused a great deal of disruption because the high winds brought trees down on power lines.

Continuity of supply is stable and very good in Norway, and is close to 99.99 % in years without extreme weather events

In 2017, end users experienced an average of 1.6 brief and 1,7 longer power cuts. Longer power cuts are defined as those lasting more than three minutes. Important causes of power cuts are thunderstorms (lightning), wind causing trees or other vegetation to fall over power lines, and snow/ice on power lines. Various steps can be taken to reduce weather-related disruption of this kind. Maintaining a cleared corridor along power lines in forested areas reduces the risk of trees falling over the lines. Using underground cables is another possibility, and this is now the first choice for new power lines in the distribution grid in Norway.

It is not possible to provide 100 % continuity of the electricity supply. This would require an unreasonable level of investment in infrastructure, and for the same reason, no legal requirements have been introduced to provide 100 % continuity. Customers who are dependent on uninterrupted supplies must therefore ensure that they have emergency back-up power such as generators. Thus, society’s vulnerability to disruption of the power supply also depends on end user emergency preparedness.

Emergency preparedness in the power sector

Norway has a well-organised emergency preparedness system for power supplies

Emergency preparedness in the power sector has become increasingly important as society grows more and more dependent on electricity. It is important both to take steps to prevent the disruption of supplies and to provide a rapid response if disruption does occur.

Requirements for the emergency preparedness system are set out in the Energy Act and the security and emergency planning regulations. There are rules on the resources that must be available for repairs, security measures, information security, protection of operational control systems and the Power Supply Preparedness Organisation.

The Power Supply Preparedness Organisation is responsible for restoring power supplies in an emergency. It is headed by the Norwegian Water Resources and Energy Directorate and also includes representatives of Statnett, grid companies, major electricity producers and larger district heating companies, and regional representatives of the power supply sector.

Adequate resources for repairs are essential for rapid restoration of power supplies in an emergency

Human life and health and critical infrastructure and services are the priorities when restoring power supplies. Power companies are required to have robust communication systems, for example independent systems that make it possible for them to communicate with each other even if there is no mobile phone signal. Each company has an independent responsibility for maintaining effective security and preparedness systems.

The Norwegian Water Resources and Energy Directorate the supervisory body and is responsible for raising awareness of the need for emergency preparedness in the sector and for offering advice and guidance, exercises/training and information.

The electricity grid

The electricity grid enables electricity transport from producers to consumers, and connects Norway’s power system to other countries’ systems.

The electricity grid is key infrastructure

The three fundamental functions of the power supply system are:

  • Production
  • Transmission
  • Trade

A reliable supply of electricity is crucial in modern society. In business and industry, the public service sector and households, reliable access to electricity is a matter of course. Almost all important public services and functions depend on a well-functioning power system with a reliable supply of electricity.

 

The electricity grid fulfils a core function in the electricity system, and constitutes key infrastructure in a modern society.

Electricity production resources are often located far from where consumption takes place. A well-developed electricity grid makes it possible to transmit power from the hydropower plants in the southwest and north to consumers in other parts of Norway and abroad.

The grid must be able to cope with both short- and long-term variability in production and consumption in order to ensure that electricity supplies are maintained. The grid system is designed  to handle peaks in electricity consumption, which generally occur on the coldest days in cold years, and to allow for import of sufficient quantities of electricity for extended periods, for example in dry years. In addition, the grid must have sufficient capacity to transport electricity out of a region when consumption is low and production is high. The wide variations in domestic production and consumption make it necessary to have sufficient transmission capacity both between different regions of Norway and between Norway and other countries.

Description of the Norwegian electricity grid

Grid levels: Transmission and distribution grid

The Norwegian electricity grid consists of three levels: the transmission grid (operated by Statnett), the regional grid and the distribution grid. Both the regional and the distribution grids are considered as distribution systems, as defined by EU legislation.

The transmission grid connects producers with consumers in a nationwide system. Interconnectors with other countries are part of the transmission grid. There are specific requirements relating to transmission system operators. In Norway, Statnett is the designated transmission system operator (TSO).

The transmission grid carries a high voltage, usually 300 to 420 kV, but in certain parts of the country there are also lines carrying 132 kV. The total length of the transmission grid is about 11 000 km.

The regional grid often links the transmission grid to the distribution grid, and may also include production and consumption radials carrying higher voltages. The regional grid carries a voltage of 33 to 132 kV, and has a total length of about 19 000 km.

The distribution grid consists of the local electricity grids that normally supply power to smaller end users. It carries a voltage of up to 22 kV, divided into high-voltage and low-voltage segments. The dividing line between the two segments is 1 kV, and the low-voltage distribution to ordinary customers normally carries 400 V or 230 V. The total length of the high-voltage distribution grid is about 100 000 km.

Large electricity producers are connected to the transmission or regional grid, and smaller ones to the regional or distribution grid. Major consumers such as power-intensive manufacturing or the petroleum industry are generally connected to the transmission or regional grid. Small-scale consumers such as households, service industries and small-scale manufacturing, are usually connected to the distribution grid.

Administrative organisation of the electricity grid

Statnett owns most of the transmission grid in Norway, and is designated transmission system operator (TSO). Statnett is a state-owned enterprise, and the Ministry of Petroleum and Energy is responsible for the state’s ownership. Regional grid companies, also engaged in production and/or electricity trading, currently own about 6 % of the transmission grid. Statnett rents these parts of the grid.

Ownership unbundling

Ownership unbundling is a requirement in the certification process of transmission system operators (TSOs) in the EU third energy market package. Ownership unbundling means that a TSO cannot directly or indirectly exercise control over an undertaking performing generation or supply,

When the third energy market package is incorporated into Norwegian legislation, this requirement will apply to Statnett as the Norwegian TSO. Consequently, requirements of ownership unbundling will also apply to any grid infrastructure that Statnett rents. Regional grid companies will then be required to transfer ownership of transmission grid facilities to Statnett by a specific date.

Municipalities and county authorities own most of the regional and distribution grids, but there is also some amount of private ownership.

Many grid companies are part of vertically integrated companies, i.e. companies that are involved in both electricity generation, transmission and/or trading. By 2021, all grid companies must undertake legal undbundling and grid companies with more than 30 000 customers must undertake functional unbundling. This will make the distinction between market-based and monopoly activities clearer. At present, the requirement applies to grid companies with more than 100 000 customers. Only seven  grid companies are currently subject to this requirement.

Legal and functional unbundling

Distribution system operators (DSOs) are subject to legal and functional unbundling.

Legal unbundling means that grid operations and production and/or trading activities are carried out by separate companies. In addition, a grid company may not own or be owned by an entity that is engaged in electricity production or trading.

Functional unbundling means that nobody with management responsibilities in a grid company may be involved in the management of other company structures in an integrated company. The parent company or controlling owner is allowed to influence the financial framework for the grid company, but may not be involved in day-to-day management and operations or in investment decisions.

You can read more about regulation of grid operations here.

Statnett SF

Statnett is the transmission system operator (TSO) in Norway. The Norwegian regulations specify that Statnett’s responsibilities include frequency regulation, maintaining the instantaneous balance of the power supply system, developing market-based solutions that promote efficient development and utilisation of the power supply system, and making the maximum possible use of instruments based on market principles. As TSO, Statnett is also responsible for coordinating the operation of the power supply system, dealing with congestion, and facilitating international power trade.

Statnett is responsible for maintaining the instantaneous balance of the power supply system and ensuring that the quality of supply is satisfactory

Electricity cannot easily be stored, so the amount produced must at all times equal consumption. This is referred to as the instantaneous balance in the electricity system. The power market is an essential tool to ensure balance between electricity supply and demand. Statnett uses the results of daily price determination in the day-ahead market as the basis for planning and maintaining the instantaneous balance in the following 24-hour period. The continual process of balancing the electricity system is vital for the operational reliability of the power supply system. If an imbalance arises, the transmission system operator takes steps to restore the balance, for example by adjusting production or consumption.

Furthermore, Statnett has a key role in the development and operation of cross-border interconnectors. This includes extensive cooperation with TSOs and regulators in other European countries. TSOs cooperate through the European Network of Transmission System Operators for Electricity, ENTSO-E. ENTSO-E also plays a part in developing network codes and guidelines for the internal energy market.

A high-voltage power line

Power exchange

The power exchange between Norway and other countries ensures sound overall resource use and improved value creation.

Various projects are planned to increase transmission capacity between the Nordic countries and the rest of Europe in the next few years, as shown in the figure below. Greater integration with European markets is resulting in more trade between Norway and neighbouring countries and changing patterns of electricity flow in the Norwegian and other Nordic electricity systems. If all the planned projects are carried out, transmission capacity out of the Nordic region may rise by 150 % from the current level. This would give a rise in theoretical transmission capacity from 50 to 120 TWh per year.

Transmission capacity into and out of the Nordic region

Download as image (PNG)

Transmission capacity into and out of the Nordic region, based on existing interconnectors and the TSOs’ planned projects up to 2030. Source: Statnett, Energinet (Denmark), Svenska kraftnät (Sweden), ENTSO-E, Ministry of Petroleum and Energy.

Norway’s power trading capacity with other countries is currently 6200 MW, which corresponds to about 20 % of installed production capacity. Two new interconnectors to Germany and the UK are scheduled for completion in 2020 and 2021, each with a capacity of 1400 MW. This will increase Norway’s total power trading capacity to about 9000 MW. This will give Norway a very high power trading capacity as a share of installed production capacity compared with many other European countries.

The power market

The power market is an important tool for ensuring cost-efficient use of electricity resources.

A market-based power system

 

The Norwegian Energy Act is based on the principle that electricity production and trading should be market-based, while grid operations are strictly regulated. The power market ensures that effective use of resources and reasonable prices on electricity. Electricity transmission and distribution is a natural monopoly, and not subject to competition.

An important principle in the regulation of the power supply system is the distinction between monopoly operations and operations that are well suited to competition.

Electricity is different from other goods in that it cannot easily be stored. There must therefore always be an exact balance between generation and consumption. In the wholesale market, prices are determined for each separate hour of the following 24-hour period, based on bids and offers from many different participants, and given the availability of grid capacity. This short-term market adjustment ensures that the lowest-cost production resources are used first. Electricity prices also provide investment signals because they indicate where there may be a power supply deficit.

Market-based power system

Norway introduced market-based power trading as long ago as 1991. Instead of planning a gradual transition to market-based solutions, as many European countries have done, Norway organised the changeover so that in principle, the market was open to all customers from the very beginning. Norway was the first country to provide universal market access.

The power exchange Statnett Marked AS (now Nord Pool AS) became an important element of the market. Even before this, fluctuating hydropower production in different parts of the country created a need for market-based solutions and electricity trading. In 1971, Norwegian producers established a power exchange for spot power (known as Samkjøringen). Samkjøringen was formalised as early as 1931, and was a result of many years of cooperation and power exchange between power plants.

Today, the Nordic countries are closely linked, both by physical interconnectors, and by financial market integration. Nord Pool, based outside of Oslo, is the exchange for physical power trade for the Nordic and Baltic countries. Nord Pool grew into the world’s first international power exchange from 1996 onwards, as Sweden, Denmark and Finland joined. The Nordic market is also integrated, in both physical and financial terms, with power markets in the rest of Europe. Financial power trading in Europe takes place on the Nasdaq exchange in Stockholm. Market participants use Nasdaq for price hedging and to trade in long-term products and derivatives.

An integrated market

Norway is part of a joint Nordic power market with Sweden, Denmark and Finland, and this is in turn integrated into the wider European power market through interconnectors to the Netherlands, Germany, the Baltic states, Poland and Russia. Two new interconnectors from Norway to Europe have become operational during 2021. The Nord Link cable to Germany was put into ordinary operation on 31 March this year. In addition, the North Sea Link cable to the United Kingdom was put into trial operation on 1 October.

The EU is taking steps to improve integration of the internal energy market and coupling of the European markets. Market coupling in Europe has previously been on the basis of voluntary cooperation and regional initiatives. The Nordic power exchange, Nord Pool, was established at an early stage. Today, 24 countries are interlinked by European market coupling, which now covers about 90 % of European electricity consumption.

Market coupling ensures that electricity flows in accordance with prices, thus ensuring optimal use of capacity and production resources

Market coupling functions through implicit auctioning, which involves simultaneous calculation of prices and electricity flows between areas in the day-ahead market. Market participants  on opposite sides of national borders can make bids and offers hour by hour for the next 24 hours, and do not need to reserve grid capacity in advance. A common European intraday market is under establishment. The first go-live of the Cross-Border Intraday Market project (XBID) was delivered in June 2018 and included Norway and 13 other countries. A second go-live with further countries is foreseen in 2019.

Harmonisation of electricity market rules in Europe

More closely integrated physical electricity markets require greater harmonisation of technical rules, trading systems and market design.

The EU’s third energy market package was adopted in 2009, and consists of five legal acts that reinforce and continue the development of the internal markets for electricity and natural gas. These replaced the legal acts contained in the second energy market package.

The main elements of the third energy market package are concerned with unbundling (reducing vertical integration), strengthening independent regulation of energy markets and developing cross-border infrastructure and security of electricity supply.

The third energy market package also provides the legal authority to adopt supplementary provisions, network codes and binding guidelines. The EU has adopted 8 network codes and guidelines, in the first instance concerning connection and system operation and market design. The figure below provides an overview of electricity network codes and guidelines

In November 2016, the European Commission put forward a new package called ‘Clean energy for all Europeans’, which includes proposals amending the third energy market package, together with a new regulation. It is expected that all legal acts under the "Clean Energy for all Europeans"-package will be adopted in the EU before the summer of 2019.

Oversikt over nettkoder og bindende retningslinjer som er vedtatt eller under utarbeidelse i EU.

Electricity network codes and guidelines that the EU has adopted.

Organisation of the power market

Illustrasjon av kraftmarkedet
Illustration showing how the power market is organised

Power supplied to the grid follows the laws of physics and flows down the path of least resistance. It is not possible to separate different power deliveries from each other. A consumer who switches on the power has no way of knowing who produced the electricity or how far it has been transported through the grid. The grid companies keep account of how much power each producer delivers and how much each end user consumes, and this forms the basis for settlement. Producers are paid for the volume of power they deliver, and end users pay for their consumption.

The power market can be divided into wholesale and end-user markets. Large volumes are bought and sold in the wholesale market by power producers, brokers, power suppliers, energy companies and large industrial customers. Power suppliers trade on behalf of small and medium-sized end users and small-scale businesses and industry.

The wholesale market consists of several markets where bids are submitted and where prices are determined:

  • the day-ahead market
  • the continuous intraday market
  • the balancing markets

Day-ahead and intraday trading take place on the Nord Pool exchange. Statnett runs the balancing market, as part of its TSO tasks.

Market participants may also enter into bilateral contracts on purchases and sales of specific volumes of electricity at an agreed price and for delivery in an agreed period.

In the end-user market, individual consumers enter into agreements to purchase electricity from a power supplier of their choice. Norway's end-user market consists of about one-third household customers, one-third industry and one-third medium-sized consumers such as hotels and chain stores.

Balance settlement

 

Since 1997, Statnett has been responsible for settling the imbalances in the Norwegian power market, a process known as balance settlement. This ensures that all supply and consumption of electricity is correctly settled, and maintain balance in the power market. In this context, balance means that a market participant’s actual power generation or consumption must be equal to the volume agreed upon on beforehand. To operate in the wholesale market, participants must have a direct balance agreement with Statnett. Participants must either be responsible for their own balancing or have an agreement with a balance responsible party to settle their imbalances for them.

In 2017, a Nordic balance settlement service was launched. The company eSett Oy provides imbalance settlement services for market participants in Finland, Norway and Sweden. One purpose of this system is to reduce barriers to establishment for balance responsible parties and power suppliers wishing to provide services in more than one country.

The wholesale market

The day-ahead and intraday markets

The day-ahead market is the primary market for power trading in the Nordic region, and is where the largest volumes are traded on Nord Pool. It is a market for contracts with delivery of physical power hour-by-hour the next day. Participants make bids and offers to the Nord Pool trading system between 08:00 and 12:00 each day. Before 10:00 each day, the TSOs publish trading capacities for each bidding area. The day-ahead auction closes at 12:00 each day. Prices for each hour of the following day are calculated on the basis of the all the purchase and sell orders received and the transmission capacity available.

The Nordic day-ahead market is coupled with the day-ahead markets in much of the rest of Europe through implicit auctioning. This means that market participants bid for energy and transmission capacity at the same time. In addition, a system for price coupling of regions (PCR) now covers the Nordic region and much of the rest of Europe. This solution means that Nord Pool calculates prices in the different regions using a common European algorithm, at the same time every day.

The day-ahead market plays a large part in ensuring a balance between supply and demand. However, events after the auction in the day-ahead market, for example changes in weather forecasts, may mean that actual production or consumption by market participants changes from their position in the day-ahead market. In the intraday market, contracts are continuously traded in the period between clearance in the day-ahead market and up to one hour before the hour of operation. This allows market participants to achieve a balance through trading. Nord Pool now has an intraday market that operates in the Nordic region, the Baltic region, Germany and the UK.

 

Balancing markets

Although the day-ahead and intraday markets create a balance between production and consumption, there are bound to be events that disturb the balance within a specific hour of operation. Statnett uses the balancing markets to regulate production or consumption up or down depending on what is needed to maintain an instantaneous balance. The system is in balance at a frequency of 50 Hz. In the Nordic region, the balancing markets are divided into primary reserves (FCR), secondary reserves (FRR-A) and tertiary reserves (FRR-M). Primary and secondary reserves are activated automatically in response to changes in frequency, while tertiary reserves are activated manually by the Nordic TSOs.

Imbalances are first regulated using the primary reserves. As the Norwegian TSO, Statnett is responsible for ensuring that there are always sufficient primary reserves. Primary reserves are traded in separate hourly and weekly markets. If an imbalance lasts for several minutes, secondary regulation is activated, freeing up the primary resources to deal with new imbalances.

The TSO purchases secondary reserves in a separate weekly market, which was opened in 2013. If even more reserves are needed, tertiary regulation is activated. This is often called regulating power. These are manual reserves that can have a response time for activation of up to 15 minutes. Tertiary reserves are purchased in the regulating power market (RK), which is a common balancing market for the Nordic power supply system.

The TSO ensures that there is sufficient balancing capacity (i.e. resources for up- and down-regulation) in the Norwegian part of the regulating power market through the tertiary reserves options market (RKOM). Bidders in this market get paid an amount in advance, to guarantee that they will take part in the regulating power market, regardless of whether the resources are actually used.

Price formation

System price

Each day, the Nord Pool power exchange calculates the system price for the following day. The system price is theoretical, and is based on the assumption that there is no congestion in the Nordic transmission grid. The system price is the same for the entire Nordic market, and functions as a reference price for price setting in the financial power market in the Nordic region.

Producers submit bids stating how much they are willing to produce at a specified price. The bids reflect the value producers put on their production, closely linked to running costs at power plants. End users submit bids indicating how much they wish to consume at different prices. The price is determined at the level that results in equilibrium between supply and demand in the day-ahead market.

 

Market-based price formation ensures that the demand for electricity is satisfied at the lowest possible cost to society

In a market equilibrium, the price is determined by the cost of producing the ‘last’ unit of power (the marginal cost). This ensures that the cheapest energy resources are used, so that the demand for electricity is satisfied at the lowest possible cost to society. Norway’s trading capacity with other countries is high, and price levels in Norway are therefore strongly influenced by the cost of producing electricity in thermal power plants, and especially by the prices of coal, natural gas and emission allowances. Renewable production and consumption levels in countries connected to Norway’s power supply system also have an influence.

The large proportion of hydropower in the Norwegian and Swedish production mix means that variations in water inflow to storage reservoirs have a strong effect on price variability in the Nordic region. When inflow is high, so is the supply of power, and prices are pushed downwards. In years when precipitation is low and inflow is lower, prices rise. Similar effects arise when there are windy and less windy periods. Market prices are also influenced by temperature fluctuations, since they affect how much energy is needed to heat people’s homes.

Area prices/bidding zones

In addition to the system price, Nord Pool sets area prices, which take into account congestion in the grid. Area prices create a balance between the purchase and sales bids from participants in the different bidding zones in the Nordic region. In recent years, Norway has five bidding zones, Sweden four and Denmark two, while Finland constitutes one bidding zone.

 

Price areas

Download as image (PNG)

Source: Nord Pool

The underlying cause of congestion and different power prices in different areas is that the power situation differs from one region to another, and may also vary on an hourly basis and between seasons and years. Some regions may be experiencing a power surplus when others have a power deficit. Power needs to be imported to areas with a deficit and exported from areas with a surplus. Grid congestion arise if there is insufficient grid capacity to import and export power as needed.

When bidding zones are determined, different market areas exist  on each side of a bottleneck. This means that the area price is higher in areas with a deficit of power than in those with a surplus. Power flows from low-price areas to high-price areas, thus increasing the power supply where the need is greatest. Furthermore, area prices help the participants determine where it is best to increase or reduce generation and consumption. In areas with a power deficit, generation is increased at the same time as consumption is reduced, which improves access to power and security of supply.

In addition to being a vital tool for short-term balancing, area prices indicate where longer-term measures are needed in the power system. They make producers and consumers aware of where new generation capacity or new major consumers should be sited.

The division into bidding zones does not mean that there will automatically be different area prices. When there are no capacity constraints in the Nordic power grid, area prices will be the same throughout the Nordic region and will correspond to the system price.

The end-user market and electricity prices

Consumers who purchase power for their own consumption, are called end users. End users in Norway are free to choose their power supplier. Small end users normally purchase electricity from a power supplier, while larger end users, such as large industrial companies, often choose to purchase directly in the wholesale market or enter into a bilateral agreement with an electricity producer.

Competition in the end-user market ensures that end users can choose between different contracts and find one that suits their needs.

Electricity is a homogeneous product; it is not possible to differentiate between different power deliveries. What distinguishes power suppliers from each other is the contracts they offer. Generally, end users can choose between three main types of electricity contracts: fixed-price, standard variable price and spot price (based on market prices, with a mark-up).

In a fixed-price contract, the electricity price is fixed for a certain period, for example a year. The supplier is obliged to deliver electricity at this price, regardless of whether market prices go up or down. Thus, a fixed-price contract is a type of financial contract, where the customer is guaranteed a certain price for the period of the contract. A power supplier sets the fixed price on the basis of expectations about electricity prices, with a mark-up to cover costs. The difference between the fixed price and the market price is the risk premium paid for the guaranteed price.

In a standard variable price contract, the electricity price varies with developments in the power market. This is also a form of financial contract, but with a short price guarantee period. A supplier is required to inform customers of price changes 14 days before they are put into effect.

In a spot-price contract, the price follows the market price determined by Nord Pool. In addition, the customer must pay a mark-up. For households and small businesses, this option is the closest to taking part in the day-ahead market.

All Norwegian households are having new electricity meters installed as part of advanced metering systems, also known as AMS. The new meters can measure electricity consumption hour by hour. This means that new types of electricity contracts can be developed based on hourly prices, and end users will be able to adjust their consumption better to prices to minimise their electricity bills.

The Norwegian Consumer Council maintains a website, www.strompris.no, where it is possible to compare all the different contracts offered by electricity suppliers. This makes it easy for a consumer to find the most suitable contract.

End-user prices

An end user’s total electricity bill consists of charges for several different components of the service: the electricity (power price), connection to and use of the electricity grid (grid tariff), consumption tax on electricity (electricity tax), and value added tax. In addition, there is a fee earmarked for the Energy Fund (Enova), as well as payment for electricity certificates. The power price makes up a varying share of the total end user price, depending on market prices. The electricity tax and the Enova fee are fixed by political decisions, while the price of electricity certificates varies depending on developments in the electricity certificate market. Grid tariffs are fixed by the grid companies, based on a revenue cap and principles for tariffs laid down by the Norwegian Water Resources and Energy Directorate. Grid tariffs are required to reflect the costs of transporting electricity to end users.

End-user prices

Financial power trading

Financial power trading includes trading with financial instruments used for risk management and speculation. All contracts are settled financially without any physical power deliveries. Financial products are often called long-term contracts because they apply to periods further ahead in time than those for physical products.

Financial power trading can take place either bilaterally or on a power exchange. In the Nordic countries, financial trading takes place mainly on the Nasdaq OMX Commodities AS (Nasdaq OMX) exchange. Nasdaq OMX has a license from the Financial Supervisory Authority of Norway, which is also the supervisory authority for the marketplace. At Nasdaq OMX, players can hedge prices for purchase and sale of power for up to six years ahead, split by days, weeks, months, quarters and years.

Financial products include future and forward contracts, electricity price area differentials (EPAD) and options.

Nasdaq OMX Clearing AB (Nasdaq Clearing) is the clearing house for the financial contracts on Nasdaq OMX. Nasdaq Clearing has a license from the Swedish Financial Supervisory Authority. Clearing activities make an important contribution to operational efficiency in the Nordic power market. Nasdaq Clearing acts as the counterparty in all financial trading on Nasdaq OMX. Bilateral financial agreements can also be cleared. This eliminates the counterparty risk for the participants.

Financial products

Future and forward contracts are agreements on financial settlement of an agreed power volume, for an agreed time period and at an agreed price. For future contracts, settlement can take place during both the trading and the delivery period, whereas for forward contracts, it always takes place when the contract ends. Future and forward contracts are important instruments for price hedging.

Electricity price area differentials (EPAD) are forward contracts that cover the difference between the area price and system price.

An option involves a right, but not an obligation, to buy or sell a forward contract in the future at an agreed price. NASDAQ OMX only lists European options, which can only be exercised on their expiration, at the end of the contract period.

Norwegian power trading

Since 1990, Norwegian cross-border transmission capacity has increased by more than 2000 MW as a result of new interconnectors to Denmark, the Netherlands and Sweden. Norway has been a net electricity exporter in 17 of the past 25 years. Between the mid-1990s and the mid-2000s, there were more years than previously when Norway was a net importer. In the last 10 years, the power balance has improved, and Norway has had an average net export of about 10 TWh per year. Norway experienced  large amounts of water in the reservoirs and historically high wind power production in 2020. This resulted in a record high production of electric power, which contributed to Norway having a net export of 20,5 TWh. Never before has there been such a high net export out of the country in one year.

 

 

reservoir inflow was high, giving good production conditions. As a result, Norway’s net exports totalled 14.6 TWh in 2015.

The share of power imports and exports varies both from year to year and between seasons.
Import, eksport og nettoeksport, 2000-2020

Norway’s power trade with both Denmark and Sweden is generally fairly well balanced, and is driven largely by short-term changes in production and consumption. As the importance of wind power in the Nordic production mix has increased, wind conditions have come to play a greater role in determining electricity flows within the Nordic region. When wind speeds are high in Norway’s neighbouring countries, Nordic power prices are  reduced. Because of the flexibility of Norwegian hydropower production, Norwegian producers can then retain water in the reservoirs, and a larger proportion of domestic consumption can be met by imports. Conversely, Norway can export power when wind speeds are low and electricity prices are higher.

The pattern of exchange between Norway and the Netherlands is rather different. Norway has been a net exporter for ten of the eleven years since the NordNed cable became operative. The Dutch power supply system is largely based on thermal power, and the costs of gas- and coal-fired power production determine prices for much of the year. As long as power prices in the Netherlands are higher than in Norway, electricity will flow towards the Netherlands. If there is a shortage of resources in Norway, prices may rise in Norway, causing the flow of electricity to reverse.

In 2018, a total of 20.5 TWh was traded through the interconnectors with Norway. About 40 percent of this was traded with Sweden, 24 percent with Denmark and 36 percent with the Netherlands. The volume of trade with Russia and Finland made up less than 1 percent of the total.

The benefits of power trading

Power trading allows countries to derive mutual benefits from differences between the natural resources available, electricity production systems and consumption patterns. Trade between countries results in lower overall costs than if each country were to provide for its energy supplies alone.

Power trading is organised with the objective of ensuring that power always flows to where its value is greatest, i.e. from low-price areas to high-price areas. Trade between Norway’s hydropower-based system and thermal power-based systems in continental Europe illustrates this. The Norwegian power system has a relatively flat daily price profile because it does not cost much to regulate production up and down. In thermal power systems, it is costly to regulate production, and there is wider variation in electricity prices during the course of a day. These differences mean that Norway can import electricity from abroad at night, when the price is lower, and export it during the day, when consumption and prices are higher.

Over the year, Norwegian electricity exports are normally highest in the summer, when reservoir inflow is high and Norwegian consumption is low. Imports are generally highest in winter when inflow is low, consumption is high and Norwegian electricity prices are high. Power trading thus moderates price rises in Norway in winter, and maintains higher summer prices. In the same way, power trading provides access to relatively low-cost power in dry years, and increases the value of Norwegian electricity in years when there is a surplus of power in the domestic market.

Price profile

Regulation of the energy sector

Regulation of grid operations

The electricity grid is a natural monopoly, and is therefore subject to monopoly control.

Regulation of grid operations

Electricity production and trading, are exposed to competition, and the Norwegian Energy Act is based on the principle that power trading should be market-based. Electricity transmission and distribution, on the other hand, is a natural monopoly. The fixed costs of grid development are high, and it is not rational to construct several competing grids, that are not fully used. The grid operations are therefore not subject to competition. Grid operations are subject to monopoly controls.

 

The overall purpose of the monopoly controls is to ensure that operation, utilisation and development of the grid is rational and in the best interests of society.

The authorities have established extensive control of monopoly operations to prevent the grid companies from exploiting their position. A licence under the Energy Act is required in order to construct, own and operate grid assets. Grid operations are regulated using a combination of direct regulation (specific requirements and obligations in licences) and incentive-based regulation in the form of a revenue cap. The overall purpose is to ensure that operation, utilisation and development of the grid is rational and in the best interests of society.

The purpose of direct regulation is to ensure the necessary level of investment in the grid and satisfactory maintenance and operation. Licences specify obligations and requirements for grid companies, irrespective of commercial viability. Other purposes of direct regulation include ensuring that everyone who requires it has access to the grid, that there is sufficient capacity and a satisfactory quality of supply, and maintaining security of supply in difficult circumstances.

Within the regulatory framework, the grid companies have considerable freedom to decide how to meet the requirements. Revenue cap regulation is intended to give the grid companies incentives to find cost-effective ways of meeting the requirements. This is important because a regulated monopoly company whose costs are automatically covered will not necessarily have incentives to operate cost-effectively.

The Norwegian Water Resources and Energy Directorate sets an annual revenue cap for each grid company. This is set at a level permitting a grid company over time to earn revenues that cover the costs of grid operation and depreciation of the grid, and at the same time give a reasonable return on invested capital, given efficient grid operation, utilisation and development. The design of the revenue cap regulation provides the grid companies with an acceptable financial framework and at the same time ensure that grid tariffs are set at reasonable levels.

Grid companies earn most of their revenue from grid tariffs. They set the tariffs such that net earnings from grid operations over time do not exceed the permitted level.

Revenue cap regulation also gives grid companies incentives to maintain an optimal level of reliability of supply. In the event of power supply interruptions, grid companies’ permitted revenues are reduced by means of a quality-adjusted revenue cap for energy not supplied (known as the KILE scheme). End users who experience power outages that last for more than 12 hours may claim compensation from the grid company.

In addition to direct regulation and economic instruments, inspection and enforcement is of key importance. The Norwegian Water Resources and Energy Directorate is responsible for inspection and enforcement for grid operations, and may issue orders for compliance with regulations and licensing terms.

Grid tariffs

Grid customers pay point tariffs for the transmission and distribution of electricity. This means that the amount they pay depends on where their connection point is in the system. The tariffs consumers pay are intended to cover a share of the costs that accrue at the relevant grid level and higher levels.

Customers pay a tariff to their local grid company and gain access to the entire power market.

This means that the charged amount by the consumers depends partly on the grid level to which they are connected. Consumers connected directly to the transmission grid, pay a tariff based on the costs of operating the transmission grid. They are charged less than customers connected to lower grid levels, who pay a share of the costs at the lower level and in the transmission grid.

Electricity producers pay a fixed charge that does not depend on the grid level to which they are connected. The transmission charge is currently capped at 1.1 EUR/MWh.

Distribution tariffs vary from one grid company to another. This is partly because natural and other conditions vary, and influence the cost of distributing electricity to the customer. Difficult natural conditions and a scattered settlement pattern can result in high transmission costs. There is also some variation in the efficiency of grid operations between companies.

Grid companies are responsible for setting their own tariffs, but the national authorities set the general principles for tariff design. Over time, the grid companies’ total tariff revenues must be within the revenue cap set by the Norwegian Water Resources and Energy Directorate. Grid tariffs must be objective and non-discriminatory, and they must be designed and differentiated on the basis of relevant grid conditions. To the extent possible, tariffs should also be designed to provide long-term signals encouraging efficient utilisation and development of the grid.

Tariff design

Energy component

One fundamental principle of designing optimal tariffs is that grid users should pay a price that is equal to the short-term marginal cost incurred through their use of the grid. As electricity is transmitted through the grid, a proportion of it is lost. The size of the transmission losses depends on the total load on the grid. The marginal loss can be positive or negative, depending on whether changes in electricity fed into or tapped from the grid increase or decrease the energy loss.

The energy component for customers who are supplied with electricity from the transmission and regional grid and for producers who feed electricity into the distribution grid must be set on the basis of the marginal cost of transmission losses. The size of the energy component is the same for electricity fed into and tapped from the same connection point, but with the opposite sign. The energy component for customers who are supplied with electricity from the distribution grid may also be used to cover a share of the other fixed costs of grid operation. In practice, the energy component for the distribution grid is set considerably higher than marginal cost of transmission losses, which is estimated at about NOK 0.05 per kWh.

The energy component for the transmission grid is set using the marginal loss rates for each connection point multiplied by the area price set in the day-ahead market. The marginal loss rates are limited to +/- 15 % of the electricity price. The same limits are also used in calculating the energy component for customers of some regional grids, and for feeding electricity into the distribution grid. Marginal loss rates for daytime and night-time/weekends are calculated and published in advance for one week at a time.

There is no requirement to calculate loss rates for each connection point in the distribution grid when calculating the energy component of the tariff. The loss rate is generally determined as the marginal loss in the nearest connection point with a higher grid level plus the average marginal loss for the area. The energy component is determined in advance, often for a year at a time.

Fixed component and capacity charge

Because of the cost structure of grid operations – high fixed costs and low costs associated with day-to-day use of the grid – revenue from the energy component, which is calculated on the basis of the marginal losses, will not be sufficient to cover the fixed costs of grid operation. The grid companies can therefore use other tariff components to cover these costs and provide a fair return on grid investments.

All customers who are connected to the distribution grid pay a fixed charge. This component covers customer-specific costs in addition to a share of other fixed costs of grid operation. The grid companies can divide customers into different categories who are offered different tariffs on the basis of relevant grid conditions. It is not unusual for primary residences, holiday homes and industry to be charged differing fixed components.

For customers with capacity metering the tariff must include a charge based on the customer’s capacity usage in defined periods in addition to the fixed component. This applies mainly for businesses, but also for household customers of certain distribution grids who are metered at hourly intervals. Grid companies use different methods for determining the capacity used as a basis in the tariff. Some companies use the peak load in the course of each month, while others use the average of several measurements during the same period.

Investment contribution

In addition to the tariff components discussed above, a grid company may, subject to certain rules, require an investment contribution from new customers to cover the costs of their connection to the grid and from existing customers who demand reinforced or increased grid capacity. The purpose of the investment contribution is to make customers aware of the costs of expanding and upgrading the grid. Customers can weigh the need of grid access or reinforcement against the costs involved. In addition, the investment contribution is intended to separate the investment costs between the customer who triggers the investment, and the other grid customers. As a general rule, grid investments triggered by a particular customer’s needs are to be paid by that customer.

Electricity certificates

The joint Norwegian-Swedish electricity certificate scheme is intended to boost renewable electricity production in both countries.

The electricity certificate market

The electricity certificate scheme started up in 2012. Norway and Sweden have a common goal of increasing electricity production based on renewable energy sources by 28.4 TWh by 2020. Norway has undertaken to finance 13.2 TWh of this, and Sweden will finance 15.2 TWh, regardless of where the production is placed. Sweden has an additional goal of increasing electricity production based on renewable energy sources by additional 18 TWh in 2030, financed by Sweden.

The electricity certificate market

Download as image (PNG)

Source: Norwegian Water Resources and Energy Directorate

The income from the electricity certificates is intended to make the development of new electricity production based on renewable energy sources more profitable.

The electricity certificate scheme is a market-based support scheme. In this system, producers of renewable electricity receive one certificate per MWh of electricity they produce for a period of up to 15 years. The electricity certificate scheme is technology-neutral, meaning that all forms of renewable electricity production qualify for electricity certificates, including hydropower, wind power and bioenergy.

The Norwegian Electricity Certificate Act

The purpose of the Electricity Certificate Act is to promote increased production of electricity from renewable sources.

An electricity certificate is confirmation issued by the state that one megawatt hour (MWh) of electricity has been generated from renewable sources in accordance with the legislation. The owners of production plants are entitled to receive electricity certificates for their production provided that they generate electricity from renewable sources (a technology-neutral requirement), are approved by the Norwegian Water Resources and Energy Directorate, and comply with metering and reporting requirements. Both an increase in production as a result of the expansion of existing production plants and production from new plants may qualify for electricity certificates.

Renewable production facilities that started construction after 7 September 2009, and hydropower plants where construction started after 1 January 2004, are qualified to receive electricity certificates. Facilities that permanently increase their production as a result of construction begun after 7 September 2009 are also entitled to electricity certificates for the increase in production. Norwegian facilities must be in operation by 31 December 2021 to be entitled to receive electricity certificates.

Electricity suppliers and some categories of end users have an obligation to purchase electricity certificates corresponding to a proportion of their consumption (quota obligation). Producers that are qualified to receive electricity certificates must apply to the Norwegian Water Resources and Energy Directorate, which is the administrative and supervisory authority, for approval of their facilities. In addition, the company or an account manager authorised by the company must apply to have an account opened in the electronic registry.

Statnett maintains the Norwegian registry, and is responsible for issuing and cancelling electricity certificates. Certificates are issued retrospectively on the basis of actual metered production. Statnett registers certificates in the appropriate electronic account. The scheme will be terminated on 1 April 2036, when electricity certificates for 2035 are cancelled.

Further rules for the electricity certificate scheme in Norway are set out in the Regulations relating to electricity certificates.

All electricity suppliers and certain categories of end-users are required to purchase electricity certificates for a specific percentage of their electricity consumption (their quota). This percentage is being gradually increased each year up to 2020, and will then be reduced gradually until 2035. The scheme will be terminated in Norway in 2036.

The quota obligations imposed by the Norwegian and Swedish governments create a demand for electricity certificates, so that they acquire a value. Thus, the authorities decide how many certificates must be purchased, but the market determines their price and which projects are carried out. Producers of renewable electricity gain an income from the sale of electricity certificates, in addition to their earnings from electricity sales. The income from the electricity certificates is intended to make the development of new electricity production based on renewable energy sources more profitable. End-users contribute to this through their electricity bills. In Norway, the framework for the scheme is governed by the Electricity Certificate Act.

The electricity certificate market is based on a bilateral agreement between Norway and Sweden. The two countries are making use of a cooperation mechanism under the EU Renewable Energy Directive (2009/28/EC). .The establishment of the joint Norwegian-Swedish market was contingent on the possibility of meeting a quota obligation in Sweden by purchasing Norwegian electricity certificates, and vice versa.

Agencies responsible for the electricity certificate scheme in Norway

 

The Norwegian Water Resources and Energy Directorate is the administrative and supervisory authority for the electricity certificate scheme, and is responsible for approving plants so that they can receive electricity certificates.

Statnett is responsible for Norway’s electronic registry (NECS), where electricity certificates are issued and cancelled.

The legal framework

This page provides an overview of Norway’s legal framework for the energy sector and water resources management. It has been important to develop a comprehensive legislative framework including requirements to obtain licences for various purposes. Official controls are required as part of the licensing system, and to ensure that the legal position and possible impacts of projects are assessed on a case-by-case basis.

The overall objectives of the legislation

Developing infrastructure for electricity production and transmission or for district heating plants and distribution networks can result in conflicts between user and environmental interests during planning, construction or operation. Conflicts may also arise in connection with water resources management. There may be impacts on biodiversity, landscapes and outdoor recreation, fishing, tourism, the cultural heritage, local communities, reindeer husbandry and so on. In the legislation, these are often referred to generically as “public interests”. Energy and river system projects may also affect private economic interests.

Norway’s legislation is intended to ensure that all the different interests are heard and considered, and that projects are subject to government control and conditions that safeguard different interests. Another important objective is to ensure effective management of our resources. Security of energy supply and a well-functioning power market are key considerations here.

Below you will find an overview of Norway’s legal framework for the energy sector and water resources management

The legal framework

Download as image (PNG)

Waterfall Rights Act

Before making use of water for electricity production, a developer must have ownership rights to the waterfall. A non-state developer must hold a licence under the Waterfall Rights Act in order to acquire such rights. The Act does not apply to small-scale power projects. The overall purpose of the Waterfall Rights Act is to ensure that hydropower resources are managed in the country’s best interests through public ownership of hydropower resources at national, county and municipal levels.

Under the current rules, licences may only be issued to public bodies, i.e. state-owned enterprises, municipalities and county authorities, and to companies where such bodies hold at least two-thirds of the capital and the votes in the company. This means that private actors may own up to one-third of a company that holds a licence under the Waterfall Rights Act. Licences issued under the Act include conditions on licence fees and obligatory sales of power to the municipalities where waterfalls are situated.

Watercourse Regulation Act

To regulate flow in a river or transfer water between river systems for use in power generation above a certain threshold, a licence is required in accordance with the Watercourse Regulation Act. The Act also applies to run-of-river hydropower plants that generate more than 40 GWh per year. Licences set out the highest and lowest permitted water levels in reservoirs, and may also require the establishment of a business development fund in a municipality where a development takes place. Licences also include rules for reservoir drawdown, which may include provisions on the minimum permitted rate of flow and on the volumes of water that may be released at different times of year. In addition, licences may include conditions relating to licence fees and obligatory sales of power.

Water Resources Act

In addition to hydropower projects, many other types of developments may take place in river systems. The Water Resources Act applies to all of these, not just to hydropower developments. Examples include the abstraction of water for fish farms and the extraction of deposits (sand, gravel, etc.). Small-scale power projects are also regulated by the Water Resources Act. Licences may include various conditions to ensure compensation for damage or to mitigate damage. Small-scale developments that are not expected to cause significant damage or nuisance to public interests do not require a licence under this Act.

Energy Act

The purpose of the 1990 Energy Act is to ensure that energy is generated, converted, transmitted, traded, distributed and used rationally and in the best interests of society. This includes taking into consideration any public and private interests that are affected. The Act provides a framework for competition in electricity generation and trading. The development and operation of the grid is a natural monopoly, and the Act provides the legal basis for regulating the grid companies. The Energy Act also regulates marketplaces for trade in electrical energy, cross-border interconnectors, district heating facilities, responsibility for system operation, electricity supply quality, energy planning and contingency planning for power supplies.

Developers must apply for licences under the Energy Act to construct wind farms and high-voltage power lines. Distribution grid companies can obtain general local area licences. This means that they do not need to apply for a licence for each separate installation within an area.

 

Offshore Energy Act

The Offshore Energy Act provides the legal basis for the future development of offshore renewable energy production. The Norwegian state has the right to utilise offshore energy resources. The Act applies to Norway’s territorial sea outside the baselines and to the continental shelf, but individual provisions can also be made applicable to internal waters. A licence is required for electricity generation, conversion and transmission in areas covered by the Act. As a general rule, licences can only be obtained after the central government authorities have carried out a strategic environmental assessment and decided to open specific areas for licence applications. However, the authorities may exempt pilot projects and similar projects with a limited time frame from these requirements.

 

Electricity Certificate Act

The 2011 Electricity Certificate Act is intended to promote production of electricity from renewable energy sources up to 2020. It establishes a Norwegian market for electricity certificates, which was linked to the Swedish electricity certificate market from 1 January 2012. The electricity certificate market is a constructed market in the sense that the demand for certificates arises from a statutory obligation to purchase them. Sales of electricity certificates give power producers a supplementary income in addition to that derived from sales of electricity.

Other relevant legislation

Other relevant legislation

Various other acts also have an important bearing on the management of energy and water resources. The Ministry of Petroleum and Energy and the Norwegian Water Resources and Energy Directorate are responsible for the natural gas legislation (Natural Gas Act). The acts listed below are administered by authorities in other sectors.

  • Planning and Building Act
  • Nature Diversity Act
  • Expropriation Act
  • Competition Act
  • Consumer Purchases Act
  • Pollution Control Act
  • Neighbouring Properties Act
  • Cultural Heritage Act
  • Outdoor Recreation Act
  • Reindeer Husbandry Act
  • Public Administration Act

 

In addition to legislation administered by the Ministry of Petroleum and Energy, a number of other acts and regulations are important for the management of energy and water resources. The EU Water Framework Directive (2000/60/EC) has been implemented in Norwegian law through the Water Management Regulations, which were adopted under the Pollution Control Act, the Planning and Building Act and the Water Resources Act. The regulations include provisions on river basin management plans, which are intended to maintain and improve the ecological status of rivers and lakes and coastal waters.

Energy production and transmission infrastructure can have impacts on biodiversity, and developments must be assessed according to the principles set out in the Nature Diversity Act. This Act applies to all sectors during the exercise of public authority when the decisions being made may have environmental impacts. The Act is intended to ensure that Norwegian nature is protected through conservation and sustainable use, and that the environment can continue to provide a basis for human activity. The Act includes provisions on priority species, selected habitat types and area-based protection, which must be considered when developing energy production and transmission infrastructure.

The Planning and Building Act applies to a large extent in parallel with the energy and water resources legislation, but there are some important exceptions. Many of the provisions of the Planning and Building Act do not apply to the transmission grid, but an environmental impact assessment (EIA) is required in the usual way. The EIA regulations include specific provisions on projects that require licences. The Technical Regulations for buildings, also adopted under the Planning and Building Act, set out energy requirements for buildings.

A power project developer that does not have the necessary rights to establish and operate installations in a river system may apply for the expropriation of these property rights in accordance with the Expropriation Act. Where appropriate, the provisions of the Cultural Heritage Act, the Pollution Control Act and the Reindeer Husbandry Act must also be taken into consideration during the licensing process for energy projects and other projects in river systems. The Reindeer Husbandry Act is intended to maintain reindeer husbandry as an important basis for Sami culture, in accordance with the Norwegian Constitution and the provisions of international law on indigenous peoples and minorities.

The Public Administration Act sets out general provisions for administrative procedures in the public sector, including how cases should be prepared and how to deal with appeals against individual decisions. These rules apply in addition to the specific rules set out in the legislation on energy and river systems.

Licensing procedures

Infrastructure for energy production and transmission must be licensed by the Norwegian authorities

The licensing authorities

The licensing authorities are responsible for processing licence applications and issuing licences. They include the Storting (Norwegian parliament), the Norwegian Government (formally the King in Council), the Ministry of Petroleum and Energy and the Norwegian Water Resources and Energy Directorate. The text below describes licensing procedures for hydropower projects under the Watercourse Regulation Act and the Water Resources Act, and for electrical installations under the Energy Act. English translations of all three acts are available here.

Licensing procedures under the water resources legislation

There are some differences between the licensing procedures for large- and small-scale hydropower projects. Small-scale projects are defined as power plants that require a licence under the Water Resources Act and have an installed capacity of less than 10 MW, but do not involve regulation of the rate of flow in a river exceeding the limit that triggers licensing requirements under the Watercourse Regulation Act. Large-scale projects are power plants that require a licence under the Water Resources Act and have an installed capacity greater than 10 MW, and projects that regulate the rate of flow in a river and require a licence under the Watercourse Regulation Act.

The Norwegian Water Resources and Energy Directorate has prepared guidelines (in Norwegian only) for administrative procedures for a number of different types of works in river systems. These include aquaculture facilities, the construction of small power plants, upgrades and renovation of existing power plants, construction in or across river systems, gravel pits and flood protection measures.

Large-scale hydropower projects

Procedures for large-scale hydropower projects under the Water Resources Act and for river regulation projects under the Watercourse Regulation Act. (Directorate = Norwegian Water Resources and Energy Directorate; Ministry = Ministry of Petroleum and Energy) Source: Ministry of Petroleum and Energy

The King in Council formally awards licences for projects dealt with under the Watercourse Regulation Act and for projects with an installed capacity exceeding 10 MW that require a licence under the Water Resources Act. The Norwegian Water Resources and Energy Directorate is responsible for procedures during the application phase.

In addition, under Norway’s regulations on environmental impact assessment (EIA), an EIA is mandatory for power plants with an annual production exceeding 40 GWh. For other installations, an EIA is required if the project may have significant effects on the environment and society. Norway has two sets of regulations that implement EU rules on environmental impact assessment. Hydropower projects come under the Regulations relating to environmental impact assessment of projects under sectoral legislation (referred to as the EIA Regulations here).

If a project comes under Appendix II of the EIA Regulations, an EIA is not mandatory and the developer is not required to notify the authorities of the project. As a general rule, the ordinary licensing procedures under the Watercourse Regulation Act and the Water Resources Act are followed in such cases. If an EIA is found to be necessary, it must satisfy the requirements of Appendix IV of the EIA Regulations. The developer may be required to submit supplementary studies if the application does not provide sufficient information. The impacts of a project must be thoroughly described in the application even if no EIA is required under the Regulations.

If a project comes under Appendix I of the EIA Regulations, so that an EIA is mandatory, the Directorate will determine the final impact assessment programme after submitting it to the Ministry of Climate and Environment. The notification is made available for public inspection and local authorities and organisations are consulted on its contents. They also receive a copy of the final assessment programme for information purposes. Once an EIA is completed, the report is submitted together with the licence application.

Authorities, organisations and landowners that will be affected by the project are consulted on the application, and the EIA if one has been carried out. The Directorate makes an overall assessment of the project and submits its recommendations to the Ministry of Petroleum and Energy. The Ministry prepares the case for the Government (King in Council) and presents its recommendation. This is based on the application, the Directorate’s recommendations, the views of affected ministries and local authorities and the Ministry’s own assessments. The King in Council then makes a formal decision on the project in the form of a Royal Decree. If a project is particularly large (more than 20 000 natural horsepower) or controversial, the Storting is consulted and given an opportunity to debate the matter before a licence is formally awarded by the King in Council. The figure illustrates the procedures.

Decisions to grant licences for major development projects cannot be appealed, as the licensing authority rests with the King in Council. Decisions to refuse licences are made by the Ministry of Petroleum and Energy and can be appealed to the King in Council.

Small-scale hydropower projects

Procedures pursuant to the Water Resources Act for small-scale power projects (under 10 MW). (Directorate = Norwegian Water Resources and Energy Directorate; Ministry = Ministry of Petroleum and Energy) Source: Ministry of Petroleum and Energy

Licensing authority for small-scale hydropower projects has been delegated to the Directorate. Small-scale projects are defined as power plants that require a licence under the Water Resources Act and have an installed capacity of less than 10 MW, but do not involve regulation of the rate of flow in a river exceeding the limit that triggers licensing requirements under the Watercourse Regulation Act. The procedures are simpler than those for large-scale projects, which also means that they can be processed more quickly. On 1 January 2010, the licensing authority for power plants below 1 MW (mini and micro power plants) was delegated to the county authorities, with the exception of projects in protected river systems.

In June 2007, the Ministry published guidelines for small hydropower plants. They describe how to draw up regional plans for small hydropower plants and how to ensure comprehensive assessment of applications and make licensing procedures more efficient and predictable.

For power plants of between 1 and 10 MW, a study of biodiversity that may be affected by the development is required. Pursuant to the rules of the Planning and Building Act, public notice of the application is given in the local media, it is made available public inspection, and authorities, organisations and landowners that will be affected are consulted. After this, an on-site inspection of the area is held before a decision is made.

Decisions by the Directorate may be appealed. If the Directorate upholds its decision, the appeal is sent to the Ministry, which deals with it under the normal rules of the Public Administration Act. The Ministry’s decision is final and cannot be appealed. The figure illustrates the procedures.

Licensing procedures under the Energy Act

Procedures under the Energy Act for electrical installations for which an EIA is mandatory (listed in Appendix I of the EIA regulations). (Directorate = Norwegian Water Resources and Energy Directorate; Ministry = Ministry of Petroleum and Energy) Source: Ministry of Petroleum and Energy

The Energy Act requires anyone who builds, owns or operates an installation for the production, transformation, transmission and distribution of electrical energy to hold a licence. This means that, even if a licence has already been granted for a power plant under the Water Resources Act, the electrical installations are still subject to the licensing requirements of the Energy Act. The Norwegian Water Resources and Energy Directorate is the licensing authority for electrical installations, except for new major power lines longer than 20 kilometres carrying a voltage of 300 kV or more. The licensing authority for these has been transferred to the Government (King in Council). The Directorate’s decisions may be appealed to the Ministry of Petroleum and Energy.

Licence applications must be submitted to the Directorate. If an environmental impact assessment is required under the EIA Regulations, the EIA report must be included with the application. The EIA Regulations specify the limits above which an impact assessment is mandatory or may be required. Overhead electrical power lines and subsea cables with a voltage of 132 kV or more and a length of more than 15 km are included in Appendix I, and an EIA is mandatory. Power lines that require a licence under the Energy Act are included in Appendix II, and an EIA may be required.

For projects that do not come under Appendix I of the EIA Regulations, the first step in the process is to send a licence application to the Directorate under the rules of the Energy Act. The Directorate processes the application under the rules of the Energy Act and the EIA Regulations, and assesses its likely impacts. As a general rule, the Directorate also holds consultations and makes information available to stakeholders, and may also organise public meetings as part of the licensing procedures. If screening under the EIA Regulations indicates that the project may have significant effects, the requirements for an EIA must be met and any supplementary information required must be obtained and made subject to consultation procedures.

The Directorate’s licensing decisions can be appealed. If the Directorate upholds its decision, the appeal is sent to the Ministry, which deals with it under the normal rules of the Public Administration Act. If necessary, the Ministry will carry out an inspection of the site as part of the appeal process. The Ministry’s decision is final and cannot be appealed. The figure illustrates the procedures.

Licence applications for new major power lines longer than 20 kilometres carrying a voltage of 300 kV or more are formally decided by the King in Council. The Directorate assesses applications and submits its recommendations to the Ministry. The Ministry holds a public consultation on the recommendation, and prepares the matter for the Government (King in Council), which decides whether or not to award a licence. These decisions cannot be appealed.

Major power line projects are also subject to Norway’s rules for governance of investment projects. This involves a needs analysis and choice of concept, and external quality assurance to determine whether a project is viable. Full documentation of this procedure must be submitted to the Ministry, which decides whether a proposal can be submitted and the procedures described above can be started.

Processing time

Many factors affect the time spent on processing licence applications, for example the conflict level and complexity of the individual project. Hydropower and energy projects generally have impacts on commerce and industry, local communities, the environment and other user interests. The licensing authorities are responsible for ensuring that a project has been thoroughly assessed and described before a decision is made. They must also consider the need for additional studies of various topics and supplementary statements on issues raised during the licensing procedures. It is important to ensure that licence applications are properly and thoroughly assessed, and that procedures are as efficient as possible.

Taxation of the power sector

The taxation system ensures that municipalities, counties and the state all receive revenue from the operation of power plants.

Taxation of electricity production

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 returns a share of the profits from hydropower production to society as a whole.

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.

Updated: 05.04.2017

Print table Download data

Licence fees

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.

Obligatory sales of power

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.

About the Norwegian energy sector

Vannkraft

Central government responsibilities

The Storting (Norwegian parliament) determines the policy framework for energy and water resources management in Norway. The Government has the executive authority, and implements policy through various ministries.

Central authorities responsible for Norwegian energy and water resource management

Download as image (PNG)

Division of responsibilities

The Storting (Norwegian parliament) determines the political framework for energy and water resources management in Norway. The Government has the executive authority, and implements policy through various ministries.

  • The Ministry of Petroleum and Energy has the overall administrative responsibility for Norway’s energy and water resources.
  • The Ministry of Climate and Environment is responsible for environmental legislation.
  • The Ministry of Local Government and Modernisation is responsible for the planning legislation.
  • The Ministry of Finance is responsible for power plant taxation, various taxes on energy, and government expenditure.
  • The Ministry of Trade, Industry and Fisheries has ownership responsibility for Statkraft SF, the state-owned electricity producer.

Ministry of Petroleum and Energy

The Ministry of Petroleum and Energy has the overall administrative responsibility for Norway’s energy and water resources. The Ministry’s must ensure that they are managed in line with the guidelines issued by the Storting and the Government.

The Ministry’s Energy and Water Resources Department has ownership responsibility for the state-owned enterprises Enova SF and Statnett SF.

Norwegian Water Resources and Energy Directorate

The Directorate, which reports to the Ministry of Petroleum and Energy, is responsible for managing domestic energy resources, and is also the national regulatory authority for the electricity sector. In addition, it is responsible for managing Norway’s water resources and for central government tasks to do with flood and avalanche/landslide risk reduction. The Directorate is involved in research and development and international development cooperation, and is the national hydrology expert body.

Enova SF

Enova is a state-owned enterprise that manages the assets in the Energy Fund. Enova’s objective is to promote a shift to more environmentally friendly consumption and production and the development of energy and climate technology. Further information on Enova’s activities is available here.

Statnett SF

Statnett is the state-owned enterprise responsible for building and operating the central grid. It is the transmission system operator (TSO) for the central grid and owns more than 90 % of it. Statnett is responsible for both short- and long-term system coordination, which entails responsibility for ensuring the instantaneous power balance and facilitating satisfactory quality of supply throughout the country.

Research Council of Norway

The Research Council of Norway reports to the Ministry of Education and Research, and its responsibilities include managing the funding for energy research allocated by the ministries. Most of the government funding the Research Council receives for energy research comes from the Ministry of Petroleum and Energy.

 

Main elements of Norwegian energy policy

The aim of Norwegian energy policy is to provide a suitable framework for maintaining an efficient, climate-friendly and reliable energy supply system.

Norway has competitive advantages in its abundant renewable energy resources and a well-functioning energy sector. Our energy policy is intended to encourage modernisation of the energy supply system and adapt policy instruments and the regulatory framework to rapidly changing markets.

The question of how to develop an energy supply system that is sustainable in the long term is a key policy issue in many countries. Security of energy supply, climate change, environmental considerations and value creation must all be taken properly into account in energy policy development. It is vital to find solutions that create the maximum value for society at the lowest possible cost.

Fire prioriterte hovedområder for norsk energipolitikk
  1. Improving security of supply
  2. Profitable development of renewable energy
  3. More efficient and climate-friendly energy use
  4. Value creation based on Norway's renewable energy resources
  1. Improving security of supply

A smoothly functioning power market is of crucial importance for security of electricity supply. In Norway, security of supply is closely linked to the capacity of the supply system to ensure an uninterrupted supply of electricity to end users. The power supply system must be able to deal with variations in electricity consumption through the day, through the year and between years. We depend on a robust power grid. All important societal functions, business and industry and consumers are dependent on reliable power supplies. It is therefore vital to maintain and expand the grid to meet the challenges of the future. Major investments are currently being made in the power grid, and will improve security of supply.

Both production-side and demand-side flexibility have a positive effect on security of supply. Price signals play a decisive role in determining which elements of short-term flexibility are actually used. Operation of the power supply system and power trading should as far as possible be market-based. Effective markets send the right price signals to producers and consumers, and promote sound use of resources, innovation and security of supply.

Security of energy supply is vital in modern society. Norway has abundant energy supplies, but also needs to find good ways of responding to the growing demand for power. Regulation by the authorities is intended to facilitate the development of new, effective solutions that will ensure security of energy supply in the future.

  1. Profitable development of renewable energy

One goal of Norwegian energy policy is to facilitate profitable production of renewable energy in Norway. Renewable production should be developed on the basis of profitability, allowing Norway’s renewable energy resources to be used in a way that creates the maximum value for society at the lowest possible cost.

Norway produces a large amount of flexible hydropower, which will continue to be the backbone of its energy supply system. Hydropower production is also important in the context of climate change in Europe, and hydropower production makes it possible to maintain security of supply in the Norwegian and Nordic electricity systems.

  1. More efficient and climate-friendly energy use

Norway already derives a large share of its energy supplies from renewable sources. The electricity generation sector is virtually emission-free. However, energy use in transport, manufacturing, oil and gas production and for heating still results in greenhouse gas emissions. Our energy policy is intended to facilitate more efficient and climate-friendly energy use.

  1. Value creation based on Norway’s renewable energy resources

Renewable energy is an important sector in Norway. The industry employs about 20 000 people throughout the country, including employment in grid operations. Renewable energy supplies are essential for the development and growth of other industries. Hydropower has been the basis for Norway’s industrial development and prosperity for more than 100 years. The renewable energy industry will continue to play a key role as the transition to more climate-friendly energy use continues in Norway and the rest of Europe.

Norway’s energy policy is intended to provide a framework that enables the country to further develop its renewable energy resources and make use of its competitive advantages. This includes ensuring that there are well-functioning markets, so that profitable renewable resources can be used efficiently and provide a good basis for business development and value creation. Flexible hydropower production, the widespread use of electricity for many purposes and Norway’s pioneering role in market reform in the power sector are competitive advantages in a European energy market that is undergoing transformation.

The availability of abundant supplies of renewable electricity was the basis for Norway’s large energy-intensive sector. This is a good starting point for developing new markets for energy services, new technology and new energy-intensive products. Norway must continue to use its power, and to use it as efficiently as possible.

Stortingsmeldingen om energipolitikken: Meld. St. 36 (2020-2021) Energi til arbeid - langsiktig verdiskaping fra norske energiressurser

Ownership in the energy sector

Municipal, county and central authorities own about 90 % of Norway’s electricity production capacity.

Norwegian municipalities and counties have large investments in the power sector. Together with central authorities, they own about 90 % of Norway’s electricity production capacity. About 35 % of production capacity is owned by the state through Statkraft SF, which answers to the Ministry of Trade, Industry and Fisheries. Statkraft is organised as a state-owned enterprise, and the Norwegian state must therefore be the sole owner. Many other companies have several owners, and there is a significant level of cross-ownership in the electricity sector.

Grid operations and production

Most grid companies are wholly or partly owned by one or more municipalities. The state owns about 98 % of the transmission grid. State ownership of the grid is managed through Statnett SF.

In all, there are 225 electricity production companies in Norway, and 94 of them are solely producers. The ten largest companies account for about 70 % of total production capacity in the Norwegian hydropower system. More than 120 companies carry out grid activities at one or more levels, but not all of them are connected r to customers.

One characteristic of the Norwegian hydropower sector has been the right of reversion to the state for licences granted to private companies after 1917. The right of reversion means that the state assumes ownership of waterfalls and any hydropower installations free of charge when a licence expires. As the date of reversion stated in the licences approaches, private power plants will either be sold to publicly-owned companies or ownership will revert to the state on the specified date. This system has resulted in gradual restructuring of the ownership of Norwegian power production and is continuing to do so.

In 2008, the water resources legislation was amended to strengthen public ownership of Norway’s hydropower resources. New licences for the ownership of waterfalls and licences to transfer already licensed waterfalls may now only be granted to public developers such as state-owned enterprises, municipalities and county authorities. Licences may also be awarded to companies that are partly owned by state-owned enterprises or one or more municipalities or county authorities, provided that the public sector holds at least two-thirds of the capital and the votes in the company, and the organisation clearly indicates genuine public ownership. In other words, private actors may own up to one-third of a company. Private actors may also own power production facilities that do not require a licence under the Industrial Licensing Act, such as wind and solar power installations and some small-scale hydropower installations.

There are private ownership interests in all parts of the power sector: production, grid operations and trading. Foreign ownership interests are relatively limited, but increasing.   Some foreign companies have been granted trading licences in Norway and there is a growing number of foreign stakeholders that have invested in Norwegian wind and small-scale power production.

The development of Norway’s energy supply system

Industrialisation and the development of modern Norwegian society became possible when people learned to use moving water in rivers and waterfalls to generate electricity.

Increasing access to modern forms of energy in Norway has been accompanied by economic growth and a general rise in living standards. At the start of the 20th century, electricity was still a luxury, and other energy sources were much more widely used. Most people were still using paraffin and gas lamps or candles for lighting and heating their houses with wood, peat, coal and coke.

Increasing access to modern forms of energy in Norway has been accompanied by economic growth and a general rise in living standards.

From about the mid-1800s, Norway’s largest towns developed pipeline networks that supplied gas for street lighting and lighting in larger buildings. The gas was produced by gasification of coal and coke, and gasworks were established in many places between 1848 (in Oslo, then called Christiania) and 1913 (in Lillehammer). As time went on, gas was also used for other purposes than lighting, and the gasworks in Bergen became the country’s largest. In 1954, it delivered gas to 44 914 devices, mainly for heating water and cooking. Mains gas was an important part of the Norwegian energy supply system for many years. The gasworks in Oslo and Bergen were the last two remaining in operation, and closed in 1978 and 1984 respectively.

Strømnett
Kilde: OED

Electricity began to compete more strongly with gas from around 1900. The first power plants were established by private companies, often for industrial purposes. Norway was rapidly becoming an industrialised country during this period. By 1930, energy use in the energy-intensive manufacturing sector had reached almost 6 TWh a year, and this corresponded to three-quarters of total Norwegian electricity use.

There was growing recognition of the advantages of electricity, especially in towns. Using coke, coal and wood for heating and cooking caused environmental problems and resulted in poor air quality in towns. Hammerfest was the first town in Norway to establish a municipal electricity system, in 1890, and a number of other municipal electricity companies were established in the next decade or so – Oslo in 1892, Bergen in 1900 and Trondheim in 1901. In the early years, many electricity companies used coal-fired steam generators. Electricity was mainly used for street lighting, but customers who could afford it could pay to light their homes with arc lamps and incandescent light bulbs.

As time went on, there was a growing demand for access to electricity for more people and larger areas of towns. Both production and consumption rose, and hydropower became more important. In the 1920s and 1930s, electricity was taken into use for a wider range of purposes. More and more people were able to buy labour-saving appliances such as electric irons, cookers and radiators.

 

In the 1920s and 1930s, electricity was taken into use for a wider range of purposes.

Access to electricity still varied widely from one part of Norway to another. By 1945, access to electricity was almost universal in Oslo/Akershus and Bergen, but only 42 % of the population in the north (Nordland and Troms counties) had an electricity supply to their hoes.

In the post-war period,both hydropower production and electricity consumption expanded rapidly. By 1960, almost all Norwegian homes had an electricity supply, except for a small number in the northernmost county, Finnmark. Electricity was used for a variety of appliances and for heating, but oil and wood were also still widely used for heating.

In the same period, the manufacturing sector continued to grow and become a more important part of the economy. By 1970, energy use in the sector had reached about the same level as today. However, electricity consumption was rather lower, indicating that the energy mix has changed since then. Oil products were the next largest energy carrier. The oil crisis in the 1970s had major consequences for Norwegian oil consumption, which dropped markedly. There was a rise in electricity consumption at the expense of oil, especially for heating and in manufacturing.

Recent developments include the construction of gas-fired power plants and wind farms. However, hydropower still dominates the Norwegian electricity supply system.

In the 1970s and 1980s, there was growing opposition to new hydropower developments because of environmental concerns. This also resulted in greater awareness of the potential of energy efficiency measures and the development of district heating. District heating and other alternatives have expanded more rapidly since 2000. There are now district heating networks in most Norwegian towns, and heat pumps supply buildings with energy totalling about 10 TWh per year. Recent developments also include the construction of gas-fired power plants and wind farms. However, hydropower still dominates the Norwegian electricity supply system.

Norway and EU legislation

Snø og fjell

The EEA Agreement and Norwegian energy policy

Norway is part of the EU’s internal energy market through the Agreement on the European Economic Area (EEA).

In recent years, the scope of the legislation for the EU’s internal energy market has been widened. It has also been made more detailed, and more of a supranational legal framework has developed. The legislation influences Norway directly through the EEA Agreement. In addition it has an indirect influence through its effects on the European energy market, which is Norway’s most important export market for oil, gas and electricity.

Initially, EU energy policy consisted largely of applying competition policy to the energy sector. This was also the starting point when the EEA Agreement was negotiated in the early 1990s. At that stage, there were nine EC regulations and directives on energy, which were incorporated into the EEA Agreement. The only mention of energy in the Agreement is in Article 24, in Part II on the free movement of goods.

EU energy policy covers more than the matters dealt with in the EEA Agreement. This was made clear in the 2009 Lisbon Treaty, which was the first EU treaty to include specific provisions on energy. Article 194 of the treaty sets out aims for the functioning of the energy market, security of energy supply, energy efficiency, renewable energy and infrastructure. At the same time, it states that member states have the right to decide how to use their energy resources and to determine their own energy mix.

The EEA cooperation now includes around 96 legal acts in the energy field. Most of the original directives and regulations have been replaced by new ones. A number of recent legal acts are being considered for incorporation into the EEA Agreement. The EU is revising or drawing up others so that it can make progress towards the goals of the Energy Union (you can read more about the Energy Union here.)

The EEA Agreement and the internal market

Through the EEA Agreement, Norway is part of the EU’s internal energy market, which at present includes 30 countries with a total population of about 500 million. The agreement entered into force on 1 January 1994 and involves:

  • the free movement of goods, people, services and;
  • common rules and requirements for goods and services applying to health and safety, environmental protection and consumer protection;
  • common rules on competition, public procurement and state aid to ensure fair and equitable competition between companies throughout the EEA. The aim is for all 30 countries to work together to promote economic growth and new and better jobs;
  • other cooperation, especially programme cooperation in areas including research, education, environmental protection, consumer policy, information technology, culture, gender equality, tourism and policy on small and medium-size enterprises.
Bilde av rasteplass ved Osensjøen
Source: The Norwegian Ministry of Petroleum and Energy

 

Norway’s procedures for legislation that becomes part of the EEA agreement

The EFTA Secretariat reviews the legislative proposals adopted in the EU on a weekly basis. Proposals that are considered to come within the scope of the EEA Agreement are forwarded to the EEA EFTA states for consideration.

Norway’s official instructions for planning and management of central government programmes and projects include procedures for dealing with legislative proposals from the European Commission. The relevant ministry in a particular case is required to organise a consultation on any proposal of significance for Norway. Documentation concerning each legal act that is being considered for incorporation into the EEA Agreement must be published on the Government’s EEA database. The competent ministry is responsible for assessing whether a proposal is EEA-relevant. All relevant ministries must be involved in the work, and important EEA matters must be dealt with at government level. If a legislative proposal will involve substantial costs or benefits, a cost-benefit analysis is required.

Once a Commission proposal has been adopted by the Council of the European Union and the European Parliament, Norway has to work together with the other EEA EFTA countries and the EU to reach agreement on an EEA Joint Committee decision. It may be appropriate to ask for adaptations to EU legislation that is to apply to Norway. Both the EEA EFTA countries and the EU countries must agree on such adaptations, as set out in Article 93 of the EEA Agreement. When the EEA Joint Committee decides on the incorporation of legislation, it becomes part of the EEA cooperation and binding on the EFTA countries.

The Norwegian Constitution requires the Storting (Norwegian parliament) to give its consent to any international agreement before it becomes binding on Norway. The same applies to all agreements that will require amendments to the legislation or another decision by the Storting. EEA Joint Committee decisions to incorporate legislation into the EEA Agreement may be interpreted as international agreements. If they are, Norway must indicate that there are constitutional requirements relating to such decisions. This means that the Committee’s decisions do not take effect in Norway until the Storting has given its consent (see Article 103 of the EEA Agreement). In such cases, a formal legislative proposal must be submitted to the Storting. It may also be appropriate to inform the Storting about work on proposals to incorporate EU legislation into the EEA Agreement during these processes. This is done through the Storting’s European Consultative Committee.

Once a decision of the EEA Joint Committee has entered into force, Norwegian legislation must be brought into line with the EU legislation and the EEA Joint Committee decision. To do this, any necessary amendments to Norwegian legislation must be identified and a consultation must be held on the proposals. After this, the amendments and/or new regulations can be adopted.

EU energy policy

EU energy policy is designed to achieve the objective of a secure, sustainable and competitive energy system. The Energy Union provides the overall framework for a range of EU energy policy instruments.
The Energy Union focuses on five dimensions:
  • Energy security, solidarity and trust
  • A fully integrated European energy market
  • Energy efficiency as a contribution to moderation of demand
  • Decarbonising the economy
  • Research, innovation and competitiveness

Security of supply is a very important issue for the EU, which imports more than 50 % of its energy. This share is expected to rise considerably in the years ahead. Improvements to infrastructure and diversification of energy supply sources are considered to be important means of improving security of supply within the EU.

The second dimension of the Energy Union is completion of the internal energy market. The need for better infrastructure and for further development of the legislation are both key issues here. The energy market must be competitive, consumer-centred, flexible and non-discriminatory.

Moderating energy demand is the third dimension. The building sector is an important source of greenhouse gas emissions in the EU. Two key elements here are improving energy efficiency in the sector and smart urban planning. There are plans to support ways of simplifying access to financing for energy efficiency measures. It will also be very important to limit energy use by and greenhouse gas emissions from the transport sector.

The Energy Union’s fourth dimension is decarbonisation of the economy, which will deliver cuts in greenhouse gas emissions. Work in this area is focusing particularly on the EU’s emission commitment for 2030. A well-functioning EU ETS is seen as the cornerstone of EU climate policy. Renewable energy is also an important element of EU policy, because a large proportion of electricity production in Europe is based on fossil fuels such as coal.

The Energy Union’s fifth dimension is research, innovation and competitiveness. Coordination between research programmes is to be improved, with the aim of achieving an integrated EU approach and obtaining the best possible results from the resources invested in research and innovation. There will be four priority areas: the development of the next generation of renewable energy technologies; smart technologies that enable active participation by consumers in the energy market; efficient energy systems; and more sustainable transport systems.

Development of the Energy Union

The European Commission published its proposed strategy for the Energy Union in February 2015. The Council and the Parliament endorsed the plans, and in the two years since then, a number of proposals have been put forward for development of the legislation.

Legislative proposals from the European Commission

The July 2015 energy summer package included:

  • proposed revision of the directive on the Emissions Trading System (ETS) for the period 2021-2030;
  • revision of the energy labelling rules;
  • new rules on energy market design.

The February 2016 sustainable energy security package included:

  • revised Security of Gas Supply Regulation;
  • new rules for intergovernmental agreements on energy;
  • heating and cooling strategy;
  • liquefied natural gas (LNG) and gas storage strategy.

The July 2016 package included

  • proposals for binding national greenhouse gas emission targets for non-ETS sectors (transport, buildings, agriculture, waste and land use and forestry);
  • strategy on low-emission mobility intended to reduce emissions from the transport sector.

The November 2016 package ‘Clean energy for all Europeans’ included

  • regulation on the governance of the Energy Union;
  • revised Renewable Energy Directive;
  • revised Energy Efficiency Directive;
  • revised Energy Performance of Buildings Directive;
  • new Internal Market in Electricity Directive;
  • new Internal Market in Electricity Regulation;
  • revised Regulation on the European Agency for the Cooperation of Energy Regulators (ACER);
  • new regulation on risk preparedness in the electricity sector
  • research and development.

For more information on EU energy policy, please see this page:

https://www.regjeringen.no/en/topics/energy/eu-and-energy/id1005/

 

Key EU energy legislation

Energy is an important policy area for the EU, and many of the directives and regulations in this field have been incorporated into the EEA Agreement. These are briefly described below.

The EU’s three energy market packages

Efforts to open EU electricity markets to competition have been in progress for a number of years. The 1996 Electricity Market Directive (96/92/EC) set out common rules for the internal market in electricity, and was the first step towards an open, common European electricity market. At the same time, steps were being taken to develop common sets of rules for the internal electricity market and the internal natural gas market.

When the second energy market package was adopted on 26 June 2003, significant new steps were made towards a more open energy market. The Electricity Market Directive II (2003/54/EC) includes minimum requirements relating to deadlines for opening the market to industrial and household customers and for ensuring a legal separation between transmission functions (transmission is electricity transport on extra-high and high-voltage lines) and activities related to generation and trading. The Directive also contains rules on consumer protection.

The regulation on cross-border exchanges in electricity (Regulation (EC) No 1228/2003) was also part of the second energy market package. It is intended to stimulate cross-border power trade, and thus enhance competition in the internal electricity market. The regulation also provides a framework for further harmonising the principles on exploiting the transmission capacity between countries. In addition, it provided the legal basis for Regulation (EU) No 774/2010, which introduced the inter-transmission system operator compensation mechanism (the ITC mechanism), based on the costs associated with transit of electricity.

The Gas Market Directive II (2003/55/EC) contains very similar provisions to the Electricity Market Directive II. The EU subsequently adopted Regulation (EU) No 1775/2005 on conditions for access to the natural gas transmission networks.

The second energy market package was incorporated into the EEA Agreement on 2 December 2005. The package has been implemented in Norway’s Energy Act and Natural Gas Act and regulations under these acts.

The EU’s third energy market package was adopted on 13 July 2009, and consists of five legislative acts. Four of these amended existing legislative acts: Electricity Market Directive III (2009/72/EC), Gas Market Directive III (2009/73/EC), Cross-Border Exchanges Regulation II (Regulation (EC) No 714/2009) and Gas Transmission Regulation II (Regulation (EC) No 715/2009). The fifth is Regulation (EC) No 713/2009, which lays down new rules establishing the Agency for the Cooperation of Energy Regulators (ACER).

The the third energy market package has not yet been incorporated into the EEA Agreement. A new regulation has also been adopted on the inter-transmission system operator compensation mechanisms. This replaces Regulation (EU) No 774/2010, but like the previous regulation it is not part of the actual package.

In addition to ACER, the third package established two organisations for national transmission system operators: ENTSO-E for electricity and ENTSOG for gas.

A central element of both the Electricity Market Directive and the Gas Market Directive is new, more rigorous requirements for the independence of national regulatory authorities. Regulators must be independent both from the industry and from political authorities. In addition, the directives give regulators a wider area of responsibility and additional tasks.

The two directives also set new, more stringent requirements for organising network activities at the transmission level. As a general rule, they require ‘unbundling’ (separation of ownership of transmission systems and generation and supply systems). They also include more extensive consumer protection provisions.

The Renewable Energy Directive

The Renewable Energy Directive (2009/28/EC) establishes a common framework for the promotion of energy from renewable energy sources, and was incorporated into the EEA Agreement on 19 December 2011. It applies to electricity, heating/cooling and transport, whereas the 2001 Directive only included electricity. The overall EU target is to meet 20 % of gross final energy consumption with renewables by 2020. The Directive specifies renewable energy targets for each country, which are also to be met by 2020 and will ensure that the overall target is achieved. Norway’s target follows from a decision by the EEA Joint Committee. In 2020, Norway is to meet 67.5 % of final energy consumption with energy from renewable sources. The EU countries have drawn up renewable energy action plans with targets for the three sub-sectors (electricity, heating/cooling and transport). Norway has made amendments to regulations under the Energy Act in connection with implementing the Directive.

The Energy Performance of Buildings Directive

The Energy Performance of Buildings Directive (2002/91/EC) was incorporated into the EEA Agreement on 23 April 2004. It defines a common methodology for calculating the energy performance of buildings, and requires member states to set national requirements for the energy performance of new and renovated buildings. It includes provisions on energy performance certificates for new and existing buildings and on the inspection of air-conditioning and heating systems above a certain capacity. In December 2009, Norway adopted national regulations implementing the Directive’s requirements for energy performance certificates for buildings. From 1 July 2010, it has been mandatory in Norway to hold an energy performance certificate whenever a building is constructed, sold or rented out. Non-residential buildings exceeding 1000 m2 in size must have an energy certificate that is displayed for the building’s users.

The CHP Directive

The CHP Directive (2004/8/EC) on the promotion of cogeneration based on a useful heat demand in the internal energy market was incorporated into the EEA Agreement on 8 December 2006. The Directive aims to improve energy efficiency and security of supply by promoting highly efficient combined heat and power generation (cogeneration or CHP) where there is a useful heat demand. The Directive has been incorporated into Norwegian law through the Energy Act and the 2007 regulations relating to guarantees of origin for generation of electrical energy. Commission Decision 2007/74/EC sets out harmonised efficiency values for separate production of electricity and heat.

The Ecodesign Directive

The Ecodesign Directive (2009/125/EC) establishes a framework for setting ecodesign requirements for energy-related products (such as light bulbs and household appliances), and was incorporated into the EEA Agreement on 1 July 2011. The Directive is a revision of the previous Ecodesign Directive from 2005. In February 2011, Norway adopted national regulations implementing the Directive. These are administered by the Norwegian Water Resources and Energy Directorate. The EU lays down further provisions for specific products in implementing regulations, which also apply in Norway.

The Energy Labelling Directive

The Energy Labelling Directive (2010/30/EU) deals with labelling and standard product information to indicate the consumption of energy and other resources by energy-related products. It was incorporated into the EEA Agreement on 7 December 2012. The Directive is a reformulation of the 1992 Energy Labelling Directive. In May 2013, Norway adopte national regulations implementing the Directive. The EU lays down further provisions for specific products in implementing regulations, which also apply in Norway.

The Security of Electricity Supply Directive

The Security of Electricity Supply Directive (2005/89/EC) deals with security of supply and infrastructure investment, and was incorporated into the EEA Agreement on 8 June 2007. The Directive requires each member state to implement a policy for security of electricity supply. It did not result in any amendments to Norwegian law.

The Water Framework Directive

The Water Framework Directive (2000/60/EC) aims to promote integrated water resource management on the basis of standards for the ecological status of freshwater and coastal waters. It has been implemented in Norwegian law through the Water Management Regulations.

The standard environmental objectives are the achievement of ‘good ecological status’ no later than 15 years after the Directive enters into force. However, the Directive allows for adaptation, both through exemption provisions and through the designation of certain water bodies as ‘heavily modified’. The environmental objectives for these are less ambitious. They include water bodies where extensive physical alterations have been made for the benefit of society, so that they will not be able to achieve the standard environmental objectives. In Norway, these are typically water bodies that have been regulated for hydropower production.

The Environmental Liability Directive

The Environmental Liability Directive (2004/35/EC) was incorporated into the EEA Agreement on 5 February 2009. It establishes a framework for environmental liability based on the polluter-pays principle in order to prevent and remedy environmental damage. Environmental damage covered by the Directive includes damage to protected species and natural habitats, water damage and land damage. However, a decision by the EEA Joint Committee determined that the rules regarding damage to protected species and natural habitats do not apply to the EFTA EEA states Norway, Liechtenstein and Iceland. Norway has made some minor amendments to the Water Resources Act and the Watercourse Regulation Act to implement the Directive in Norwegian law, as a result of the Directive.

Energy use in Norway

Norsk natur

Energy use and greenhouse gas emissions

Greenhouse gas emissions from energy use are lower in Norway than in many other countries, because Norwegian electricity production is renewable and electricity accounts for a higher share of final energy consumption in Norway than elsewhere.

Norway’s greenhouse gas emissions totalled 53.9 million tonnes CO2 equivalents (CO2-eq) in 2015, more than in 1990, when the total was 51.9 million tonnes CO2-eq. Emissions from final energy consumption made up 32.2 million tonnes CO2-eq. The remainder originates from energy production, including oil and gas production (15.1 million tonnes CO2-eq) and refining (2 million tonnes CO2-eq) and other activities. Emissions from energy use for energy purposes made up 20.7 million tonnes CO2-eq in 2015 (see the box on process emissions).

Lower emission intensity

In the period 1990–2015, final energy consumption including non-energy use rose by more than 15 %, but the associated emissions dropped by more than 16 %, to 32.2 million tonnes CO2-eq in 2015. This means that emission intensity (emissions per unit of energy used) has been reduced by more than 28 % since 1990, reflecting changes in the energy mix in Norway. Consumption of low-emission and carbon-neutral energy carriers, including electricity, district heating and bioenergy, has remained stable or increased. Switching away from fossil energy sources to electricity improves the efficiency of energy use (because energy conversion efficiency is higher for electricity) and also results in lower emissions. In addition, there have been changes in the fossil fuel mix. Consumption of coal, coke and the heaviest petroleum products has been decreasing, while consumption of natural gas and diesel has been increasing.

Emissions by end-use sector

Greenhouse gas emissions in CO2-eq

Download as image (PNG)

Emissions from final energy consumption and other activities in 2015, by sector: total 35 million tonnes CO2-eq. Source: Statistics Norway, Ministry of Petroleum and Energy

Transport

Because petroleum products make up such a large proportion of energy use, greenhouse gas emissions from energy use are higher in the transport sector than in many other sectors of the Norwegian economy. Transport accounts for a larger volume of emissions than any other sector, followed by manufacturing, as can be seen in the figure above. In 2015, emissions from the transport sector totalled 13.6 million tonnes CO2-eq, which is 26 % higher than in 1990. However, there have been improvements in energy efficiency. Energy use and emissions have levelled off since 2007, and emission intensity in the sector has declined. In 2015, total energy use in the transport sector was 57.6 TWh, and emission intensity was about 0.24 kg CO2-eq per kWh.

 

Manufacturing

Emissions from manufacturing have been reduced from 17.7 million tonnes CO2-eq in 1990 to about 9.8 million tonnes CO2-eq in 2015, a drop of about 45 %. This trend is a result of lower energy use combined with lower emission intensity (lower emissions per unit of production). Total emissions from manufacturing can be split into about 7 million tonnes CO2-eq of process emissions (see the box below) and 2.8 million tonnes CO2-eq associated with energy use. Total energy use in the sector including energy use for non-energy purposes was 90 TWh. The emission intensity of energy use for energy purposes was low, at about 0.032 g CO2-eq per kWh. This reflects the fact that electricity makes up a large share of energy use in the sector.

Process emissions

The relationship between energy use and greenhouse gas emissions in a sector depends both on energy use and on which energy carriers are most widely used and the purposes for which they are used. For instance, about 70 % of emissions from manufacturing (7 million tonnes CO2-eq) and agriculture and fisheries (4.5 million tonnes CO2-eq) are process emissions. These emissions are from industrial and chemical processes rather than from energy use as such. In manufacturing, energy carriers such as coal, gas and oil are widely used in processes that make use of their chemical properties rather than their energy content. In the agricultural sector, there are process emissions from decomposition processes and livestock husbandry. The category ‘Other’ in the box above consists exclusively of process emissions from sources such as landfills and products containing fluorinated gases.

In 2015, Norway’s greenhouse gas emissions from final energy consumption totalled 32.2 million tonnes CO2-eq, and process emissions accounted for about 14.3 million tonnes CO2-eq. The remaining 20.6 million tonnes CO2-eq was from energy use for energy purposes.

Agriculture and fisheries

Agriculture and fisheries combined are the third largest source of greenhouse gas emissions from final energy consumption. In 2015, emissions from the two sectors amounted to 6.3 million tonnes CO2-eq. However, most of this was in the form of process emissions. The remainder, 1.8 million tonnes CO2-eq, was closely linked to energy use, and the main sources were machinery, equipment and fishing vessels. Energy use associated with these emissions was 7.8 TWh in 2015, so that emission intensity was about 0.23 kg CO2-eq per kWh. This is a relatively high figure that reflects the widespread use of petroleum products in these sectors.

Household sector and service industries

These are the two sectors where emissions from energy use are lowest. Their combined emissions were just under 1.7 million tonnes CO2-eq in 2015. Their energy use came to almost 77.5 TWh, which gives an emission intensity of only 0.022 kg CO2-eq per kWh.

Electricity, fuelwood and district heating are the dominant energy carriers in the household sector, which explains the low emissions associated with final energy consumption. In 2015, emissions from households were roughly 0.5 million tonnes CO2-eq, only about one-third of the 1990 level.

Greenhouse gas emissions from service industries are low because electricity accounts for a large share of energy use and district heating is fairly widely used. In 2015, emissions from the service sector amounted to about 1.1 million tonnes CO2-eq, slightly less than in 1990. Emissions from service industries are low in relation to the value of production in the sector, and energy intensity in the sector (energy consumption per unit of GDP produced) is also low.

Energy use by sector

Electricity accounts for a large proportion of energy use in Norway. There is a large energy-intensive manufacturing sector, and electricity is widely used to heat buildings and water. However, Norway also uses large amounts of fossil fuels, particularly for transport and in construction and agricultural machinery.

In 2020, final energy consumption in Norway totalled 211 TWh. As the figure below shows, industry and mining and transport were the sectors that used most energy in 2020, followed by services and households. Other sectors such as construction, agriculture and fisheries accounted for only a small proportion of energy use. This pattern has not changed much since 1990, although total energy use has risen in this period.

Final energy consumption in Norway, excluding non-energy use, 2020

Download as image (PNG)

Final energy consumption in Norway split by energy carrier. Total in 2020: 211 TWh. Source: Statistics Norway

The figure shows that electricity is the dominant energy carrier, followed by petroleum products. Electricity dominates energy use in manufacturing, the household sector and service industries, while petroleum products account for a large proportion of energy use in sectors that make heavy use of transport and machinery. District heating and natural gas account for only a small share of energy use, but this has been increasing in recent years. Consumption of district heating has risen, particularly in service industries and households, while there has been an increase in the use of gas in manufacturing industries and the transport sector. These energy carriers have been replacing fuel oil for heating and coal, coke and heavier petroleum products in industrial processes.

Manufacturing

Manufacturing accounts for a larger share of final energy consumption than any other sector, almost 37 % in 2017. This sector includes a wide variety of industries with differing energy needs, but energy use in the sector as a whole generally reflects Norway’s extensive use of electricity.

 

Power-intensive manufacturing accounted for over 80 per cent of total energy use in the manufacturing sector in 2017, or about 63 TWh. Of this, a majority share was electricity. One reason for the high electricity share is that aluminium production, which is highly energy intensive, is almost exclusively electricity-based. Other energy sources, particularly gas, coal and coke, account for a larger share of energy use in the production of other metals, basic chemicals and cement. The pulp and paper industry relies heavily on electricity but also uses some biomass.

 

As a result of structural changes in the economy, the share of energy used by the manufacturing sector has dropped in later years. A number of energy-intensive companies and plants have closed, while there has been an increase in activity in other parts of the manufacturing sector. Together with the introduction of more energy-efficient production technology, this has given a reduction in energy use. At the same time, the value of production has increased, so that the Norwegian manufacturing sector produced more value per unit of energy today than in 1990.

 

The structural changes have also resulted in changes in the mix of energy carriers used. Production of aluminium and basic chemicals, which uses large amounts of electricity and gas, has risen, while pulp and paper production, which extensive heavy use of biofuel, and iron manufacturing, which uses large amounts of coal and coke, have declined. Today, electricity, district heating and natural gas all accounted for a larger share of energy use in manufacturing than in 1990, while the proportions of coal, coke and oil were lower. The proportions of biofuel and waste have remained unchanged.

Service industries

Service industries accounted for 15 % of final energy consumption in Norway in 2017. This sector mainly uses energy in buildings, for space heating, heating water, lighting and operating electrical equipment. Electricity is the only energy source for the last two items in this list, while there are alternatives for space heating and heating water. Electricity made up 75 % of energy use in the service industries in 2017.

 

Petroleum products have normally been the next most widely used energy source in the service sector, but have accounted for a much smaller share of energy use than electricity. Annual consumption of petroleum products in the service sector is about 4,3 TWh, but only about 1.5 TWh is used for heating. District heating has for some years been the most widely used energy source for heating after electricity in this sector.

 

Although energy use has risen in the service sector, energy intensity has been declining because production has risen more rapidly than energy use.

Households

Energy use in households totalled 47,6 TWh in 2017, or 22 % of final energy consumption. Patterns of energy use in the household and service sectors show many similarities. In both sectors, heating, lighting and electrical equipment account for a large proportion of overall energy use.

Electricity is the most widely used energy carrier in households, just as it is in the service sector. The share of electricity in the energy mix has been increasing, reaching 83 % in 2017. This is explained by the increasing use of electrical equipment and steps to phase out the use of fossil energy sources for heating. Fossil fuel use was four times higher in 1990 than in 2017.

Biofuels account for the second largest share of energy used for heating in households. In 2017, biofuels supplied about 5.8 TWh of energy use. Most of this energy is in the form of fuelwood, but households also use pellets and bio-oils.

Electricity makes up between 70 and 80 % of the energy used to heat buildings, depending on various factors including prices. Oil and gas has traditionally supplied the rest. Oil-fired heating has been widely used in both residential and other buildings, while fuelwood has mainly been used in private homes. In recent years, there has been a switch from fossil energy sources to electricity, district heating and heat pumps for heating purposes in buildings. Sales of fuel oils and heating kerosene have dropped by more than 70 % since 1990. The volume of district heating delivered has risen from 0.8 TWh to 6 TWh per year in 2017, and estimated heat production by heat pumps has risen from about 0.4 TWh to about 15 TWh in 2017, as shown in the figure below.

 

Household expenditure on energy use

Household expenditure on energy, and the proportion of household income used on energy, depends on prices, taxes and the amount of energy used. Various factors influence household energy use. They include dwelling size, the number of people in a household, the climate, energy prices and technical standards.

Household expenditure on energy has risen since 1991, but incomes have also risen, moderating the effect of higher energy prices. In 2012, household expenditure on energy was equivalent to 4.2 % of household income, up from 3.1 % in 1991. Expenditure rose most rapidly until the early 2000s, a period when both energy prices and energy use per person were rising. By way of comparison, lighting and fuel accounted for 6 % of household expenditure in Norway 50 years ago.

Expenditure on energy as a share of household income in Norway is a little below the European average. Norwegian electricity prices are relatively low, and Norwegians use more electricity for heating, while other countries use natural gas and other energy carriers. Average household electricity consumption in the EU is between 2 500 and 5 000 kWh per year, and the average end-user price of electricity corresponded to NOK 1.9 per kWh in 2013. In Norway, average household electricity consumption is 16 000 kWh per year, and the average price was NOK 1.1 per kWh in 2013.

In Sweden and Finland, household expenditure on energy makes up a smaller proportion of income than in Norway, but the difference is small. In other nearby countries – the UK, the Netherlands, Germany and Denmark – energy use accounts for a larger share of household income.

Space heating in buildings

Space heating accounts for a large proportion of energy use in buildings in Norway. It is estimated that 78 % of household energy use is for heating buildings and water.

Electricity makes up between 70 and 80 % of the energy used to heat buildings, depending on various factors including prices. Oil and gas has traditionally supplied the rest. Oil-fired heating has been widely used in both residential and other buildings, while fuelwood has mainly been used in private homes. In recent years, there has been a switch from fossil energy sources to electricity, district heating and heat pumps for heating purposes in buildings. Sales of fuel oils and heating kerosene have dropped by more than 70 % since 1990, to about 2.7 TWh in 2015. The volume of district heating delivered has risen from 0.8 TWh to 4.7 TWh per year in the same period, and estimated heat production by heat pumps has risen from about 0.4 TWh to about 15 TWh in the same period, as shown in the figure below.

Heat pumps

Heat pumps have become much more widely used, particularly in later years. By 2017, there were about 1 million heat pumps in Norway. Heat pumps generate heat by extracting energy from the surroundings. The process uses some electricity, but much less than electric radiators or water heaters use to produce the same amount of heat. In 2014, it is estimated that in Norway, heat pumps used 6 TWh of electricity and produced 15 TWh of heat. The ratio between the electricity input and the heat output of a heat pump is called its coefficient of performance.

 

Heat pumps generally extract heat from the air outside a building, from the ground, or from a river, lake or the sea. The most important difference between these three sources is that the ground or water temperature is much more stable over a 24-hour period and over the year than the air temperature. Cold weather means that the coefficient of performance of an air source heat pump is low in winter. The lower the air temperature, the less heat an air source heat pump can deliver. On cold days it will often be necessary to supplement a heat pump with other heating sources, for example wood-burning stoves or electric radiators.

The great majority of heat pumps in operation in Norway today are air source heat pumps. This is probably because they do not require a water-based heating system in the building and are therefore considerably cheaper to install.

District heating

The proportion of district heating in the Norwegian energy supply system has risen since 2000. In 2017, district heating deliveries totalled 6 TWh, four times as much as in 2000. This is equivalent to about one tenth of the total need for energy to heat buildings and water in Norway.

A district heating system supplies consumers with hot water or steam from a central heat source via insulated pipelines. In most cases, district heating plants are constructed where there is access to a low-cost heat source such as heat from waste incineration or other heat that would otherwise be wasted. Most district heating systems of any size are in Norway’s largest towns. In Oslo alone, consumption of district heating is now 1.7 TWh per year, and district heating can meet up to 25 % of Oslo’s peak energy demand.

District heating can be produced using many different types of fuel. Waste has been the most important of these for some years, and accounted for 50 % of district heating production in 2017. About 29 % came from bioenergy which was the next largest energy source. Petroleum products are sometimes used to deal with peak loads, and account for about five percent of the yearly production of district heating.

About two-thirds of district heating production is delivered to the service sector, for example buildings used by health services, cultural and research activities and as offices. The remaining volume of district heating is delivered to blocks of flats and to the manufacturing sector.

Transport

Energy use in the transport sector totalled 52TWh in 2017, corresponding to 24 % of final energy consumption. Of this, 75 % was used for road transport, and the rest for domestic shipping, domestic aviation and rail transport.

Almost all the energy used in the transport sector is from petroleum products – 44.8 TWh, or 86 % of energy use in the sector. This is 70 % of all net final consumption of petroleum products in Norway. The mix of petroleum products has changed since 1990; petrol consumption has been halved, and diesel consumption has doubled.

The proportion of energy use for transport from sources other than petroleum products has risen as a result of increasing use of biofuels for land transport and of gas for maritime transport. In 2017, biofuels provided 5.9 TWh and natural gas 0.9 TWh. There has been a substantial increase in the number of gas-powered ships in recent years, and also an increase in the use of natural gas in land transport. In addition, more electricity is being used in maritime transport, both in combination with other fuels (hybrid ships) and alone. In 2016, regular deliveries of aviation biofuel to Oslo Airport Gardermoen started up.

Electrification of the railways in Norway: installation of the overhead system at Stavanger station.
Photo: Olaf Ellingsen, Norwegian Railway Museum.

Although electrification of the transport sector started early, electricity still only accounts for a small share of energy use. In 2017, electricity made up only 1 % of energy use in the sector according to Statistics Norway. There has been only a marginal increase in electricity use since 1990, but a steep rise in the volume of rail-based transport. In 1990, 115 million journeys were made by rail, while in 2017 the figure had risen to 255 million. This shows that energy efficiency has been substantially improved since 1990.

In recent years, the number of electric vehicles on Norwegian roads has risen steeply. At the start of 2018, there were about 140 000 registered electric vehicles.

The shift towards electric means of transport has been greatest for passenger cars, but purely electric or hybrid vehicle/vessel types are also being developed for other transport segments. Some electric ferries are already in use and more are on the way, various towns are testing electric buses, and the first electric vans are already on the roads.

Other sectors

Energy use in other sectors – fishing, agriculture and forestry, and construction – totals 4,6 TWh or 2,2 % of final energy consumption. In all these sectors, a large proportion of energy is used for machinery, equipment and vessels that are not included in the transport sector. These run largely on fossil fuels, and petroleum products therefore make up a relatively large proportion of energy use in all three sectors.

Factors that influence energy use

There are various factors that influence energy use in Norway. Variations in energy use from year to year are often related to fluctuations in weather conditions and in the prices of energy and energy-intensive goods and services. Longer-term trends are related to population growth and other demographic factors, and to the rate of economic growth and structural changes in the economy.

Population

Population growth influences energy use both directly and indirectly. As the population rises, so will total household demand for energy services – for transport, heating and electrical equipment. The most recent population projections from Statistics Norway indicate that Norway’s population is likely to increase by about 700 000 to 5.9 million by 2030.

Assuming that the level of energy use does not change, an extra 700 000 people would mean a rise of about 8.5 TWh in overall household energy use.

A larger population means a larger labour force and higher production of goods and services. This creates a growing demand for offices, shops, supermarkets, cafés and production plants, which in turn increases energy demand. More people also need more schools, child daycare centres and health services, all of which use energy for heating and to run equipment.

Population projections

Updated: 03.05.2017

Statistics Norway’s population projections, showing the main projection and low and high variants.

Source: Statistics Norway

Print illustration Download data Population projections Download PDF Download as image (PNG)

Population projections – Statistics Norway’s population projections, showing the main projection and low and high variants.

Population structure and population distribution also influence energy use. Urbanisation is expected to continue, with more and more people living in towns. According to Statistics Norway, the population in central areas is expected to rise by 1.5 million, from 4.2 million to 5.7 million, by 2040. In more rural areas, the population will only rise by 80 000 in the same period. Urbanisation tends to mean that more people live in flats, where each person generally has less living space and therefore uses less energy for heating. Centralisation also reduces energy needs for transport, because travel distances are shorter and people can use public transport more extensively or walk or cycle to their destinations. Compact towns generally have a less energy-intensive industrial structure and more service industries.

Economic growth

Economic growth results in greater demand for goods and services. This in turn increases energy demand, both for the production of goods and services and for transport of people and goods. Although economic growth, population trends and energy demand have become less closely linked in recent years, the level of activity in the Norwegian economy will continue to have a strong influence on trends in energy demand.

Industrial structure

The Norwegian economy consists of a large number of sectors and industries, and their energy use varies considerably. For example, manufacturing industries are generally more energy-intensive than service industries. Changes in industrial structure therefore influence energy use in Norway. Up to 2030, continued strong growth is expected in less energy-intensive service industries, in line with the structural changes that have been taking place in recent decades. Energy use will therefore rise more slowly than would be expected if more energy-intensive industries were growing.

Up to 2030, continued strong growth is expected in less energy-intensive service industries, in line with the structural changes that have been taking place in recent decades.

Norwegian industrial structure

Updated: 03.05.2017

Each industry's share of the economy (GDP)

Source: Statistics Norway

Print illustration Download data Norwegian industrial structure Download PDF Download as image (PNG)

Norwegian industrial structure – Each industry's share of the economy (GDP)

Technological advances

The effects of technological advances on energy use are complex. New technology is often more efficient, which tends to moderate any increase in energy use; on the other hand, energy use may increase as new machinery and equipment is introduced. For the economy as a whole, technological advances act as a stimulus for growth. Technological developments are the most important driver of growth in productivity, which in turn is a key driver of economic growth, which brings with it more energy use. Technological advances also shift production towards capital-intensive industries, and these are generally also relatively energy-intensive. Thus, the overall effect of technological advances is to increase energy use, even if the energy is used more efficiently.

The overall effect of technological advances is to increase energy use, even if the energy is used more efficiently.

Energy prices

Energy prices influence both the energy mix and overall energy use. If the price of one energy carrier rises, this may both reduce its consumption and increase demand for other energy carriers. In the short term, however, the technology available limits how much consumption can be reduced and whether it is possible to switch to another energy carrier. Relatively large price changes that are maintained over time are needed to make it financially worthwhile to reduce energy use or switch energy carriers. People do not immediately replace inefficient fridges or install heat pumps when electricity prices rise.

In isolation, rising energy costs tend to result in lower demand and lower production of goods and services. Energy-intensive sectors become less profitable, and less energy-intensive sectors such as services become relatively more profitable. In the long term, higher energy prices may therefore result in a less energy-intensive industrial structure and reduce overall energy demand.

Finally, the fact that efficiency varies from one energy carrier to another has an impact on overall energy demand. For example, a switch from petrol/diesel to electricity to run road vehicles will reduce total energy use.

A modern and digital power supply system

New technologies and market-based solutions offer more effective ways of dealing with the challenges facing the power supply system.

A modern and digital power supply system

Norway has always spearheaded the deployment of new technologies in the power supply system. In recent years, there have been major technological advances, partly connected with the development of a digital society. These will make it possible to resolve the challenges facing the power supply system more effectively.

The power sector is also changing, as electricity is being used in new products and for new purposes. Electricity consumption is becoming more energy-efficient, but at the same time peak loads are rising. The proportion of power produced using intermittent renewable sources is rising. Changes in production and consumption patterns will have major implications for grid operations and for the investments needed in the sector.

New technologies and wider access to data will open up opportunities for reducing costs and improving security of supply and the efficiency of energy use

New technologies and market-based solutions can make it possible to develop a more efficient and flexible system. Over time, this may reduce the need for investments in the grid. The capacity of the system to cope with both short- and long-term changes depends on the physical infrastructure, the ICT infrastructure and market systems.

Digital technologies in the electricity grid

Digital technologies are already an important tool in the operation of the power supply system, for example in advanced control systems in the transmission and regional grids. Operational control systems for the transmission and regional grids use digital systems for monitoring, management and control. Digital systems have also been in use for many years for remote control of electricity production facilities and the grid.

Power companies have enjoyed substantial efficiency gains as a result of the switch to digital monitoring and management of the power supply system

Operational control systems allow companies to monitor the status of the grid and production facilities in real time. If a fault arises or there is a power cut or some other incident, operators at a control centre can respond immediately and restore power quickly or correct the fault.

Until now, digitisation and integration of operational control systems with other systems have largely been restricted to the transmission and regional grids, but is now becoming more widespread in distribution grids as well.

Smart system operation

Statnett uses system protection and frequency protection to increase the transmission capacity of the grid, reduce power supply interruptions when there is an outage in a grid component, and prevent local grid collapse.

System protection is a generic term for predefined relays that are automatically activated if there is a fault on a power line or at a substation, or if frequency, voltage or current limits are exceeded. System protection includes disconnection of consumption and production.

Frequency protection is used to reduce the risk of grid collapse if power production drops. This is an automatic system that primarily switches off ordinary consumption. About 30 % of Norwegian consumption is connected to this form of protection. At present, frequency protection is often manual. As substations in the distribution grid are connected to the TSO’s operating system, it will be possible to develop the use of frequency protection further.

Advanced metering infrastructure in the distribution grid

By 1 January 2019, all Norwegian households will have had new electricity meters installed as part of advanced metering systems (AMS). These smart meters register electricity consumption automatically hour by hour, and send information to the grid company. The installation of AMS meters means that customers no longer need to take manual readings and report their consumption to their grid company. Frequent, automatic readings will also result in better data quality and more accurate electricity bills.

When AMS meters are installed, grid companies will also receive far more accurate information on grid status, which can be used to operate and design the electricity grid more efficiently.

AMS provides accurate data on consumption, load and voltages allowing grid companies to carry out more precise grid analyses for planning and operational purposes. A better view of when different parts of the grid are under stress, and how load is distributed, will be an important basis for grid planning.

AMS will make grid operation simpler and more effective

Voltage measurements provided by AMS meters can provide a better overview and improve control of the situation in the low-voltage grid. At present, grid companies only become aware of faults when they are notified by their customers. By then, customers may already have experienced damage to electrical appliances and equipment, and in the worst case electrical fires. Voltage monitoring by AMS can help to avoid this. Interruptions to the power supply are registered, so that the grid companies are able to find and correct faults more quickly.

Electricity customers will also notice major changes after the introduction of AMS meters. The traditional system of periodic manual meter readings and settlement on the basis of average prices does not give customers either the necessary information or any incentive to manage their electricity consumption actively. With a smart meter, it will be easier for people to monitor their consumption and fluctuations in electricity prices. Customers will have more information and incentives to use energy more efficiently. They will be able to adapt their consumption to price fluctuations and the load on the grid, and the option of hourly settlement will make it possible to benefit financially. AMS meters also opens up the possibility for a number of additional services, for example related to energy saving and management.

Customers with smart meters can be more active energy consumers
Optional additional services for customers with smart meters

Smart meters have an open interface, which allows users to install a range of different additional services.

Communication module

Users can install a communication module that uses real-time or historical data from the smart meter to display electricity consumption. Various options are available tailored to different areas of use and user groups. They all provide information and feedback on electricity consumption and costs.

The information can be provided on an in-home display, an app for mobile phones or tablets, or a web portal. Users can install simple equipment to monitor energy use by various appliances in the home. Consumption can be displayed using colours or illustrations, improving people’s understanding of the cost of heating the home, showering or other activities.

An app can also be used outside the home, giving people a complete picture of energy use in the home while they are at work or travelling. Push notifications can be used to give customers useful information, for example if someone has left the house but forgotten to turn off the coffee machine. If information is provided via a web portal, it will be possible to give detailed, comparable data on historical consumption. It might also be possible to provide various other services through a web portal, for example analysis of electricity consumption in different periods or estimates of the effect of introducing different energy efficiency measures.

Control systems

Control systems can be connected to smart meters, and send signals and alarms to various electrical appliances in the home. This makes it possible to control lighting and heating, home alarms and other kinds of electrical appliances via an app on a mobile phone or tablet or via control panels in the home.

If a control unit is connected directly to the heating source, temperature patterns can be pre-programmed or remotely controlled via a mobile phone. For example, heaters can be set on eco mode at times of day when the house is empty, or remotely controlled if someone will be arriving home earlier than planned.

Safety and security systems

Safety and security systems can be improved using data from smart meters. If systems receive data from several sources, they can more easily detect abnormal patterns of behaviour in a building and inform the owner. Information on abnormal electricity consumption patterns in a client’s home can be important for care services. Thus, data from smart meters can improve the quality of other services.

Demand flexibility

The Norwegian power supply system is flexible. The balance in the system is maintained largely by the large power plants with storage reservoirs. Large end-users also provide flexibility through direct participation in the day-ahead and intraday markets, the balancing markets and other arrangements.

Demand flexibility makes it possible to use the existing grid more efficiently, and in some cases to postpone or reduce the need for new grid investment

The proportion of electricity production based on intermittent renewable sources is increasing and peak loads are rising, which may increase the need for flexibility. It may therefore make financial sense to use a larger proportion of the flexibility that smaller end-users in the distribution grid can provide. With new technologies, demand flexibility from smaller end users can also play a part in maintaining the balance in the power supply system through the intraday, day-ahead and balancing markets.

Demand flexibility can also play a role at a more local grid level. At present, the need for more capacity in the distribution grid is largely met by expanding the grid, even though there is often only a shortage of capacity for a few hours a year.

Aggregation

It can be difficult for smaller participants to take part in certain markets, for example because of rules on minimum bid sizes in the regulating power market. One solution to this is to establish companies representing a number of households and/or businesses, which aggregate the flexibility, they can provide and offer it in the market. These companies are called aggregators. Legislation currently being drawn up by the EU requires TSOs, grid companies and any future market solutions to encourage participation in such  demand response systems, including through aggregators.

To offer flexibility, participants must be able to regulate or replace their energy consumption and load demand. New technology will enable end users to play a more active role in managing their electricity consumption. For example, load can be shifted to other times of day without much effect on consumer comfort or on business activities. In future, it will also be possible to set many electrical appliances to respond automatically for example to price signals or the load on the grid.

Smart meters and capacity charging

Peak energy demand is an important driver of the costs of grid operation, since it is peak load and not energy consumption that determines how much grid capacity is needed. Allocating grid costs on the basis of the peak load drawn by a customer on the grid can therefore be a suitable and effective approach. This method of pricing, capacity charging, can also reflect the implications customers’ decisions and consumption patterns can have for grid development and investments.

Customers with smart meters can obtain more frequent and more detailed information on electricity prices. In addition, the grid companies will be able to use new ways of setting grid tariffs. Hourly measurements from smart meters will make it possible to design grid tariffs based on the customer’s peak load. Peak-load pricing can provide signals about grid capacity and incentives to reduce consumption or move it to another time. This may result in a more even pattern of consumption and reduce peak loads.

At present, load metering is mainly used in the transmission and regional grid and for larger businesses in the distribution grid. With smart meters it will be possible to use load metering more widely in the distribution grid as well. This should make household and other smaller customers more aware of the load they are drawing and how this affects grid costs. Customers who even out their consumption patterns or reduce consumption in periods when the load on the grid is high will be able to reduce their costs.

Elhub

Enormous volumes of data will be collected when all customers are metered hourly. To deal with this as effectively as possible, a centralised solution for data storage is being developed. Statnett is responsible for developing a data hub, called Elhub.

At present, the grid companies are responsible for distributing metering data to power suppliers, organising changes of supplier, cancelling accounts and compiling data for balance and deviation settlements. Elhub will take over all these tasks, and power suppliers will have easier access to all their customers’ metering data from one site. Third parties, for example aggregators and energy service companies offering monitoring and control services, will also be able to access metering data once they have obtained the end users’ approval.

Nettselskap og kraftleverandører- alle snakker med en datahub.
Elhub
Privacy and data security in connection with smart metering and Elhub

Frequent metering of electricity consumption and the exchange and storage of larger volumes of data will make protection of personal data and data security more important. It is an important principle that customers own their metering data and decide who is to be allowed access to them.

The grid companies are responsible for data security relating to smart metering. To avoid misuse of data and unauthorised access to personal data and control functions, the grid companies and Elhub must comply with strict requirements. For Elhub, these include mandatory encryption of messages, a secure access control system and an information security management system. The grid companies must require the communication system for smart meters to be configured in a closed network or alternatively encrypted. They must ensure secure access to critical control functions such as on-off switching, in other words remote control of the electricity supply from the grid company. If smart meters and the operational control system are linked, the smart metering system must meet the requirements of Norway’s regulations on security and emergency planning in the energy sector. The Norwegian Water Resources and Energy Directorate has also drawn up guidelines on smart metering and security, which will be updated.

Smart metering systems must have an open interface, allowing commercial suppliers to offer extra services that make use of their capabilities. The Norwegian Electrotechnical Committee and the Norwegian Water Resources and Energy Directorate have developed national recommendations on access to different types of data via the open interface. These are for use when commercial firms offer communication services via an app, display or smart home system that is linked to the smart meter. One recommendation is that the open interface should be deactivated when the grid company installs smart meters, and that electricity customers must actively approve activation of the data flow.

As additional services and other opportunities based on smart metering and Elhub are developed, it will be important to ensure the neutrality of grid companies, to avoid abuse of monopoly power.. For example, grid companies and power suppliers will be required to keep separate customer databases from 1 January 2019.

Data security

The power supply sector is already highly computerised. As digital solutions are used more widely there is a risk of that the number of ICT-related incidents will rise. In addition, the introduction of new technologies and the use of cloud solutions or suppliers abroad may involve security and regulatory challenges.

Companies in the power supply sector must comply with comprehensive Norwegian legislation on security and emergency planning for the sector

Energy infrastructure and facilities are considered to be critical infrastructure. Companies in the sector must therefore comply with comprehensive rules set out in the Energy Act and the regulations relating to security and emergency planning in the energy sector, which are administered by the Norwegian Water Resources and Energy Directorate. The regulations lay down strict, clear rules on system security, access control and the availability of competent personnel so that that faults and security incidents in operational control systems are dealt with efficiently. There are also requirements for robust communications systems, since many companies rely on remote control over long distances. The most important operational control systems are also required to include redundant infrastructure, which must function even if infrastructure supplied by commercial firms fails. The regulations also require power companies to be able to monitor and control facilities manually if the operational control system is unavailable.

KraftCERT

The ability to detect and resolve computer-related incidents quickly is becoming increasingly important. The regulations relating to security and emergency planning in the energy sector contain provisions on this, and in 2013, the Norwegian Water Resources and Energy Directorate took the initiative for the establishment of a group called KraftCERT. This is intended to have the capacity to coordinate the response to computer-related incidents in companies in the power sector. Statnett, Statkraft and Hafslund agreed to cooperate on the establishment of the group, which is intended to provide alerts and assistance in the event of major incidents. CERT stands for Computer Emergency Response Team. KraftCERT has been operational since May 2015. A number of energy companies are now members, and the authorities are encouraging more to join. KraftCERT will cooperate with all relevant security organisations and agencies in Norway and abroad to obtain information on vulnerability and threats to power supplies.

Energy storage technologies

The development of new and improved technologies for energy storage will allow even fuller use of intermittent energy production. Energy storage can allow fuller use of capacity in the existing grid, reduce the need for upgrades, make seasonal storage possible and allow more use of energy solutions that are independent of the grid.

At present, there are few energy sources that can compete in terms of price and efficiency with flexible hydropower. However, international efforts are being made to develop alternative technologies for energy storage. The costs of solar cell technology are being greatly reduced, and batteries are being developed that can make it possible to store energy produced in daylight hours for later use. A technological breakthrough may increase the potential of intermittent production, which in turn may affect the value of Norway’s flexible hydropower production.

In the long term, new and more efficient battery types may provide a substantial energy reserve

In the long term, new and more efficient battery types may provide a substantial energy reserve. Hydrogen may be an alternative energy carrier where larger quantities of energy need to be stored. Heat storage can also be a useful option when the grid is under stress.

Hydrogen storage technologies offer high energy density and short response times. A great deal of research is being done on further development of hydrogen storage. The main challenges that remain are low system efficiency, safety and high costs. Considerable progress is expected in this field in the years ahead, as is the case for battery technologies.

In the long term, using batteries more widely may be a way of reducing operational problems in the grid related to the use of power-intensive appliances such as electric vehicle chargers and intermittent local energy production such as solar cells. Batteries may either be a temporary solution, to postpone the need to upgrade the grid, or an alternative to upgrading or expanding the grid.

Batteries and off-grid electricity production

For end users, batteries can function as a back-up solution in the event of power cuts. In addition, they can make it possible to exploit price variations in the grid and store power that end users produce themselves, for example using solar cells. With a battery system connected to solar cells on the roof, it is possible to store energy for later use, and thus reduce electricity bills and the need to sell surplus solar energy to the grid at low prices. The introduction of smart metering for all end users will open up new opportunities for energy storage and shifting load to different times of day.

Trends in energy use

During the past 26 years, Norway’s population has risen by 22 %, and the value of the Norwegian economy has doubled. However, final energy consumption in mainland Norway has only risen by 12 % in the same period. This excludes non-energy use of energy carriers (i.e. use as raw materials). Mainland Norway excludes Svalbard and Jan Mayen.

Trends in final energy consumption in Norway

Most of the rise in energy use after 1990 took place before 2000, see the figure below. Up to 1999, there was a steady rise in energy use in all sectors of the mainland economy. Since then, household energy use has levelled off , and energy use in manufacturing has declined. Final energy consumption totalled 213TWh in 2017, which is somewhat lower than the average since 2000.

Final energy consumption

Updated: 24.02.2021

Final energy consumption in Norway. Total in 1990: 185 TWh; in 2019: 213,8 TWh.

Source: Statistics Norway

Print illustration Download data Final energy consumption Download PDF Download as image (PNG)

Final energy consumption – Final energy consumption in Norway. Total in 1990: 185 TWh; in 2019: 213,8 TWh.

Two main factors explain these trends. Firstly, the economy as a whole has shifted towards less energy-intensive activities, which require less energy per unit produced. The service sector has grown, and manufacturing accounts for a smaller share of the economy.

Secondly, energy use has become more efficient. Technological developments have given us more efficient machinery and equipment, there has been a switch from fossil energy sources to electricity, and targeted action has been taken to improve energy efficiency. All of these factors have moderated growth in energy use.

The growth of the economy as a whole, and particularly the rise in private consumption, has resulted in rising energy use for the transport of people and goods. There has been a steady rise in energy use in the transport sector since 1990, in contrast to the situation in other sectors. In 2017, energy use for transport was 30 % higher than in 1990. However, wider use of diesel and technological advances have made energy use more efficient. Energy use measured per person-kilometre and per tonne-kilometre was lower in 2017 than in 1990.

The overall result is that the Norwegian economy has become gradually less energy-intensive over the past  years. The figure below shows that the energy intensity of the Norwegian economy has declined by more than 40 % since 1990. This indicates that economic growth and energy use have become less tightly coupled.

Energy intensity

Updated: 28.04.2021

Energy intensity in the Norwegian mainland economy, shown as percentage change since 1990.

Source: Statistics Norway

Print illustration Download data Energy intensity Download PDF Download as image (PNG)

Energy intensity – Energy intensity in the Norwegian mainland economy, shown as percentage change since 1990.

Energy intensity in the Norwegian mainland economy, shown as percentage change since 1990.

Per capita energy use has also declined in Norway during this period, and was 8 % lower in 2015 than in 1990 (see the figure below).

Energy consumption per capita

Updated: 28.04.2021

Energy consumption per capita in the Norwegian mainland economy, shown as percentage change since 1990.

Source: Statistics Norway

Print illustration Download data Energy consumption per capita Download PDF Download as image (PNG)

Energy consumption per capita – Energy consumption per capita in the Norwegian mainland economy, shown as percentage change since 1990.

The same trend can be seen for per capita energy use in the household sector. Average per capita energy use in the household sector has declined, and was 7 % lower in 2017 than in 1990. This reduction occurred despite a reduction in the number of people per household, an increase in the living space per person, and the fact that the value of private consumption has more than doubled. Various factors have helped to reduce energy use in the household sector, including the introduction of more energy-efficient equipment, stricter building regulations and the increasing use of electricity and heat pumps for heating people’s homes.

Trends in per capita consumption, per capita living space and per capita energy use in the household sector in Norway

Source: Statistics Norway

Print illustration Download data Trends in per capita consumption, per capita living space and per capita energy use in the household sector in Norway Download PDF Download as image (PNG)

Trends in per capita consumption, per capita living space and per capita energy use in the household sector in Norway

A sustainable and reliable energy supply system

Fjell og fjord

Energy research

Research, development and demonstration are important for value creation and for effective and environmentally sound use of Norwegian energy resources.

An important goal of public funding for research and innovation is to encourage industry-run projects and technology initiatives. Close cooperation between academia, the business community and the authorities is of crucial importance for achieving results. High-quality research groups and substantial industrial activity in Norway are based on utilisation of our energy resources.

The research effort is intended to:
  • Ensure long-term development of knowledge, expertise and technology
  • Develop competitive products and services that can promote more business development and value creation in Norway
  • Reduce potential negative environmental and climate impacts of activities in this field through knowledge development and new technological solutions
  • Enhance knowledge as a basis for policy development and sound management of Norway’s energy resources.
Oversikt over virkemidler for energiforskning
Funding instruments for energy research in Norway

Energi21

Energi21 was established by the Ministry of Petroleum and Energy in 2008 and is Norway’s national strategy for research, development, demonstration and commercialisation of new energy technology.

Energi21 encompasses the whole energy sector, and gives advice to the authorities on the strategic use of public-sector research funding. Energi21 has a permanent board including representatives of representatives from energy and supplier companies, industry associations, research and educational institutions, and public authorities. The Research Council of Norway serves as the secretariat.

The Energi21 strategy was revised in 2018. In its fourth national research strategy, Energi21 recommends a growth in the focus on new energy technology and a priority effort aimed at the following priority areas:

  • Digitized and integrated energy systems.
  • Climate-friendly energy technologies for maritime transport.
  • Solar power for an international market.
  • Offshore wind for an international market.
  • Hydropower as the backbone of Norwegian energy supply.
  • Climate-friendly and energy-efficient industry including CO2 handling.

The focus areas and related recommendations from Energi21 are discussed in more detail in the main report: https://www.energi21.no/siteassets/energi21strategi2018lr.pdf

The Research Council of Norway

The Research Council of Norway is responsible for managing most of the public funding available for energy research. The funding is allocated to various programmes and funding schemes that together cover the entire energy field, including effective energy use, renewable energy and carbon capture and storage. The programmes employ funding instruments that cover long-term basic and applied research, technology development, small-scale pilot projects and social science research. Public funding is available to cover 100 % of the costs of basic research. Private actors are required to provide at least 50 % of the funding for projects further along the innovation chain.

The most important initiatives in the energy field are the research programme ENERGIX and the Centres for Environment-friendly Energy Research (FME scheme).

 

RESEARCH PROGRAMMES

ENERGIX

The ENERGIX programme provides funding for research on renewable energy, efficient use of energy, environment-friendly energy for transport, sustainable energy systems and energy policy. It is one of the most clearly industry-oriented programmes funded by the Research Council. It includes not only the energy sector but also energy-related research and development in the construction, transport, manufacturing, maritime and agricultural sectors. About 80 % of the projects in the programme portfolio are headed by or include participation by Norwegian business and industry. Several hundred different companies are involved in current ENERGIX projects. Such strong involvement of the private sector ensures that the projects that receive support are relevant to and useful for the business sector.

The FME scheme

The decision to establish the Centres for Environment-friendly Energy Research (FME scheme) was taken in 2008 as part of the follow-up to the cross-party agreement on climate policy. The purpose of the scheme is to establish time-limited research centres which conduct concentrated, focused and long-term research of high international calibre in order to solve specific challenges in the energy sector.

The Research Council of Norway provides 50 % of the funding for the centres, 25 % must come from the host research institutions, and at least 25 % from business and other user partners. The user partners are expected to play an active part in running the centres, providing funding and carrying out research. The overall objective of the FME scheme is to solve key challenges in the energy sector, generate solutions for the low-emission society and enhance the innovation capacity of the business sector. The centres can have a life span of up to eight years. Initially, eight centres for research in various fields of technology were established in 2009, and a further three for social science-related energy research in 2011. In 2016, funding was granted for eight new centres, focusing on hydropower, smart grids, energy efficiency in trade and industry, environment-friendly transport, carbon storage and capture (CCS), solar cells, biofuels and zero-emission urban zones.

CLIMIT

CLIMIT is a national programme for research, development and demonstration of technologies for capture, transport and storage of carbon from fossil-based power production and industry. The programme supports projects in all stages of the development chain, from long-term basic research to build expertise to demonstration projects for CCS technologies. The main focus is on technology development, but it is also considered important to identify opportunities for future commercialisation and value creation in Norwegian industry.

The CLIMIT programme involves collaboration between Gassnova SF and the Research Council of Norway. The Research Council manages research and development, while Gassnova manages piloting and demonstration activities. The board for the CLIMIT programme makes decisions on funding awards.

INTERNATIONAL RESEARCH COOPERATION

Participation in international cooperation on energy research is a high priority and an important supplement to national research programmes. Close and productive cooperation across national borders enables us to find solutions to joint problems, improves the calibre of Norwegian research and technology activities, builds up the knowledge base and opens the way for business cooperation.

Horizon 2020 is the EU's framework programme for research and innovation for the period 2014–2020, and is by far the most important international cooperation forum for Norwegian energy research. The priority themes for Horizon 2020 largely overlap with Norwegian research priorities. Norwegian research groups and the Norwegian business sector have generally had a good deal of success when they have participated in calls for proposals for energy research under EU framework programmes.

The International Energy Agency (IEA) has established a number of research programmes on various energy topics. Norway is taking part in several of these. Norwegian participants may be from industry, research institutions or the authorities.

Nordic Energy Research is an institution under the Nordic Council of Ministers. Its purpose is to strengthen national research programmes and research institutes in the Nordic region and to draw up a joint research and development strategy for energy topics that are of common Nordic interest.

Demonstration and market introduction

Demonstration and market introduction

Enova plays a part in maturation and market introduction of new energy and climate technology, and offers investment grants for full-scale demonstration projects for energy and climate technology. Enova has a special responsibility for focusing on new energy and climate technologies in industry. The overall objective is to reduce greenhouse gas emissions and promote a long-term shift towards more environmentally friendly energy consumption and production

The main objective of Innovation Norway is to promote business development that is profitable in business and socio-economic terms, and to unlock the potential for business development in different regions of the country.

Enova

Enova plays an important role in the development of Norway’s future energy system and the transition to a low-emission society.

Enova SF is a state enterprise owned by the Ministry of Climate and Environment. Enova provides funding and advice for energy and climate projects, and helps both companies and individual households. Funding for projects is drawn from the Energy Fund, which Enova manages on the basis of four-year rolling agreements with the Ministry. Capital totalling about NOK 2.6 billion is transferred to the fund each year, including about NOK 630 million per year from an earmarked levy on the grid tariff. These financial arrangements make it possible for Enova to be a predictable and flexible source of funding for projects.

Enova’s goals

Overall objective:

Enova shall contribute to reductions in greenhouse gas emissions, improved security of energy supply, and technology development which will bring about reductions in greenhouse gas emissions in the longer term.

Goals:

Enova shall promote:

  1. reductions in greenhouse gas emissions which will contribute towards Norway’s emission reduction commitment for 2030;
  2. greater innovation in energy and climate technology which is adapted to the transition to a low-emission society;
  3. improved security of supply through flexible and efficient use of energy and peak load capacity.

Enova shall establish instruments with the aim of bringing about lasting changes in the market. Energy-efficient and climate-friendly solutions should in the long term be the preferred solutions without government support. Enova may support projects in all sectors.

From 2017, Enova’s focus has been shifted more towards climate-related activities and innovation, in line with the new agreement for the period 2017–2020.

This means that there will be a greater emphasis on reducing emissions from the transport sector and other sectors that are not part of the emissions trading system, and on innovative solutions adapted to a low-emission society. The new agreement between Enova and the Ministry gives higher priority to reducing and eliminating barriers to new technologies and to promoting permanent market change. This means that in the long term, energy-efficient and climate-friendly solutions should succeed in the market without government support.

The agreement grants Enova a wide degree of freedom to develop tools, set priorities for different sectors and allocate support to individual projects. Enova makes use of its expertise and experience from various markets to design its programmes to address the most important barriers to the introduction and deployment of energy and climate solutions and bring about permanent change.

Enova’s support falls into one of two main categories: technology development and market change. Enova’s programmes deal with technologies and solutions at various stages of maturity. During the innovation process from technology development to market introduction, shown by the red line in the figure below, the goal is to reduce costs and the level of technological risk. Once a solution is technologically mature and ready for market roll-out, the goal is to achieve widespread deployment and market take-up, as shown by the green line in the figure.

It is always necessary to overcome various market barriers as a solution proceeds through technology development and market introduction. Enova seeks to identify the most important of these, and designs its programmes for the introduction and deployment of energy and climate solutions to lower such barriers.

Technology development and market change. Source: Enova

It is important to remember that new energy and climate technology developed for example in Norway can also play a part in cutting greenhouse gas emissions at global level when deployed widely enough. Investment in new technology and innovation often carries a high level of investment risk. Using public funding to reduce risk is an important strategy, because a new technology often provides greater benefits for society than for individual investors. Enova therefore supports pilot and demonstration projects and full-scale introduction of energy and climate technologies. This helps to lay the basis for a more energy-efficient and climate-friendly business sector in the transition to a low-emission society.

It generally takes time for a new technology or solution to become established and diffuse through the market. The reasons for the delay may vary. New technology that will bring about cuts in greenhouse gas emissions or make energy use more efficient should be deployed as soon as possible, in the widest possible range of applications and by as many people as possible. Possible barriers to the spread of new technology and products include a lack of information, scepticism to new and relatively untried solutions, and prices. Enova’s programmes for market change are designed to reduce these and other barriers and thus promote permanent market change.

Examples of projects supported by Enova
  • Fast-charging infrastructure for electric vehicles: NOK 50.5 million allocated through three rounds of competitive bidding. So far funding has been provided for 230 charging stations along Norway’s main roads. Enova has designed the scheme so that it supports the market for charging services and reduces the barriers that have been identified.
  • Zero- and low-emission ferries: NOK 480 million allocated to Hordaland, Møre og Romsdal and Sør-Trøndelag counties for the development of charging infrastructure for ferries. This is expected to result in an increase in the number of battery electric and plug-in hybrid ferries, which have considerably lower emissions than conventional ferries.
  • Energy-efficient production of solar cell silicon: NOK 25.6 million to Elkem Solar and NOK 29 million to Norsum to improve the energy efficiency of production processes for silicon. Energy-efficient production processes are vital in the transition to a low-emission society.
  • Innovative postal and logistics centre: NOK 14.2 million to Norway Post to deploy energy-efficient and innovative solutions at the new logistics centre in Trondheim. In a low-emission society, buildings must use energy more efficiently and put less pressure on the energy supply system.

Solar cell silicon blocks in Elkem Solar’s plant. Source: Elkem Solar

Labelling schemes and standards

Energy labelling of products

The rules on energy labelling of products include information requirements for manufacturers and suppliers. Products that are covered by the labelling schememust be marked with their energy efficiency class to help consumers choose the most energy-efficient products. The products are rated on a seven-point scale (where A+++ is the best rating), which is displayed on the energy label on the product.

The figure shows an energy label for washing machines

Download as image (PNG)

Bildet viser energimerke for vaskemaskiner.
Bildet viser energimerke for vaskemaskiner.

The EU is drawing up requirements for individual product groups on an ongoing basis. Rules have been drawn up and introduced in Norway for product groups including household refrigerators and freezers, household dishwashers, household washing machines, air conditioners, household tumble dryers, combined washing machine and tumble dryers, lighting, televisions and electric ovens.

New energy label

In 2017, the EU decided to update the framework for energy labelling of products. This update includes a new grading scale. The new grades will go from A to G without any sub divisions. This means that the grades A+ to A+++ no longer will be in use. The new framework also includes new rules on how products will be distributed on the grading scale. Norway is working towards adoption of the new energy label.

Guarantees of origin

 

Guarantees of origin were first introduced in the 2001 Renewable Energy Directive (2001/77/EC), which entitled all producers of renewable electricity to obtain guarantees of origin. These provisions were retained in the 2009 directive (2009/28/EC), and extended to heating and cooling produced from renewable sources.

A guarantee of origin is a confirmation that one megawatt hour (MWh) of electricity has been produced from a specified energy source.

Guarantees of origin are tradable. In Norway, production plants are accredited for the guarantee of origin scheme for a five-year period, after which they must obtain new accreditation. Guarantees of origin are issued by individual countries, but many of the EU and EFTA states, including Norway, have joined forces to ensure that there is an international standardised system for recording trading in guarantees of origin. Statnett is responsible for the Norwegian registry, and the Norwegian Water Resources and Energy Directorate is the supervisory authority for the scheme. Guarantees of origin can be used for marketing purposes, but are not a form of support that can be expected to trigger the development of new production capacity. Some countries, including Norway, have made arrangements for using guarantees of origin in electricity disclosure (sometimes known as ‘electricity labelling’). Requirements for electricity suppliers to provide information on the origin of the electricity they sell, i.e. the fuel mix used in production, follow from the Internal Energy Market Directive. However, EU legislation does not require companies to use guarantees of origin for this purpose – another option that is available is to use production statistics for this purpose.

 

Ecodesign

The Ecodesign Directive sets requirements for improving the environmental performance of energy-related products for sale in the EU internal market. The directive is aimed at manufacturers/importers and covers the household sector, the service sector and industry (except means of transport). If products meet specified ecodesign requirements, they qualify for CE marking, and may be sold throughout the internal market. Ecodesign requirements are intended to remove the least energy-efficient products from the market and reduce the environmental impact of energy-related products at all stages of their life cycle.

The EU is drawing up product-specific rules under the Ecodesign Directive on an ongoing basis, in the same way as for products covered by the Energy Labelling Directive. The EU has signaled that ecodesign will be a tool to achieve circular economy. Future requirements could be related to a products use of resources, how easy the product is to repair or recycle. Rules have been drawn up and introduced in Norway for products including simple set-top boxes, electricity consumption in standby and off mode of electrical and electronic household and office equipment, household lamps, fluorescent lamps for office and street lighting, electric motors, household refrigerating and freezing appliances, circulators and water pumps, air conditioners and comfort fans, household dishwashers and washing machines, industrial fans, household tumble dryers and televisions.

Sustainable buildings

Buildings account for about 40 % of energy use in Norway, and efficient energy use is therefore crucially important. Norway uses various instruments to ensure this, including regulatory measures, labelling schemes and information.

Technical Regulations on buildings

Building standards have a long history in Norway, and the first energy requirements for buildings were introduced as long ago as 1949. The Ministry of Local Government and Modernisation is responsible for determining the requirements of the Technical Regulations on buildings.

The Technical Regulations apply principally to new buildings and when large-scale renovation and alterations are carried out. The regulations set out minimum standards that buildings must meet for their construction to be legal. They include requirements relating to energy use in buildings. New buildings correspond to only about 1-2 % of the building stock per year. On the other hand, buildings have a long lifetime, and the current energy requirements of the regulations will therefore influence energy use for many years to come. The energy requirements have been revised and made stricter a number of times, most recently from 1 January 2016.

Building standards have a long history in Norway, and the first energy requirements for buildings were introduced as long ago as 1949.
Central government bodies with responsibilities relating to sustainable buildings

The Ministry of Local Government and Modernisation is responsible for promoting the sustainability of housing and buildings generally.

The Norwegian Building Authority plays an important role in preparing amendments to the technical requirements for buildings, for example through research projects and impact assessments.

Enova is a state-owned enterprise that was established by the Storting (Norwegian parliament) in 2001, and promotes market introduction of innovative energy and climate technologies in various sectors, including construction. Enova is also responsible for the energy certificate scheme for buildings.

The Norwegian Water Resources and Energy Directorate is responsible for implementing the EU Ecodesign and Energy Labelling Directives in Norway.

 

Phasing out oil-fired heating

Oil-fired heating has been widely used in both residential and other buildings, while fuelwood has mainly been used in private homes. In recent years, there has been a switch from fossil energy sources to electricity, district heating and heat pumps for heating purposes in buildings. Sales of fuel oils and heating kerosene have dropped by more than 70 % since 1990, to about 2.7 TWh in 2015.

Traditionally, oil-fired heating and fuelwood have been the most widespread local energy solutions, and have functioned well together with the electricity system. However, fossil oil use has been dropping as a result of high taxes and the prospect that a ban on using fossil energy to heat buildings will be introduced at some stage. To ensure the smooth functioning of the energy supply system as a whole, it will be useful to find new heating solutions to avoid strain on the electricity system in winter.

District heating

Mandatory connection to district heating

A sufficiently large number of customers is required for a district heating system to be developed for an area, since the cost per customer drops as capacity is more fully used. A municipality is entitled to require new buildings to be connected to a district heating system in areas for which a district heating licence has been issued.

In 2014, guidelines were published explaining how municipalities can use requirements for mandatory connection to a local district heating system for new buildings. The guidelines were issued jointly by the Ministry of Local Government and Modernisation and the Ministry of Petroleum and Energy. They emphasise that the municipalities can modify the requirements to suit local conditions, for example by specifying which types of buildings are to be connected or defining the geographical areas where the requirements apply. The district heating companies are responsible for providing municipalities with the information they need in order to make good decisions on mandatory connection. This is to make sure that the municipal planning process is as effective as possible.

Energy performance certificates for buildings

Since 1 July 2010, it has been mandatory in Norway to hold an energy performance certificate for any building that is constructed, sold or rented out. Non-residential buildings exceeding 1000 m2 in size must have an energy certificate that is displayed for the building’s users. These arrangements are intended to improve knowledge and awareness of energy use in buildings. Inspection of large heating, ventilation and air conditioning systems has also been made mandatory to encourage sound operation and inspection routines. Owners of private homes may choose to use a free online system for obtaining energy certificates for buildings , while energy certificates for commercial buildings and new buildings must be filled out by an expert. There is.

The letter assigned to the building shows the energy efficiency rating, and the colour shows the heating rating (according to the energy source(s) used)

The heating rating (the colour scale) on the energy performance certificate indicates the extent to which the building can be heated (rooms and hot water) by energy carriers other than fossil fuels and electricity.

The energy efficiency ratings on the certificate are between A (very energy-efficient) and G (low energy efficiency). The rating gives an overall assessment of the building’s energy need, i.e. energy in kWh required per square metre for normal use. The rating process applies standard values for factors such as number of residents, indoor temperature and air quality. The energy rating is based on an estimate of delivered energy, and is independent of actual measured energy use. Buildings that meet the requirements of the 2010 Technical Regulations will normally be rated C, while older buildings built in accordance with less strict regulations will have lower ratings. Low-energy buildings and passive houses with efficient heating systems can achieve the rating A or B.

Taxes and emissions trading

About 80 % of greenhouse gas emissions in Norway are taxed and/or regulated through the emissions trading system (ETS). These apply mainly to emissions from the use of fossil energy sources.
The effects of emissions trading and taxation

Emissions of greenhouse gases and other pollutants are often closely related to the use of fossil energy. In an unregulated market, the environmental costs of emissions are not reflected in energy prices. This means that polluters are not made responsible for the full costs to society of their energy-using activities, and encourages excessive use of fossil energy.

Properly designed taxes correct this situation by increasing the price of using fossil energy to reflect the full costs to society as a whole. Over time, this will result in changes to production and consumption patterns and encourage the development and deployment of new technology. The emissions trading system has similar effects.

The CO2 tax and the emissions trading system

About 80 % of greenhouse gas emissions in Norway are taxed and/or regulated through the emissions trading system (Norway takes part in the EU ETS). These apply mainly to emissions from the use of fossil energy sources.

The ETS covers greenhouse gas emissions from most land-based industry sectors, the oil and gas industry and aviation, and the price of emission allowances is currently equivalent to around NOK 200 per tonne CO2-eq. The price of allowances has seen a sharp rise since 2017. The petroleum sector and domestic aviation are also required to pay the Norwegian CO2 tax, and the current tax rate is about NOK 500 per tonne CO2.

Tax rates in the non-ETS sectors vary. The general CO2 tax on mineral oil is NOK 499 per tonne CO2, and petrol and domestic gas consumption are taxed at a similar rate. However, certain industries and uses are exempted from the CO2 tax or are taxed at a reduced rate. Emissions of greenhouse gases other than CO2 make up a relatively large share of emissions in non-ETS sectors, and these emissions are not taxed.

Norway’s taxation rates for fossil energy are some of the highest in the world. Total taxes on fuel for road vehicles, including the road use duty, correspond to NOK 1 900–2 700 per tonne CO2. Fuel oil is subject to a basic tax in addition to the CO2 tax, giving a total tax rate of about NOK 1 090 per tonne CO2. Although the road use duty and the basic tax on fuel oil are not directly climate-related, these taxes also influence consumption of fossil fuels and thus greenhouse gas emissions. The OECD has compared different countries’ tax rates in the transport sector, and found that only the UK taxes fuel use in this sector more heavily than Norway. Tax rates in Switzerland are similar to those in Norway. In the US, the tax rate is equivalent to barely NOK 100 per tonne CO2.

The ETS also influences Norwegian electricity prices because Norway trades electricity with the rest of Europe. The effect of the ETS is to raise the cost of fossil electricity production in Europe, thus pushing up electricity prices. This has an effect on electricity prices in Norway as well, even though production is hydropower-based. More information on how the power market functions can be found here.

Tax on electricity consumption

This tax applies to electricity delivered to consumers and is collected by the grid companies. In 2018, the tax rate is NOK 0.1658 per kWh. Certain industrial processes (chemical reduction and electrolytic, metallurgical and mineralogical processes), greenhouse nurseries and rail-based transport are not required to pay the tax. Households and the public sector in the far north of the country (Finnmark and the northern part of Troms) are also exempt. A reduced tax rate (NOK 0.0048 per kWh) applies to other manufacturing industries, mining and quarrying, onshore oil and gas facilities, district heating production, large data centres, commercial shipping and to all business and industry in Finnmark and northern Troms. There is an additional levy on the grid tariff of NOK 0.01 per kWh for households and NOK 800 per year for other end users, which is used to finance the Energy Fund managed by Enova.

More information on the Norwegian taxation system is available in the 2017 budget.