Decorative image showing small scale wind turbines surrounded by stacks of coins.
Decorative image showing small scale wind turbines surrounded by stacks of coins.
Decorative image showing small scale wind turbines surrounded by stacks of coins.

Norway adopts new wind power taxation framework

The Norwegian Parliament has reached a consensus on implementing a new taxation system for onshore wind power. The agreement involves six political parties and lays taxation ground rules for both existing and future wind energy projects.

25% Tax Rate for Wind Power Projects

The new legislation stipulates a uniform tax rate of 25% on the revenues of all wind energy installations. This rate applies to the spot market price, which is determined hourly in Norway’s five spot price zones. Notably, the tax is calculated on the basis of the spot price regardless of whether the power is sold through long-term fixed-price contracts. This revised 25% rate marks a decrease from the initially proposed 40% tax.

“Negative base rent” for new projects

A unique feature of the new tax scheme is the concept of “negative base rent” (negative grunnrente, in Norwegian) for new wind farms. When launching operations new wind farms will receive an upfront subsidy from the government, corresponding to 25% of the cash value of their investment. In return, the government will receive a 25% share of the wind farm’s operational revenues (calculated on the basis of the spot price, as explained above).

A similar scheme exists for hydropower, but with a crucial difference: the government pays the negative base rent at the time the investment is made, instead of on the first day of operation, as will be the case with wind farms. Politicians have so far not explained the reason for this difference.

Waiting for ESA approval

Since the scheme involves subsidies, it is contingent on approval by the ESA (European Free Trade Association Surveillance Authority), ensuring compliance with EEA (European Economic Area) regulations.

Adjustments for existing facilities

For already operational wind farms, the system introduces a 40% increase in the entry value, which cannot exceed 85% of the original investment cost. This seemingly contradictory wording appears to suggest that the 40% will be calculated from the entry value, but added to the deprecated value.

Since wind farms follow a five-year deprecation model (their value for tax purposes being zero after five years), a wind farm costing 1 million NOK and operating for more than five years would be assigned a value of 400 000 NOK for the purposes of the scheme. The 25% one-time negative base rent subsidy would then be calculated based on that amount.

Need for a predictable, stable framework

Despite the cross-party agreement on this tax, some parties which are part to the agreement, such as Venstre, express concerns about Norway’s reputation as an investment-friendly country. In their view, investors must have predictable tax conditions to better plan their investment. The new framework aims to establish such a stable and predictable framework for the wind energy sector.