Norway must do more to satisfy investors

• Norway has delayed a new tax on wind farms until 2024
• Investors say it will bankrupt projects and harm investment
• However, government must do more to boost confidence

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Wind farm owners in Norway breathed a sigh of relief last week when the Norwegian Government announced it was delaying plans to levy a new tax on wind farms. But it may only be a temporary reprieve in a country where investors are right to be wary.

Last September, Norway announced plans for a 40% ground rent tax on existing and new onshore wind farms. It said the tax would apply to onshore wind farms with five of more, or headline capacity of over 1MW, and would raise NOK2.5bn (€215m).

The reaction from onshore wind farm owners was predictably negative. Investors are rarely keen on taxes that upend the financial performance of their operating projects and, in this case, they warned that the plan would bankrupt many working schemes; would stop investment in future renewables projects; and mean higher power prices. There are 5.1GW of operational wind farms in Norway, according to WindEurope.

This uproar led to a change that was announced by the Norwegian Government last Thursday (11^th May). It said the tax would now take effect in 2024 rather than 2023, which wind companies will hope leads to the whole idea being scrapped.

The Norwegian Government has not gone that far, though. It said it has considered the sector’s response to the plan, but reiterated that it wants more value from assets that benefit from Norway’s natural resources. As Trygve Slagsvold Vedum, Minister of Finance, put it: “Local communities and society as a whole should receive a fair share of the value created from our common natural resources.”

Delaying the planned tax is a decent first step, but it isn’t the full rejection that those in the industry are hoping for. It also opens the way for further punitive measures. 

‍Onshore controversy

This tax is also controversial because it is not the first problem for companies in the Norwegian onshore wind sector. Last April, the Government re-started the licensing process for projects following a three-year hiatus due to increased public hostility.

Separately, the Government has admitted that licenses it awarded in 2013 for parts of the 1GW Fosen wind complex violated the human rights of Sami reindeer herders. This followed a long court battle and high-profile protests by Greta Thunberg.

But the threat of a 40% land tax is arguably the most damaging of the lot, because it affects the whole industry – not just one project – and applies to operational projects. It is one thing to hit companies with new taxes on future projects, as at least they can prepare. It is quite another to change the rules and apply taxes retrospectively.

Our concern is how this could undermine investor confidence across renewables.

For example, Norway is looking to grow in offshore wind. On 26^th April, Norwegian energy regulator NVE revealed offshore sites that would enable it to hit a target of 30GW of offshore wind projects installed off its coast by 2040. This came after the tenders that the Norwegian Government opened on 29^th March for up to 3GW of offshore wind capacity in the Sørlige Nordsjø and Utsira Nord zones.

The Norwegian Government plans to make the first awards in these tenders this autumn, and it has already attracted interest from firms including BP, Mainstream Renewable Power, Statkraft and Shell. But it will only be able to build confidence in the industry by convincing firms that it will not impose new taxes on them later on.

Vedum’s quote does not inspire such confidence. Offshore wind sites are “common natural resources”, like onshore wind sites. It is easy to imagine that the owners of offshore wind projects could be forced to offer up more value at a later date.

If Norway cannot do this, there are plenty of other countries where investors in the offshore wind sector can direct their efforts. These include neighbouring nations in the Nordic, including Finland and Sweden; other emerging European markets, such as Ireland and countries bordering the Mediterranean; and other areas of the world too. The biggest investors in the offshore wind sector can be geographically flexible and so, if they do not have faith in Norwegian regulators, they will go elsewhere.

In addition, any rules that create extra hurdles for onshore and offshore wind farms can only harm related industries, such as green hydrogen. Under European Union rules, the developers of green hydrogen facilities will need to show that they have supported additional wind capacity to come onto grids. Any taxes or measures that stifle the development of wind farms will also harm sectors that rely on its power.

The delay to the Norwegian onshore wind tax is a good step for the industry. But if the Norwegian Government wants to re-build confidence in the sector, it should do much more. It should scrap the proposal, and fast. Nobody benefits if the threat of retrospective taxes hangs over the sector – least of all Norway’s green ambitions.