Divergent tax policies mean Norway risks missing out on most of a $6 billion wind-power boom while neighboring Sweden benefits.
Norway, which aims to triple wind capacity by the end of the decade, has erected one turbine for every seven installed in Sweden since the countries signed a pact to share renewable production two years ago. Norway, western Europe’s biggest oil and gas producer, has so far installed less than 10 percent of what it’s expected to complete by 2020 under the accord.
The countries’ mismatched tax rules threaten to deny Norway investment in an industry where jobs will triple by 2030, according to the European Wind Energy Association in Brussels. While Statkraft AS, Norway’s state-owned power company, didn’t build any wind projects in its home country in the eight years through 2013, it spent as much as 7.5 billion kroner ($1.2 billion) on turbines in Sweden.
“Changes must be made now or there will be no significant investment in renewables in Norway, all investments will go to Sweden,” Ola Elvestuen, leader of the Norwegian parliament’s Energy and Environment Committee, said by phone on Sept. 3. The country’s minority government relies on support from Elvestuen and his Liberal Party to get its budget passed.
Under their renewable energy agreement, Norway and Sweden give tradable certificates to renewable energy producers for each megawatt-hour they generate for the first 15 years of a unit’s lifetime. Electricity suppliers must buy those certificates to match demand, the cost of which is passed on to residential ratepayers regardless of where the projects are.
Norwegian consumers have paid about 1.8 billion Norwegian kroner into the system. Those costs will rise to as much as 40 billion kroner over 15 years at current prices, with most of the money going to producers in Sweden, according to wind lobby group Norwea in Oslo.
Norway and Sweden are jointly seeking to add 26.4 terawatt-hours of new annual renewable energy production by 2020, or about 9 percent of all output last year from all energy sources in the region. Before joining, Norway expected to build half the system’s wind power, or about 3,000 megawatts of capacity, requiring investment by developers of at least 36 billion kroner based on an average cost of 12 million kroner per megawatt, according to Norwea.
Sweden’s wind output rose 38 percent to an unprecedented
9.9 terawatt-hours last year, according to its energy agency. That compares with the 9.4 terawatt-hours generated at EON SE’s Oskarshamn-3, the biggest nuclear reactor in the Nordic market. One million megawatt-hours is one terawatt-hour.
While Norway gets 97 percent of its electricity from hydropower, it joined the system to boost security of supply when cold, dry weather draws on water reserves and to help meet renewable energy targets. It adopted European Union goals the year before, committing it to meet 68 percent of all its energy needs including transport and heating with green sources by 2020 from 58 percent in 2005.
What Norway and Sweden didn’t foresee was how a drop in power prices would force renewable energy developers to scrutinize project costs, such as the countries’ treatment of asset depreciation, according to Peter Chudi at brokerage Svensk Kraftmaekling AB in Stockholm. Year-ahead Nordic electricity prices have fallen 21 percent since 2012.
“Those in Norway were surprised that the margins for new projects got so squeezed that it came down to the different tax rules for write-offs,” Chudi said Sept. 4 by phone. “If prices for power and green certificates were higher, the tax difference wouldn’t have got the same focus it has now.”
The certificates closed today at 185 Swedish kronor ($26.02), down 8 percent from their February peak, Svensk Kraftmaekling data show. That would give a wind-power producer a combined income of 52 euros ($67) a megawatt-hour based on an average day-ahead power price of 32 euros a megawatt-hour at the Nordic Nord Pool Spot AS exchange in Oslo last month.
Policy makers originally envisaged wind power investment would be split evenly between the countries. Norway’s government is unfazed by the shift to Sweden as the certificate program is designed to direct investment to where it’s best suited, regardless of what share is in Norway or Sweden, said Lise Rist, a senior communications adviser at Norway’s Energy and Petroleum Ministry in Oslo.
“It is for the market to decide which projects will be built,” Rist said by e-mail on Aug. 15.
Since 2012, Sweden and Norway increased renewable power production by 7.9 terawatt-hours, Norway’s Energy Agency said Aug. 18. Sweden, which accounted for 85 percent of the added output, built 771 turbines in the period. Norway erected 112.
Between January and July, 5.8 million certificates were issued for wind production in Sweden, compared with 95,000 in Norway, Swedish grid operator Svenska Kraftnaet AB data show.
“We knew we would lag behind at the start,” Andreas Thon Aasheim, an adviser for Norwea in Oslo, said by phone on Aug. 6. “But what has been made much clearer during the last two years is how large the differences between the two countries are.”
Under Swedish tax law, most of the value of all equipment and machinery including wind turbines depreciates in the first five years. Norway treats wind generators separately, assigning varying write-off times that can be as long as 17 years, according to Aasheim. A shorter depreciation period means turbine owners can reduce their taxable income by more in the first years of a project, cutting the total tax bill.
Elvestuen of Norway’s Liberal Party plans to propose changes to the country’s tax law in negotiations for the 2015 budget due to be unveiled Oct. 8.
“The Norwegian depreciation rules must be harmonized with Sweden’s, so it is equally beneficial to invest in Norway as in Sweden,” Torbjoern Steen, the head of communications for wind power and technology at Statkraft, said Aug. 15 by e-mail.
Wind industry employment across the EU has climbed 30 percent since 2007 to 238,154 jobs, according to the European Wind Energy Association. That’s expected to reach almost 800,000 by 2030, Oliver Joy, a spokesman at the Brussels-based lobby group, said Sept. 8 by phone.
Even without the tax disadvantage, Norway’s geography is less attractive to wind developers than Sweden, where milder conditions are better suited for turbines, according to Scanergy AB, a renewable energy company in Billingstad, Norway, that’s building 16 wind units in Sweden.
Norway, whose 25,000-kilometer (16,000-mile) coastline is Europe’s longest, has only 45 megawatts of wind projects under construction and one park built since 2012. A typical onshore turbine has a capacity of 2 to 3 megawatts.
“Norway has significantly better wind resources compared with Sweden, but the experience from Norway is that high winds give more turbulence,” Tor Arne Pedersen, Scanergy’s chief executive officer, said by e-mail. “High average winds aren’t necessarily good.”