Fjord focus

There’s still some energy left in Norway’s restricted hydroelectric power sector.

Hydroelectric power is a big deal in Norway. Electricity is relied upon to meet more than half of the country’s energy demands, and in 2008 some 98 per cent of Norway’s electricity was generated by hydroelectric plants.

“The large plants are regarded as family silver and, before Norway found oil in 1969, were the backbone of industrial development,” says Thommessen Krefting Greve Lund senior associate Bendik Christoffersen.

Norway’s protective attitude towards its hydroelectric plants means there have always been hurdles for private entities wanting to operate in the sector. Since 1905 they have needed a concession from the state to acquire waterfalls (needed to ­produce hydroelectricity) for projects above a threshold of five megawatts.

Public property

On top of this, for private entities (defined as those without a two-thirds ownership by a public body), these concessions have always been granted under the condition that, after 60 years, the waterfall and any plant built to utilise it will be handed back to the state without compensation.

This might seem like a raw deal for ­private entities, but the situation was ­mitigated by the fact that it was usually ­possible for them to get an extension on the concession. Two years ago, however, the rules changed. In September 2008 the ­governing Industrial Concession Act was altered so that private entities would no longer get a concession, although they could still buy up to a third of the shares in a ­public company.

The change in the law followed a ­judgment in June 2007 by the European Free Trade Association Court, which said the rules breached those of the European ­Economic Area and discriminated against private owners and potential investors.

“The main effect of this regulatory regime has been to reduce the market for power plants substantially because private ­players, including international energy majors, are excluded from buying,” says Erik Thyness, managing partner of Wiersholm.

While this means hydroelectric deals are declining in the longer term, it has created a short-term rush of work as the few private owners left scramble to cut their losses.

“The new rules have created a situation whereby you have private owners whose concessions are coming to an end and they’re no longer in position to renew the concession,” says Jon Christian Thaulow, partner at Bugge Arentz-Hansen & Rasmussen. “But the regime provides that a state owner can buy the plant from the private owner, ­creating an attractive opportunity for private entities, because instead of just waiting for the concession to revert back to the state, they can make some money on it.”

Most notably, in October 2009 Orkla (through its Elkem subsidiary) sold its power plants to state-controlled entities for around $1.03bn (£630m). And although when the other big private operator Norsk Hydro sells its plants it will spell the end for this kind of work (Hafslund also owns hydroelectric plants, but is outside the scope of the legislation, since it acquired these before 1905, and the same is true for a small number of Norsk Hydro plants), the government has left some room for manoeuvre by allowing private ­entities to lease plants for up to 15 years.

“Since the summer it’s become possible for private entities to lease large power plants, and this has made it possible for private investors to invest in Norwegian hydroelectric power plants again,” says Christoffersen.

According to Wikbourg Rein partner Arne Didrik Kjørnæs, whose firm has been advising the company, Norwegian outfit SN Power has also been creating work in the hydroelectric sector (albeit not in Norway) by opening power plants in Africa, Asia and South America.