Norway : There is now room for better fixed price agreements on electricity

The government is today putting forward a clarification of the new contract exemption from land rent tax, which is being considered by the Storting. The contract exception should better facilitate fixed price agreements for electricity. An amendment is also being made to the proposal on high-price subsidies for power production.

For the government, it is important to facilitate better fixed price agreements for businesses and households. Now the government is putting the finishing touches on important work to help ensure that those who need to protect themselves against major fluctuations in electricity costs have a real opportunity to do so. With this proposal and these clarifications, the industry will be able to offer this type of agreement to a greater extent, which many Norwegian companies have signaled that they want. We have placed great emphasis on consulting with both the power industry and other players along the way, so I have good faith that the power industry will now offer attractive fixed price agreements, says Finance Minister Trygve Slagsvold Vedum (Sp).

I expect that the fixed price market will be well underway before Christmas and that real competition for customers will provide attractive offers. The companies themselves have to decide whether they want ongoing prices or longer agreements, but now they have a real opportunity to choose. As you know, the government has been impatient on behalf of the business community who are struggling with their electricity bills. I have confidence that the power companies will now deliver, says Industry Minister Jan Christian Vestre (Ap).

A change is made to the high price contribution which means that the income from power production must be calculated over the month instead of per hour.

The above is presented together with certain other grant proposals in Prop. 1 S Addendum 2 (20222023) . Overall, the proposals in the proposition involve no changes in the use of oil money in the state budget 2023, which was presented on 6 October 2022.

Clarification of the new contract exception in the ground rent tax for fixed price agreements for electricity

The government will facilitate better fixed price agreements for electricity to end users, and has therefore proposed a new contract exception to the basic rent tax on hydropower for fixed price agreements.

The government is today putting forward two clarifications related to the proposal:

The maximum price premium in fixed price agreements is set at 2.5 re/kWh, excl. VAT. and electricity certificate cost. The suppliers must also be able to take a fixed amount of a maximum of NOK 99 per month per measuring point. The fixed amount follows the current standard in the business market, and is based on costs incurred regardless of volume.

In order for the industry to quickly get started with the sale of fixed price contracts, a rule is initially drawn up that price areas 3 and 4 are considered one area for fixed price agreements, and price areas 1, 2 and 5 as another. The division is only for tax purposes, and has no practical significance for the industry as a whole. The rule implies that sales within a northern and a southern price area will provide a basis for the contract exemption from ground rent tax, but not sales between the two price areas. In practice, this means, for example, that power producers in Western Norway (price area 5) can sell power to fixed price agreements in Eastern Norway and Southern Norway (price areas 1 and 2) and are taxed on income from the fixed price agreements.

The rule shall apply to fixed price agreements entered into before the end of 2023 and for the entire agreement period. For fixed price agreements with a maximum length of seven years, the income year will end in 2030.

Change of the high price contribution

The government proposed in the state budget for 2023 to introduce a high price contribution to redistribute more of the extraordinarily high income from power production. In the press release from 6 October , it is made clear that there may be a need to assess in more detail certain delimitations and clarifications of the tax base. After the proposal was presented, the government received input from the industry on the arrangement of the high-price contribution. The government wants to mitigate any possible adverse effects of the high-price contribution, while at the same time emphasis is placed on maintaining a high level of revenue.

The government proposes to change from an hourly price to a monthly average price. The change means that the income from power production must be calculated over the month instead of per hour. The change can be implemented in regulations.

In a letter to the Storting on 21 October , the Ministry of Finance notified certain clarifications about the understanding of self-reliance and community of interest. The government will also inform that it is assumed that the high-price subsidy will be discontinued by the end of 2024 at the latest.

The ministry has made new revenue estimates based on examples from Norway's Water Resources and Energy Directorate about possible variations in price and production, as well as the clarifications made after the proposal was submitted. The recorded revenue is now estimated on an uncertain basis at around NOK 22.7 billion in 2023, around NOK 900 million lower than the estimate in the state budget on 6 October 2022. It is emphasized that power prices probably constitute the biggest uncertainty factor in the revenue estimate.