Norway is a major energy nation, primarily as an exporter of oil and gas, but also as the largest hydroelectric power producer in Europe. The hydro-based Norwegian energy system will undergo significant changes as increased wind power capacity and other intermittent renewable energy sources are introduced to the market. At the same time, the cross-border exchange capacity remains limited despite efforts by the Norwegian TSO, Statnett, to initiate new interconnector projects to the UK and the continent. This has contributed to a lasting power surplus and consequently a long-term downward pressure on energy prices in Norway.
Until 2016 only the TSO itself, or entities controlled by it, could be granted a license to own and operate cross-border interconnectors. However, in 2016 the Parliament approved the Government's proposal to amend section 4-2 of the Norwegian Energy Act, abolishing the monopoly, and thereby allowing private investors to construct, own and operate interconnectors subject to achieving the necessary consents and licenses. This could represent an attractive investment opportunity for private national and foreign capital looking to invest in Norwegian infrastructure, but not without significant regulatory obstacles.
In the wake of the amendment of the Energy Act, the topic of interconnectors has been the subject of considerable attention in the political debate. On the one hand, and in support of the amendment, we have Norway's Prime Minister and Leader of the Conservative Party, Erna Solberg. On the other hand the Labour Party leader, Jonas Gahr Støre, having proclaimed very clearly that the Labour Party will not support license applications from private enterprises. While Solberg believes competition will result in better projects, Støre argues that Norwegian consumers should not the exposed to the risk of increasing electricity prices while private enterprises are making a profit.
In spite of ideological differences, the fact is that Section 4-2 of the Energy Act gives both private and state-owned enterprises the opportunity to apply for a licence to own and operate interconnectors. Furthermore, the Act stipulates that licence applications shall be assessed on the basis of objective, transparent and non-discriminatory criteria. In other words: The political opinion of the Labour Party, or the Conservative Party, should not have any bearing on the approval process.
Assessment of applications
If a party wishes to build, own and operate a cross-border interconnector, it is required to obtain a number of licences and consents under Norwegian law. The key licenses are (i) an installation licence under Section 3-1 of the Energy Act, alternatively section 3-2 of the Marine Energy Act if the cable is to be laid on Norwegian seabed, and (ii) a foreign trade licence under Section 4-2 of the Energy Act.
Section 4-2 first paragraph reads as follows (our translation):
"In order to own or operate interconnectors covered by Section 3-1, a special licence from the ministry is required. When assessing whether a licence should be granted, emphasis will be placed on the project's socio-economic profitability, the relationship to other competing projects, and otherwise transparent and non-discriminatory considerations."
As for all licences under the Energy Act, an essential objective of Section 4-2 is to achieve the best possible socio-economic organisation of the electricity sector in line with Section 1-2 of the Energy Act. Under the licensing procedure, the Ministry of Petroleum and Energy is therefore obliged to ensure that the project is beneficial from a socio-economic perspective. This implies an assessment of whether the socio-economic benefits exceed the costs. Such an assessment will establish the basis for the decision as to whether the application should be granted or not. Consequently, it is imperative that the applicant, in advance, conducts an analysis which shows the clear socioeconomic benefits of the project.
In the preparatory work for the Amendment Act, the Ministry provides an account of which factors are to be included in the socioeconomic assessment, including both directly quantifiable economic benefits, as well as non-economic consequences. When calculating the direct economic consequences, it is advisable to quantify all positive and negative effects in monetary terms insofar as possible. Particular emphasis will be placed on (1) security of supply, (2) upholding an efficient power market, and (3) the climate and environmental impact of the project.
For further guidance, it may be worthwhile analysing for two new interconnectors between Norway and the UK (NSL) and Norway and Germany (NordLink), as well as the comprehensive application submitted in April 2017 for NorthConnect, a proposed 655-kilometre 1,400 MW HVDC interconnector between Norway and the UK, initiated by a group of Norwegian and Swedish utilities.