Norway has great natural potential for windpower, although there are some particular technical difficulties. In this article, we outline the current regime and new opportunities provided by recent developments.

Untapped potential

With strong winds along much of its 2500 kilometers of coastline, Norway has great natural potential for wind power. By the end of 2008, installed wind power capacity in Norway was only 428,9 MW, but on average, its output per unit of installed capacity exceeded the European average by some 50 per cent. The enormous potential for windpower offshore Norway could be opened up as new technology and legislation allow private developers to install wind power in deeper waters.

Current projects and legal framework

Currently, 18 existing and 15 planned wind farms with a total capacity of 1807,5 MW have obtained licenses pursuant to the Energy Act. License applications for 123 projects with a planned total capacity of 21935 MW are pending.

Enova, a Norwegian state enterprise established to promote environmentally friendly energy consumption and production, administers a construction support scheme for wind farms. Wind farm projects with both a license and documented access to the grid can apply for support.

The most cost-efficient projects, as determined based on an 8 per cent rate of return, estimated power production potential and forward power prices, will receive state support. Major Norwegian power producer, Statkraft, operates Europe's largest onshore wind farm at Smola in western Norway. Statkraft secured financing for the second stage of this development, including a USD 82 million loan backed by a guarantee from the Danish state export guarantee fund, EKF. Statkraft had obtained earlier financing backstopped by a purchase agreement with a Dutch power producer for "green certificates" from the wind farm. However, due to changes in legislation, these green certificates were no longer accepted for tax levy purposes in the Netherlands, and the purchase agreement was terminated in 2005.

Challenges to development and financing

As in other areas of power development, the government could reject wind farm license applications on environmental and other issues of local concerns. During recent years, the government has rejected 14 license applications, several of which have raised environmental concerns. In some instances, local communities have opposed planned wind-farm projects due to concerns about the impact on local wildlife and cultural heritage.

In the wind power industry, government support has been unstable and insufficient to support development efforts, according to the Norwegian wind power industry. In particular, Enova has constantly changed its assumptions for cost-efficiency calculations when determining eligibility for state support. According to bankers, attempts to finance development of new wind farms are complicated by unreliable production forecasts owing to the turbulence over Norway's rugged coastal terrain and offshore waves.

New legislative initiatives and new opportunities

Encouraged by the new EC Renewable Energy Directive, Norway and Sweden have agreed on main principles for the development of a common electricity certificate market, which is expected to provide more stable support for renewable energy developments, including wind power. Previous recipients of construction support under today's state support regime may get an option to refund the construction support previously received and thereby become eligible under the newer electricity certificates scheme. On 26 November 2009, the Government announced that this will apply to all power plants where construction commenced after 7 September 2009.

In June 2009, the Norwegian Government submitted a draft Act on Offshore Renewable Energy Production to the Norwegian Parliament, providing a legal framework, among other matters, for wind power farms offshore Norway. The draft Act introduces a non-discriminatory license regime inspired by Norway's license regime for offshore petroleum production.

The above developments could provide new opportunities for the development of wind power in Norway. The electricity certificate system would encourage new projects by helping to provide stable cash flows to backstop financing. Due to recent legislative initiatives, investors and lenders could develop wind power offshore with less political risk than in current onshore projects.

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