ROYAL NORWEGIAN MINISTRY OF TRADE, INDUSTRY AND FISHERIES

EFTA Surveillance Authority Rue Belliard 35 B-1040 BRUSSELS

Your ref Our ref Date Case no. 78871 16/4548-3 23.09.16

Information from the Norwegian authorities regarding alleged state aid to wind power projects in Trøndelag and green certificates to pre-existing hydro power plants

Reference is made to the letter from the EFTA Surveillance Authority of 25 August 2016, inviting the Norwegian authorities to provide their comments to three complaints concerning alleged state aid to wind power projects in Trøndelag and pre-existing hydro power plants.

Please find enclosed a letter from the Ministry of Petroleum and Energy dated 23 September 2016.

Yours sincerely,

Monica Wroldsen Deputy Director General Carsten Borgersrud Nielsen Adviser

This document has been signed electronically and therefore it is not signed by hand.

Postal address Office address Telephone* Department of Competition Our officer PO Box 8090 Dep Kongens gate 8 +47 22 24 90 90 Policy Carsten Borgersrud 0032 Oslo Vat no. Nielsen [email protected] www.nfd.dep.no 912 660 680 +47 22244623 ROYAL NORWEGIAN MINISTRY OF PETROLEUM AND ENERGY

EFTA Surveillance Authority Rue Belliard 35 B-1040 Brussels Belgium

Your ref Our ref Date Case No. 78871 16/2929- 23.09.2016

Wind power projects in Trøndelag and green certificates to pre-existing hydro power plants - observations

1. Introduction

The Ministry of Petroleum and Energy (hereafter the Ministry) refers to the letter from EFTA Surveillance Authority (hereafter ESA) dated 25 August 2016. The Ministry is invited to submit its observations in relation to the complaints attached to ESAs letter.

The complainants put forward a number of allegations relating to different aspects of the investments by several power companies in the Wind Power projects at and in the area in mid-. In addition, the extension of the Electricity Certificates Scheme to include certain existing hydro power plants ("overgangsordningen") is brought up in one of the complaints.

In section 2 in the following, the Ministry will comment on the administrative procedures and licensing decisions for the investments in the power plants and the electricity grid in the above-mentioned area. In section 3 the Ministry will submit some observations to the part of the complaints relating to the extension of the Electricity Certificates Scheme ("overgangsordningen").

Postal address Office address Telephone* Energy and Water Our officer PO Box 8148 Dep Akersgata 59 +47 22 24 90 90 Resources Department Carl Fredrik Ekeberg 0033 Oslo Vat no. +47 22246383 [email protected] http://www.oed.dep.no/ 977 161 630 2. Wind power and power lines at Fosen and in the Snillfjord area

The licensing procedure and the administrative proceedings In 2010 and 2012 the Norwegian Water Resources and Energy Directorate (hereafter NVE) adopted decisions pursuant to the Energy Act on licences for the establishment and operation of several wind power plants at Fosen north of Trondheimsfjorden and in the Snillfjord area south of the same fjord. NVE also granted the license for establishing a power line carrying a voltage of 420 kV from via Fosen to Trollheim (Suma) south of Trondheimsfjorden, as well as licenses to establish lines from the wind power plants to the 420 kV grid.

The licences granted by NVE in 2010 related to the wind power plants and grid connection north of Trondheimsfjorden. The licences from 2012 related to the wind power plants, grid connections south of the fjord and the crossing of the fjord. The decisions were appealed to the Ministry of Petroleum and Energy in several complaints lodged by different complainants.

In August 2013 the Ministry rejected the appeals and upheld the decisions granting the licences to Statnett SF and to the wind power licensees.

In the decision of August 2013, the Ministry considered the 420 kV power lines from Namsos via Fosen to Trollheim as one coherent grid. The purpose of the power lines is both to strengthen the north-south capacity in the transmission system and to connect the planned wind power plants to the transmission system (the "central grid")1. The development of the 420 kV grid consists of three steps, the northern part between Namsos and Åijord at Fosen, the southern part between Snillfjord and Trollheim (also named Suma) and the connection of the two parts through a submarine power cable between Åfjord and Snillfjord. The northern and southern part are now under construction and will be established first.

The licence for establishing the 420 kV grid is given on terms of a completion deadline for each of the three steps. Part one and two is given a completion deadline by August 2020. The Ministry set a completion deadline for part three by August 2023. In its decision the Ministry stated that the time frame for realising part three is linked to the regional power balance and the need for strengthening the capacity from north of the region of Trøndelag to the south.

Forecasts related to the grid development has a long-term perspective. Considerations at the time of deciding a licence therefore has to be affected with uncertainty. Due to updated considerations from Statnett, expansion of the completion deadline of part three to 2028 was granted by the Ministry in April 2015.

In February 2016 the joint venture "Fosen Vind DA" adopted investment decisions for six of the wind power plants in the areas around Trondheimsfjorden. This entity is owned by Statkraft SF, TrønderEnergi and Nordic Wind Power DA.2

1 From July 2016 the term "transmission grid" is used in the Energy Act of 1990. For all practical purposes the transmission grid is equivalent to the "central grid". 9 See the enclosure for a map of the projects included in the investment decision.

Page 2 Regulation of the transmission grid The planned wind power plants at Fosen and in the Snillfjord area will be connected the transmission grid. The transmission grid constitutes a natural monopoly for transport of electricity from producers to the market. The major owner of the transmission grid in Norway is the transmission system operator Statnett SF.

Statnett SF is responsible for operating and developing the transmission grid infrastructure in a socio-economically efficient way. As a state enterprise ("statsforetak") Statnett is governed by the Act relating to State-owned Enterprises of 1992. In accordance with this Act the responsibility for the management of the company lies with the board and a chief executive officer (CEO). The board members are appointed by the owner. Decisions by the state in its capacity as owner must be adopted in an enterprise meeting.3

Statnett SF determines its own tariff strategy for four years at the time, in dialogue with its customers. A basic principle is that all grid customers shall contribute to cost recovery. The legal framework for setting transmission tariffs follows from the Regulation on Financial and Technical Reporting, Income Caps for Network Oþeration and Transmission Tariffs pursuant to the Energy Act.4 Requirements for setting transmission grid tariffs also follow from the relevant EU- and EEA law, c.f. Annex IV to the EEA Agreement.

Under the present legal framework tariffs are to be set in a way that stimulates efficient utilisation and development of the network, and in a way that is non-discriminatory. Requirements for charges for access to networks follow from Regulation (EC) 1228/2003. Furthermore, according to Commission Regulation (EU) No 774/2010 the annual average transmission charges paid by Norwegian producers shall be within a range of 0 to 1,2 EUR/MWh. The activities of Statnett are subject to scrutiny by the national regulator (NVE). An income cap for Statnett is set in a way to cover the costs, provided efficient operations and investments.

It is the Ministry's opinion that the decisions by Statnett as referred to in the complaints do not fall under the notion of State Aid pursuant to Article 61 (1) in the EEA Agreement.

The 420 kV grid Namsos - Trollheim (Surna) In the licencing procedure for the power grid at Fosen and in the Snillijord area, a question was whether the 420 kV power line should be considered as part of the central grid or as a production related power line. In its decision, the Ministry concluded that the power line is part of the central grid, emphasizing the future development of the grid in its assessment of the main function of the power line. As a consequence, the tariffs paid by the wind power licensees would not be dependent of a stepwise establishment of the grid.

For the purpose of tariff regulation the "central grid" is defined in Section 1-3 of Regulation No 302 of 11 March 1999 pursuant to the Energy Act. The definition includes installations for the transport of electricity at a voltage level of 132 kV or higher, which are defined as

3 Act on State-owned Enterprises Section 38. 4 Regulation No 302 of 11 March 1999.

Page 3 installations in the central grid. Power lines and other grid installations, where the main function is the transport of electricity from a production facility to the nearest point of the grid, are defined as production related. Particular provisions for such installations follow from Section 17-1 in the Regulation.

The transmission grid serves different purposes. In its decision, the Ministry referred to the voltage level, the length of the planned power line and the north-south capacity. The Ministry noted that the planned power line is dimensioned as a transmission line. The power line could have been dimensioned at a lower cost if the purpose was only to connect the wind power plants. The grid development related to the Fosen-case is step-wise progress. In the Ministry's view, it is undisputed that the 420 kV grid in the Fosen-case constitutes a part of the transmission grid when all steps are completed.

Furthermore, the Ministry referred to the requirements for grid connection for renewable electricity production pursuant to Directive 2009/28/EC (the Renewables Directive), c.f. Article 16 point 5. In the case at hand, in a situation with successive steps in the planned grid development, economic predictability is necessary for power plant investors.

The Ministry does not consider the licensees of the wind power plants as having benefitted from any state aid according to Article 61 (1) of the EE A Agreement.

3. Electricity Certificates

The Norwegian and Swedish electricity certificate scheme is a joint market-based support scheme for investments in renewable electricity production. A Swedish electricity certificate market has been in existence since 2003. As of 1 January 2012 it was extended to both countries by the inclusion of Norway. The electricity certificate scheme is governed by an agreement between Norway and Sweden of 29 June 2011 (as amended in 2015) and national legislation in the two countries.

The joint electricity certificate market contributes to the achievement of national targets for renewable electricity production in Norway and Sweden in 2020 pursuant to the Renewables Directive (Directive 2009/28/EC). The scheme is set up as a cooperation mechanism in accordance with this Directive.5 An explanation of the electricity certificates system was given in the notification letter from the Ministry of Finance to ESA concerning new depreciation rules on wind power plants dated 10 May 2016. It should also be mentioned that the scheme was explained by the ECJ in its judgement in case C-573/12 Åland Vindkraft AB.

In Norway, as in Sweden, electricity certificates are issued to eligible producers of electricity based on renewable sources. An electricity certificate constitutes a proof of having produced

5 The initial distribution rule for the energy results between Norway and Sweden was notified to EFT A Surveillance Authority and the Commission 25 March 2013. A modified distribution rule according to the amended agreement between Norway and Sweden in 2015 was notified 31 March 2016.

Page 4 one MWh electricity based on renewable energy sources. The producers receive one electricity certificate for each MWh electricity produced, over a maximum of 15 years. In Norway, the power plants have to start generation no later than 31 December 2021 in order to qualify for receiving electricity certificates.

The prices of electricity certificates are determined in the market based on trade between buyers and sellers. There are no fixed or guaranteed minimum prices for the electricity certificates. The electricity certificates are sold directly from renewable electricity producers to the market. Furthermore, it should be noted that the electricity certificate system is technology-neutral in the sense that electricity produced from all renewable sources, as defined in the Renewables Directive, qualify for electricity certificates.

Demand for electricity certificates arises in that electricity suppliers and some end-users of electricity have an obligation by law to annul certificates annually corresponding to a certain proportion (quota) of their electricity sales or use. The electricity suppliers' costs of procuring the necessary amount of electricity certificates are included in the electricity bill to end users.

According to the agreement between Norway and Sweden the Norwegian government is responsible for setting up quotas that will strive for cancelling certificates corresponding to 13.2 TWh electricity in 2020, regardless of where the electricity is produced. Sweden is responsible for setting up quotas that will strive for cancelling certificates corresponding to 15.2 TWh in 2020, regardless of where the electricity is produced. On the Norwegian side, the Agreement is implemented through the Electricity Certificates Act of 2011 and its regulations.

Certain power plants that came into operation before 1 January 2012 are entitled to receive electricity certificates. In Norway this relates to hydropower plants that started building after 1 January 2004 and power plants that started building or permanently increased their energy production after 7 September 2009. Plants built before 2012 will receive certificates for up to 15 years, corrected for the number of years they were in operation before 2012.

The electricity certificate scheme is not financed through state resources in any form, but is designed to have the additional cost of producing renewable electricity borne by the market, that is to say by users of electricity. It is the opinion of the Norwegian government that the electricity certificate scheme does not fall under the definition of State Aid, c.f. article 61 of the EEA Agreement.6 This position was elaborated in the preparatory works to the Electricity Certificates Act.7 The Ministry also refers to the Commission's decision on the Swedish electricity certificate scheme with the same conclusion.8

In the Ministry's view, the inclusion of certain existing hydro power plants in the electricity certificates scheme through amendment to the Electricity Certificates Act in 2015, as referred

6 See in particular the ECJ judgment in case 379/98 (Preussen Elektra). 7 Prop. 101 L (2010-2011) page 42. 8 See case N 789/2002. The earlier guaranteed price for green certificates in Sweden has later been removed, and the current joint electricity certificates scheme has no equivalent rules on guaranteed prices.

Page 5 to in the complaint to ESA, has not introduced any state aid element into the electricity certificates scheme.

Olav Boge U Deputy Director General Carl Fredrik Ekeberg Specialist Director

Page 6 Enclosure:

The following illustration shows the six wind power plants with the connection to the 420 kV JJÇL Harbaksfjellet vindpark

Kvenndalsfjellel vindpark

Åfjord

Stortieia vindpark

Fosen

Ørland

Hltra

Hitra II vindpark

Snlllfjord A Transformaiorstasjon Geltfjellet 420 KV Kraftlinie vindpark ----- 132 kV kraftlin»;*

(Source: Fosen Vind. All of the 420 kV grid is not included in the illustration. Only the wind power plants in Fosen Vind's investment decision is included in the illustration.)

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