New wind in the sails for onshore wind power in Norway?

In recent years, the Norwegian wind market has experienced substantial growth. After a brief period of relative decline, likely due to a general halt in permit processing and political uncertainties surrounding taxation and environmental concerns, it appears that the market is once again growing. In January 2024 Europe's largest provider of renewable energy, a Norwegian state owned energy company, announced that they will invest up to EUR1 billion in wind power in Norway over the next decade.¹ That includes both the upgrading of existing wind farms and development of new onshore and offshore wind farms. This resurgence makes it especially relevant for international developers and suppliers to be updated on particular contractual issues that need to be dealt with in the Norwegian onshore market. Below is an overview of the Norwegian wind power market and a selection of topics relevant to those engaged in contracts within the industry.

Overview of the wind power market in Norway

Norway boasts significant potential for wind power generation, particularly within its expansive onshore territories. The country's geographical features, including its windy coastline and vast mountainous regions, offer favorable conditions for wind energy production. Norway has been actively investing in renewable energy projects, aiming to mitigate climate change. This commitment has led to the establishment of numerous wind farms across the country, contributing to the growth of the industry. According to figures from NVE (Norway’s Water and Electricity Authority), there were 1,392 wind turbines in operation at the start of 2023, spread across 65 windfarms. The wind farms have a standard annual production of 16 923 GWh, which corresponds to 11% of the Norwegian standard annual production.

Contract models utilized in the Norwegian wind industry

Traditionally, windfarm projects on Norwegian territory have been constructed in accordance with a combination of FIDIC-based contracts and Norwegian standard contracts. The Norwegian standard contracts include a suite of different standard documents agreed and developed in collaboration by a committee of contractors and builders. They regulate contractual relationships, responsibilities, prices, and terms between contractors, clients, and other stakeholders. The standard contracts aim to ensure clarity, standardization, and fairness in contract formation and project execution.

FIDIC-based contracts are typically used for the turbine supply agreements, while Norwegian standard contracts are often used for the BOPs (balance of plants) and all infrastructural and facilities of the windfarm.

Specific considerations for contracts in the Norwegian onshore wind industry

Based on experiences from previous onshore wind projects in Norway, there are some particular risks for stakeholders in the sector to consider:

• Within the contractual chain linking wind power developers, suppliers and subcontractors, typical challenges are the regulation of interface work between the different parties, and the regulation and extent of back-to-back principles.²
  Challenges with back-to-back regulations often arise due to the combined use of both FIDIC-based contracts and Norwegian standard form contracts in the various contract chains. This differs from several other wind producing countries, where all contracts are based on FIDIC. In Norwegian wind development projects, it is therefore often necessary to make several adjustments to make the contracts operational and compatible.
  Challenges with regulating interface work often arise when a subcontractor is only required to deliver parts of the main contractor's delivery obligation to the client. This inevitably raises questions about who is responsible for performing interface work between the various subcontractors operating based on different contract models. Without any agreement regulating this, the client is responsible for such work. If the responsibility for this is to be transferred to one of the subcontractors, this must be clearly and exhaustively formulated and agreed upon in detail.
  
  
• Norway's rough terrain and harsh weather conditions pose logistical challenges for wind farm construction and maintenance, potentially impacting the supplier selection and ultimately project timelines and costs. Challenging access to site through construction of access roads makes progress planning of work sequences and logistics crucial, often with the need to include a detailed milestone and penalty scheme.
  
  
• Shifting political decisions: The wind industry is exposed to fluctuations in governmental policies and regulations. Changes in taxation schemes, licensing procedures or subsidy frameworks can significantly impact project feasibility and profitability. Stakeholders must therefore stay updated on legislative developments and changing framework conditions. For example, from July 2023 a new right of veto made all new wind farms subject to local authority approval. Another example is the new resource rent tax. In December 2023 a broad settlement was reached in the Norwegian Parliament on the implementation of resource rent tax on onshore wind power. From 1 January 2024, the effective resource rent tax rate is 25%. For new wind power plants, the tax value of any negative tax base (negative resource rent income) is payable on an annual basis after the wind power plant is operational and the tax authorities have controlled the assessed tax.
  
  
• Nature Conservation and indigenous rights: Environmental considerations, particularly those relating to nature conservation and regulatory changes within this field need to be considered when contracting on wind farm projects. Recent controversies highlight the complexities surrounding land use, biodiversity preservation, and indigenous rights. A recent case serves as a notable example, where concerns over the impact of wind farms on the ecosystem and the local Sami reindeer herders’ traditions led to legal challenges, that were settled after a state led mediation process. Navigating these types of issues demands proactive engagement with stakeholders, engaging with local communities, strong environmental impact assessments, and clear risk allocation in the various stakeholders’ contracts.

Summary

In conclusion, the resurgence of onshore wind in Norway signals an exciting phase for the wind industry, with opportunities for growth and investment. By staying informed about changing framework conditions and by handling and being conscious of relevant contractual risks, developers and suppliers can navigate the landscape successfully. A key factor for navigating contractual risks, is to choose a contract model that is adapted to the specifics of wind power development and local conditions. The national standard contracts and FIDIC-based contracts used in the market offer a good basis, but need to be specifically tailored to accommodate particular risks and achieve contracts that are operational for the project.

By implementing effective contract models and addressing specific risks, stakeholders can capitalize on the promising outlook for wind energy in Norway.

¹Statkraft storsatser på vind- og vannkraft i Norge – for lite mener Høyres Nikolai Astrup | DN
²"Back-to-back" regulations essentially entail, in simplified terms, that contract regulations are carried down throughout the entire contract chain.