400 smaller power plant sites in Norway are ready to be built – but lack financing

Norway is almost exclusively powered by renewable energy, but increasing demand and discontinuation of Swedish nuclear power means that 60 TWh of new production is required in the Nordics by 2040. We spoke with Knut Olav Tveit, the Managing Director of the Norwegian Small Scale Power Producer’s Association, to examine the potential for Norwegian small scale hydropower to fill this demand.

Can you tell us a little about the purpose of the Small Scale Power Producers Association?

The Norwegian Small Scale Power Producers Association (Småkraftforeninga)is an organization that represents owners of small scale power plants, those who build them, or who have a special connection with the small scale power sector.

The Norwegian Water Resources and Energy Directorate (NVE) is predicting a significant increase in power consumption in Norway over the next few years, will realizing small scale power plants in Norway be able to make a significant contribution to meeting this demand?

As of now, the combined number of small scale power plants that have concessions but lack the financing to be built represents 3.3 TWh of production. If they are built they will make a significant contribution to meeting the growth in demand.

 

Why are there so many power plants that have been granted concessions, but not been built?

There are about 400 of these smaller power plants sites that are ready to be built. The larger, institutional investors are interested in the biggest projects, but the smallest of these 400 need to be financed by private landowners. Banks require 25 to 30 % of the total investment to be present as safety capital. Most private landowners do not have this, and it would require them to take a loan out on their homes. This feels too risky for most.

400 seems like quite a few, how do we know that all of these projects have enough waterflow to be successful?

NVE’s concession process compares a production potential of each site to its potential environmental impacts. They make sure that the proposed small scale production site has enough waterflow to operate efficiently, that it will not interfere with habitats that contain endangered species and that the local community will benefit appropriately from the investment. They also consider the entire catchment areas before granting concessions, they will not grant multiple concessions in one of the areas if any of the previously mentioned factors interfere with one another. In short, NVE guarantees that a power plant’s environmental ramifications are outweighed by the total societal benefit of constructing it.

 

Does the extra income from Guarantees of Origin make the projects more lucrative?

Yes, and we are starting to see a significant effect now, as prices are reaching a level where the are making a real impact on income projections in the future. We are very excited for the future state of small scale renewable energy production when we see how quickly the prices are rising. However, most of the projects are still dependent on outside help for the initial investment.

Are you seeing any other trends in the market?

The Norwegian market is probably the one that has come the furthest in the development and implementation of hydropower technology. The technology makes the sector extremely efficient, and recent developments continue to improve the situation even further. I would go so far as to say that small scale hydropower in Norway is the most efficient in the world.

We are also seeing that since NVE is so thorough in their evaluations of potential sites before they grant concessions, positive externalities are consistently generated on a local level by giving landowners a sustainable income. And this is on a long term basis, since landowners will only initiate projects they have carefully considered, as they are staking their financial livelihoods on the project. When these factors are combined with the longevity of small scale power technology, we know that for each new small scale hydropower built, 50 – 70 years of renewable production is set into motion – this duration is highly competitive when compared to wind.

We are also seeing that there is indeed a financing vacuum present for all of the sites that have full concessions, but lack financing. Luckily, external financing options are becoming available, and are aimed at helping the corporations and organizations that want to make a real impact and initiate construction of these sustainable projects.