High-price contribution on wind and hydropower

Who will pay the high-price contribution?

The high-price contribution will apply from 28 September 2022 to hydropower stations with generators with a total rated output of 10,000 kVA or more and from 1 January 2023 to other hydropower stations and wind farms.

From 1 January 2023, the tax obligation covers:

• hydropower stations of at least 1 MW. This means that mini and micro power plants are not included.
• wind power plants that require a licence under the Energy Act.

The power plant owner is liable to pay the high-price contribution. For production communities that are not separate tax entities under section 2-2, second paragraph, of the Tax Act and where the power accrues to the members, the tax liability lies with the individual member who draws the power. The taxable party is responsible for reporting and paying the tax to the Norwegian Tax Administration.

• The tax is calculated separately for 1) power valued at the spot market price, 2) licence power, 3) own power, as well as 4) power in accordance with withdrawal rights and 5) total other contracts (e.g. bilateral agreements and financial contracts).

Price used as a basis

In principle, all power generation is taxable. The high-price contribution is calculated on the basis of the actual prices achieved by the taxable party. This means that production covered by contract exemptions in the resource rent tax, and other agreements on the actual delivery of a fixed volume at a fixed price, is valued at the contract price. For production volumes sold on the spot market, the actual price will be the spot price achieved in the corresponding period.

• For agreements entered into on or after 28 September, where there is a commonality of interest between the parties, there is nevertheless a requirement for the contract to have been entered into on market terms. If the taxable party is unable to document that the agreement is based on market terms, the spot market price at the relevant time and in the relevant price area will provide the basis for the tax.
• Power consumed in own production activities, is valued at the spot market price, i.e. what the power could otherwise have been sold for.
• Licence power is valued at the price achieved and will therefore not normally trigger any tax liability.
• Power drawn through withdrawal rights is valued at the actual price and will therefore in many cases not trigger tax liability.
• If the total volume supplied under long-term contracts, delivered as licence power, drawn as own power and in accordance with withdrawal rights, exceeds own power generation in a period and price area, the costs of cover purchases on the spot market will be deducted from the tax basis (deducted from the price achieved) and, where applicable, allocated proportionately.

No deductibility in other tax bases

The Government proposes that the high-price contribution should not be deductible from corporate tax. A proposal will therefore be presented in the budget for 2023 to amend the Tax Act to ensure that this is the case. As the high-price contribution is not an operating expense that regularly derives from power generation, it is assumed that the high-price contribution will not be deductible in resource rent tax and property tax.

The Government’s anticipated revenues from the high-price contribution

It is estimated, with a great degree of uncertainty, that the proposal will result increased tax revenues of around NOK 16 billion annually.

The high-price contribution means that hydropower stations that pay a high-price contribution and which also pay resource rent tax will face an overall marginal tax of 90 per cent.

Financial contracts

For financial contracts entered into no later than 27 September 2022 in order to secure revenues in relation to sales at the spot market price, the tax is calculated on the basis of the price achieved, adjusted for gains or losses on the financial contract.

• Gains or losses on currency derivatives will not be taken into account, however. Gains and losses in foreign currency are translated to NOK at the spot market rate at the time of dating.
• If sales at the spot market price are hedged against the Nordic system price, the difference between the system price and the price in the relevant price area will be taken into account. If the taxable party has production in several price areas, the traded volume will be allocated proportionately according to the volume produced in each price area.

Implementation

For the taxation period 28 September to 31 December 2022 inclusive, the tax will first fall due on 18 January 2023. For 2023, the tax must be reported and paid to the Norwegian Tax Administration monthly.

More detailed provisions on the implementation and demarcation of the tax will be stipulated in regulations.