Agreement to reduce ground rent tax on onshore wind energy: - An important change to start development again

After postponements and overtime, an agreement was finally reached on Tuesday evening in Parliament on a ground rent tax for onshore wind energy.

The original proposal put forward by the government included, among other things, a tax rate of 40 percent, which after the consultation round became 35 percent, while the Parliament majority settled on 25 percent in a broad compromise.

Some changes in the settlement:

The effective tax rate is set at 25 percent.

For new power plants, a payment system is offered for passive ground rental income when they are commissioned. Meanwhile, the negative ground rental income is carried forward with interest.

For existing power plants, the input value is increased by 40 per cent compared to the government’s original proposal. However, the initial value cannot be higher than 85% of the historical cost of the investments. The input value is written off linearly against the basic interest tax over five years.

The settlement does not include changes in production fees.

Renewed Norway believes the changes look good at first glance.

– Future wind power plants should be taxed according to the same principle as hydropower and oil, where a negative land rent tax is paid. This is an important change for Norway to once again start developing renewable energy, Aslaug Haga, head of Renewable Norway, tells TU.

Basic interest tax on onshore wind

Land rent is a tax on income generated from the use of common natural areas. In the government’s proposal, tabled earlier this fall, it was stated that there would be a cash flow tax on onshore wind profits.

On Tuesday, an agreement was reached between Labour, the Conservative Party, the Center Party, the Liberal Party, the Green Party and the Christian People’s Party to impose a ground rent tax on land-based wind energy.

The parties agree to an effective tax rate of 25 percent. The government’s original proposal was 35 percent.

At the beginning of 2023, there were 65 wind power plants with more than 1,392 turbines in Norway. At the same time, the installed wind power capacity reached 5,073 MW, and the normal annual production is 5,073 MW. 16.9 TWh. This represents about 11 percent of Norwegian production capacity.

She believes it is good for Parliament to come together to reach a broad settlement, and that the parties want to make it easier for them to have enough power in Norway.

However, we must look closely at the proposals before we say anything more clear. Regarding facilities that have already been developed, we have proposed a complete exemption. “We see that improvements have been made in the settlement, but we have to calculate that in more detail before we say anything specific about the consequences,” says Haga.

Need for a well-designed ground rent tax

Haga points out that investments in renewable energy in Norway have declined in recent years, and that almost no licenses are granted for new production.

Norway is moving towards a significantly tighter energy market within a few years. Haga says that if Parliament had adopted the government’s proposal without changes, it would have practically adopted Norway’s energy deficit, which would, among other things, raise the cost of electricity.

Renewable Norway claimed this from the wind tax:

Exempting existing power generation plants from the ground rent tax on wind energy. In the government’s proposal, existing power plants are covered by the tax with a proposed transitional arrangement.

Ensure that the negative ground rent tax is paid at the annual tax settlement according to the same principle applied to hydropower and oil. The government has proposed another solution where the negative ground rent tax is offset by lower ‘retained interest’.

Remove the time limit on physical power agreements to facilitate the price protection needs of both the wind energy and downstream industry. The government wanted this to apply only to facilities in which an investment decision had been made before 2030.

Reducing the land rental tax rate to 25 percent, 10 percent lower than the 35 percent proposed by the government.

Haga believes that the government’s original proposal for a land rental tax was not neutral, and would slow down investment in new production.

– It seems completely unrealistic that Norway can meet the sharply increasing demand for energy without making arrangements for new wind energy, says Haga.

About three-quarters of Norway’s new energy production in recent years is wind energy.

– A well-designed land rent tax means that investment remains attractive, while industry contributes to the tax on any ground rent. Haga says it was created using the same principle for wind power as for hydropower and oil.

Double your suggestion

It ended with an agreement between the Labor Party, the Conservative Party, the Center Party, the Liberal Party, the Green Party, and the Christian People’s Party.

However, SV’s fiscal policy spokesperson, Kari Elizabeth Kaski, believes that the government weakened its proposal by cooperating with the right, and that the original proposal put forward by the government was good and should have been adopted.

– It is therefore ironic that the government has weakened its proposal through negotiations with the right, thus giving tax breaks to wind energy producers mainly located in southern Norway who have already benefited well from higher electricity prices, Kaski tells NTB.

– Starting to immediately pay passive rental income for new wind energy projects is risky and may cause the state to lose money, believes politician SV.

See improvements

The NHO hopes that the settlement can now create calm around the tax system.

– We are satisfied that politicians in Parliament met the business community and listened to their inputs. The reduced tax rate is a positive, and we see improvements from the original proposal with regard to the cash flow tax, says NHO CEO Olli Erik Almelide in a comment to NTB.

The cash flow tax means that investment expenses are deducted immediately, as the tax is imposed on the company’s cash surplus in each period.

NHO also hopes that agreeing on an effective tax rate of 25 per cent, rather than the government’s proposal of 35 per cent, will be enough to kick-start new energy development in Norway, but states that they must first look at the details to find out what the settlement will mean in practice. .

– We need large amounts of new and renewable energy in Norway if we are to avoid energy deficits and continued rise in prices. “We also need more power to implement the green transition, create new jobs and meet our climate commitments,” Al-Mulaid adds.

Road to overtime

The deadline for the land rent tax proposal was Thursday 7 December, but it was therefore not ready by the deadline. It was expected to be shown the next day, but it was postponed to this week.

– This is an important issue that will remain relevant for many years. “We are therefore using the time it takes to negotiate the matter in parliament,” Egil Knutsen, chairman of the Finance Committee and Labour’s fiscal policy spokesman, told NTB when the postponement became known.

SV politician Kari Elisabeth Kaski and Finance Committee Chairman Egil Knutsen (AFP). Photo: Hanna Johar

The recommendation will be submitted to the Finance Committee on Friday, December 15.

– We entered the negotiations with a strong desire to ensure the development of sufficient force for the future. At the same time, we wanted to make sure that Norway was still considered a safe country to invest in. The Government’s original proposal did not adequately address this, and we are pleased that through this settlement we are delivering a much better tax. Industry system, says Tina Breau, a senior vice president at Hoyer, who also serves as senior vice chair of the Finance Committee.