Norwegian state owned hydroelectric company Statkraft has fulfilled its promise to move beyond its domestic market through a serious of investments in other countries. While the firm has been able to upgrade a number of existing projects in Norway, the prospect of further large hydro schemes is limited and so Statkraft pledged to turn its attention to overseas ventures that could enable it to continue to grow. It now owns assets in Sweden, Germany and the Balkans, and is increasingly investing in emerging markets in Africa, Asia and Latin America.

The Nordic power pool, Nord Pool, has certainly encouraged Scandinavian power companies to look beyond their own borders. It provides a market for trade in electricity across Denmark, Finland, Norway and Sweden, accounts for more than 60% of the Nordic region’s total power consumption and is one of the world’s most liquid power markets. It now also offers contracts for certified emission reductions (CERs), under the Kyoto Protocol’s Clean Development Mechanism (CDM), and European Union Allowances (EUAs).

For a relatively limited population of about 23 million people, the Nord Pool member states offer a wide range of power generation. Denmark is one of the world’s most important wind power producers, while Sweden and Finland rely on nuclear power and almost all Norwegian electricity is provided by hydro schemes. Apart from Nord Pool, Norwegian power producers also benefit from transmission interconnectors with Germany and the Netherlands. The benefits of trading on the power pool were underlined by the latest financial data from Nord Pool, which reveal that average power spot prices were almost unchanged during the first half of this year in comparison with the same period last year, at Euro€36.1 (US$50.9) per megawatt hour, despite the global economic downturn. This contrasted sharply with falling power and gas prices in almost all other parts of the industrialised world.

Prices are set for the following day, hour by hour, based on registered offers and bids from generators and distributors, although all bids are anonymous. Offers and bids are matched with transmission capacity, so that although prices vary relatively little across the region, there are some regional differences that reflect transmission bottlenecks. However, prices paid by consumers vary from country to country according to tax levels and competition in the Nordic consumer market. Hydro accounts for half the Nordic electricity market, so the level of precipitation is significant for pricing on the power exchange. According to Nord Pool: “An increase in precipitation alone will normally reduce prices.”

Norway is one of the most hydro power dependent countries in the world, with its hydroelectric output equal to 99% of power consumption, although this figure will probably fall slightly in the future as a result of the construction of new gas fired generation capacity and wind farms. Little new hydroelectric generating capacity has been added in recent years, with just 800MW of new capacity installed between 1993 and 2005, mainly as a result of the refurbishment of existing schemes. However, Norway’s participation in Nord Pool and power trading is not purely designed to guarantee an export market for surplus electricity. Water inflow at the country’s reservoirs is strong during the spring thaw but decreases towards autumn and then again in winter, so imports are also required.

New contracts

Despite the success of Nord Pool, bilateral cross-border deals continue to be agreed. Last year, Swedish firm Vattenfall signed an eight-year contract with Norwegian aluminium producer Norsk Hydro to supply 18TWh of electricity from 2013. Although the agreed tariff was not revealed, a spokesperson for Norsk Hydro said that it was “one of the largest cross-border contracts since the integration of the Nordic power market in the early nineties” and would provide about 85% of power required by the Soeral aluminium plant.

Despite the success of Nord Pool and the buoyancy of its prices, Statkraft’s greater vulnerability to non-Nordic power markets has increased its exposure to the economic crisis. Its operating profit for the second quarter of this year was 31% lower than last year at NKr1.42 billion ($236M), partly as a result of lower demand for electricity from the firm’s gas fired power plants in Germany. However, a company statement read: “Norwegian hydro power production was…down as a result of lower inflow into water courses.” On a more positive note, hydroelectric output for the first half of this year increased because of the takeover of new hydro power plants following a swap deal with E.ON of Germany. This helped boost operating income by 2.5% to NKr4.9B (US$815.6M).

The E.ON deal centred on a €4.5B ($5.9B) asset swap that was completed at the end of December. Statkraft, which is the biggest power producer in Norway, took control of a large number of smaller hydro schemes in other countries, including 40 in Sweden with combined generating capacity of 900MW, eleven in Germany with 262MW, including a 220MW pumped storage facility, and a single 56MW plant in Wales. It also gained a 4.17% stake in E.ON, while E.ON took Statkraft’s 44.6% stake in E.ON Sverige in Sweden in return. The deal took more than twelve months to complete because of the need to secure regulatory approval from a number of different countries. The Norwegian firm is now one of the four biggest power generators in Sweden and also hopes to build on its German and British acquisitions.

This was not the company’s first deal with E.ON. In October 2005, it paid $586M for 24 hydro schemes in Sweden and Finland, and now plans to set up a joint venture with Svenska Cellulosa AB (SCA) of Sweden to develop hydro schemes and other renewable energy projects on four river systems in Sweden, although they have not yet revealed likely generation capacities. The two partners have signed a ten-year power supply deal to supply 500GWh to SCA’s forestry operations. In a statement, Statkraft argued: “In practice, hydro power development has been at a standstill for the past 25 years. We have respect for the major environmental values in untouched river systems, but we believe that it should be possible to examine the possibilities for environmentally friendly development.”

It continued: “With modern technology and expertise, it should be possible to balance environmental values and finance. Swedish industry needs more power, and the world needs energy production that does not increase harmful emissions to the environment. We will involve all affected parties in the effort to explore the possibilities. Not least, we will involve affected local authorities and other local stakeholders in considering how any development can best benefit the local community.” Kenneth Eriksson, COO of SCA, added: “Finally, it is up to political authorities to decide whether new hydro can play a role in Sweden’s future energy supplies.””

Overseas acquisitions

Despite such ventures, the focus of Statkraft’s foreign investment now seems to be moving further south. In March it agreed to take a 95% stake in Turkish hydro power company Yesil Enerji, an offshoot of Global Investment Holdings, which has rights to seven planned schemes in Turkey with combined generating capacity of 633MW and projected output of 2100GWh. The deal is expected to be sanctioned by Turkish regulators during the second half of this year. Remaining construction costs on the planned projects are estimated at Euro 600-700M (US$882M-1B). One 20MW scheme is due to come on stream before the end of this year with the others due to follow over subsequent years. German firm Energie Baden-Wurttemberg is also investing in the Turkish hydro sector via Turkish subsidiary Borusan Holding, while GE Energy plans its own hydro projects in the country.

The most active region for new developments is the Balkans. In December, Statkraft agreed to construct a three stage hydro scheme on Albania’s Devoll River in partnership with EVN. When the Austrian firm submitted plans for its own project on the river, the Albanian government responded by launching a tender for the rights to its development. EVN eventually won the tender and has decided to bring Statkraft on board in a joint venture. Planned generating capacity has been cut from 400MW to 340MW, so investment costs of €950M (US$1.37B) appear rather high in comparison with the projected output.

However, the joint venture has already completed its feasibility study and ordered Straflo Matrix units from Andritz, while a 35-year concession has been awarded. The Devoll venture, which is expected to be completed in 2012, will increase total Albanian generating capacity by 20%, while EVN is already developing a smaller scheme in the country, the 48MW Ashta project, in partnership with another Austrian company, Verbund.

Statkraft is also to develop four hydro schemes on the lower Vrbas River in the Serbian part of Bosnia and Herzegovina, known as Srpska. It signed a contract with the government of Srpska at the start of last year for the construction of 75MW of generating capacity, which is expected to yield annual output of 450 GWh. Investment costs are estimated at Euro€100M (US$143.6M). Elsewhere, Statkraft has signed an MoU with Rosnor Energo and Hydro OGK of Russia with regard to upgrading hydro facilities in Russia.

Yet perhaps the most interesting aspect of the company’s overseas strategy is its investment in developing countries via Statkraft Norfund Power Invest AS (SN Power), which it owns in partnership with Norfund, the Norwegian government’s emerging markets development investment vehicle. SN Power develops hydroelectric projects on a commercial basis that are considered beneficial to living standards in the host country.

In November last year, Statkraft agreed to buy 10% of Norfund’s stake in the company for NKr1.1B ($160M), increasing its total equity in the venture to 60%, leaving Norfund with the remaining 40%, although Statkraft has an option to buy a further 7% by 2015.

SN Power’s 14 existing plants, which are listed in Table 2, range from the 2.1MW Belihuloya hydro power plant in Sri Lanka up to the 360MW Magat plant in the Philippines, and are located in South and Southeast Asia, as well as South America. Nine other projects are at various stages of development but will generally be larger than the company’s existing holdings and include two 600MW ventures, Tamakoshi II in Nepal and Trayenko in Chile.

The two shareholders have also agreed to set up another company, called SN Power AfriCA, to develop hydroelectric and possibly other renewable energy projects in Africa and Central America. Other Norwegian power companies have been invited to invest in the company and in June Bergenshalvøens Kommunale Kraftselskap (BKK) and TrønderEnergi agreed to take 18.5% and 15% stakes respectively, leaving Statkraft with 51% and Norfund 15.5%. The new company is to invest $700M in Africa by 2015.


On balance, Statkraft appears to have concluded that the financial attractions of investing beyond the Nordic states outweigh the greater risks incurred in less stable power markets. Such a strategy should certainly diversify the firm’s holdings and help to increase total turnover and profits. Yet as a state owned company, the increased risk inherent in emerging markets seems to be a price worth paying for supporting the government’s development aims.

In common with the UK’s CDC Globeleq, SN Power is seeking to make a profit from power projects while contributing to local development, in what is becoming an increasingly popular model. However, the Norwegian firm is the first to pursue this concept almost entirely via new hydro schemes, so it will be interesting to see whether it can make SN Power a commercial success. With climate change considerations now often outweighing environmental opposition to the physical destruction caused by dam projects, philanthropic hydro development is a trend that could take off in countries desperate for improved power supplies.

Report by Neil Ford


Table 1
Table 2
Table 3