In the 1890s Norwegian economist and politician T H Aschehoug believed that waterfalls were destined to be the energy source of the future. Today over 95% of Norway’s electricity is generated by the thousands of river systems running through its mountains and valleys and it has already exploited 112TWh of hydro power, with 66TWh of untapped potential remaining. The country with the lowest population density in continental Europe is also Europe’s leading hydro producer. Only Canada, the US, Brazil, China and the Russian Federation exceed its 120TWh/year output.

Norway has some 850 hydro plants with an installed capacity of over 27,000MW. Capacity exceeds 10MW at 320 plants. Run-of-river plants are mainly sited in lowland areas, close to the leading population and industrial centres. Most power stations developed since the war were built underground, with reservoirs fed by a tunnel network stretching over 3500km.

Construction was never easy in Norway. Expertise in geology and concrete technology under harsh climactic conditions, and construction projects in ecologically sensitive conditions, have all become exportable products. As Norway’s biggest hydro generator, Statkraft took the lead in building the country’s largest land-based facilities. This includes 34 power stations within mountains where 45M m3 of space was blasted out, insulated, waterproofed and stabilised. The firm’s 1100km of tunnels would stretch from London to Venice. In building 106 dams, Statkraft used 43M m3 of fill (9M lorry loads) and 1.5M m3 of concrete.

In all Statkraft owns and operates 54 hydro power plants and has shares in a further 30. Total marketable production last year was 32.5TWh, around one-third of Norway’s total hydro output. But for decades Statkraft has been forced to commit about half its output in long term contracts with power-intensive industries, at artificially low prices set by Parliament. These contracts date back to the 1920s when the state power board (the forerunner of Statkraft) used cheap power to speed development of the aluminium and ferro-alloy sectors in Norway. They are set to remain in place well into 2000, a reminder that — despite Norway’s trail-blazing market liberalisation in the 1990s — the government still retains ultimate control. The firm, run as a commercial joint-stock company, is eager to loosen such political leverage over its strategy as it seeks to compete in European markets.

Renewable energy market

According to Statkraft’s marketing director Christian Tonnensen, research shows there is a large market in Europe for electricity produced from renewable energy. ‘We are also confident that companies and households will be prepared to pay more for it. What we have found is that those interested in green energy want guarantees that they will get what they pay for,’ he says.

As a stable and energy-rich nation on the fringe of Europe, Norway still has much untapped potential for hydro-based power trading. ‘Expansion in continental Europe is a priority for Statkraft,’ insists Tonnensen. ‘This is where the growth potential is greatest.’

Norway already trades significant amounts with fellow Nord Pool members Denmark and Sweden. There are now nine connections with Sweden totalling 3400MW. Statkraft also has a long term investment in Sydkraft, and it increased its stake in the leading Swedish utility to 28.6% in November 1999. It aims to combine the flexibility of Norway’s hydro output with the base load efficiency of Sydkraft’s nuclear plants.

The same principle — exporting hydro by day, importing cheap nuclear and thermal base load output at night — could also apply further afield in Europe, given the necessary prices and interconnections. Yet the recent drop in power prices has hit efforts to develop such supply links. First to go was a proposed cable link with the Netherlands. Then in May 1999 the plug was also pulled on the Eurokabel, one of two long-planned 600MW interconnections from Norway to Germany, when Eurostrom (a joint venture of leading German utilities RWE and HEW) cancelled its power exchange deal with Eurokraft (a consortium of 22 small Norwegian generators).

Meanwhile Statkraft is reported to be building a US$1.2B treasure chest to fund overseas growth. New plant capacity in northern Europe is one long term goal, but the hydro giant is also looking further afield. It has an indirect 10% ownership interest in the Laotian company, Theun-Hinboun Power, which has built and operates a 210MW run-of-river power plant in Laos. This went into operation in 1998 as the first privately financed infrastructure project in Laos. Theun-Hinboun has doubled Laos’ hydro production, although nearly all output is exported to Thailand under a long term deal.

Statkraft also owns 73.6% of Himal Power, which is building a 60MW run-of-river plant in Nepal. The Khimti plant will increase the country’s hydro output by 25%, with the energy produced being sold in Nepal under a 20-year agreement.

Another acquisition for Statkraft was its 50% stake in Peru Hydro which was secured in August 1998. This is a Peruvian project company which plans to develop a 525MW run-of-river plant north of Lima. Statkraft aims to develop, own and operate the facility together with a local partner, Peruvan, and US firm AES. Hydro power dominates the Peruvian energy market. With low prices and growing demand Statkraft believes it could be a promising investment area, along with other parts of Latin America and the Indian sub-continent.

The domestic market

In December 1999 the Norwegian government added US$460M to Statkraft’s equity, enabling it to pursue upgrading and enlargement schemes and develop new trading activities. Last year Statkraft spent US$20M on plant and dam rehabilitation work. In return Oslo is pushing for an 11% post-tax return on its investments: last year’s figure was 4.9%.

There is still some 30TWh of hydro power to be developed within Norway but the licensing process takes up to eight years, and is beset with stringent environmental controls on plant building and altering river courses. The 1993 Protection Plan IV imposed a national conservation plan for Norway’s remaining ‘wild’ rivers, in part due to alarm over a collapse in salmon stocks.

Back in 1989 Statkraft won a licence to develop three plants at Beiarn, Bjellanes and Melfjord. With joint capacity of 1TWh/year, this is one of the few economically viable projects possible within current protection orders. Yet just as the prospect of construction work came on the horizon last year, demands sprang up in parliament for a further environmental impact study at Beiarn.

The best example of environmental hurdles facing Norwegian hydro developments is the long saga over Ovre Otra. A proposed 980GWh/year hydro plant in southern Norway, Ovre Otra is considered the most controversial project since Statkraft harnessed the Alta river in the early 1980s. In its original form, two plants would have fed from almost all branches of the upper Otra river but the government of the day rejected this scheme in 1998. After months of controversy, the Storting (Norway’s parliament) then agreed a much smaller version of the plant and last spring Opplandskraft, the municipal utility most closely involved with Ovre Otra, said it would spend a year working on a feasibility study for such a scaled-down station.

Ovre Otra is part of Norway’s plans to lift total power output by around 20TWh over the next 20 years. Some growth will come through gas-fired plants but hydro will cover the bulk of extra output. Last year was the country’s third successive wet and mild year, keeping reservoirs full and power prices low. However, rainfall variation can alter annual production by up to 40TWh, or 15 times the output at Statkraft’s largest plant, Sima (see panel on p18).

The new millennium looks set to bring major changes to Norway’s power sector. Already two industrial groups, Hafslund and Elkem, have agreed to merge their energy interests, creating Norway’s biggest privately-owned power group. The deal involves Elkem’s hydro holdings in Norway and the US. The government also plans to sell part of its stake in Statkraft and other leading power utilities. However Prime Minister Bondevik is careful to stress that ‘in the energy sector we can privatise shares and still retain majority control’.

Some municipal hydro output may also pass into private hands yet such deals will face major hurdles. Two-thirds of privately owned plants are subject to ‘hjemfall’ — the process by which both state and county can take back, without compensation, licence rights to exploit waterfalls either when the licensing period ends or when the plant is sold. Hjemfall, which applies to all plants developed after 1917, has also kept out foreign investors. An exception is Swedish utility Vattenfall, which gained a stake in Hafslund when the group floated in 1996.

As ever, Statkraft will be at the centre of any new developments. Despite low prices, the utility lifted net income

by 7% to US$113M in 1999. While acknowledging that ‘even with the improvement in our financial strength, there will be limits on how much Statkraft can take on’, chairman Lars Thulin insists his firm ‘is better equipped to take part in the restructuring process we are now experiencing’.

Statkraft’s biggest hydro plants

Statkraft’s biggest hydro power plant, Sima, is housed in a rock cavern in mountains at the end of Hardanger fjord, near the city of Eidfjord. The 1120MW plant is served by a total reservoir capacity of 660M m3, fed from surrounding lakes by 27km of tunnelled waterways.
Sima opened officially in 1980. Environmental concerns have cut its annual average production of 2.7TWh to less than half that envisaged in the 1960s.
The Svartisen plant, in the county of Nordland, is Statkraft’s other great hydro workhorse. It makes use of glacial rivers from the northern part of the Svartisen glacier. The Svartisen 1 project, building the plant and its tunnels, was completed in 1993. Permission to start Svartisen II, construction of the Storglomvassdammen and Holmvassdammen dams, was granted in 1987 and work was finished in 1998. Storglomvassdammen is the highest rockfill dam in the world with an asphaltic core (see IWP&DC, February 2000 p26). Storglomvatnet is Norway’s largest reservoir, holding 3.5B m3 with a regulation height of 125m. Svartisen’s single 350MW generator is also the biggest in the country, producing an average 2.17TWh/year.