State Budget 2026 – Energy │ Proposal to introduce ground rent resource tax also for small-scale hydro power plants
Reducing the lower threshold in the resource rent tax would have significant consequences for small hydroelectric facilities effectively increasing their corporate income tax from 22 % to 67 %. The proposal is summarized below.
Background for the proposal
Resource rent tax on hydroelectric power was first introduced in 1997 based on principles from the resource rent tax for the petroleum sector. Norway also levies resource rent tax on onshore wind power production and aquaculture. The purpose of the resource tax is to ensure that some of the profits generated from utilizing common natural resources, are returned to the citizens of Norway (through the state). The overarching principle is that the special tax should be tax neutral, by way of a cash flow-based system. This should (in principle) ensure that the state takes part in the projects covered as a passive partner (taking its part of the investment costs and receiving its part of the profits).
When the resource rent tax for hydro power plants was first introduced, the lower threshold was 1,500 kVA. The lower threshold was raised to 5,500 kVA with effect from 1 January 2004, justified by the fact that this would provide increased incentives to invest in smaller scale hydro power projects . The threshold was further raised to 10,000 kVA from the income year 2015.
The Ministry of Finance describes that the background for the proposal is that the lower threshold in the resource rent tax provides incentive to downsize power plants or divide water resources between several power plants to avoid resource rent tax. This breaks with the neutrality principles of the resource rent tax. Lowering the lower threshold will reduce the scope for such tax-motivated downsizing. The Ministry claims that a significant portion of remaining hydroelectric potential lies in small power plants, and that implementation of the proposal will mean that the society gets better utilization of valuable renewable power production.
The question of lowering the threshold for resource rent tax for hydroelectric power plants has previously been assessed by the Power Tax Committee in NOU 2019: 16. The committee considered several alternatives to reduce the effects of tax-motivated downsizing. The recommendation from the committee was to lower the lower threshold to 1,500 kVA, as the government now proposes. The Solberg government nevertheless decided not to proceed with the Power Tax Committee’s proposal.
For comparison, the lower threshold for resource rent tax on onshore wind power is 1 MW (approx. 1,000 kVA).
Content of the proposal
In addition to today’s corporate tax rate of 22%, the power plants affected will be subject to a special tax of 45% (effective). The proposed reduction of the lower threshold will entail a large expansion of the resource rent tax’s scope, and will according to the Ministry mean that 99% of all hydroelectric production will be covered by the resource rent tax. The proposal is estimated to provide an accrued additional revenue to the state of around 800 million kroner in the year of introduction.
The Ministry simultaneously proposes that the lower threshold for the natural resource tax be adjusted correspondingly, from 10,000 to 1,500 kVA. Because the natural resource tax is deductible NOK for NOK in the resource rent tax, the natural resource tax will normally not be an extra cost for the taxpayers. The natural resource tax, however, redistributes resource rent from the state to host municipalities and counties and insures increased local revenue.
Who is affected by the proposal?
The Ministry estimates that approximately 800 power plants with 275 power plant owners will be affected by the proposal. The proposal (if implemented) will thus affects a large number of small hydro power plants that are already in operation. The Ministry proposes in this context certain transitional rules:
- The remaining tax value of historic investments will be deductible by way of depreciations and an uplift in the special tax basis. In order to prevent taxpayers from choosing not to fully depreciate their assets until the effective date (to increase the tax value of investments upon the effective date), the tax value shall be based on maximum allowable depreciations. It is further proposed (for the same reasons) that the taxpayer cannot achieve a step-up of the tax basis by way of realization (i.e. a taxable sale) in the period from 15 October 2025 to 1 January 2027.
- For price hedging agreements entered into before the proposal became known on 15 October 2025, it is proposed an exemption allowing the taxpayer to calculate its taxable income based on the agreed price, as supposed to the general rule where the taxpayers’ income is based on spot price.
The deadline for submitting consultation responses is set to 15 January 2026.
Link to the consultation note from the Ministry of Finance here:
Do not hesitate to get in contact with any of BAHR’s energy transition team members for further information: