Date 16.01.2024
Strengthening Security of Supply – Legislative Proposal to the Storting
Before the New Year, the Ministry of Petroleum and Energy, now the Ministry of Energy, submitted Prop. 33 L (2023-2024) on amendments to the Watercourse Regulation Act and the Energy Act to strengthen security of supply to the Storting. The bill is being considered by the Storting’s Energy and Environment Committee, which will submit its recommendation by February 13, 2024. The bill fol-lows up on the government’s proposal for a new governance mechanism.
What does the governance mechanism consist of?
The governance mechanism consists of several instruments that will work in stages, where a new purpose provision on security of supply in the Watercourse Regulation Act and a requirement to prepare strategies to contribute to security of supply will be fixed. In the event of a more demanding power situation, the energy authorities can impose a reporting obligation on power producers and the authorities can require the strategies to be submitted. If the power situation deteriorates further and extraordinary circumstances indicate that there may be a shortage of energy, the authorities may intervene against the producers and introduce power rationing.
Overview of the main content of the legislative proposal
New purpose clause in the Watercourse Regulation Act
In the bill, the consultation paper’s proposal for a new purpose clause in the Watercourse Regulation Act is continued. The new purpose clause in section 1a of the Watercourse Regulation Act reads:
“The country’s hydropower resources shall be managed and utilized for the benefit of the general public. The Act shall facilitate that watercourse regulation and transfers collectively contribute to good security of supply for electrical energy in Norway.”
Although several consultation bodies pointed out that security of supply will be covered by the first sentence and that there are several other considerations that must also be taken into account, the Ministry of Energy chose to maintain the wording in line with the consultation proposal. In the legislative proposal, the Ministry justifies this by stating that it is important to clarify the responsibility the individual licensee has to contribute to security of supply.
Requirement for a strategy to contribute to security of supply
The bill also continues the proposal for a new statutory provision in section 29 a of the Watercourse Regulation Act that requires licensees to prepare strategies to ensure security of supply. However, the Ministry of Energy has proposed dropping the short title “disposition strategy” because this may be misleading. According to the Ministry, the requirement for strategies should be a fixed requirement, which, among other things, should raise awareness of the company’s contribution to security of supply. Furthermore, the Ministry writes that the strategy can be incorporated into the licensee’s plans for reservoir allocation and contingency planning, in the same way as plans for handling a flood situation. The strategy does not need to contain forecasts, target figures or reservoir volumes.
In light of the consultation, the Ministry of Energy has also proposed a linguistic adjustment in § 29 a, first paragraph, stating that the concessionaire shall “ensure that a strategy for security of supply is prepared”. The adjustment means that the licensee can delegate the practical task of preparing the strategy to others, but the licensee will still have the ultimate responsibility for ensuring that the strategy is prepared in accordance with the new statutory provision. A further adjustment is also made in the bill to clarify that the strategy must show how the individual concessionaire will contribute to security of supply. With this adjustment, the Ministry clarifies that no single concessionaire can ensure security of supply alone.
The Ministry of Energy also maintains the proposal that the energy authorities may require the strategies to be presented when it is “necessary for security of supply assessments”. The strategies may contain competition-sensitive information and if they are required to be submitted by the energy authorities, the Ministry of Energy assumes that the information must be processed in accordance with current regulations. The Ministry also clarifies that no penalties will be attached to violations of orders pursuant to § 29 a second paragraph.
Regulatory authority on reporting for hydropower production
In the legislative proposal, the Ministry of Energy does not make any changes to the proposal to expand the regulatory authority in § 6-2, fourth paragraph of the Energy Act so that it also includes measures to avoid power rationing. The amendment will provide the necessary legal authority to regulate the reporting scheme that was introduced in connection with the special power situation in 2022.
Several consultation parties have expressed concern that the information reported is market-sensitive and that the information should therefore not be made public. Regarding this issue, the Ministry of Energy writes that this consideration will be safeguarded by the information reported by the producers being communicated at an aggregated level and in a way that ensures the least possible market impact.
When will the governance mechanism be implemented?
In connection with the consultation, several stakeholders called for clarification of when the various measures in the governance mechanism can be used. Several pointed out, among other things, that the threshold for introducing a reporting obligation should be high and that it is unclear which situations indicate that the strategies should be presented.
However, the legislative proposal contains few clarifications on this. Regarding the introduction of a reporting obligation, the Ministry writes that this must be adapted to the specific situation and that the reporting must not go beyond what is necessary. The Ministry also writes that the reporting scheme must be terminated when there is no reason to monitor the power situation as closely. According to the Ministry, whether the energy authorities should require the strategy to be submitted will depend on a specific overall assessment. In that case, a requirement to submit the strategies must also be objectively related to a specific security of supply situation.
The statements may indicate that the energy authorities do not want the discretionary assessment of when the instruments in the control mechanism should be used to be linked to specific situations in the power system. This gives the energy authorities more flexibility, but less predictability for the participants.
What happens next?
The Storting must now consider the content of the bill and adopt the necessary legislative amendments for the governance mechanism to enter into force. The bill does not contain an entry into force date, and it is proposed that the law will enter into force from the time determined by the King. In practice, this probably means that the amendments will be adopted during the first half of 2024. Only when the legislative amendments have been adopted and entered into force can the amendments to the regulations that were subject to consultation this fall also enter into force.
Hydropower producers will therefore probably have to wait a little longer before they must comply with all the obligations in the new management mechanism.
For questions about this topic, please contact our energy department.
