By Thomas Faeh, Corporate Ratings

The geographical location of Norway’s power utilities is a significant driver of cash flows. The country’s zonal power pricing framework, alongside insufficient transmission capacity to smooth pricing between the North and South of the country, has created regional price disparities.

Utilities operating in the North have struggled with below-cost electricity prices since last winter. Conversely, those in the South can tolerate higher capex because of higher cash flows. We expect prices in the North to normalise in 2026-2027, although at lower levels than in the Centre and South.

If prices do not rebound, though, utilities operating in the North are likely to face significant pressure, which could have rating impacts. Lower prices than expected in the south, meanwhile, will also need to be met with a careful steering of capex programmes and dividends or they, too, could face ratings pressure.

The sector as a whole faces rising capex demands in regional grid and distribution networks and to maintain and upgrade existing power plants. These demands come on top of ongoing electrification transition costs to meet Norway’s pledge to reduce its greenhouse gas emissions by 55% by 2030 compared with 1990 levels, 70%-75% by 2035 and 90%-95% by 2050. These targets will make electricity the dominant energy carrier, increasing from 47% of final energy demand in 2024 to above 70% in 2060 according to DNV.

While investments in the grid can be recouped, albeit with a lag, from higher grid rents charged to business and household end-users for the infrastructure that delivers their electricity, having front-loaded cash outflows with delayed recovery is negative for short-term credit metrics.

Like the rest of Europe, Norwegian power utilities also have to maintain and upgrade existing facilities in an environment where equipment prices have risen by up to 30%.The need to upgrade facilities and increase production volumes will become a rising challenge in coming years: after decades of running an energy surplus, Norway could face a deficit by the early 2030s or at least a weakening energy balance.

It remains difficult to obtain permissions to build and develop large greenfield hydroelectric power plants, so increasing the capacity of existing power plants at the same time as making them more efficient is the quickest way to increase hydropower production. This is particularly the case in the context of limitations around other forms of renewable energy.

Solar power production is seasonal and has not proven to be economically viable for the industry so is not pursued on a large scale. It is also difficult to design economically viable offshore wind projects owing to uncertainties around the auction process and high costs, making it difficult to attract investors.

One auction in September 2025 only attracted two players, Equinor and Eni; many high-profile players including Statkraft dropped out pre-auction. Onshore wind is a viable alternative but remains politically difficult given vocal opposition by residents and municipalities to local wind farm zoning.

Dividends a drain on cash

Dividends paid out to the predominantly municipal-owners of Norwegian power utilities are a significant drain on cash. Some municipalities also amassed significant amounts of debt in the low interest-rate environment and now need to service much more expensive floating-rate debt. In addition, limited taxes are paid to municipalities: most go directly to central government. As a result, municipal owners have very limited room for manoeuvre so rely on dividends from their utilities to fulfil their duties to serve residents.

Increased pressure to pay dividends creates little room for flexibility in established dividend policies. At times of increased capex needs, this creates a squeeze on cash flows with potential flow-through to credit metrics and credit quality. This has driven a process of cost optimisation. Lyse AS (A-/Negative), the Stavanger-based utility, started its cost drive (predominantly on the telecoms side) in the fourth quarter of 2025. Going into 2026, we expect many others to pursue efficiency programmes to save costs and limit cashflow drain. The need for cost focus and capital discipline is paramount.

We have seen credit metrics negatively affected across our whole rated portfolio. Some utilities with stronger financial risk profiles for their rating levels can tolerate deteriorating metrics, offsetting increased short-term spend through more diversified business models. Others, however, have seen it reflected in negative Outlooks. 

Regulatory uncertainty

The regulatory environment has created additional uncertainties for power utilities, with a suite of changes and proposed changes in recent years: the imposition of a higher resource rent tax (grunnrenteskatt) on large-scale hydropower utilities; the proposed introduction of a resource rent tax on small hydro power stations (småkraft, ultimately shelved); the introduction of a cash flow-based resource rent tax; the introduction of a resource rent tax on wind power; and uncertainties around the district heating framework.

Regulatory uncertainty feeds through to uncertain investment outcomes, which keeps international investors away and has led to postponed investment decisions/capex start for Norwegian utilities, partially resulting in the backlog of investments to come.

Consolidation trend

There has been significant consolidation in the Norwegian power utility sector. The creation of larger utilities brings with it significant benefits that are becoming increasingly visible. We expect consolidation to continue.

Examples include the creation of regional grid companies:

• Tensio (A-/Stable), 2020 merger of TrønderEnergi Nett and Nord-Trøndelag Elektrisitetsverk Nett;
• Linja, 2020 merger of SFE Nett, Fjordkraft Nett, and Mørenett;
• Arva (BBB+/Stable), 2021 merger of Troms Kraft Nett and Nordlandsnett.
• Å Energi (A-/Stable), formed from the 2022 merger of Agder Energi and Glitre Energi, completed its takeover of Fredrikstad Energi earlier this year and is in the process of integrating Fredrikstad Energi’s grid subsidiary (Norgesnett) into its own grid company, Glitre nett.

M&A in the country’s wind parks has also gathered pace, with municipal-owned utilities acquiring fully developed parks from international investors. Eviny (A-/Stable) acquired two wind farms from Blackrock; Sunnhordland Kraftlag (BBB+/Stable) bought 95% of a windfarm from Aquila European Renewables; Hafslund (A/Stable) acquired the Tonstad wind park from Susi Partners, while Lyse acquired the Egersund wind park from Luxcara.