NORWAY AIMING TO BE A GLOBAL RENEWABLE ENERGY LEADER:

UNCLAS OSLO 000353

SENSITIVE
SIPDIS

COPENHAGEN FOR EST OFFICER
DEPT FOR EB/ESC

E.O. 12958: N/A
TAGS: SENV ENRG TRGY PGOV NO
SUBJECT: NORWAY AIMING TO BE A GLOBAL RENEWABLE ENERGY LEADER:
OPPORTUNITIES FOR THE U.S.

SUMMARY
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1. (SBU) Norway, the oil and gas giant of northern Europe, is
working to become a leader in global renewable energy technology and
cleaner fossil fuel production. Norway's renewable energy field,
though lagging behind other European nations, has found niches to
fill in wind power production, solar power technology, and carbon
capture and storage (CCS). The Norwegian government, which set the
ambitious target of being carbon neutral by 2050, is driving CCS for
gas-fired plants though it may need to do more to push Norway to the
top of the renewable class. Currently, Norway's vast hydropower
resources are the only cost effective form of renewable energy at
home but growing public interest in climate change, forward-looking
private energy firms, and increased state-sponsored development may
make Norway one country to watch in the future of climate change
technology combatants. Common interests and complementarity offer
excellent opportunities for U.S. companies and
government-to-government cooperation. End Summary.

A LATECOMER TO THE RENEWABLE SCENE
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2. (U) Norway still lags behind other European nations in the
development of "new" renewable energy in large part because of its
historic and natural abundance of hydropower which currently
provides the country with over 95% of its energy needs. Since
hydropower began to flourish after World War II, Norway has had
little motivation to pursue other renewables because its existing
hydro resources were vast, clean, and efficient. The Norwegian
hydro experience has made it a leading world expert in this
technology which it exports to developing nations, but has also
limited the need to develop other forms of renewable energy. Norway
also lacked the financial incentive to seek out new forms of energy
because of its oil and gas wealth. The country exports nearly all
of its oil and gas production making it the world's fifth largest
oil exporter and the third largest gas exporter.

WIND: NORWAY'S HIDDEN POTENTIAL
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3. (U) Long coastlines and powerful winds, especially in northern
Norway, give the nation a huge potential for future wind power.
Finnmark has been identified as an ideal location for wind parks and
could double the average energy production of existing Norwegian
turbines. Though Norwegian wind technology can not yet compete with
wind powers such as Denmark, industry experts indicate that Norway
could become the largest source of wind power in Europe. Over the
next ten years, the Norwegian wind power industry will largely focus
on developing shallow offshore turbines in water 15 to 20 meters
deep. Meanwhile, energy companies such as StatoilHydro, the
Norwegian national energy champion, are developing deep offshore
wind power, hoping to build on the existing technology and expertise
used in offshore oil and gas platforms. Many companies working on
this technology are hoping that high carbon taxes and other
government mechanisms to reduce emissions will make wind power
economical.

UTSIRA, A COMBINATION OF WIND AND HYDROGEN
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4. (U) The small island of Utsira, situated off Norway's
southwestern coast, runs entirely off of wind power and claims to be
the world's first full-scale system for cleanly transforming surplus
wind power into hydrogen. StatoilHydro led the project and
installed two 40 meter windmills which power the island community.
Surplus wind-generated energy is passed through water and, using
electrolysis, the hydrogen atoms are separated from the oxygen atoms
that make up water molecules. The hydrogen is then compressed and
stored in a container that can hold enough hydrogen gas to cover the
energy needs of the ten households for two windless days. Though
this project was incredibly expensive, StatoilHydro states that this
is proof that communities can be self-sufficient based on renewable
energy. Companies like StatoilHydro foresee a future in which
offshore oil and gas platforms are powered by wind turbines and thus
cleaner.

WIND POWER FACING HURDLES
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5. (U) Wind power has provoked wide debate in Norway and faces
bureaucratic and funding obstacles that may slow progress. The
governmental process to receive a permit for a wind park is slow,
congested, and locations in northern Norway that would be ideal for
wind parks are usually not highly prioritized. Many companies have
difficulty attracting investors because wind power is not yet

profitable, and the government is not providing sufficient funding
or subsidizing programs that would provide financial security and
motivation. Aside from not being commercially viable, wind power
has drawn criticism from the Norwegian public for environmental and
esthetic reasons. Environmental groups wrry that wind parks will
affect the nesting and reeding patterns of birds while local
communities point to noise pollution and the negative impact
turbines will have on the natural scenery. These obstacles have led
to greater focus on offshore installations.


6. (U) Offshore technology for floating turbines, however, is more
complex and faces its own challenges. Construction and maintenance
on offshore wind power will be difficult and expensive because of
high waves and unpredictable weather making some turbines
inaccessible for most of the year. Turbines will also need to be
sturdier than existing technology. For example, current Danish
turbine models often break down under stronger Norwegian winds.
Furthermore, there is also no existing energy grid for offshore wind
parks. Nonetheless, some Norwegian companies, such as StatoilHydro
and Statkraft, the Norwegian state-owned electricity company, are
pursuing this technology because they recognize the immense
potential along the Norwegian shores.

SOLAR: LOOKING TO EXPORT EXPERTISE
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7. (SBU) Despite having no domestic market for solar power,
Norwegian firms are making advances in solar technology with an eye
toward global markets. Norway does not have a sufficient amount of
sun to establish a domestic market; however its strong metal and
silicon industry has provided the expertise and material needed for
commercial development of solar cells and panels. Norwegian
companies, such as solar leader REC, also have an edge because they
have access to cheap and clean hydro energy. They have been
successful in solar markets in Germany and Japan where governmental
subsidies exist. REC executives also are expanding in Spain because
of its generous subsidy structure. India, Greece, Saudi Arabia, and
Singapore are all interested in Norwegian solar power technology and
industry experts also point to China and India, where many citizens
are not connected to a grid, as potential consumers of single,
standalone systems. Industry giants such as REC are realistic, and
recognize that state subsidies are crucial to their success, if not
existence. Thus, subsidies and tax breaks motivate REC's global
expansion plans. For example, corporate executives confirm that
selecting Singapore as the spot for the company's massive,
multi-billion dollar campus was largely based on tax breaks and
government incentives.

A FOCUS ON CARBON CAPTURE AND STORAGE (CCS)
--------------


8. (U) CCS is a pillar of Norway's climate change strategy and a
way for Norway to make its enormous gas production more
environmentally friendly. This technology separates carbon emitted
from gas- or coal-fired power plants and stores it in underground
aquifers, though it can also be stored in containers. Domestic
pressure over the carbon emitted by Norway's gas-fired power plants
and the center-left coalition government's stance against the
construction of new plants led to the focus on CCS. CCS in Norway
is for gas-fired plants, not coal plants, and is extremely expensive
and complex. Thus, CCS for gas-fired plants in Norway is propped up
by the government. There are currently two gas-fired power plants
where this technology is being tried and tested.


9. (U) The Ministry of Petroleum and Energy and StatoilHydro have
been working since 2006 to establish a full scale CCS project at the
gas-fired power plant Mongstad. This capture and storage facility
is planned to be operational by 2014. A second full-scale CCS plant
is planned at Krstx which will store 1 million tons of CO2 in
geological formations under the seabed. It will open no sooner than
2011-2012. Some energy experts argue that these two research
projects alone will not be sufficient to make the technical advances
needed for CCS technology in gas-fired plants to be economically
viable. That said, the objectives of this research are to gain CCS
expertise, prove it can be done in gas-fired plants, and later
export this technology to coal-fired plants as well.


10. (U) Some environmental groups have criticized Norway's CCS
efforts arguing that funds should be put solely towards renewable
energy so as not to continue the use of fossil fuels. The
government, however, is confident that CCS is the only way to reduce
emissions from coal- and gas-fired plants which will continue to
provide a substantial part of the world's energy needs for coming
decades. Safety concerns over possible leaks have also sparked
questions of future liability. Another concern is that CCS for
gas-fired plants is too expensive to pursue. Coal-fired CCS plants

are more efficient than gas-fired ones because they have a higher
amount of CO2 which creates a greater pressure and makes extracting
the CO2 easier.

OTHER RENEWABLES ENTERING THE MIX
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11. (U) Norwegian energy companies are also focusing on a variety of
lesser known renewable energy projects including biofuel, osmotic
power, tidal power, hydrogen power, electric cars, and new nuclear
technology. Norway's large pulp and paper industry have led to the
development of biomass and biofuel. This type of energy is being
tried in heating, automobiles, ferries, and ships. One Norwegian
non-governmental organization, Zero, is working to convert an entire
ferry to run on biofuels within the next year. Zero has also worked
to establish a second generation biofuel plant at Rovderudmyra near
Lillehammer which will be the first plant in the world to produce
synthetic biodiesel from landfill gas alone. The plant will be
finished in 2010-2011 and is projected to produce about 500,000
liters of synthetic diesel annually. The Norwegian Research Council
provided a grant of over one million dollars to this effort.


12. (U) Electric cars, though few in Norway, are also getting
attention. The government provides lower tax rates for these cars
and special provisions to allow them to drive in the bus lane.
There are plans to install electric car fuelling stations along the
route from Oslo to Bergen to promote this technology. Think, one of
the world's largest electric car producers, is based in Norway.
Think uses innovative production techniques, developing electrically
powered vehicles able to drive 180 km on a single charge. The
company receives financial backing and technological support from
American companies, such as General Electric.


13. (U) Statkraft is also working on new renewable energy
alternatives, and for the past decade has been researching osmotic
power, which is the energy produced when saltwater meets freshwater.
Statkraft is planning to construct the world's first prototype
osmotic power plant and the company's projections show that the
technology could produce 1,600 terra watts of electricity
worldwide-13 times the amount of hydropower produced in Norway
annually.


14. (U) On the nuclear end of the spectrum, Norwegian researchers
from the University of Bergen are studying the use of thorium as a
safer and more efficient alternative nuclear fuel to uranium.
Norway has an estimated 180,000 tons of thorium.

NO MAJOR POLITICAL SPLITS OVER RENEWABLES
--------------


15. (SBU) Norway's energy policy is driven by a general political
consensus among all but one of the major parties. Norway recognizes
the importance of its oil and gas wealth as well as its expertise
and success with hydropower. It has a strong political interest in
climate change. As a result, there is a strong desire to develop
clean solutions to balance carbon emissions from its oil and gas
industry. Thus, the September 2009 parliamentary election is
unlikely to spark any major change in Norway's growing renewable
energy focus. Indeed, two parties, the Social Left (SV) and Venstre
are likely to push the environment as an important issue in their
campaigns. Since these two small parties are likely to be needed as
coalition parties in a left or right wing government, their interest
may force the other parties to be even more supportive of the
renewables than they otherwise might be.


16. (SBU) Within the current Red-Green coalition government, in
power since 2005, SV is opposed to the construction of new
hydropower plants for fear that they will destroy natural ecosystems
and negatively impact the environment. As a result, the government
has taken the stance that no new major hydro plants will be built,
only small-scale hydro systems have been allowed recently. This was
a concession to SV by Prime Minister Jens Stoltenberg's Labor Party
in return for being able to explore the potential of the Snoevhit
oil and gas field in the Barents Sea, something SV opposed. SV was
also against the construction of new gas-fired plants unless they
had CCS technology and are a driving force behind the government's
push for CCS. While SV would like to see Norway diversify its
energy production away from oil and gas, the other coalition members
(Labor Party and Center Party) see Norway's petroleum prominence as
a long-term guarantee of the welfare state. They, along with
opposition parties, nonetheless place importance on the need to
reduce emissions and find ways to clean up petroleum production.


17. (SBU) Thus, renewable energy is generally not a contentious
issue, with most major parties in and outside of the coalition
agreeing that renewables need to be a part of Norway's energy

strategy. The Progress Party, the only party to openly debate the
threat of climate change and oppose Norwegian participation in the
Kyoto Protocol, stands little chance of slowing Norway's renewable
energy efforts against such strong popular support even if it
manages to make it into the government in 2009. Progress, in fact,
would also favor pushing new technologies although emphasizing the
private sector vs. governmental.

NORWEGIAN PUBLIC GROWING MORE CLIMATE CONSCIOUS
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18. (U) Norwegian government officials and energy experts have
noticed a shift in the Norwegian public in the past few years
towards a more emission-conscious approach to energy policy. This
change has been attributed to the spotlight on the Nobel Peace Prize
being given to both the UN's Intergovernmental Panel on Climate
Change and Al Gore for their efforts on the threat of climate
change, growing international awareness, Norwegian CO2 taxes, and a
growing feeling of responsibility for Norway's large emissions
originating from the petroleum industry. While Norway prides itself
with one of the cleanest oil and gas production systems in the
world, Norwegians see a paradox in their efforts to reduce global
emissions while being some of the world's largest emitters. The
public is growing more open to using oil wealth to combat climate
change and supports holding the oil companies more accountable. The
Norwegian population has served as a driving force behind domestic
commercial interest in going green.

U.S. MARKET PROMISING FOR NORWEGIAN RENEWABLE TECHNOLOGY
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19. (U) Many Norwegian energy firms are looking to the U.S. as a
very promising market for their cutting-edge technologies,
especially in the fields of solar power and CCS. REC Solar is
active in the U.S. and is confident that the American market will be
very profitable. According to REC, the U.S. is an ideal market
because of ample amounts of sun, existing high electricity prices,
and unbalanced power grids. Solar energy can be consumed where it
is produced which would help equalize existing imbalances in
American electricity grids. REC currently has solar manufacturing
plants in Montana and Utah, and there are plans for a polysilicon
plant to be built in Moses Lake, Washington.


20. (U) Another Norwegian energy company, Sargas, which focuses on
CCS technology for coal-fired power plants, sees the U.S. market as
the most promising for its services because it thinks more companies
there want to go green. Sargas is looking to establish an office on
the American east coast within the next year and is exploring future
cooperation with coal plants in Pennsylvania and with the North
American Power Corporation in Wyoming. Sargas sees great
opportunities to export its technology to the many American
coal-fired plants.

NORWAY'S AMBITIOUS CLIMATE CHANGE STRATEGY HELPS ITS RENEWABLE
COMPANIES
-------------- --- --------------


21. (U) Norway, emitting about 55 million tons of carbon a year, has
developed the most ambitious emission reduction targets in the world
and hopes to become the example of how to succeed under the Kyoto
Protocol and beyond. Through a combination of both domestic
emission cuts and offsets, Norway plans to be carbon neutral by
2030, 20 years earlier than its original 2050 target set last year,
overfill its Kyoto obligations by 10 percent during the 2008-2012
period, and cut a further 10 million tons of emission per year by

2020. Norway's 2020 target will be met with almost two thirds of
the cuts being made in Norway while its Kyoto Protocol objective of
an additional 10 percent cut will be met entirely with reductions
outside of Norway. The development of an international carbon
regime and the success of the Clean Development Mechanism (CDM)
under the Kyoto Protocol are cornerstones of Norway's climate change
strategy. Under the CDM, Norway can invest in projects that reduce
emissions in developing countries as an alternative to more
expensive domestic emission reduction. Despite Norway's ambitious
goals, critics argue that there is "a lot of talk with little
action" and that the January 2008 White Paper on climate change,
despite setting stricter targets, did not provide enough specific
solutions.


21. (SBU) Private firms within Norway are banking on the development
of an international carbon regime to provide the necessary
incentives to stimulate a market in clean energy technology. If
they come to pass, Norway sees the opportunity for great success in
areas where Norwegian firms have a unique competence, such as
hydropower, solar power, and eventually CCS. The GON is promoting
international efforts that will further support their businesses.

For example, the Norwegian Agency for Development Cooperation, a
directorate under the Norwegian Ministry of Foreign Affairs, is
working in China on cleaner coal production programs using new
filter techniques. Norwegian business will also be connected to the
EU Emissions Trading Scheme EU-ETS this year. The Government
expects to supply significantly fewer allowances to the trading
system than the total of expected emissions from the Norwegian
companies that will be linked to the EU-ETS. Thus, the Norwegian
allocations will contribute to scarcity of allowances in the system
thereby helping their business.

COMMENT
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22. (SBU) The Embassy has been working closely with the Ministry of
Environment and private sector organizers to showcase American
renewable expertise to promote possible joint research efforts and
joint business ventures. We believe there are some natural
Norwegian strengths in fields such as Carbon Capture and Storage and
wind technology that make such cooperation valuable to both parties.
Furthermore, our efforts to explain the advanced state of U.S.
renewable research and technology have had a beneficial public
diplomacy impact, causing more Norwegians to acknowledge U.S.
environmental efforts and leadership.

WHITNEY