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Norsk Hydro and Lyse to establish hydropower company

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Norsk Hydro ASA and Lyse plan to merge part of their respective hydropower production to create a stronger joint hydropower company called Lyse Kraft DA. The agreement secures long-term access to renewable power for Norsk Hydro’s industrial operations in Norway, according to a press release.

Lyse Kraft DA will have a normal annual power production capacity of 9.5 TWh, of which Hydro will own 25.6% and Lyse 74.4%. The agreement is expected to bring synergies of about NOK500 million (US$54.2 million) in net present value. These will be realized through economies of scale and more efficient operations, as well as new ways of working through digitalization and collaborative solutions in daily operations and investment projects

As a consequence of the transaction, the Røldal-Suldal Kraft (RSK) assets will not revert to state ownership at the end of 2022, meaning Hydro can use its share of the power produced by the new company for aluminum production in Norway.

Hydro will remain the operator of the RSK assets and assume operatorship for Lyse’s fully owned hydropower plants. Consequently, Hydro will become a larger power operator and remain Norway’s third-largest provider of renewable power, with combined renewables production of 13.6 TWh in a normal year. Hydro’s annual production, based on equity shares, will be 9.4 TWh in a normal year.

“This is a great day for the future of Norwegian renewable-based industry. The agreement is strategically important for Hydro, as it secures the value of our RSK hydropower assets and contributes to predictability for further industrial development in Norway,” says Hydro President and Chief Executive Officer Hilde Merete Aasheim.

RSK was established in 1963 to supply power to Hydro’s aluminum plant at Karmøy. In line with the Norwegian rules on license reversion of waterfalls and hydropower installations, private entities can normally only own up to one-third of the shares of a company that owns larger waterfalls. In 2016, the Norwegian government opened for private entities to extract physical power from power companies to ensure predictability for industrial operations.

Aasheim says the transaction is in line with the company’s strategy to strengthen its position in low-carbon aluminum and grow in the renewable energy sector. “The agreement supports both objectives, as we secure long-term access to renewable power, and Hydro will become a larger hydropower operator,” she said.

Lyse will become responsible for the water management and market activities with a portfolio of 9.5 TWh. The CEO of Lyse, Eimund Nygaard, says the agreement creates value in several areas.

“The agreement makes Lyse the third-largest power market entity in Norway and gives us a chance to build an even more competent and robust power management organization in Stavanger,” he said. The operator agreement with Hydro will also give economies of scale, increased professionalism and new development opportunities for the power plants and the 34 employees who will be transferred from Lyse to Hydro.

“The power sector is changing, and we would eventually risk becoming too small to run these plants efficiently on our own. When we now join forces, we can make better use of our combined competences, including in digitalization in a larger system,” said Nygaard.

The transaction is expected to close in the fourth quarter of 2020, pending approval by the Norwegian Competition Authorities

Lyse is a Norwegian industrial group operating within the business areas of energy, telecommunications and power grid. The company’s shareholders are 14 municipalities from Southern Rogaland.