2024Annual report

In 2024, Småkraft continued its expansion. Once again, the company had the largest contribution to strengthen renewable energy production in Norway, with an increased annual production capacity by 70 GWh for the full year. As NVE presents their updated statistics, Småkraft is constructing 26% of all new renewable projects under construction in Norway year-end 2024. This is a remarkable achievement for a team of 33 men and women. As CEO in Småkraft, I am proud to see how our employees, partners and landowners manage to lead the way and “walk the talk”. Year after year, we continue to create, invest, and grow.

Over the next years, our Scandinavian home market will electrify transportation, properties, and industry. There is a pressing need for new renewable energy as we need more production to match the increased demand. We continue to work actively with landowners, municipalities, grid operators and regulators to develop new capacity.

We will continue to grow and at year end, Småkraft had 21 power plants with annual production capacity of 289 GWh under construction. In addition to this, we have a pipeline of projects that we are working to mature into investment ready power plants in the years to come.

However, Småkraft’s history since 2002 proves that constructing renewable energy is consistent hard work and depend on detailed planning over time. We need to plan today for the investments we will do in three to five years from now. Thus, we have focused on expanding our project pipeline with great success.

One of Småkraft’s main strategic goals over the last years has been to industrialise the company. Nearly all of our powerplants are operated and controlled remotely. We use state of the art digital technology to continuously identify critical parameters to improve our environmental, safety and productivity performance. We will not be able to continue our growth path without great partners, robust processes and supporting technology. We are blessed with more than 1100 landowners who challenge, supports, and bring us local competence and new ideas. World- class specialized and generalized suppliers within small scale hydro work side by side with our operations and technical department. Our goal is always to tear down the barriers between the suppliers and Småkraft. We believe that robust processes combined with our core value “Honesty” will make the unique teamwork Småkraft has with its partners even more valuable in future.

We have come a long way in industrialising Småkraft, but we still have a lot to do. This is work that we take on with great enthusiasm.

Complexity within the renewable energy sector increases. Because of interconnectivity of the energy system, geopolitical changes and climate changes that influence the precipitation patterns, we see more volatile prices that may influence profitability.

To face these challenges and grasp the represented opportunities, small scale hydro power companies need to invest in technology, systems, and knowledge. This is challenging for single small scale hydro power plants or companies with small portfolios of power plants, as the investments and know-how needed are significant compared to the value of a small or few power plants. To Småkraft, this represents great opportunities, as we are big enough to capitalise on economies of scale and synergies.

Although small-scale hydropower generally has a relatively small environmental footprint, Småkraft continuously strives to limit environmental risks and negative impacts during construction, production and operations. Our objective is to develop more renewable energy while preserving nature and biodiversity in line with the governmental requirements. We also want to build strong local communities. This approach is applied both at existing plants and for new projects.

An example of this is the re-opening of the Fosstveit power plant in the second half of 2024. Following significant investments and improvements, we successfully reduce the high fish mortality rates in collaboration with NORCE (Laboratory for Freshwater Ecology and Inland Fisheries).

Utilizing the scale effects of large portfolios has always been a part of Småkraft’s investment strategy. In the current environment, these effects will be even more important for our performance than before. We strongly believe that our operations differentiate Småkraft from others. Improved operational performance will lead to better financial performance, providing better returns for our investors and offer improved downside protection for our creditors. In addition, it will pay better land lease returns to our landowners. Finally, getting more electricity out of the natural resources available to us, is probably one of the most sustainable ways to get more renewable energy.

Our operational model is set up as a digital and physical loop between the local operators living next to our power stations, the internal Småkraft technical team and its local partners, and the centralised operation centre. Småkraft has invested significantly into this operational model and professionalised our operational centre with technological and human resources we did not have before. Our inhouse technical team has identified the best local and regional partners to perform modifications, upgrades and repair. We have invested in training and equipment for our local operators who are more professional than ever. Finally, we continue to invest in improved solutions for our power plants.

New power stations demand large investments. Building renewable energy requires capital. Småkraft has strong committed owners that have contributed to the company’s growth. Our strategy is to work closely with partners that offer competitive and responsible financing, both equity and debt. Småkraft has diverse financing sources consisting of bank debt, bond obligations and US private placement financing. Having built trust over the last ten years with financing partners such as local Norwegian banks, larger Nordic banks, institutional Nordic Green Bond Investors and large private debt investors, gives us access to diversified financing opportunities that help us achieve our goals.

The last two years, interest rates have increased significantly. As Småkraft is investing in hydropower that last for decades, we have tried to find a good balance between fixed and floating interests that suits our long-term focus.

In June 2024, Småkraft completed a senior secured EUR 160 million refinancing of our main bank facility in addition to secure a EUR 20 million revolving credit facility, with our Nordic relationship banks.

During the second half of 2024, Småkraft successfully completed a EUR 24.5 million bond tap issue at an attractive pricing, financing 11 power plants acquired during 2023/2024.