2025Annual report

The consolidated financial statements of the Group for the year ended 31 December 2025 comply with IFRS as endorsed by the European Union (EU).

The consolidated financial statements are comprised of the financial statements of the parent company Småkraft AS and its subsidiaries. Subsidiaries are all entities (including structured entities) over which Småkraft Group has control.

Småkraft Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. Subsidiaries are no longer consolidated from the date when control ceases.

Profits and losses resulting from intercompany transactions have been eliminated, as well as unrealized gains on transactions between group companies. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the transferred asset.

When the Group acquired a controlling interest in another entity the transaction is accounted for either as a business combination or an asset acquisition depending on an assessment of the entity acquired. If the entity acquired includes the elements (input, process, and output) included in the definition of a business the transaction is accounted for a business combination, otherwise the transaction is accounted for as an acquisition of asset. In most transactions the group acquire a powerplant (with land rights) or several power plants, that do not represent a business under the definition in IFRS 3.

The acquisition method of accounting is used to account for all business combinations. The consideration is measured at the fair value of any transferred assets, liabilities or issued equity instruments. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition- by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.

Acquisition-related costs are expensed as incurred. If the consideration transferred (including any non-controlling interests and the fair value of previous assets) exceeds the fair value of identifiable net assets acquired, this is recognised as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase gain.

When the acquisition of a controlling interest in an entity does not constitute a business, the transaction is accounted for as an asset acquisition. In these transactions the individual identifiable asset acquired, and liabilities assumed are recognised. The cost of the group of assets and liabilities (purchase price of equity instruments and transaction costs) are allocated to the individual identifiable assets and liabilities based on their relative fair values at the date of purchase. Such a transaction or event does not give rise to goodwill. Apart from financial instruments the assets acquired in these transactions is the power plant and the intangible asset relating to the water rights.

Functional and presentation currency

The financial statements are presented in EUR. The functional currency of the entities in the group is NOK or SEK. The subsidiaries in the group are consolidated into the functional currency of the parent (NOK) and then translated to the presentation currency, EUR. The currency differences arising in the translation to the presentation currency are presented in Other Comprehensive Incomes. Also, in the statement of equity the translation difference is included in retained earnings. All amounts are rounded to the nearest EUR thousand.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rate at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are generally recognised in profit or loss. Småkraft uses currency exchange rates from Norges Bank.

The revenues from sale of energy bear the characteristic of delivering power at a certain price. The performance obligation is to deliver a series of distinct goods (power) and the transaction price is the consideration expected to receive, at either spot price, regulated price or contract price. The performance obligation is satisfied over time which entails that revenue should be recognised for each unit delivered at the transaction price. Småkraft applies a practical expedient under IFRS 15 whereby the revenue from power for most of the contracts is recognised at the amount of which the entity has a right to invoice. The right to invoice power arises when power is produced and delivered and the right to invoice the consideration will normally correspond directly with the value to the customer. In arrangements where Småkraft sells power on an exchange (e.g., Nord Pool), the exchange is determined to be the customer.

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses. Furthermore, the entity’s component’s operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and thus separate financial information is available. The company has determined that the board of directors is collectively the chief operating decision maker.

The Group has only one segment: power supply. Småkraft produces renewable energy and sells electricity, el-certs and guarantees of origin on the Nordic power market.

Property, plant and equipment is measured at historical cost less accumulated depreciation. Land is not depreciated. Historical cost includes expenditures that are directly attributable to the acquisition of the item. Borrowing costs incurred during the manufacturing of tangible non-current assets are capitalised until the asset is ready for its intended use.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. Repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate costs over their estimated useful lives. The assets’ useful lives are reviewed annually and adjusted if appropriate.

Gains and losses on disposals are determined by comparing actual proceeds with the carrying amount. Gains and losses on disposal are included in profit or loss.

Intangible assets consist of waterfall rights acquired separately and rights to land acquired as part of the acquisition of a power plant. In general, the waterfall right is recognised as a separate intangible asset. The cost of the acquired water right lease is at initial recognition measured as a residual, based on the purchase price on acquisition of a power plant owning company. Småkraft distinguishes waterfall rights in time-limited and unlimited groups regardless of how they were acquired. Reference is made to note 14.

Intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses. Costs relating to intangible assets, are recognised in the statement of financial position when it is probable that the asset will generate future economic benefits and the costs can be measured reliably.

Intangible assets with a definite useful life, such as water rights owned are amortised over the useful life. Intangible assets with an indefinite useful life are not amortised but are instead tested annually for impairment.

The Group’s main lease type of agreements are related to water rights. The rights are considered intangible assets. Småkraft has elected to not recognise these types of agreements under IFRS 16 leases. The accounting treatment of the different water right lease agreements are described below:

Småkraft enters into water right lease agreements with landowners, which entitles the company to utilize the water in the rivers. The agreement typically has a period varying from 40 to 75 years, starting when the power plant is put into commercial operation.

When Småkraft has a commitment to pay rent to the landowners, we account for this as a regular cost as the commitment arises. Such commitment arises, when:

1. Gross agreement/revenue-based agreement: Småkraft pays landowner a percentage of the annual power plant revenue. Upon expiration of the agreement the landowners have the right to purchase the power plant with all rights and technical installations at a price based on certain specific conditions.
   
   Småkraft accounts for this land lease when the relevant power plant generates revenue, upon which this land lease bases.
   
2. Fixed amount agreement: Småkraft pays landowner a fixed annual amount. Upon expiration of the agreement the landowner has the right to purchase the powerplant with all rights and technical installations at a price based on certain specific conditions.
   
   Småkraft accounts for this land lease monthly based upon the agreed yearly payment.
   
3. Profit share agreement: Småkraft shares the yearly powerplant- profit with the landowner. Upon expiration of the agreement the landowners have the right to purchase the power plant with all rights and technical installations based on certain specific conditions.
   
   Småkraft accounts for this land lease type by calculating the actual profit for each individual power plant on a monthly basis. Småkraft then calculates the exact share of the profit, that the landowners have the right to receive. If Småkraft is in a position, where land lease should be paid to landowners, Småkraft accounts for the estimated payment as a cost.
   
   In the case that Småkraft has a profit share lease agreement, where there (still) is an accumulated loss on the powerplant, Småkraft has the right to offset all accumulated losses before paying out land lease rent to the landowners. This will represent a future benefit for the company, that Småkraft does not recognise as an asset. This asset will be off-balance. Any positive or negative changes in these off-balance items, will not be recognised in Småkraft’s books. In some instances, Småkraft may pay out loans or minimum payments to landowners. These loans are interest bearing loans and will be recognised as normal loans in the Group’s Financial Statements.

Financial instruments are recognised in the financial statements when the Group becomes party to contractual conditions relating to the financial instrument. Financial assets and financial liabilities are classified based on the type and purpose for holding the instruments at fair value, amortised cost or as a designated hedge accounting instrument (e.g. derivatives used for hedging financial risks).

The group classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value, and

• those to be measured at amortised cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

For financial assets measured at fair value, gains and losses will be recorded in profit or loss. Financial assets recognised at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Gains or losses arising from changes in the fair value of the financial instruments at fair value through profit or loss, including interest and dividends, are recognised in the income statement. Derivatives are always measured at fair value through profit or loss.

Financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss.

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Accounts receivables are measured at initial recognition at fair value. Accounts receivables are held with the objective to collect the contractual cash flows and therefore are subsequently measured at amortised cost using the effective interest method. For the purposes of impairment, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from the date of initial recognition of the receivables.

The Group classifies all financial liabilities at amortised cost, except for derivatives which are at fair value and financial guarantees (see below).

These amounts represent liabilities for goods and services provided to the Group prior to the end of period which are unpaid. They are recognised at fair value. Småkraft does not subsequently measure at amortised cost using the effective interest method, as the difference is insignificant. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period.

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any noncash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

Group companies that are engaged in energy generation in Norway are subject to the special rules for taxation of energy companies. The Group’s tax expense therefore includes, in addition to ordinary income tax, natural resource tax and resource rent tax for those plants exceeding 10,000 KVA, currently only the Holmen power plant.

Income taxes

Income tax is calculated in accordance with ordinary tax rules and by applying the adopted tax rate. The tax expense in the statement of comprehensive income comprises taxes payable and changes in deferred tax liabilities and deferred tax assets. Taxes payables are calculated on the basis of the taxable income for the year.

Deferred tax liabilities and deferred tax assets are calculated on the basis of temporary differences between the accounting and tax values and the tax effect of losses carried forward. The initial recognition exemption for the tax effect on temporary differences relating to purchase of power plants applies if the transaction is treated as an asset acquisition (not a business combination).

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.

Tax related to items recognised in other comprehensive income is also recognised in other comprehensive income, while tax related to equity transactions is recognised in equity.

Natural resource tax

Natural resource tax is a profit-independent tax that is calculated on the basis of the individual power plant’s average output over the past seven years. Natural resources tax consists of NOK 0.0113 per kilowatt hour (KWh) to the municipality and NOK 0.0021 per kwh to the county. Income tax can be offset against the natural resource tax paid. Any natural resource tax that exceeds income tax can be carried forward with interest to subsequent years and is recognised as prepaid tax.

Resource rent tax

Resource rent tax is a profit-dependent tax levied on the net resource rent revenue generated by each power plant. Resource rent tax is calculated with 57.7% of the resource rent income for each power plant. Negative resource rent tax is carried forward against future positive resource rent tax interest. Negative resource rent tax is included in the deferred tax asset, together with temporary differences regarding the power plant. Deferred tax assets related to negative resource rent tax and temporary tax differences are capitalised if it is probable that the power plant has resource rent income within a time limit of 15 years and is settled against future payable resource rent tax. Deferred tax liabilities/ deferred tax assets related to resource rent tax is calculated with a tax rate of 57.7%.

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.

Ordinary shares are classified as equity. Issuance of new shares are recognised when paid, based upon the decision by the General Meeting. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

The following standards and amendments were mandatory application for the first time for the reporting period commencing 01.01.2025:

• Lack of Exchangeability - Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates

The Amendments do not have any material impact on the financial statements.

Standards and amendments issued but not yet effective

The following standards and amendments have been issue, but not yet effective:

IFRS 18 – Presentation and Disclosure in Financial Statements - effective from 01.01.2027

IFRS 19 – Subsidiaries without Public Accountability: Disclosures - effective from 01.01.2027

Amendments to the Classification and Measurement of Financial Instruments, Amendments IFRS 9 and IFRS 7 - effective from 01.01.2026

Annual Improvements to IFRS Accounting Standards—Volume 11 - effective from 01.01.2026

Contracts Referencing Nature dependent Electricity, Amendments to IFRS 9 and IFRS 7 - effective from 01.01.2026.

Apart from IFRS 18, the standards and amendments are not expected to have a material impact on the financial statements. 

The Group expects IFRS 18 to have an impact on the presentation and potentially disclosure of its financial statements but not the recognition or measurement of items. The Group is in the process of assessing the impact. 

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

The use of reasonable estimates and judgements is a critical element in preparing the financial statements. Due to the level of uncertainties inherent in Småkraft’s business activities, management must make certain estimates and judgements that effect the application of accounting policies, results of operations, cash flows and financial position as reported in the financial statements.

Impairment testing of goodwill, property plant and equipment (PPE) and intangible assets

In performing the impairment assessment of the carrying amount of PPE and intangible assets, as disclosed in Note 15, the recoverable amounts of the cash generating units (“CGUs”), are determined based on fair value less cost of disposal. Significant judgements are used to estimate the long-term price forecast for power, production volumes and discount rates applied in computing the recoverable amounts of different CGUs. In making these estimates, management has relied on market development and estimates from external consultancies as disclosed in note 15.

Significant estimates are applied in the valuation of the Group’s long term power purchase and power sales contracts. The fair value estimate is based on the amounts for which the assets or liabilities could be exchanged at the relevant transaction date on the reporting period end. To the extent possible, the assumptions and inputs used, take into account externally verifiable inputs. However, such information is by nature subject to uncertainty, particularly where comparable market-based transactions do often not exist. In such cases Småkraft’s management is required to make market-based assumptions, see note 13.

Based on the assessment of management none of the subsidiaries (power plants) acquired during 2025 and 2024 constitutes a business as defined in IFRS 3, thus all purchases are treated as acquisition of asset.

Småkraft is engaged in activities that entail risk in many areas and has a unified approach to the Group’s market risks. The Group’s risk management policy is based upon assuming the right risk based on the Group’s ability and willingness to take risks, expertise, financial strength and development plans. The purpose of risk management is to identify threats and opportunities for the Group, and to manage the overall risk level to provide reasonable assurance that the Group’s objectives will be met. In Småkraft, market risk will primarily relate to prices of energy, interest rates and foreign currency. The following section contains a more detailed description of the various types of market risks, and how these are managed.

Småkraft is exposed to significant market risk in relation to the generation and trading of power. Revenues from power generation are exposed to volume and power price risk. Småkraft manages market risk in the energy markets by trading physical and financial instruments in the Nordic Market.

Risk management in energy trading in Småkraft focuses on residual market exposure after considering land lease contracts and minority interests. In general, Småkraft enters standard fixed price contracts where Småkraft agrees to sell a certain production volume at an agreed price in the future. Around 7% of the expected annual production capacity for 2025 have such contracts to reduce the residual risk after land lease and minority interests. Småkraft has set risk limits within which trading activities are allowed. All energy trading contracts are financial contracts.

Småkraft has hedged a portion of the expected power sale. Total volume hedged for the future is shown in the table below:

The energy derivatives are hedged against Nordic system prices. Småkraft also has EPADs for selected price areas.

Both realized cash effects and unrealized non-cash effects from trading are presented in the line item “Fair value change on energy derivatives” in the consolidated statement of income.

Småkraft incurs currency risks in the form of transaction risk, mainly in connection with energy sales revenue and investments. Balance sheet risk is related to debt in EUR.

Småkraft settlement currency at the Nordic power exchange Nord Pool is EUR and NOK, and all power contracts traded in the Nordic power exchange Nasdaq are denominated in EUR. In addition, most of Småkraft’s power purchase agreements in Norway and all power purchase and sales abroad are denominated in EUR. The objective of Småkraft’s hedging is to secure the EUR value of future cash flows exposed to changes in foreign currency rates. Economic hedging is partly achieved by using debt in EUR currencies as hedging instruments. For these hedging relationships hedge accounting is not applied.

As of 31 December, the Group’s net exposure to foreign exchange risk was as follows:

Småkraft’s interest rate risk is defined as gross interest exposure because of outstanding loans with floating interest rates as well as undrawn signed financing. As soon as a term sheet is signed, the interest rate exposure from this financing must be included in the interest rate risk calculation.

The ratio is defined as the expected outstanding loan balance with a fixed interest rate above the total expected outstanding loan balance. Småkraft must ensure that it stays within the following security level at all times:

In the same way that Småkraft does not hedge power prices for signed production during construction, the expected interest rate exposure for potential future debt linked to development is also not to be included in the interest rate risk calculations. This interest rate risk shall not be hedged.

Småkraft can use interest rate swaps, fixed interest rate coupons or interest rate options. Options must only be used for hedging and stop-loss levels must be defined.

As of 31 December 2025, Småkraft has the following interest rate derivatives.

The interest rate derivatives are linked to the bank loans. The future development in interest rates will affect the value of the interest rate derivatives.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of financial assets and liabilities affected, after the impact of hedge accounting. With all other variables held constant, the Group’s profit before tax and equity is affected through the impact on floating rate borrowings, as follows:

Småkraft group has various loan agreements with financial covenants requirements.

Annual Debt Service Cover Ratio – ADSCR
Means the ratio of EBITDA during a period to the total amount of debt service paid in respect of that period.

For reporting of 2025 figures, the definition is temporarily amended to the following; the ratio of EBITDA and cash (period end) divided by debt service during the period. *)

Interest coverage ratio – ICR
Means, for any period, the ratio of Cash Flow Available for Debt Service plus amounts invested pursuant to any Equity Cure to Interest Payments. All within a defined period.

Equity ratio
Means the ratio of book equity to the total assets.

Minimum liquidity
Småkraft shall maintain a minimum Liquidity equal to the estimated sum of the interest payments (of the Group) falling due over the next six months, but however limited to a maximum of EUR 5,000,000

*) If the amended definition of ADSCR had been applicable as per end 2025 the minimum requirement would have been satisfied.

Credit risk is the risk that Småkraft incurs losses due to the failure of counterparties to honour their financial obligations. Småkraft is facing credit risk when entering transactions with financial institutions. Credit risk against financial institutions arises from cash or current account, deposit, investment of interest-bearing securities, derivative transactions and incoming guarantees. Småkraft also assumes credit risk when providing loans to associates and joint ventures. In addition, Småkraft assumes credit risk in connection with physical sales contracts. The total risk of counterparties not being able to meet their obligations is low. Historically, Småkraft’s credit losses have been limited.

All of Småkraft’s main counterparties with regards to revenue settlement and hedging activities are rated as Investment Grade by well-known rating agencies within the 12 months.

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Groups approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation. The table below shows the maturity structure of the Group’s financial liabilities.

*Included in other green revenue is income from Guarantees of Origin and EL-certificates.

Guarantees of Origin and EL certificate schemes are market-based support schemes. In this system, producers of renewable electricity receive one certificate per MWh of electricity they produce for a period of up to 15 years.

Introduced with the EU’s first Renewable Energy Directive (Directive 2001/77/EC) in 2001, Guarantees of Origin are defined as a labelling scheme for electricity to show the electricity customer that a quantity of power has been produced from a specified energy source. All power producers can receive guarantees of origin corresponding to their power production. A guarantee of origin corresponds to 1 MWh of electricity produced.

Guarantees of Origin not yet delivered to customers are presented as inventory.

Pension

The Group has an established pension scheme that is classified as a defined contribution plan. The pension scheme is in line with the requirements of the law. Contributions to the defined contribution schemes are recognized in the consolidated statement of profit or loss in the period in which the contribution amounts are earned by the employees. The defined contributions plan does not commit Småkraft beyond the amounts contributed.

The Group has derivatives related to the hedging of income from future power production, interests in connection with interest bearing debt and currency volatility between EUR and NOK.

The table below shows the financial position and profit or loss accounts for the derivatives:

All the derivatives are valued at fair value at level 2 in accordance to the fair value hierarchy: “Fair value is based on data inputs other than quoted prices included in Level 1, which are observable for the asset, either directly or indirectly”.

• Total yearly production for all power plants with no future increases per plant. All plants are fully operational.
• Production values based on estimates, which rely on historical production values to the extent possible and otherwise estimates in hydrological reports.
• Normalized yearly production is estimated based on a 20-year average of historical production for as many available years as possible and technical due diligence assumptions.

Future power prices are computed using the following methodology. The first year is based on Nasdaq forward prices, and from year 2 onwards an average of three different power price curves from power market analysts (SKM, Volue Insight, and Thema) is applied.

A capture rate that reflects the discount to the market price the specific power station achieves because of its production profile. Normally, an average capture rate is used on a portfolio of power stations.

• Grid fee
• Property tax
• Landowner compensation
• O&M
• Overhead costs

Weighted Average Cost of Capital (WACC) for the current valuation is 6.4% for the Norwegian part of the portfolio compared to 6.6% used in the valuation last year. For the Swedish portfolio a WACC of 5.6% has been applied, compared to 5.4% used in the valuation last year.

Småkraft’s operations are largely dependent on precipitation, and changes in precipitation patterns may affect both our production and the price picture in the power market. Climate change is unpredictable and different scenarios will affect Småkraft’s production. Colder winters and dry summers may negatively affect Småkraft’s production, while milder winters and wetter summers may have a positive impact on Småkraft’s production. Climate change may also lead to more extreme precipitation and/or snowmelt, which may increase water loss over Småkraft’s dams. Climate change, as we are experiencing today, is moving in the direction of milder winters and wetter summers, resulting in increased production from our power plants. Climate risk is discussed in detail in Småkraft’s Sustainability Report and is considered not to have a significant impact on the impairment test.