2025Annual report

Functional and presentation currency

The functional currency of Småkraft AS is the Norwegian krone (NOK). The Company accounts are presented in EUR. Småkraft AS presents the financial statement in EUR, as most of the lenders and the owners are EUR based.

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 recognized 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 recognized 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 recognized 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 Company has only one segment: Power supply. Småkraft produces renewable energy and sells electricity, el- certificates 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 Company 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.

Waterfall right is recognised as a separate intangible asset. 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 Company´s main lease type of agreements is related to water rights. The rights are considered intangible assets. Småkraft has elected to not recognize these types of agreements under IFRS 16 leases. The accounting treatment of the different water right lease agreements are described below:

Water right lease agreements

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.

1. 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.

1. 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 Company´s Financial Statements.

Financial instruments are recognised in the financial statements when the Company 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).

Financial assets

The Company 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 Company 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 Company has transferred substantially all the risks and rewards of ownership.

Cash and cash equivalents

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 and accrued revenue

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

Accounts payables and other financial payables

These amounts represent liabilities for goods and services provided to the Company 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

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 Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

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 payable 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. From 2020 and onward, Småkraft uses the initial recognition exemption for the tax effect on temporary differences relating to purchase of power plants.

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.

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 amendmens 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.

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

The Company 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 Company is in the process of assessing the impact. 

The Company 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 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 and pre-tax 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.

Fair value measurement of energy derivatives

Significant estimates are applied in the valuation of the Company’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.

The principal financial instruments used by Småkraft, from which financial instrument risk arises, are as follows:

• Trade receivables
• Cash and cash equivalents
• Trade and other payables
• Bank overdrafts
• Floating-rate bank loans
• Fixed rate loans
• Interest rate swaps, and
• Forward currency contracts

Financial instruments not measured at fair value includes cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings. The carrying value approximates their fair value.

There were no transfers between levels during the period.

All the derivatives are valued at fair value at level 2 in accordance with the fair value hierarchy. For additional information see note 13.

Småkraft is engaged in activities that entail risk in many areas and has a unified approach to the Company’s market risks. The risk management policy is based upon assuming the right risk based on the ability and willingness to take risks, expertise, financial strength, and development plans. The purpose of risk management is to identify threats and opportunities, and to manage the overall risk level to provide reasonable assurance that the Company´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 risk, 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 1/4 of the expected annual production capacity for the next four to five years 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.

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 as a part of other revenue in the profit or loss statement.

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. Few of these hedging relationships fulfil the requirements of hedge accounting.

As of 31 December, Småkraft’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 December 31, 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.

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 Småkraft will not be able to meet its financial obligations as they fall due. The company’s 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 Småkraft’s reputation.

The table below shows the maturity structure of the Company’s financial liabilities:

Småkraft 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 financial 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 Company has derivatives related to the hedging of income from future power production, as well as interest rate swaps in connection with interest bearing debt.

For 2026, Småkraft AS has hedged parts of the estimated production against price fluctuations. Fair value calculations are based on available year end market prices, and future price curve estimates in cases where there are no official closing prices.

The Company has entered financial currency swaps from EUR to NOK. The Company has entered these contracts to make sure that the future capital increases in EUR will fully cover future acquisitions in NOK.

The Company does not apply hedge accounting for contracts for power hedging or for currency swaps, meaning that unrealised changes in value are recognised through the profit or loss and presented on the line ’Other operating revenue’ and financial income/expenses respectively.

The table below shows the financial position and profit and 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% compared to 6.6% 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.