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Tender for hydropower plant in Greenland

24 May 2023

Greenland is about to launch a call for tender for the construction and operation of two hydropower plants in the southwestern part of the country. The two plants will have an expected capacity of approx. 600 MW and 200 MW, respectively, to be exploited in the context of a commercial offtake project, for instance a PtX plant, that will be tendered at the same time. The tender has been facilitated, in particular, by increased volumes of melt water from glaciers and is viewed in Greenland as an opportunity in the context of green transition.

In May 2022, plans for the tendering of the two hydropower plants were announced at the World Hydrogen Summit. The two hydropower plants will be located in the southwestern part of Greenland at Tasersiaq and Tarsartuup Tasersua between Kangerlussuaq and Nuuk. In the announcement of the contemplated tender, the areas were presented as Greenland’s largest undeveloped hydropower resources.

The Government of Greenland has subsequently invited potential investors to participate in a market dialogue that ran from September to December 2022, where investors were able to get a closer insight into the tender.

Following a market dialogue, the replies to questions posed anonymously by various players have now been published. The main updates resulting from the market dialogue concern royalties to the Self-Government and the offtake project, which will be established concurrently with the hydropower plant. At the same time, an updated projected timeline for the tender has just been published, as further described below.  

In this newsletter, we will take a closer look at the tender process and the key terms of the tender based on the material published so far.

At this stage, it should be expected that one bidder could win the tender for one or both projects, depending on the scope of the application. Please note that in this newsletter, the “winner” of the tender may refer to either one or two winners.

The tender process

The tender and the subsequent prospecting and construction phase will be conducted based on the following projected timeline, which was published on 4 May 2023:

  • Call for pre-qualification in late 2023.
  • Bid process from mid to late 2024.
  • Proof of concept phase from 2025 to 2027.

According to the market dialogue, the aim of pre-qualification process is to ensure that only serious and professional players participate in the tender process. Applicants will be narrowed down to bidders who satisfy the pre-qualification criteria, which are expected to be focused on financial and technical capacity and hydropower competencies.

The final bid must contain a description of the contemplated studies and extraction of the hydropower resource and include a timeline. Detailed requirements for the content of the final bid are expected to be published together with the final tender terms and pre-qualification conditions. Pre-qualified bidders must submit, together with their final bid, an initial Construction and Production Plan (“CPP”) that includes, in particular, a description of the activities that the winner is intending to undertake in order to realise the project. During the following three months, the bids received will be reviewed, and the winner will be appointed by the Self-Government.

Following an assessment of the bids received, the winner will be chosen. No objective and ranked criteria have been established for this purpose. Based on the market dialogue, it is expected that emphasis will be placed on the exploitation of hydrological resources, revenues to Greenland, whether the project is suitable for Greenland, and whether it is sustainable in terms of the environment, climate, economy and society in the long term. The authorities in Greenland are subject to rules similar to the ones applicable to the Danish authorities. This means that as part of the decision-making process, no undue considerations may be taken into account when selecting the winner.

Seeing that Greenland does not have a joint power grid, the project entails that the license must be exploited and that there must be an offtake project. The offtake project is not fully defined, but the energy produced must be used for industrial or commercial purposes, and the final bids must include a specification of the offtake project. The Greenland Self-Government proposes for instance a PtX plant. However, other offtake projects will also be welcome. The openness to different offtake projects is also reflected in the responses to the market dialogue, where the Self-Government has clarified that it will announce before or after the publication of the pre-qualification documents its preference for certain types of offtake project.

According to the Greenlandic Hydropower Act, construction must be initiated no later than three years after the grant of license, and the plant must be operational no later than six years after the grant of license. The Government of Greenland may extend the deadlines. However, after the provisional license, an extension of time will result in an increase of the royalty payment to the Self-Government (see below) by 100% for each 12-month extension.

Terms of the license

The winner of the tender will be awarded a license granting the licensee an exclusive right to extract electricity from hydropower in the license area concerned. The license area will be restricted to onshore exploitation. The license period commences when the licensee and the Government of Greenland have signed the license agreement. The license period is 40 years, which is the maximum period for which a license can be granted under Greenland’s Hydropower Act. Construction is therefore intended for long-term production. According to the draft model license agreement published for the plants, a number of terms and conditions must be satisfied, both as part of the tendering process and as part of the subsequent construction and operation of the plant.

It should be emphasised, among other things, that according to the draft model license agreement the bidder must be a public or private limited liability company incorporated in Greenland having its registered office address in Greenland. Furthermore, the company must have the necessary technical ability and financial capacity to construct the plant (both the hydropower plant and the offtake project). The specific requirements for “technical ability” and “financial capacity” are expected to be clarified in connection with the publication of the pre-qualification conditions. However, according to the model license, the bidder must own all assets to be used for the construction of the plant. Moreover, the license also sets limits for the bidder’s maximum debts and stipulates requirements concerning the bidder’s financing capacity and possibilities. It is further provided that several companies may submit a joint bid. In such case, all companies concerned must each fulfill the requirements. However, the bidders will be jointly and severally liable for the construction of the project according to the model license conditions.

Thus, in order to participate in the tender, the bidder must have sufficient technical abilities and financial capacity, as is also known from Danish tenders for offshore wind farms.

In connection with the exploitation of the license, the licensee will be subject to strict liability and will be liable for damages and losses caused by the establishment and operation of the hydropower plant and the offtake project regardless of whether the loss or damage occurs in an accidental manner. However, liability may be reduced for losses or damage caused intentionally or through gross negligence by an injured party. In view of the strict liability, insurance is required for all activities conducted under the license, including third party liability.

The licensee will also be required to provide security for the licensee’s performance of all obligations related to the construction of the hydropower plant. The amount of the security will be determined by the Government of Greenland taking into account all relevant circumstances, including in particular the licensee’s obligations under the license. The amount of security to be provided is also likely to depend on the nature of the offtake project. According to the model license agreement, security may be provided by: (i) bank deposit with one or more banks; (ii) a bank guarantee issued by one or more banks; or (iii) one or more securities as proposed by the licensee and approved by the Government of Greenland. In addition to the security, the licensee must also issue a guarantee covering claims from the Danish and Greenlandic authorities relating to the performance of the license conditions. If the licensee is part of a group of companies, the Government of Greenland will most likely also require that the licensee’s parent company issues a parent company guarantee.

As the general rule, the hydropower plant and the transmission lines to be established must be designed, constructed, operated and financed using the best available technology and materials approved by the EU. However, the Government of Greenland may accept materials of equal or better quality. Conversely, the license terms do not provide for financing, establishment and operation of a transmission line connected to the public transmission grid in Greenland, since power production generally will be purchased by the offtake project. However, the Self-Government may require that surplus capacity be made available to the public grid to a specified extent. As a general rule, the licensee will not be required to pay for connection to the public grid, unless so determined by the Government of Greenland in connection with the approval of the final Construction and Production Plan.

It is also a requirement that Greenlandic manpower and suppliers be used in the construction process, as is also known from Greenlandic mining licenses and hydrocarbon extraction licenses, among others. Specifically, this means that Greenlandic labour must be used unless sufficient qualified Greenlandic labour is not available. Moreover, the licensee and its contracting parties must, whenever possible, contract with and use Greenlandic suppliers for the supply of goods and services, including services falling within the scope of construction. The latter requirement may be deviated from to the extent that there are insufficient Greenlandic suppliers with the necessary technical and professional competencies or that are not commercially competitive.

Financial circumstances

Each bidder must pay DKK 50,000 for submitting a bid to the Self-Government, and the winning bidder must pay DKK 100,000 to the Government of Greenland if a license is granted. Subsequently, fees will be charged for the ongoing case processing conducted by the Government of Greenland in connection with the license. This may include for instance expenses for external consultants engaged by the Self-Government to review, among other things, environmental assessments and project plans.

Moreover, the licensee will be charged an annual royalty for the license. The royalty is set on the basis of the volume of the hydropower resource covered by the license. The royalty amounts and the calculation model have not yet been determined. Moreover, Greenland’s Hydropower Act allows for additional royalties, and reservations are made for further royalty provisions to be inserted in the license agreement before it is finally concluded. Such additional royalties may be related to extraction, energy output and profit. Based on the responses from the market dialogue, it can be deduced that the Government of Greenland is considering various royalty models, which will probably combine taxes with a scarcity rent and potential co-ownership.

As regards the financial framework terms, it is worth noting that the Government of Greenland may lay down requirements for further royalties until a bidder has been awarded the license. Apart from these uncertainties, the final terms and conditions of the license are open for negotiation once the winner has been found. It is therefore likely that the amount of these royalties will have to be negotiated.

It is also important to note that under the model license, the licensee will be subject to Greenlandic tax legislation at all times. This means that a bidder – in addition to royalty payments – also must take into account potentially burdensome amendments to Greenlandic tax law during the license period when assessing the return potential of the project.

Since the model license agreement requires that the bidder establishes either a public or a private limited liability company domiciled in Greenland, the winning bidder will be subject to full tax liability and be taxed at a tax rate of 25% (the current rate). In certain circumstances, it may be possible to obtain tax exemption, including for the exploitation of hydropower resources for the production of energy.

Because a license agreement with annual royalty payments is envisaged, the bidder should be mindful of the tax treatment of royalties. In view of the fact that a detailed royalty model has not yet been defined, it is not yet possible to comment on this. However, we expect that royalty payments to the Self-Government will be deductible as operating costs against the taxable income, and that bidders will be taxed on the net income in the customary manner.

Since the bidder is required to own the assets to be used for exploitation, bidders will have non-negligible capital tied up in fixed assets. In order to accommodate liquidity requirements for tax payments, it is as a general rule possible to depreciate the acquisition cost of: (i) buildings and installations by up to 5% annually; (ii) aircraft and ships by up to 10% annually; and (iii) other depreciable fixed assets, equipment and intangible assets by up to 30% annually. Finally, there are certain options for immediate depreciation and a separate possibility for deducting expenses for provisions relating to the decommissioning plan to be drawn up by the bidder.

Apart from the ownership requirements, the tender also comprises requirements concerning the bidder’s total debts and financing options and capacity, which may affect the bidder’s capital structure. Interest income and expenses and capital gains and losses are generally covered by tax liability. It should also be pointed out in particular that dividends generally are covered by the tax liability, since dividends received are taxed, while distributions are deductible. In case of distribution, the bidder must withhold dividend tax.

In connection with the market dialogue, questions have been posed concerning amendments to Greenland’s tax rules. So far, no such issues are currently on the political agenda, but we are following developments closely with a view to reporting on the financial implications.

Other key documents needed for the call for tenders

In addition to the license agreement, bidders should be aware of a number of other documents and plans:

The Construction and Production Plan

As mentioned above, the bidder must, prior to the award of the license, have prepared and presented to the Government of Greenland a Construction and Production Plan for the construction, operation and use of the hydropower plan, as well as the exploitation of the hydropower resource for the production of electricity and its offtake through the offtake project. The plan must be approved by the Self-Government.

The Construction and Production Plan must later be submitted by the successful bidder as a Final Construction and Production Plan to be presented to the Government of Greenland for approval. The final plan must be based on the Construction and Production Plan submitted together with the tender and must be in conformity therewith. However, the final plan will of course need to be more detailed and be based on the licensee’s further planning and studies, assessments and negotiations with the Government of Greenland. The purpose of the Final Construction and Production Plan is to set a framework for the construction and operation and will therefore be of great practical importance as a key project document.

Environmental Impact Assessment Report (“EIA report”)

In addition to the Construction and Production Plan, the bidder must in connection with the license prepare a report based on the environmental impact study, the EIA report. Greenland’s requirements for this study are inspired by Denmark’s and the EU’s EIA process. Alongside the actual drafting of the report, the process involves, among other things, public consultation and an objection period. This report is also used in the context of mining licenses.

Social Impact Assessment Report (“SIA-rapport”) that forms the basis for an Impact Benefit Agreement (“IBA”) (Cooperation Agreement)

Parallel to the environmental impact assessment, the expected social impacts of the project must be identified. This will involve the preparation of a report on the social impact of the project – the Social Impact Assessment Report (SIA) – which will later form the basis of negotiations between the Government of Greenland, the municipality and the licensee with a view to concluding an Impact Benefit Agreement (Cooperation Agreement). The purpose of the social impact assessment is for the project to maintain and/or improve social sustainability and other socio-economic issues, including through the use of Greenlandic labour and suppliers as mentioned earlier. This is also something that is known from mining licenses.

Agreement on Industrial and Commercial Activities (“ICAA”)

A draft agreement between the licensee and the Government of Greenland has been published in relation to the industrial and commercial activities to be planned as part of the proof of concept phase leading up to construction being commenced. The agreement regulates the offtake project, for example a PtX plant. The agreement incorporates many of the obligations listed in the license agreement and expires at the same time as the license agreement. In the execution of the offtake project, the licensee must use the best available technologies and engage with Greenlandic manpower and e suppliers to the same extent as under the model license and carry out the EIA process and social impact assessment of the offtake project with a view to concluding an Impact Benefit Agreement. The draft agreement on industrial and commercial activities further specifies that the licensee must finance and construct the transmission line between the hydropower plant and the offtake project.

Exploration license

Apart from the specific license for the construction of the hydropower plant, bidders should be aware of the requirement to obtain a non-exclusive license for the exploration of hydropower resources for the production of electricity. This license is valid for up to five years and the grant thereof involves additional charges.


Gorrissen Federspiel will keep an open eye on the tender and communicate updates of pertinent news. For many years, our Greenland Desk has advised on license conditions for the extraction and exploitation of natural resources in Greenland, among other things. Therefore, we have wide experience assisting players in the course of licensing processes, including in negotiations with the Government of Greenland.

Read more about the tender on Greenland Hydropower resources

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