Dear all, welcome to the conference call. We are happy today to announce that we have found a long-term attractive solution for the Røldal-Suldal, RSK, hydropower assets in Norway, that were up for reversion in 2022. I'm here with presenters of today, President and CEO, Hilde Merete Aasheim, EVP of Energy, Arvid Moss. Pål Kildemo, our CFO, is also present. Through this presentation, we will explain the rationale for the transaction and how it creates value for Hydro and our shareholders. Please turn to the next slide. With that, I turn the microphone over to you, Hilde.
Thank you, Line, and welcome from me as well. I would like to first take you through the strategic rationale for this deal. The deal protects and enhance values for Hydro, for Hydro shareholders, and secure a solid platform for Hydro's industrial activity in Norway. I have with me EVP of Energy in Hydro, Arvid Moss, who will go through some more details of the transaction with Lyse, and also provide some more background of the strategic agenda in Hydro's Energy business area. Next slide, please. Today, I am very happy that we can announce that we have signed a deal with Lyse to merge almost all of their power assets with Hydro power plant in Røldal-Suldal, where we produce approximately 3 TWh . In terms of production volume, Hydro is currently Norway's third-largest production company, with a normal production of around 10 TWh per year.
It is important to note that the hydropower assets owned by Hydro in Telemark and Sogn, of some 7 TWh, are not part of this deal and will still be owned 100% by Hydro. Lyse is today the sixth-largest hydropower producer in Norway, measured in production volume, with 11 fully owned hydropower plants, as well as part ownership in the power producers Ulla-Førre and Sira-Kvina. Lyse was founded in 1998 by energy companies in Southern Rogaland on the west coast of Norway, which has roots dating back to 1909. Lyse is owned by 14 local municipalities, cities like Stavanger and Sandnes being the biggest owner. Combined with Hydro's 150 years of hydropower history, these two companies represent more than two centuries of industrial hydropower experience in Norway. In that sense, this is a historic event. Next slide, please. The deal delivers on three main targets that we have had.
Firstly, we secure asset value, as the transaction removes uncertainty by solving the reversion issue of RSK, which all else equal, would have happened by the end of 2022. After the transaction, reversion will no longer be an issue, since Lyse, which is publicly owned, controls more than two-thirds of the joint company that we are establishing, Lyse Kraft DA. Basically, we convert our shares from public to private, evergreen shares that Hydro owns and can be sold to private owners after a lock-up period. Although we reduce our volumetric equity position through this deal, this is compensated by higher quality assets with flexibility to produce at the highest price of the year, a larger tax shield through well invested assets, and synergies, both in the new company, but also for Hydro on a standalone basis.
Secondly, it's a good deal for Hydro because this secures long-term industrial ownership of equity hydropower assets, and we maintain a robust foundation for long-term operation in aluminum in Norway. Last but not least, this strengthen our ability to grow in attractive segments connected to renewables and storage because it gives us scale and a good platform for future opportunities. Next slide, please. We consider this to be an industry-shaping deal. Hydro and Lyse are merging parts of their respective hydropower production portfolios to create a strong hydropower player and to ensure long-term industrial access to renewable power. We are now establishing a new part-owned company called Lyse Kraft DA, which will manage a total power portfolio of 9.5 TWh. In terms of ownership, this company will become the third-largest hydropower company in Norway.
For this portfolio, Lyse will be responsible for market operations, while Hydro will be responsible for operations in both RSK and Lyse's currently fully owned power plants. This means that Hydro's operator role, including wind power, will increase from today's 11 TWh to 13.6 TWh. We expect the deal to close in Q4, pending approval from the Norwegian competition authorities. We also see significant synergy potential through this agreement, both for Lyse Kraft DA and for Hydro. Next slide, please. This transaction is supporting Hydro's strategic direction. For 115 years, the foundation of our company has been to develop natural resources into products and solutions that the world needs, creating value for people, partners, and society. Today, we produce low-carbon aluminium based on a high share of hydropower and wind in our power mix.
What we have seen over many years already is that the global mega trends are pointing in a direction that fits well with our foundation and our capabilities. These mega trends include decarbonization, electrification, urbanization, stricter climate regulations, increased focus on recycling, and awareness about climate issues. In sum, it means that consumers will seek to make greener choices. In Hydro, we see this as an opportunity, and that is why our strategic direction towards 2025 will be to strengthen our position in low-carbon aluminium and to diversify and grow in recycling and new energy positions. The deal with Lyse supports both pillars of our strategic direction. Next slide, please. Energy is a central business area of Hydro for several reasons. First, around 50% of the upstream and midstream business operating cost for aluminium is energy-related.
Secondly, power cost is a major competitive element for smelters in the worldwide competition in the aluminum industry. Third, energy sourcing mix is by far the most important factor for the carbon footprint of aluminum products. Next slide. The carbon footprint of our production is increasingly becoming a competitive advantage in the aluminum marketplace. Hydro wants to differentiate, and we work with the customer for greener solutions. Worldwide, more than 70% of Hydro's primary aluminum production is based on renewable power. In Norway, we now produce more than 1 million tons of aluminum, which is entirely based on hydropower and wind power. Because of this, we are able to offer customers aluminum products with less than 25% of the carbon footprint of the aluminum global average, which is the case for our product family, Hydro REDUXA.
With that, I will leave the word to EVP of Energy, Arvid Moss. As I said, who will go through some more details of the transaction with Lyse and also provide some more background of the strategic agenda in Hydro's Energy business area. Next slide, and please, Arvid.
Thank you, Hilde. Let's take a look at some more details of the agreement. As you see from the overview on the left, we will take our 95.2% share of Røldal-Suldal and merge it with Lyse Kraft DA. Lyse will, from their side, merge in their fully owned hydropower assets and also their shares in two hydropower companies, Ulla-Førre and Sira-Kvina. For those who are familiar with Norwegian power business, Ulla-Førre and Sira-Kvina are really the jewels in the crown in the Norwegian reservoir-based power system. In total, Lyse Kraft DA's power portfolio will be 9.5 TWh in a normal year, which makes us, as Hilde said, the third- largest producer in Norway. Lyse and Lyse Kraft DA will be responsible for water management and market operations.
Hydro will, on the other hand, continue to be operator of Røldal-Suldal and also take on the operator role for the fully owned plants in Lyse Kraft DA. As a consequence, 34 employees will be transferred from Lyse to Hydro Energi AS. Norwegian legislation prohibits private companies to own more than one-third of waterfall after concession expires. With this solution, we transform our 100% interest in RSK that could not continue after 2022 into a 25% private ownership that we can own forever. The deal builds on the DA model, which means shared ownership. The DA model gives owners the possibility to take out dividends from Lyse Kraft in terms of physical power instead of cash. That means we pay the operating cost per overshare and get our share of the income from the power sale.
This is a model that Norwegian government opened for back in 2016, and I would like to give credit to the authorities for securing this possibility. Gaining access to physical power provides important perpetuity that will help secure value creation in our current and future industrial operations in Norway. Next page, please. This slide shows the main changes in our hydropower portfolio before and after the transaction. The captive production in a normal year is reduced by approximately 0.8 TWh from 10.2 TWh, as you can see top left, to 9.4 TWh. This is mainly due to compensation for quota assets and conversion of shares subject to reversion to private evergreen shares. I will come back to the commercial details on next pages.
On the other hand, the position as operator for Hydro is expanded as we will become the operator of also Lyse's fully owned plants, and it will increase our operatorship within hydropower from approximately 10.5 TWh to 12.9 TWh. Next page, please. To values. I'm pleased to inform you that we have been able this year to run a competitive process to explore solutions with good strategic fit. It has been a thorough process within the framework of the Norwegian reversion regime. Our main objective has been, one, to secure asset values, two, to maintain our strong captive position on hydropower, and three, to strengthen the potential to grow attractive green businesses in Hydro. We are very satisfied to see that the deal with Lyse meets all our criteria. The Lyse deal is now strengthening the strategic roadmap for new Energy business.
Although we have some lower captive volume post-transactions, the 0.8 TWh I mentioned on previous page, this is outweighed by several value elements, and I will walk you through the graph to the right. Asset quality in wide respect are mainly different due to their relative tax positions and difference in flexibility to run plants when prices are high. I will come back to that on the next page. In short, Røldal-Suldal, Hydro's plant here, has lower value due to depreciated assets from tax perspective, and Lyse's portfolio is more flexible and achieves higher prices and margins per gigawatt-hour produced. When we merge with Lyse, we buy into better assets. Even if we lose some 300 GWh due to lower asset value in what we bring in, we will on average own better assets.
Value of owning these better assets has a net present value of approximately NOK 1 billion for Hydro. That represents also approximately 300 GWh if you translate it to that. It means that out of the 800 GWh we'll lose, 300 GWh is purely, let's say, due to the mix change, so there is no net change to the bottom line after tax. The remaining volume loss, which is approximately 500 GWh, is a result of that we buy into shares that are freely traded, hence more valuable. Lyse sell these shares to us and get more volume instead as compensation. As mentioned, the private evergreen shares we get are not subject to reversion, has that higher value for us.
We will see when we lose these volumes, we will have lower reported results quarterly, but the value we get from these freely traded shares are approximately as much as we lose in volume. What is the bottom-line effect that you can expect to see? There are many things affecting this, but if you have a power price at around NOK 300/ MWh, as an illustration, we will have approximately NOK 50 million after-tax lower income annually. This is just a rough indication, all other things equal. Some more on private shares versus public shares. When the legislation was changed in 2008, preventing further licensing to non-public entities, but allowing for everlasting minority private ownership up to one-third. One implication, among others, was that the value differentiation between public shares and private shares of a Hydro company .
The main rationale, therefore, the private premium are, number one, the private shares can be freely traded to any type of investor, offering a liquidity premium compared to public shares. Two, the value uplift from public to private conversion can only be realized once, and hence represents a valuable option of the future. Three, limited access to a large-scale flexible hydropower for private investors combined with strong appetite for renewable power indicates attractive premiums. The level of private premium is debatable. Our analysis shows that private shares are traded with a premium in the range of NOK 0.5-NOK 1.5/KWh on top of the base valuation. Last on synergies. In total, we have identified synergies and avoided dyssynergies, typical scale functions like operational center, et cetera. In total, these synergies and dyssynergies are in the range of NOK 450 million for Hydro.
This is expected to be realized in a five-year period. Of this, approximately NOK 50 million is in the Lyse DA, and we have agreed a program how to realize that. The remaining NOK 30 million-NOK 35 million is 50/50 split between avoided dyssynergies and scale effects of operations in Hydro. As these synergies are being realized over the next years, you will find the realized synergies on the bottom line. Next slide, please. Flexible assets are typically characterized by large reservoirs relative to yearly inflow, with significant influence on water management. The flexibility impacts EBITDA through higher achieved prices, as you can produce at the best price levels. You produce power in a dry year, you produce more power during winter, you produce more power mainly during daytime, and you also can get income from alternative physical markets, and you can avoid flooding.
You need bigger reservoirs and high peak production capacity, like in the three assets we buy into. If we start with looking at the upper graph to the right, we see pre-price pattern over the years to come as it looks now, which is the green line and the green shaded area, and how it's expected to look in 2040, the red line and area. You see here that it's expected that the variation over the year will increase, and also within the months and within the days. To be able to produce when prices are high becomes more and more important. Here is a difference between Lyse's system and Røldal-Suldal. Lyse has larger reservoirs on average and run only 3,000-3,500 hours annually, while we in Røldal-Suldal run approximately 5,500 hours per year on average.
The Lyse assets can optimize production when prices are higher on average. The flexibility factor is measured by how much do you realize power price is compared to the average of the market. If the market price is NOK 300/MWh and your flexibility factor is 105%, you beat the average market by 5%, and that is NOK 15/MWh . On a 2.4 TWh portfolio like we have in Lyse Kraft DA, this equals NOK 40 million per annum, or approximately a net present value of NOK 400 million . If the flex factor increases to 10%, we will get another NOK 40 million or another NOK 400 million in net present value at no extra production cost. Flexible assets are valuable and expected to be even more valuable in the future power markets. There are, let's say, more solar and wind coming in.
We have the interconnectors to the continent, et cetera. Over time, this could give an even higher benefit to Hydro than indicated to be part owner in these assets. In addition, as also you know, these assets, these power stations are placed in the NO2 price area, the south area, with close proximity to power cables, the U.K. and the continent. The graph to the bottom, right there, you see the expected price levels over the coming decades. To the left, for every year is South Norway, the mid column is Mid Norway, and to the right is North Norway. These are external analyses that we just put in for reference. It really, both these two graphs show really that we can expect this to be a very interesting asset to be owner of. Next slide, please.
The deal with Lyse will strengthen the energy business area going forward and the growth direction set out towards 2025. Next page, please. In Hydro's 115 years of history, energy has been the red thread in our purpose to develop natural resources and create viable societies. Our business objectives can largely be summarized in three. Our first objective is to deliver value from strong performance in the power industry. This is where our power operations and market operations play a vital part. In power operations, we run one of the market's most cost-effective operations and with excellent HSE results, and we look forward to take on the Lyse plants. In market terms, we are a significant player in the Nordics and in Brazil.
In Norway, we currently have a total market portfolio, 18 TWh under commercial management, including 15 long-term power contracts on both hydropower and wind power on behalf of primary business area. The second objective in our strategy is to be Hydro's energy competence center, providing competitive sourcing and optimal energy system solutions to the rest of Hydro. Certainly, it is that third objective is to build complementary new businesses in the renewable energy to create and capture new value for Hydro. One example, we are the only player of scale in Norway and Sweden that at the same time is a large producer, a large market actor, and a large industrial consumer. The Energy business area is in a growth mode and strategic direction with focus on new energy.
The energy system insight and commercial and business development competence that we have built from that industrial base I just have talked through, is the foundation for new growth. We have a scalable platform in Norway where we can take on new businesses at low cost, as we have done now, taking over the operatorship of the Tonstad wind park, which is 700 GWh, and now we take over Lyse's power stations, a scalable platform. We can do more with that one. It's really about scale, operator, and industry experience, project experience, and also regulatory insight and positioning. With the deal with Lyse, all this strong industrial platform is not only maintained, but it is strengthened. A scalable platform has become even stronger. Next slide, please.
Our growth strategy is to expand the engagement in the renewable sector because we have the capabilities to do so in a profitable way, and today's deal adds to the strength. If we walk from the left to the right, as you all know, there is an enormous growth in renewables as the world needs to decarbonize. Second, the business area energy has over the last five years systematically expanded its capabilities and taken on new roles inside and outside Norway. We are a trusted industrial partner, and we see how our competencies are used in new businesses. The market insight is translated into business decisions, such as entering into a number of attractive PPAs in the Nordics. Thirdly, we have a scale, and we have platforms suited for further growth. In cooperation with partners, external partners, we can build business cases that are attractive.
The strategic backdrop for the two business units that we now have established, renewable growth and batteries, is Hydro's strategy towards 2025. To grow in areas where megatrends match our capabilities, as Hilde also talked about. Delivering on profitability, driving sustainability. Next slide, please. When thinking about Hydro's energy operations, some get the idea that there is a power line connecting our hydropower plants to the smelters in our portfolio. The reality is much more sophisticated. Hydro's current portfolio in Norway consists of around 10 TWh hydropower and 0.7 TWh wind power, and 8 TWh of PPAs under commercial management. All this power is optimized in the marketplace on an hour-by-hour, day-by-day basis. We take out what the market can get more value from it. We have also established a unit in Brazil five years ago, where energy matters are very important part of Hydro's operations down there.
The plan is now with our new BU, renewable growth and batteries, to engage systematically. Especially in renewable growth, we will focus on Brazil to engage in wind and solar projects to get attractive supply of renewables to our operations down there. We work with many partners, and we will continue also to work in Norway and Sweden on interesting growth projects. Next page, please. Summarizing the energy business area and our strategic ambitions, we have three pillars that we based our strategy around. One, we shall be on the podium in terms of operational excellence. That means safety, cost, and digital solutions. Two, we shall have the best energy competence in any aluminum company with lower sourcing costs, lower risk, and more renewables in Hydro's energy mix as a target.
Three, last, we should have a competence cluster on new business opportunities in the energy sphere where we seek attractive returns, high-value potential for our shareholders, and lower risk for the Hydro group. Next page. To summarize, the business area energy will consist of three units going forward. It's energy, power operations, and market handling optimization, and being also energy service provider to the rest of the industry portfolio in Hydro. We now have then 7 TWh in Norway that is 100% owned and 25% owned in the Lyse deal. Second, the renewable growth business unit, where the target is to identify and develop business cases in renewable energy, including from current pipeline. Focus area are wind and solar in Brazil and the Nordic region. Three, batteries.
Engaged in the battery space where we expect significant growth potential based on Hydro's current positions and on developing new projects. As you know, we have a few interesting ownership positions, and we will explore opportunities as we go forward. Next slide, please. With that, I give the word back to you, Hilde.
Thank you, Arvid. The deal with Lyse is an important milestone for Hydro, and we are truly excited about finally securing a solution to the Røldal-Suldal reversion issue. As I said earlier, the deal delivers on our main targets that we've had, protect and enhance value for our shareholders, secure long-term captive power base for our aluminum activity in Norway, and in addition, it strengthened the growth potential in attractive green businesses for Hydro in line with our strategic direction towards 2025.
Thank you, Hilde and Arvid. Operator, we are now ready for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press the star key followed by the digit one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. A voice prompt on your phone line will indicate when your line is open. Please state your name before posing your question. Once again, please press star one to ask a question. And we will take our first question. Thank you.
Hi. Yes, hi, good morning. Congratulations on the deal. Thanks for taking my questions. This is Ioannis Masvoulas from Morgan Stanley. Just a couple of questions from my side. If I look at your power mix, seems to be shifting away from just hydro and great proportions towards wind even before today's transaction, as you had a number of PPA agreements signed in the past couple of years. What is the potential here for a greater wind power in your mix over the medium term? That would be useful to get some idea on the relative attraction hydro versus wind and whether solar could play a role. Secondly, just from an accounting point of view, since you are operator of part of those assets, are you going to consolidate the entire footprint or just your equity shares? Thank you.
I can answer the first one. We have signed, as you rightly said, a number of PPAs with wind projects in Norway and Sweden over the last years. As we see it now, with this deal and with both the captive we have in Hydro and the PPAs we have, we are pretty well sourced in Norway for the smelters in Norway. We will continue to look at if there are any, let's say, attractive opportunities to grow into also in wind in the Nordics. I think the main focus now for, let's say, looking at new wind and solar projects will be Brazil, because there we have a large sourcing need over time for the smelter and also for Alunorte. The second point, Pål, maybe you can take that one.
Yeah, as you know, these assets have been consolidated in so far. Going forward, this will most likely be treated as an equity accounted investment, meaning that we'll take in our share of net income similar to [audio distortion].
Understood. On the remaining 7 TWh of footprint, that remains consolidated?
Yeah. That continues to be the same as before.
Great. Thank you very much.
Thank you. As a reminder, ladies and gentlemen, please press star one to ask a question. It seems we have no further questions at this time over the phone. Thank you.
Okay. Thank you everyone for joining today. If there are any other questions, please don't hesitate to contact us in Investor Relations. Thank you.
Thank you all.