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Decreased Revenues pr. MWh from Smelters in 2015

Last year (2015), the price of aluminum dropped from what it was the previous year (2014). Iceland has three aluminum smelters and Landsvirkjun (the National Power Company) generates great amounts of electricity to these smelters.

One of the three smelters, Rio Tinto Alcan (RTA) in Straumsvik or ÍSAL, pays fixed power price (the tariff is linked to US Consumer Price Index; CPI). This contract between RTA and Landsvirkjun was made in 2010, with additions in 2014. The other two smelters have power contracts based on a different model, where the tariffs are linked to the price of aluminum (as the aluminum price is at the London Metal Exchange). These two contracts are from 1999 and 2003 respectively. The contract from 1999 is with the Norðurál smelter of Century Aluminum at Grundartangi, and the contract from 2003 is with the Fjarðaál smelter of Alcoa on Reyðarfjörður.

Electricity-Tariffs-to-Aluminum-Smelters-in-Iceland_2005-2015-and-likely-price-increase-to-Nordural-Century-2019_Askja-Energy-Partners-2016Because of the two contracts having the tariffs linked to aluminum price, revenues of Landsvirkjun pr. each sold MWh to the smelters in 2015 were lower than in 2014.  The graph at left shows how the power price paid by each of the three smelters developed in the period of 2005-2015. Each bar shows the average price of electricity each year, with regard to each smelter. Note that transmission cost is included in the tariffs (the average transmission cost is close to 6 USD/MWh). Landsvirkjun then forwards the transmission payment to the Icelandic TSO; Landsnet.

As can clearly be seen from the graph, the smelter of Norðurál (Century Aluminum) pays the lowest tariff. The smelter of Fjarpaál (Alcoa) pays a slightly higher tariff than Norðurál. The smelter at Straumsvík (Rio Tinto Alcan) has the most recent contract and is currently paying the highest tariff of all the three smelters.

Aluminum-Smelter-in-Iceland-WinterObviously, Landsvirkjun is taking substantial risk when it agrees on having the tariffs linked to aluminum price. At the same time the low tariffs, linked with aluminum price, make the Icelandic smelters of Alcoa and Century Aluminum almost financially risk-free operations. Century has come close to acknowledging this, by stating that its Grundartangi smelter in Iceland “generates significant free cash flow in virtually all price environments”.

Currently, a new power contract of Landsvirkjun and Century Aluminum is being negotiated (the old contract from 1999 runs out in 2019). It seems likely that Landsvirkjun will offer Century a similar deal as Rio Tinto Alcan got in 2010. Which means that from 2019, we may expect that Century’s Icelandic smelter at Grundartangi in Southwestern Iceland, will be paying close to 34 USD/MWh (in todays value), as marked with a red arrow on the graph above. However, it might be a better deal for Landsvirkjun and its owner (which is the Icelandic State) to sell the power to Europe via HVDC cable. With regard to this, it should be noted that the governments of Britain and Iceland are now in discussions on the possibility of such a cable.

NB: Power tariffs to the three smelters are estimated by Askja Energy Partners, with regard to annual reports of Landsvirkjun and several other information as published by CRU Group, EFTA Surveillance Authority, et al.

Current Low Oil Prices are Not Sustainable

The price of oil is currently very low. The main reason for this low oil price is slower economic growth in China, at the same time as oil production in the United States has increased enormously from what it used to be few years ago. Which means that oil consumption (demand) is growing slower than what was expected, and at the same time we have strong oil supply.

IEA-Oil-Global-demand-supply-balance-2016Now when the price of crude oil is very low, it is worth considering what it costs to produce the oil. Today, the world uses a total of 95-96 million barrels of crude oil and liquids every day. The current daily supply is probably 1-2 million barrels more. According to he International Energy Agency (IEA), the gap between demand and supply will soon decrease and then the price of oil is likely to rise.

It is impossibly to say when or how fast this will happen. However, when looking in the back-mirror we see that oil consumption tends to grow year by year, at least if the world economy is growing. And even if oil consumption would stay flat for some years, most producing fields can only sustain the daily production within a fairly short time-frame. Thus, new oil fields need constantly to be located and put into production.

When discussing the price of oil production, we not only need to look at what will be the cost of new production within the next months and years, but also what the cost will be when looking a bit further ahead, like a decade. We could also have a look at todays production costs from producing fields (operating cost or lifting cost). Today we will, however, keep the focus on the future production costs.

 Oil Price Will Soon Approach 60-90 USD/barrel 

Average cost of current oil production is close to 30 USD/barrel (this is an estimated figure put forward by the Norwegian consultancy firm Rystad Energy). The cost varies, but most of today’s oil production costs is between 10-45 USD/barrel. Some of the most recent projects are very costly and need higher oil price to break even, and some of the producing fields in the states around the Persian Gulf deliver oil at less cost (under 10 USD/barrel). But the average cost from all producing oil fields in the world is believed to be close to 30 USD/barrel.

Producing fields are not able to deliver us all the oil we need for a very long time. Many large fields are in decline and therefore we constantly need new producing fields to meet all the consumption. The US Energy Information Agency (EIA) predicts that after a decade or so daily consumption of crude oil will probably have reached 99-105 million barrels.  To ensure all this oil will be brought up from the ground, oil prices will soon need to be approaching 80-90 USD/barrel (in present value).

OIL_Global-Liquids-Supply-Cost-Curve-Explained_Askja-Energy-Partners-Jan-2016If the oil price will continue to be substantially lower than 80-90 USD/barrel, many new projects will be delayed. Eventually that would lead to supply crisis. In reality it will be hard to balance the supply and consumption (demand) perfectly. Therefore the oil price will most likely fluctuate substantially. But if the oil price will soon head to 80 -90 USD/barrel we can hope for relatively stable oil price for some time (maybe over a period of few years).

So, if the oil price will soon approach 80-90 USD/barrel, the world may avoid supply crisis – in the near future at least. The diagram at left shows where the additional oil will come from in the next few years. And what oil price will be needed to bring that oil up from the ground.

In addition we must remember that many oil-producing states need high oil price to be able to balance their state budget. This factor may and will influence oil production. With regard to this issue, Saudi Arabia is the country to watch. Because Saudi Arabia it is the only oil-producing nation that has substantial spare capacity – thus being able to increase their oil production quite fast if the want to. If Saudi Arabia will abandon their current market-share-oriented-policy and decrease production, the price of oil may rise quite fast. But if the Saudis keep on trying to squeeze high cost producers off the market, by keep pumping up their low-cost oil at present pace (and even increase their production), oil price will stay low. For some time at least . And low oil price will increase risk of future supply crisis.

Within a Decade Oil Price Will Approach 90-100 USD/barrel

When we look a few years further into the future – let’s say ten years or so – we can expect the price of oil to approach at least 90-100 USD/barrel. To keep production up with consumption (demand) we need to access numerous new oil fields that now are in the early stages of development. We will see new low-cost fields in the Middle-East come online, and at the same time new oil will be coming from all kinds of oilfields all around the world. And we will most likely be needing all this oil and also expensive oil from Canadian oil sands and even oil from the Arctic.

Oil-and-Liquids_World-Global-Supply-Cost-Curve-2025_Askja-Energy-Partners-2015

The graph at left shows where the oil will probably come from in 2025. Large share of this oil will be coming to the market even if the oil price will only be in the range of 60-80 USD/barrel. But if we are hoping to avoid major supply crisis, the oil price needs to become substantially higher. Like close to 90-100 USD at.

The conclusion is, that within the next decade we will most likely see the price of oil (in present USD value) approach 90-100 USD/barrel. Of course the price may in some periods become higher and sometimes it will be lower. No one knows what the price of the black gold will be at a certain point of time in the future. But if the world economy is going to keep on growing, like we are used to, we will need crude oil. A decade from now it is unlikely we will have that oil unless we are willing and able to cover a production cost of 90-100 USD/barrel.

Wider Energy Horizon

polarsyssel-helicopter-fafnir-offshoreThe Icelandic Energy Portal has been undergoing development and thus not been publishing new material for a while.

From now on, the Portal will have a wider horizon, covering important energy issues all around the Northern Atlantic. Naturally, we will often be looking towards these issues from an Icelandic perspective. At the same time we will also be covering energy development in our neighbouring-countries, like Canada, Greenland, Norway, Denmark, Sweden, and Finland. And due to our Northern perspective, we will also be offering insights of energy development in areas like Alaska and the Russian Arctic. Examples of some of our upcoming subjects:

  • Toxic Loans of Icelandic Banks in the Norwegian Energy Sector.
  • Increased Danish Exports of Wind Energy.
  • Newfoundland Offshore Oil Licences Extended.
  • Electricity Tariffs to Aluminum Smelters in Iceland Declined in 2015.
  • Current Low Oil Prices are Not Sustainable.

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HVDC-Electricity-Cables-Connecting-Europe-and-North-America-via-Iceland-and-Greenland_Askja-Energy-Partners-2016The Global Icelandic Energy Portal is owned and developed by the Iceland-based energy consulting firm Askja Energy Partners. We deliver independent analysis, critical knowledge and data on energy industry trends, energy markets, geopolitics, law, and strategy. You can contact us through this link.

The Global Icelandic Energy Portal

The Icelandic Energy Portal is undergoing development and is currently not publishing new material on regular basis. We will soon introduce our new editorial policy, with increased focus on Icelandic and Northern energy issues in a global perspective.

Iceland-North-Arctic_2016-01-17 at 1.13.43 PMBecause of this ongoing work, we have been offline for some time. However, due to numerous inquiries and requests from our readers, we now have re-opened for access to the Portal. So, everyone can browse through the material we had already published.

The picture shows us the daylight and darkness at the Northern hemisphere, shortly after noon on January 17th. In the far North, Svalbard is still in total darkness. But here in Reykjavík we are enjoying longer daylight day by day.  We at the Global Independent Icelandic Energy Portal wish our readers a happy and prosperous New Year 2016!

The Icelandic Electricity Market is ON

The Icelandic power market has been experiencing important changes in the last few years. Most important is the increased demand for Icelandic electricity. Which is no surprise, as Icelandic power firms have started offering interesting new type of long-term contracts, were base-load green electricity is made available at very competitive prices.

New Contract by ON and Silicor Materials

Silicor-Materials-Plant-at-Grundartangi-IcelandA good example of the recent trend in Iceland’s power market, is the new contract between Orka náttúrunnar (ON), owned by Reykjavík Energy (OR), and the California based Silicor Materials. It was in last September that ON and Silicor signed a power purchase agreement (PPA) for an equivalent of 40 MW of power. The electricity will be utilized at Silicor’s new solar-grade silicon plant, which is being constructed at Grundartangi in SW-Iceland. The contract is for a period of 15 years, with possibility of extension. Power delivery will be starting in 2018.

Moving Away from Low Smelter Tariffs

According to a press release from ON and Silicor, the new PPA raises the price of ON’s renewable energy significantly. What is also very important, is that the power tariff is not linked to the price of the product’s buyer. Thus, this contract is quite different from  ON’s current sales with regard to power-intensive industries. Until now, the said 40 MW have produced power sold to the Icelandic power company Landsvirkjun, which has sold the power to the aluminum industry in Iceland. There, the power tariff has been linked to aluminum price at London Metal Exchange (LME). This kind of risk-factor is not to be found in the new PPA of ON and Silicor.

The Tariff is Close to 43 USD/MWh

According to the press statement, mentioned above, the wholesale price in the PPA is “approaching the retail price” which households in Iceland pay for electricity. This means that the wholesale tariff Silicor Materials will pay for the power is close to 43 USD/MWh. According to analysis by Askja Energy Partners, this means that ON will receive somewhere between three to four times higher price for the electricity sold to Silicor than it is receiving today (from Landsvirkjun).

The New Reality at the Icelandic Power Market

In recent years, the average price of electricity to energy-intensive industries (without transmission cost) in Iceland, have been close to 20 USD/MWh. Thus, it is obviously very important for the Icelandic power industry that new electricity contracts with energy-intensive customers are based on a price that is approaching 43 USD/MWh.

ON-Power-Reykjavik-IcelandHowever, this is not a surprising development. New energy intensive facilities locating in Western Europe or in Northern America have very little chance of getting as positive long-term power contracts as in Iceland. In addition, the Icelandic electricity is 100% generated from renewable sources. And the transmission system in Iceland is renowned for being one of the best and most reliable in the world.

Therefore, it can be expected that in the coming years we will see numerous firms wanting to locate their new production facilities in Iceland. Silcor Materials is only one example; there are already several other examples of both new silicon projects and new data centers in Iceland. Such companies and Icelandic power seem to be a perfect fit.

Positive Interest in IceLink

The British-Icelandic Chamber of Commerce recently organized a seminar titled Interconnecting Interests – Examining the Issues Surrounding a Potential Submarine Cable that Might Supply the UK and Europe with Icelandic Green Energy. The event was held at the Hilton Reykjavik Nordica, with speakers from the energy industry, government and the environmental lobby, discussing the opportunities and difficulties of electricity interconnection.

Deep Knowledge and Experience

This seminar was an excellent opportunity for people to hear the views of specialists with extensive knowledge and experience on the subject. From their presentations it seems quite clear that there is a strong willingness on both the British and Icelandic side to consider the project very seriously.

IceLink-Iceland-UK-British-Chamber-of-Commerce_Sept-2015

It was the Icelandic Minister of Finance, Mr. Bjarni Benediktsson, who opened the seminar. He was followed by presentations by Mr. Charles Hendry, former Minister of State for the UK Department of Energy and Climate Change (DECC), Mr. Douglas Parr, Chief Scientist and Policy Director of Greenpeace UK, Ms. Charlotte Ramsay, Head of Commercial Regulation and New Business at UK National Grid, and Mr. Edward M. Stern, President and CEO of Power Bridge. Mr. Hörður Arnarson, CEO of Icelandic power company Landsvirkjun, took part in the Panel after the presentations.

Probable Electricity Price in the Range of 80-140 USD/MWh

In their presentations and discussions, speakers at the seminar discussed the matter in general terms rather than for example specifying detailed cost or revenue numbers. However, it can be argued that the power price for electricity sold from Iceland to the UK can be expected to be in the range of 80-140 USD/MWh.

Statnett-Norway-Denmark-Viking-ConnectorThese figures are the wholesale price for the electricity; the transmission cost is not included. At this stage it is not possible to give a precise number for the transmission cost via the subsea cable, but according to a recent report by McKinsey it could be close to 30-40 USD/MWh. This would mean that the total cost for the green electricity from Iceland could be between 120-180 USD/MWh.

Having in mind recent Contracts for Difference (CfD), where new British offshore wind power projects have received commitments for power price in the range of 180-240 USD/MWh, the Icelandic electricity could be very competitive. With regard to this, it is also very important to keep in mind that Icelandic hydro- and geothermal power is much more reliable power-sources than offshore wind in the UK.

Great opportunities for Both Iceland and the UK

For the UK, an interconnector to Iceland would give access to substantial amounts of reliable green electricity. Icelandic hydropower reservoirs make the Icelandic electricity generation perfectly steerable, thus an excellent source for power at times of high demand in the UK.  For Iceland, a submarine cable to the UK could also have numerous positive effects. Besides increased security of supply by linking the Icelandic electricity transmission system with another electricity market, the IceLink could offer positive returns for the Icelandic electricity sector.

Iceland-UK-HVDC_Cable-Route-Bathymetry-nordic-seasPresently, most of Iceland’s electricity is sold at very low prices to heavy industries. New sale-contracts with several data centers and silicon plants will mean rising average power price. However, when having in mind that last year (2014) the average wholesale price from Landsvirkjun was just above 20 USD/MWh, it would obviously create very interesting opportunities for increased profitability selling electricity to the UK at 80-140 USD/MWh. The conclusion seems to be clear; IceLink has potentials to be an excellent win-win project for both Iceland and the United Kingdom.

Data Centers Site Selection

Which are the main decision drivers when companies are selecting location for data centers? This was the topic of an interesting presentation given Mr. Phil Schneider in Reykjavík earlier this summer. The event attracted high number of audience, which is not surprising as the date centre service in Iceland has great possibilities for strong growth.

Site Selectors Guild

Phil-Schneider_President-of-Schneider-Consulting_Chairman-of-the-Site-Selectors-Guild-in-Iceland-Askja-Energy-Partners-2015-2Mr. Phil Schneider is the President of Schneider Consulting LLC and Chairman of the Site Selectors Guild. The Guild* is an association of the world’s leading site selection practitioners. Guild members provide location strategy to corporations across the globe and for every industry, sector and function.

Mr. Schneider divided his presentation into three main parts. Firstly, he discussed the most important general issues that dictates the choice of companies regarding location of their business units. Secondly, Mr. Schneider described how this relates to the location of data centers. And thirdly, he discussed the challenges facing Iceland in attracting more investment in data centers in Iceland.

Strong Growth Potentials for Iceland

The data centre sector is growing rapidly all around the world. This trend creates interesting opportunities for Iceland in increasing diversity in the Icelandic economy. Due to extensive hydro- and geothermal resources, Iceland is able to offer more competitive long-term electricity contracts for data centers than available anywhere else in the western world (in addition, the Icelandic electricity is 100% green power).

Advania-Green-Data-Centre-IcelandThis is an important incentive for locating data centers in Iceland. Furthermore, Iceland has highly qualified workforce for this sector and a competitive tax system. However, Iceland needs to consider its marketing strategy and must present the necessary information in a way that is easily accessible. clear, and understandable.

Risk Factors and Misconceptions

Although site selection for data centers aims at being based on a thorough assessment of all the variables that may be relevant, it is quite common that misunderstanding regarding risk factors becomes a a major decision factor.  According to Mr. Schneider, companies often jump to wrong conclusions regarding risk factors. In the case of Iceland, foreigners may for example have the perceived feeling that Icelandic is a risky location due to earthquakes or volcanic eruptions. In fact, natural risks are a less threat to business operations in Iceland than in for example most areas of the USA. In this context, it is tremendously important to present correct and accurate information to avoid wrong assumptions or mistaken image.

The Icelandic Energy Portal Plays an Important Role

Phil-Schneider_President-of-Schneider-Consulting_Chairman-of-the-Site-Selectors-Guild-in-Iceland-Askja-Energy-Partners-2015-5In his lecture Mr. Schneider emphasized the importance of good access to clear and reliable information about the Icelandic business environment and the energy sector. He especially referred to the Icelandic Energy Portal as such a source, regarding data center site selection. In the coming months we, at the Portal, are going to emphasize even stronger the issue of locating data centers and storing data in Iceland. Note that Mr. Schneider’s presentation can be watched here (starts at 36:22).

* Founded in 2010, the Site Selectors Guild is dedicated to advancing the profession of international corporate site selection by promoting integrity, objectivity, and professional development. Members are peer-nominated, vetted, and must demonstrate a significant amount of location advisory experience. Guild Membership is the highest standard in the site selection industry.

Electricity Tariffs to Aluminum Smelters in Iceland

In this article you will find information about the electricity prices which the three aluminum smelters in Iceland paid to the Icelandic power company Landsvirkjun in the period 2005-2014. The information is based on several Icelandic and international reports.

  • The Norðurál smelter (Century Aluminum) pays the lowest tariff.
  • The Fjarðaál smelter (Alcoa) pays a slightly higher price than Norðurál.
  • The tariff to the Straumsvík smelter (Rio Tinto Alcan; RTA) is presently the highest.

Very low tariffs to Norðurál (Century Aluminum) and Straumsvík (Alcoa) are the reason for extremely low average price of electricity to aluminum smelters in Iceland. With regard to the low tariffs, it is not surprising that Century Aluminum has stated, that its Grundartangi smelter in Iceland “generates significant free cash flow in virtually all price environments”. The same situation is likely to apply to Alcoa’s Fjarðaál smelter, as it pays on average only approximately 10% higher price for the electricity than Norðurál (Century) does.

Since late 2010, the Straumsvík smelter of RTA has paid a substantially higher price for the electricity than the other two smelters. Before 2010, RTA enjoyed the lowest electricity tariff of all the aluminum smelters in Iceland. With the new contract between Landsvirkjun and RTA in 2010, the base price increased and the power tariff was no longer linked to the price of aluminum.

So far, the new contract between Landsvirkjun and RTA is the only energy contract with aluminum smelters in Iceland where the electricity tariff is not linked to aluminium price. Instead, the price in this new contract is adjusted according to US Consumer Price Index (CPI).

Although the tariff to RTA is much higher than to Alcoa and Century Aluminum, the price to RTA is quite modest. For example, it is much lower than the average price of electricity to aluminum smelters in the United States (USA). And the said tariff is similar or even lower than the average power tariff to aluminum smelters in Africa.

Aluminum-Electricity-Tariffs-to-Smelters-in-Iceland_2005-2014_and-World-Comparison_Askja-Energy-Partners-2015The graph shows the average annual electricity price paid by each of the three aluminum smelters in Iceland to Landsvirkjun, in the period 2005-2014. All prices on the graph include transmission. The red columns are the electricity price to Norðurál at Grundartangi (Century Aluminum), the green columns are the electricity price paid by the aluminum plant at Straumsvík (Rio Tinto Alcan; RTA), and the light blue columns are the tariffs to Fjarðaál in Reyðarfjörður (Alcoa). Note that readers should presume a confidence interval of 5%.

The tariff to Straumsvík (RTA) is currently approaching 35 USD/MWh. In 2014, the smelter in Straumsvík paid almost 45% higher power tariff than Fjarðaál (Alcoa), and close to 60% higher price than the aluminum smelter at Grundartangi (Century).

Landsvirkjun’s average price to the aluminum smelters in 2014 was slightly above 26 USD. Same price for aluminum smelters in Africa that year was about 30% higher, and comparable prices to smelters in the USA and Europe were close to 45% higher. For more information about average power tariffs to aluminum smelters in the world in 2014, we refer to our earlier post; Electricity Tariffs to Aluminum Smelters.

Historically, all electricity sales by Landsvirkjun to the aluminum industry has been linked to aluminum prices (until 2010). Therefore, the tariffs and Landsvirkjun’s revenues have often fluctuated dramatically – according to changes in price of aluminum on the London Metal Exchange (LME). Such fluctuation can clearly be seen on the graph above, especially with regard to the period 2008-2010. Note also that in 2006-08 the price of aluminum was exceptionally high, hence the power tariffs to the smelters in Iceland were unusually high in that period.

From 2019, more contracts with the aluminum smelters in Iceland will be expiring. With regard to the electricity price in the recent contract between Landsvirkjun and Straumsvík (RTA) and other new contracts with smelters in the world, it can be expected that the minmum tariff in renewed contracts with the smelters will not be under 35 USD/MWh (in 2014 prices), and possibly somewhat higher. We at Askja Energy Partners will be presenting frequent news and update on this interesting subject.

Electricity Tariffs to World’s Aluminum Smelters

The graph below shows the average price of electricity to aluminum smelters in different regions of the world (in 2014). The graph both illustrates  the relative amount of aluminum production in the major aluminum production areas/countries, and the electricity tariffs. All prices on this graph include both electricity and transmission cost

Aluminum-Electricity-Tariffs-World-and-Iceland-Landsvirkjun-2014China has become the world’s largest aluminum producer. This is an interesting fact, not least when having in mind that the smelters in China pay on average much higher electricity tariffs than smelters elsewhere in the world.

Iceland is represented by red color on the graph. Note that the column for Iceland includes only the power sold to smelters from the National Power Company (Landsvirkjun). Two other power firms in Iceland also sell power to one of the aluminum smelters in Iceland (there are three smelters in Iceland, owned by Alcoa, Century Aluminum, and Rio Tinto Alcan). However, Landsvirkjun is by far the main electricity provider for the smelters in Iceland. Thus, the average electricity price to the aluminum smelters in Iceland is very close to the average price the smelters pay to Landsvirkjun. Which was just above 26 USD/MWh in 2014.

Aluminum production in Iceland is relatively unimportant in the global context (about 0.8 million tons of the total of close to 54 million tons in 2014). What is more interesting, is the fact that the electricity price the smelters pay Landsvirkjun (the average price) is one of the lowest in the world. In 2014, it was close to being exactly the same as the average price to smelters in the Middle East (which are mostly smelters in the Persian Gulf States, taking advantage of very cheap electricity from natural gas power stations). And the average price to smelters in Iceland is only slightly higher than the average price to aluminum smelters in Canada, and much lower than the tariffs to smelters in the USA.

However, the average price to aluminum smelters in Iceland is likely to increase substantially in the coming years – when major contracts are up for renegotiation.  Next such power contract is a contract between Landsvirkjun and Century Aluminum, regarding the Norðurál Smelter at Grundartangi. The present contract expires in 2019.

Subsea HVDC Cable Between Norway and the UK

A subsea high voltage direct current (HVDC) electric cable will be constructed between Norway and the United Kingdom; the NSN Link. This was reported earlier this year (2015). And earlier this month (July 2015), it was announced that contracts have been awarded to build the cable and the converter stations.

NSN-Link_UK-Norway-HVDC-Cable-MapThe NSN Link (or NSN Interconnector) will be the longest subsea electric cable so far. The cable will connect Blyth in Northumberland on the UK side and Kvilldal in Rogaland on the Norwegian side. Today, the record length of such a cable is the NorNed cable between Norway and the Netherlands. NorNed is 580 km long, but NSN Link will be 730 km long. Thus, this new cable will increase the world record length of approx. 25%.

According to ABB, even longer submarine cables of this kind are already both technically and financially possible. Therefore it seems increasingly more likely that an interconnector between Iceland and Europe is only a matter of time.

NSN-Link-UK-Norway-HVDC-CableAs the NSN Link will be twin cabling, the total length will be approximately 1,460 km of cable. The capacity will be 1,400 MW. Owners and operators of the cable will be the Norwegian Transmission Operator Statnett and UK National Grid. The NSN Link is expected to be in operation by 2021.

By the NSN Link, Norwegians can take advantage of their highly flexible hydropower to increase the efficiency of their utilization of this great natural and renewable resource. By taking advantage of the price differences in the Norwegian and British electricity markets, and the price fluctuations within each day and night, the cable offers positive possibilities to maximize profits in the Norwegian electricity production.

NSN-Link-UK-Norway-HVDC-Cable-More-EfficiencyThe cable will also create new revenues for British electricity companies, as there will for example be an incentive for Norway to buy and import electricity from wind power farms in UK at periods when electricity demand is low. This creates opportunity to save water in the Norwegian reservoirs, which then will be used for generating electricity and export it to the UK when power prices are high.

An electric cable between Iceland and the UK would create similar opportunities. Currently, the pros and cons of such a cable are being considered by the Icelandic Ministry for Industry and Innovation. A further governmental decision on the matter may be expected early next year (2016).

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