Skip to content

IceLink Offers Flexibility Rather Than Baseload Power

In a recent publication, Getting Interconnected – How can interconnectors compete to help lower bills and cut carbon?, the British think tank Policy Exchange encourages the government of the United Kingdom (UK) to use subsidies to open up new electricity capacity market to power stations outside of UK. The electricity would then supply the British market via subsea high voltage direct current (HVDC) power cables, often referred to as interconnectors.

Policy Exchange Sees Icelandic Hydro- and Geothermal Power as Baseload Power Source for UK

On its website, Policy Exchange is described as “an independent, non-partisan educational charity seeking free market and localist solutions to public policy questions”. Furthermore, Policy Exchange is said to be “an educational charity with the mission to develop and promote new policy ideas, which deliver better public services, a stronger society and a more dynamic economy”. Its research is supposed to be “evidence-based and strictly empirical”.

HVDC-Interconnectors-Report-Policy-Exchange-UK-2014-1

Unfortunately, it seems that the think tank has somewhat misunderstood the facts, advantages and possibilities of the Icelandic energy resources. In its report mentioned above, Policy Exchange claims that an “interconnector to Iceland would […] be an import-only connection, which would bring baseload Icelandic hydro and geothermal power to the GB market.” According to the report, such an “interconnector, like that to Iceland, which is expected to provide zero-carbon baseload power supply in one direction (i.e. from Iceland to the UK) is most directly in competition with other baseload power sources, such as nuclear power.”

This assumption by Policy Exchange is somewhat inaccurate. It ignores the fact that Iceland’s main source of electricity is hydropower, based on large reservoirs. Although it is true that Iceland’s geothermal- and hydropower resources can be good options for baseload energy, hydropower offers much more valuable characteristics. Here we will explain why an interconnector between UK and Iceland would have considerable better economical (and political) foundations if it is utilized as access to highly flexible renewable power source, rather than baseload energy.

The Think Tank is Not Realizing the Main Advantages of an Interconnector to Iceland

The best opportunity offered by a HVDC cable connecting Iceland and UK, is to harness the Icelandic hydropower resources (and reservoirs) for high demand peak load power in the UK – and as energy storage during low power demand in the UK. Icelandic reservoirs are like natural energy batteries, where Icelandic electricity firms can “store” the energy to the exact period when it is most needed. This makes it possible to manage the electricity genertaion very accurately – and thereby increase or decrease the production with a very short notice in line with changes in the electricity demand. Therefore, hydropower with large reservoirs are excellent system stabilizers. This flexibility or steerability of hydropower also offers possibilities for maximizing the profitability of the electricity production. The result is that utilizing the flexibility of Iceland’s hydro power would be a great benefit to both the UK and Iceland.

HVDC-Interconnectors-Report-Policy-Exchange-UK-2014-3

Steerable hydropower is tremendously important and valuable. The reliable and controllable renewable power source of hydropower from reservoirs is by far the best choice to meet increased (or decreased) electricity demand and balancing the system. This positive feature of hydropower is reflected by the well known concept of pumped hydropower storage, where it makes economical sense to spend electricity on pumping water up to reservoirs. In a nutshell, hydropower plants with large reservoirs can serve as energy storage when electricity demand is low, and when the demand rises it only takes a few moments for the hydropower plant to increase production. This is obviously a very positive feature, such as at peak load times (normally occurring during the day rather than night). It also means that the operator of a hydropower plant can maximize the profitability of the plant by utilizing the flexibility of the plant – by running the plant at full capacity when electricity prices are highest. Therefore, hydropower can be substantially more profitable than other electricity sources.

Having this feature of hydropower in mind, it is quite surprising to see Policy Exchange suggesting to market Icelandic hydropower as baseload energy source. By doing so, Policy Exchange is ignoring the fact that the Icelandic hydropower could create much more value if the business model would focus on peak demand rather than baseload power supply. And this would not only benefit Iceland, but also the UK.

Icelandic Hydropower Would be an Important System Stabilizer for the the UK

In its report, Policy Exchange recommended that the interconnector between Iceland and UK should be one way export of electricity from Iceland and be directly in competition with other baseload power sources, such as nuclear power. This suggestion ignores how the flexibility of hydropower stations with large reservoirs (like in Iceland) makes hydropower quite unique and very different from nuclear power (only gas powered generators have the possibility to respond as quickly to changing system conditions as hydroelectric generators). In fact, nuclear power plants must be run at close to full output all of the time – and they actually need capacity liked pumped hydro storage for excess power at times of low demand. Therefore, it is quite obvious that the main advantage for the UK, by the construction of an interconnector between UK and Iceland, is the access to peak load renewable power from Iceland, rather than baseload.

Iceland-Europe-submarine-hvdc-cable_routesThe interconnector between Iceland and the UK should also be in the role of bringing electricity from the UK to Iceland at periods of low demand in the UK. This would maximize the flexibility and steerability of the Icelandic reservoirs, and at the same time increase the opportunities for the UK to stabilize the British electric system. In this case, the Icelandic reservoirs would act as valuable energy storage for the British electricity market. This is especially important as more and more wind power is harnessed in the UK. More wind power will mean increased fluctuation in the electricity system and call for increased access to reliable flexible power source – like Icelandic hydropower.

It will not only be important to export electricity from Iceland to UK. Exporting electricity from UK to Iceland will also benefit both nations. During periods of low power demand in the UK (such as at nighttime), electricity generated by power plants in the UK could be used to fulfill electricity demand in Iceland. At the same time, water flowing from the Icelandic highlands and mountainous areas would be saved in the Icelandic reservoirs. When electricity demand in UK rises in the morning and during the day, the water in the Icelandic reservoirs would be utilized for generating electricity at high capacity to meet the increased demand. The result is that an interconnector between UK and Iceland offers access to valuable and renewable energy storage, ready for peak load demand – at relatively low price. It is even possible that electricity from the UK might be used for pumping water up to the Icelandic reservoirs from downriver during the periods of low electricity demand in the UK – this pumped water would then be available as a increased power source when demand in the UK rises during the day.

Win-Win Situation

Although Policy Exchange is somewhat inaccurate when it sees Icelandic electricity as basload power, the think tank is correct in its conclusions, when it states that “interconnectors appear to be an attractive option for the British electricity sector”. Policy Exchange is also correct when saying that “British consumers would benefit from importing overseas-generated power which is cheaper than domestic alternatives”. Electricity generated by hydropower (and geothermal power) in Iceland would be less costly for consumers in UK than electricity from for example new wind parks or new nuclear plants. And it is true that an interconnector between UK and Iceland would be “one way of achieving the oft-sought goal in energy policy of diversification of supply” – as Policy Exchange mentions in its report . And such a project would indeed provide both technical and geographic diversification, as the report says.

UK-Policy-Exchange-_Interconnectors-HVDC-Report-Cover-2014In its report, Policy Exchange expresses that the UK wants more electricity from overseas and that there is no good reason to stand in the way of new interconnectors (“we want their electricity; they want our money”) . This argument is e.g. based on the fact that Icelandic renewable electricity would be available to the Brits for less money than the electricity would cost if it was generated at home (in UK). In addition, an Interconnector between UK and Iceland would offer British consumers access to much more reliable energy sources than for example British wind energy can ever be.

Economically and politically it is highly unlikely that the project will ever be realized if the business model is a one-way baseload interconnector. To create a win-win situation for both UK and Iceland the electricity must be able to flow in both directions, where the cable would have the purpose to meet peak load demand and also offer the possibility to utilize Iceland’s flexible hydrpower system as energy storage. Finally, it is worth mentioning that according to the latest news from ABB the technology for an interconnector between Iceland and UK is available.

Iceland and Ukraine to Cooperate on Energy Issues

Ukraine-Geothermal-Map-2004The Government of Icelandic has offered Ukrainian authorities to identify opportunities in geothermal development in Ukraine as part of the diversification and integrate renewable energy sources in power generation in the country.

Earlier this summer (2014) the foreign ministers of Iceland, Mr. Gunnar Bragi Sveinsson, was in Kiev where he met a.o. the President of Ukraine, Mr. Petro Poroshenko. The Icelandic minister also met Mr. Vitaliy Hryhorovskyi, Assistant Director General (First Deputy Head) of the Ukrainian State Agency on Energy Efficiency and Energy Saving (SAE). At the meeting with Mr. Hryhorovskyi it was decided to begin preparations for cooperation between the countries in the field of geothermal utilization.

Iceland-Ukraine-Energy-Cooperation-2014Icelandic foreign minister stressed that there may be opportunites for the exploitation of geothermal energy in western Ukraine. Icelandic scientists and experts have very broad knowledge and experience regarding geothermal exploration and utilization, and may be able to assist Ukraine in geothermal development. The minister added that harnessing geothermal energy, as a pure and stable resource, can prove valuable to Ukraine’s inhabitants, especially for heating purposes.

Iceland and Greenland as Strategic Energy Storage for Peak Load Demand

In 2004, the engineering giant ABB marked the 50th anniversary of its pioneering of high voltage direct current technology (HVDC). In the decade that has passed since then, we have experienced numerous new world records regarding the HVDC technology. An electric cable between Europe and America is probably becoming a question of when, not if.

Strong HVDC Technology Advancement

The first submarine HVDC cable was commissioned in 1954. The cable connected the island of Gotland (in the Baltic Sea) with the mainland of Sweden. This was a 100 kV subsea cable with a capacity of 20 MW and the length was 90 km.

HVDC-Europe-Subsea-2014As earlier mentioned, this first HVDC subsea cable was constructed by ABB in 1954. Fifty years later, in 2004, ABB proudly looked back to its HVDC achievements. Which included the highest voltage cable in the world (600 kV cable in Brazil), the longest HVDC line and highest converter power rate (in China), and the world’s longest underground cable (Murray Link in Australia).

Another of ABB’s achievements in its 50 year history of HVDC technology, was the world’s longest submarine electric cable; the 260 km long Baltic Cable between Sweden and Germany, which began operation in 1994. Now, a decade later, ABB still holds the world record of the longest submarine HVDC cable. It was in 2006 that construction started of the 580 km Norned cable between Norway and Netherlands. ABB supplied the main part of the NorNed cable as well as the converter stations at both ends. With 450 kV DC, the NorNed now has the highest voltage rating of all submarine HVDC cables (on pair with two other cables in the Baltic).

The next world-record-length for a submarine HVDC cable will probably be a cable that will connect Norway and the UK. The cable length will be close to or a little more than 700 km. The planned capacity is 1,400 MW (double the capacity of NorNed) and the voltage 500 kV. Yet, this new cable between Norway and UK will not have the highest voltage of all submarine HVDC cables. Currently, Prysmian and Siemens are constructing the first HVDC subsea cable link in the world with a voltage of 600 kV. This project is the the 420 km UK Western Link between Scotland and Wales.

This high voltage of 600 kV helps increase line capacity by 20% and reduces transmission losses by nearly a third. The Western Link will also set a new world record for capacity of subsea HVDC cables, as it will have a transmission capacity of 2,200 MW. It is Siemens that will be delivering the HVDC converter stations, and Prysmian, which will deliver the cable.

Electric Cable(s) Between Europe and America

The longest electric HVDC cables on land today are 2,000-2,500 km long. (cables in Brazil and China). It is unclear when submarine electric cables will be as long. But it is evident that we will soon experience subsea cables that will be more than 700 km long and operate at more than 600 kV. Predicting further into the future, it seems realistic that the development of the subsea cable technology will reflect what has been happening on land.

HVDC-Europe-America_Hydro-Power_Askja-Energy-Partners-Map-2It is probably just a matter of time until the first electrical cable will be laid across the Atlantic. Cables from Greenland to North America and/ or Europe would be 2,000-3,500 km long. A submarine HVDC cable between Greenland and Iceland could be as short as 800 km. This is a very interesting fact, as Greenland has enourmous hydropower resources, that could be utilized as a a peak power source for areas in Europe (where electricity prices are among the highest in the world).

The idea of an electric subsea cable between Europe and America may sound like a fantasy. And it is quite possible that the combined length and debth will stand in the way for such a project. However, as 700 km subsea HVDC cables at 600 kV are becoming a reality, and the deepest subsea electric cables today are already working well at a depth in the range of 1500-1700 m, it seems that cables between Eurupe and Iceland, Iceland and Greenland, and Greenland and Canada (North America) are all becoming technically possible within a decade or few decades from now.

Renewable-Energy-Integration_Practical-Management-of-Variability-Uncertainty-and-Flexibility-in-Power-Grids_2014Therefore, it is no surprise that it is becoming increasingly more common to see for example articles in international academic journals focusing on the potential of electric cables between Europe and Noth America. However, in the litterature the focus is surprisingly often primarily on the potential of harnessing the wind power (in both Greenland and Iceland). The best opportunity offered by HVDC cables connecting Greenland and/ or Iceland with Canada and/ or Europe, is definately to utilize the great hydropower resources (and reservoirs) for high demand peak load power. The hydropower is not only a less costly process to generate electricity than wind power; hydropower is also much more reliable and controllable power source than wind. Therefore, the hydropwer has great possibilities for maximizing the profitability of energy production, by producing and selling electricity only at day time when electricity prices are highest and receive more water in the reservoirs at night time.

The total hydropower resources in Greenland are believed to be equivalent to 800 TWh annually. By harnessing only approximately 1-2% of that would be enough supply more than two HVDC cables. Iceland already has a large hydropower sector, based on large reservoirs and modern generating stations, where it is possible to add capacity (turbines) at very low cost. Thus, Greenland and Iceland could develop a perfect strategic partnership in supplying Europe with peak load energy.

Electricity Prices in the USA Will Rise

In a recent article in the Financial Times, it was pointed out that European industrial electricity prices are about twice as high as in the USA (and natural gas prices in Europe are around three times higher than in USA). However, there is one country in Europe that offers even more competitive electricity prices than available in the USA. This European country is Iceland.

Electricity Price Offered to Industrial Customers in Iceland: 43 USD/MWh

The largest energy firm in Iceland, Landsvirkjun, offers electricity at a fixed price of 43 USD/MWh. Contracts like that are available for up to 12 years. This price is substantially lower than average wholesale electricity prices on spot markets in the USA. And it seems evident that electricity prices in the USA will rise in the coming years, making Icelandic electricity even more competitive than it is already.

Levelized Cost of Electricity is Rising

In recent months and years the USA has experienced very low electricity prices. In some areas, the wholesale prices for electricity on the spot market in 2012 went down to 23 USD/MWh (in the state of Washington). In Texas they went down to 36 USD/MWh and down to 40-47 USD/MWh in the Northeastern parts of the country However, since then the prices have in general been rising again.

US-Shale-Gas-Break-Even-Prices-2014The low electricity prices experienced in the US lately are mainly due to fast increased supply of natural gas, as a result from the booming shale gas industry, meaning lower wholesale prices for natural gas. In numerous cases the natural gas prices have been below production costs, which is the result of to fast investment and oversupply of gas. The US Energy Information Agency (EIA) is expecting price increases for natural gas, when the market becomes more balanced. This will inevitably make wholesale electricity prices in the USA substantially higher than they have been in the last couple of years.

Higher price for natural gas will also mean higher minimum levelized cost for electricity in the US. Levelized Cost of Electricity/Energy (LCOE) is a calculation of the cost of generating electricity (building, operating and decommissioning a generic plant). LCOE includes initial investment costs (capital cost), cost for operations and maintenance (O&M), performance and fuel costs discounted with a harmonized discount rate

 

US_EIA-Electricity-Average-Levelized-Cost_2012-dollars-MWh $:MWh-for-plants-entering-service-in-2019-tableThe LCOE tells us what the price for electricity generated from a specific source must be to break even over the lifetime of the energy project. Thus, the LCOE can be said to reflect the necessary minimum long-term wholesale price from a given power plant, for the plant to achieve a certain minimum profit (usually an IRR of 10%). LCOE can also be described as equivalent to the long-run marginal cost of electricity at a given point in time, because it measures the cost of producing one extra unit of electricity with a newly constructed electricity generation plant.

Unless electricity price (wholesale) is expected to achieve the said return (usually an IRR of 10%), new power plants will normally not be constructed. Thus, LCOE in fact gives an estimate of the expected future average price of electricity as traded on a wholesale electricity market within the lifetime of the project.

Minimum Levelized Cost of Electricity in the USA in 2020: 65-76 USD/MWh

US-EIA-Electricity-Cost-Levelized_Sources_2020-2040_2014According to the US Energy Information Agency (EIA), the minimum levelized cost for new power plants operational in 2019 will be 64.4 USD/MWh (for natural gas plants – note that the cost will actually be lower for plants utilizing geothermal energy but they will be on a fairly small scale). Thus, although it is impossible to predict with great accuracy what the electricity prices will be at a certain point in the future in the dynamic markets of the United States, it seems very likely that wholesale electricity prices in the US will rise substantially. The construction of necessary new power plants will hardly happen unless the average wholesale electricity prices will rise towards at least close to 65 USD/MWh.

It is important to keep in mind that for many power plants the LCOE will be somewhat higher than the said 64.3 USD/MWh (in some cases much higher, such as for coal, and nuclear plants). And the EIA specifically states that other institutions and consultancy firms are projecting even higher minimum LCOE for new power plants than the EIA tself does. According to the EIA, there are examples of projections stating 76 USD/MWh as the minimum levelized cost. Thus, the minimum LCOE in the USA in 2020 can be said to be expected within the range of 65-76 USD/MWh.

Possibly the Price Will Be Even Higher

The major driver for higher electricity prices in the predictions is the steady (yet moderate) expected increase in natural gas prices. So the minimum LCOE of 65-76 USD/MWh reflects the different projections of LCOE for power plants running on natural gas.

For those power plants to be built, the wholesale price of power will have to rise towards at least 65-76 USD/MWh. So rising electricity prices in the US seems inevitable. And actually, this lowest rate will probably only be available to industrial users – the prices will be somewhat higher for most services and homes.

US-Projected-Wholesale-Electricity-Prices-Forecast_2013-2022The least costly electricity source (natural gas) will not meet all the demand for new power sources in the US. At peak periods the electricity prices will be quite a lot higher, as coal plants and hydropower is needed to meet demand for electricity (nuclear- and geothermal plants will sell into the system at all times, adjusting to the price floor set by natural gas plants, and wind- and solar will of course influence spot prices by feeding the system whenever the wind blows and/or whenever the sun offers energy to PV or CSP solar plants).

On average, nuclear plants, geothermal power, wind power and grid-solar will need higher prices than the natural gas plants (because of higher LCOE). Thus, the average wholesale electricity prices in 2020 will need to be somewhat higher than the earlier mentioned 65-76 USD/MWh.

Iceland Offers Much Lower Electricity Prices than in the USA

Iceland is the worlds’ largest electricity producer (per capita) and also it has numerous low cost hydro- and geothermal power potentials yet to be harnessed. This creates tremendous opportunities – at times when electricity prices in the US are heading towards 65-76 USD/MWh.

Iceland-12-year-electricity-contractsIceland’s renewable natural energy sources offer great potentials to produce green electricity at very competitive prices. That’s why the Icelandic National Power Company (Landsvirkjun) is able to offer up to 12 year contracts at only 43 USD/MWh. Companies in need of substantial amounts of electricity for their production or services (such as data centres or silicon plants) will hardly find as attractive long term deals anywhere else in the traditional free market economies. Therefore Iceland may be the best option.

New Silicon Metal Plant

United-Silicon-Plant-Helguvik-Iceland-illustrationA new silicon plant is being constructed in Southwest Iceland. Earlier this week, the Icelandic National Power Company (Landsvirkjun) and United Silicon announced that all conditions precedent had been lifted with regard to the power purchase agreement signed by the two parties in last March. Now, all the conditions of the agreement which included the issuance of permits, electricity transmission contracts and financing, have been fulfilled. The boards of both companies have confirmed the agreement.

According to the contract, Landsvirkjun will provide electricity to power a metallurgical grade silicon metal plant being built by United Silicon in Helguvik in Southwest Iceland. United Silicon intends to begin construction on the plant this summer (2014) and ground preparation work is already underway in the area. The facility is expected to start operations in early 2016 and will require 35 MW of power capacity. The plant will create around 70 permanent jobs, while 250 people will be working on the construction.

Hordur-Arnarson-CEO-of-Landsvirkjun-and-Magnus-Gardarsson-CEO-of-United-SiliconUnited Silicon is a company established by a conglomerate of silicon industry participants in Europe, which have taken the initiative to establish a silicon production plant for the growing consumption of their customers in Europe. Following the decision to establish the plant in Iceland, United Silicon has finalised purchase of all the shares in the Icelandic company Stakksbraut 9 Ltd., which owns the land in Helguvík. The Environmental Impact Assessment for the plant, was concluded and approved by the Icelandic Planning Agency in 2013. United Silicon has been working with the Icelandic Arion bank, which has concluded financing for the project (through senior bank debt and a forthcoming bond issue).

This is the second major industrial project announced in Iceland in this month. Few days ago Silicor Materials, a manufacturer of solar silicon and a producer of aluminum by-products, announced its solar silicon production facility to be built in Iceland. That plant also has power agreement with Landsvirkjun and Arion Bank is also leading the debt financing for the plant. Both Landsvirkjun and Arion Bank are cooperative partners with the Icelandic Energy Portal.

Silicor Materials to Build Large-Scale Solar Silicon Plant in Iceland

Silicor Materials, a manufacturer of solar silicon and a producer of aluminum by-products, has announced that it has selected Grundartangi in Iceland as the site for the company’s first large-scale solar silicon production facility.

Silicor-Materials_Theresa-Jester-ceoAccordig to Ms. Theresa Jester, CEO of Silicor Materials, Grundartangi is a world-class manufacturing and transportation infrastructure, and Iceland provides low-cost renewable energy, enabling Silicor to produce the only truly green silicon in the world. Further, Iceland ranks among the top aluminum producers worldwide, providing Silicor with a built-in market for its premium aluminum-based products.

Silicor Materials has engaged Arion Bank, one of the largest banks in Iceland (and a partner of the Icelandic Energy Portal), to lead the debt financing for the plant. Currently, Silicor’s executives are active discussions with Iceland’s Ministry of Industries and Innovation to finalize an incentives package. The facility in Iceland will have a nameplate capacity of 16,000 metric tons, with the ability to yield up to 19,000 metric tons of solar silicon each year. This will create as many as 400 full-time jobs in addition to up to 100 construction positions.

Silicor-Materials-site-at-grundartangi-icelandTo date, the silicon of Silicor Materials has powered more than 20 million solar cells, now installed and generating clean electricity worldwide. According to the company,  the manufacturing process requires two-thirds less energy than conventional processes and uses no toxic chemicals, allowing manufacturing facilities to be sited in light industrial parks. Silicor’s solar silicon is produced specifically for the solar sector, as compared to conventional processes, which were originally produced for the electronics industry and later modified to serve the solar sector.Additionally, Silicor’s premium aluminum products— master alloys and polyaluminum chloride —are feedstocks for the automotive and wastewater treatment industries, respectively.

Silicor has obtained heads of terms, and a letter of intent from two Icelandic power companies, Landsvirkjun and Orka Náttúrunnar (a subsidiary of Reykjavík Energy), to supply 100 percent renewable energy to the operations. Pending final negotiations, Silicor aims to break ground later this year (2014) and bring the plant online in 2016.

Icelandic Hydropower Offers Great Possibilities for the UK

FT-Electricity-2014-1The Financial Times (FT) recently published an interesting story about how electricity suppliers in the UK “struggle to quench business thirst for power”. This article in the FT is an excellent reminder about how important and valuable it is to have access to reliable on-demand power whenever necessary.

Here, we will explain how the flexibility of the Icelandic water reservoirs can be utilized as a source for peakload electricity demand in Europe, and at the same time substantially increase revenues and profits in the Icelandic energy sector. Such a value creation could be a great business opportunity for the steerable Icelandic hydropower.

Access to flexible electricity is extremely important

In most European countries demand for electricity can fluctuate significantly between day and night. The electricity consumption within the day can also fluctuate – sometimes with a very short notice.

As an example, electricity consumption can change suddenly at commercial brakes within popular television broadcasting shows – when tens of thousands of families suddenly put the cettle on and/or the microvawe. Such fluctuations in electricity demand are often unforeseen. That’s why most European nations need to have good access to energy sources that offer highly flexible and controllable production.

But not all energy sources offer good possibilities to increase or decrease electricity-production rapidly. It is actually only natural gas fired stations and hydropower stations with reservoirs that are flexible enough to fulfill the need of stability in the electricity sytem.

Hydropower and natural gas are the best options for stabilizing the system

Yes – It is a well known fact that when demand for electricity changes significantly and abruptly, it is natural gas fried power plants and hydroelectric power plants (with reservoirs) that have the best capablities to meet such changes. This both applies to the need of increased or decreased production.

UK-Electricity-typical-weekly-demand_University-of-Glasgow-presentation-2012Response time of coal power plants is much slower. And nuclear power stations offer base load power and must be run at close to full output all of the time (therefore storage capacity is needed for excess power generated by nuclear plants at times of low demand).

Wind power and solar power plants are almost useless in the regard of flexibility. Because they are subject to the present natural forces (the wind and the sun). In fact, increased use of wind and solar energy in Europe has made it even more difficult to control the balance in the electricity system. Hence, the need for flexible and controllable power production has become ever greater as the use of wind and solar energy increases.

Steerable renewable electricity is tremendously valuable

Because of the flexibility of hydropower- and natural gas plants – these are the best energy sources to take advantage of price volatility on the power market. The water reservoirs make it possible to manage the production very accurately – and thereby increase or decrease the electricity production with very short notice in line with changes in the electricity demand. Thus, hydropower plants have excellent possibilities to maximize their revenues and profits with regard to price fluctuations in the electriciy market.

This feature makes hydropower quite unique and makes it the energy source that can deliver the highest return on investment. Moreover, hydropower has the advantage over natural gas being a renewable source of energy. Thus, hydropower can be desceibed as the jewel in the electricity sector – at least if the hydropower station has access to a traditional power market where the demand for electricity fluctuates substantially.

Pumped storage is an excellent example of the great value of hydropower

To have a better access to flexible electricity, there are examples of water being pumped up to reservoirs (pumped storage). This same water is utilized for electricity production later, when demand is high. Pumped storage also serves as importabt factor in load balancing. This kind of electricty production is e.g. well known in Austria and Switzerland, as well as in the United Kingdom.

Obviously substantial amount of energy is needed for the pumping. But as the pumping primarily takes place during night (when electricity demand is minimum and electricity prices are low) and the water from the upper reservoir is used for electricity production when the demand is high (and prices also), this is a viable option.

Countries with extensive hydro resources are in a key position as system stabilizers

Pumped storage is a good example of how hydropower with water reservoirs offers the best opportunity to be in the role of flexible electricity supply. However, possibilities for pumped storage are limitid. Thus, large electricity markets can gain tremendously from being connected to even faraway hydropower sources – like if the UK had a connector to Iceland.

LV-Autumn-Meeting-2013-slide-11This is also an interesting option for Iceland. Areas that enjoy substantial opportunities for developing hydropower stations beyond their local market need can take advantage of sudden price changes on fluctious electricity markets. It is precisely such given flexibility with water reservoirs, that has greatly increased the value of the Norwegian hydropower. The worlds’ longest subsea electric cable today is the NorNed cable between Norway and the Netherlands. And now a cable between Norway and the UK is being planned and also another cable between Norway and continental Europe.

All this is an indicative of how profitable it is for countries with steerable hydropower to have access to electricity markets where electricity demand fluctates substantially. In this context electricity from hydropower can be desribed as the most prestigious product in the energy market.

Iceland has one of the worlds’ most flexible power system

Overseas Iceland is quite well known for its geothermal energy. However, gethermal is the source for only 25 per cent of Icelands electricity production. It is hydropower that is Iceland’s most important energy source. The country’s mountainious areas and high precipitation create perfect conditions for utilizing hydropower. Large and small reservoirs are like natural energy batteries, where Icelandic electricity firms can “store” the energy to the exact period it is most needed and sold at the highest prices.

LV-Autumn-Meeting-2013-slide-26Iceland is the largest hydroelectric producer in the world per capita (Norway comes in second place). But Iceland has not yet taken advantage of the flexibility of its hydropower. In most other European countries the reservoirs would normally be in the role of highly profitible flexible energy sources. In Iceland, however, the main role of the reservoirs has been to serve as energy reserves available for aluminum smeters, which require access to cheap and highly reliable energy source.

Moreover, the isolated and closed Icelandic electricity market sometimes results in water flowing from full reservoirs by spillways and into sea without creating any value. Such waste of hydropower is like throwing away the most luxerious goods in the energy market.

If Iceland had access to a more normal electricity market (the aluminum industry uses about 75% of all electricity generated in Iceland) it could present Iceland with an unparalleled business opportunity. At the same time, the overseas market linked with Iceland by an interconnector would have substantially increased access to highly reliable flexible renewable energy source. This can truly been described as a win-win situation.

Interconnector between Iceland and Europe may be within reach

Subsea electric cables are steadily becoming longer and going through more depths. A cable between Iceland and Europe (UK) would probably be close to 1,200 m in length and the greatest depth would be close to 1,000 m. Today the longest cable of this kind is close to 600 km and it is likely we will soon see cables extending 700-800 km (a cable between Norway and the UK may become the next record length). And there are already examples of such subsea cables where the sea is more than 1,600 m deep.

LV-Autumn-Meeting-2013-slide-28It seems becoming both technically and financially possible to have an interconnector between Iceland and Europe and at modest cost. The advantages are obvious; both for Iceland and the European country at the other end of the cable. Due to the distance, the UK seems to be the best option. And actually the energy policy of the UK is also very positive for such a project. Thus, an interconnector between Iceland and the UK may be within reach.

In the earlier mentioned article in the FT, it is described how manufacturing companies in the UK are finding it hard to access electricity for their production: “[A]ccording to research by Edison Group, a consultancy, one in four UK midsized companies are planning for power shortages over the next few winters.” This situation is obviously very worrying for the UK and calls for immediate measures to ensure future access to more (stored) power.

This alarming issue for the UK was the subject of an editorial in the FT on last June 10th (2014). We will conclude this article about how the Icelandic hydropower offers great opportunities – for both Iceland and the UK – by quoting this FT editorial:

FT-Electricity-2014-2

Britain’s supply of electricity is dangerously close to resurgent demand. The safety margin of capacity has been shrinking and now stands well below the 20 per cent necessary to insure against shocks. When demand rises in winter there is a risk that the margin will disappear altogether.

To avert this grim possibility, Britain’s National Grid has just announced measures intended to stave off the risk of looming winter blackouts. The regulated utility plans to pay large users of power to be cut off should demand risk outpacing supply. It also intends to recommission about a dozen mothballed gas-fired power plants to establish a capacity reserve. [...] The immediate need is to keep the lights burning. National Grid should do whatever it takes to achieve this until new capacity can be commissioned. This will mean higher bills. But house insurance is never cheap when smoke is pouring from one’s windows.

NB: The three slides above from Landsvirkjun (the Icelandic state owned energy company)  are from a presentation given by the company’s management in late 2013. The presentation is accessible on the company’s website.

Startup Energy Reykjavik Investment Day

The closure of Startup Energy Reykjavik program was held on Arion Bank head office the 28th may. The program is a mentorship-driven seed stage investment program with focus on energy related business ideas. After 10 intensive weeks, the final teams presented their projects to possible investors.

Startup-Reykjavik-logo-arion-bank

The Minister of Industry and Commerce, Ragnheidur Elín Arnadottir, congratulated and encouraged the teams to start new companies in this strategic sector, and remarked the strong commitment the Icelandic Government has with young entrepreneurs, announcing an increase up to 3% of the GPD for 2016 in research and development programs.

These are the main business ideas that the seven young energy companies presented to investors:

  • DTE Dynamic Technology Equipment is specialized in developing equipment for aluminum industry. They presented their latest innovation, PEA Aluminum (Portable Element Analyzer). This innovative tool allow testing aluminum properties “in situ”, avoiding long time waits from laboratory responses. Their expertise background in the sector and the big market are one of the strengths. Contact: Karl Águst Mattíasson (karl@dtequipment.com).
  • BMJ Energy makes the smartest micro-hydro stations available on the market. Able to use smaller creeks to produce electricity, with their unique control system, they maximize the energy production without the need of big reservoirs.  The company also offers real time monitoring for hydros. BMJ focuses on micro-hydro stations, from 1kw to 50kW. With already some stations working in Iceland, they see their future in the global market. BMJ energy makes every drop count. Contact: Bjarni Malmquist Jónsson (b.malmquist@bmj.is).
  • The objetive of Fjárfestingafélagið Landsvarmi is to introduce heat pumps for district heating in iceland by using the thermal heat source of the ocean. This improvement will reduce the electric consumption in cold areas up to less than half of the current figures. The potential market is the entire artic region, with four million inhabitants. Contact: Kristján M.Ólafsson (kolafsson@kpmg.is).
  • BigEddy provides accurate site assessments for wind farms by combining weather observations with state of the art models that reveal the true potential of prospective sites. Furthermore BigEddy specialises in high accuracy wind energy forecasts to enable operators to accurately predict the production of wind farms worldwide. Contact: Ólafur Rögnvaldsson (or@belgingur.is).
  • Research in geothermal fields are normally costly and time consuming. Geodrone works with unmmanned aerial vehicles (UAVs) with remote sensing technologies to provide customized measurement, a way to reduce cost, time and risk in exploratory stages. Contact: Alicja W. Stoklosa (ailcjastoklosa@gmail.com).
  • Eta-nýtni is developing a plant that produces Sodium chlorate and hydrogen, using sea water. The expected 13 millions of m3 of Hydrogen will be sell in the local market, meanwhile the 20,000t/year of Sodium chlorate will be export for paper industry in Europe. Contact: Gunnar Tryggvason (guntry@gmail.com).
  • Gerosion is a knowledge based company that specializes in solutions for the geothermal, oil and gas industries, in material testing and selection for casings and equipment, in deep high temperature and pressure wells. The company is buying a unique AutoClave pressure vessel with a specific gas injection system, for simulated testing of materials, including metals and well cement grouts, in supercritical conditions. Contacts: Sunna Ó. Wallevik (sunna@gerosion.com) and Kolbrún R. Ragnarsdóttir (kolbrun@gerosion.com).

By Contributing Author: Scherezade D. MartosHydrogeologist,  MSc Sustainable Energy.

Iceland’s Growing Silicon Industry

The world’s silicon industry is aiming at rapidly increasing production in Iceland. This is unerstandable, as Landsvirkjun (the Icelandic National Power Company) offers very competitive electricity prices and better opportunities for long-term contracts than can be found elswehere in Europe or even in North America. At the same time, Landsvirkjun is diversifying its customer base in very positive way. Today we will be looking at the growing silicon industry in Iceland.

United Silicon Production Plant

In last March Landsvirkjun signed a power purchase agreement with United Silicon; a new company established by a conglomerate of silicon industry participants in Europe. Under this agreement, Landsvirkjun will provide electricity to power a metallurgical grade silicon metal production plant being built by United Silicon in Helguvík in Southwest Iceland.

Solar-PV-Market-Future-May-2013

The 20,000 ton facility is scheduled to commence operations in early 2016 and will require 35 MW of power which will be derived entirely from the renewable energy sources of Icelandic hydro and geothermal. During the past year, United Silicon has been evaluating several sites around the world to establish its new silicon production facility, there amongst in the Middle East and Malaysia. Because of the excellent conditions in Iceland, it was decided that Helguvík would be the right location for the plant.

The construction of the plant is expected to start already this summer (2014). In addition to Landsvirkjun, United Silicon has been working with another partner of the Icelandic Energy Portal, as Arion Bank will be financing the project, which is expected to take place both through a senior loan as well as junior bond. Another of our partners, the Icelandic TSO Landsnet, has also signed agreement with United Silicon regarding transmission of the energy to the upcoming plant.

Thorsil Silicon Metal Plant

Earlier this year, the Icelandic company Thorsil and Iceland’s main engineering firm Mannvit signed an agreement for the engineering of a silicon metal plant that Thorsil intends to construct and operate in Southwest Iceland (at the same location as United Silicon). The plant may need close to 85 MW of power.

Mannvit-logo-largeIn December 2013 Thorsil increased its share capital in order to finance this part of the project. That same year Thorsil and municipality of Reykjanesbær signed a contract for the 16 hectare plant site at the industrial and port area of Helguvík. The plant’s environmental impact assessment (EIA) is under way. Construction og the facility is set to start in late 2014 and scheduled to commence operationsin late 2016.

The plant will have an annual production capacity of 54,000 tons per year.

 Roughly 300 people will be employed during the construction phase. Some 160 new jobs will be created once the production is up and running (in addition to jobs at related service providers and vendors).

PCC Silicon Metal Production Plant

PCC-Silicon-Bakki-Iceland

In last March (2014) Icelandic National Power Company Landsvirkjun and PCC Bakki Silicon announced a power purchase agreement for a new metallurgical grade silicon metal production plant. The plant will be built by PCC close to Husavik in Northeast Iceland. PCC is a German industrial group, operating in 16 countries. The three main divisions of the group are chemicals, logistics and energy.

Production in the new plant at Bakki is estimated to start in early 2017 and will produce up to 36,000 tons, using 58 MW of power which will mostly be derived from renewable geothermal power in Northeast Iceland.The contract is subject to certain conditions set to be finalised later this year. The enrgy for the plant will be delivered by the Icelandic TSO Landsnet, as already has been negotiated between Landsnet and PCC.

Silicor Materials

The US company Silicor Materials has signed terms of a contract to build a solar silicon factory at Grundartangi in Soutwest Iceland. Silicor Material is a leading manufacturer of high-quality solar silicon, currently powering more than 20 million solar photovoltaic cells for customers around the world.

The Icelandic plant is expected to produce up to 16,000 tonnes of solar silicon annually (for solar panels). This investment will be close to 700 million USD and the plant will employ more than 400 people on completion. The construction of the plant is expected to start later this year (2014) and be operational in 2017. Although it has yet to be seen if all the projects above will be realized, there is obviously great interest in the silicon industry to gain from the positive location and business environment in Iceland.

Electricity Statistics Update 2013

The Icelandic Energy Authority (IEA) has published statistics regarding the electricity industry in 2013. The publication is in Icelandic only (link to the pdf-file). Here are some of the key numbers:

————————————————————————————————————————————————————–

TOTAL ELECTRICITY GENERATION:          18,116 GWh (2013)

————————————————————————————————————————————————————–

ELECTRICITY GENERATION SHARE BY SOURCE:

Hydro Power 71%
Geothermal Power     29%
Other     0%
Total 100%

NB: Electricity generated by wind power and fossil fuels was to small amount to be measured on the scale of this table. This is the first year the IEA publishes data for generated wind power in Iceland (it was 5 GWh which is less than 0.001% of all electricity in Iceland in 2013).

————————————————————————————————————————————————————–

ELECTRICITY POWER CAPACITY:

 

Hydro Power  1,986 MW
Geothermal Power     665 MW
Wind Power         2 MW
Fossil Fuels     114 MW
Total Power Capacity 2,767 MW

————————————————————————————————————————————————————–

ELECTRICITY CONSUMPTION SHARE:

Energy Intensive Industries 80%
General Consumption     18%
Other     2%
Total 100.00%

————————————————————————————————————————————————————–

You will find more Icelandic energy data in our special data-section.