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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).

Electricity Statistics Update 2014

The Icelandic National Energy Authority (NEA) has published statistics regarding the electricity industry in 2014. You can access the publication in Icelandic and English on NEA’s website (link to the pdf-file in English). Here are some of the key numbers:

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TOTAL ELECTRICITY GENERATION:          18,122 GWh (2014)

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ELECTRICITY GENERATION SHARE BY SOURCE:

Hydro Power 12,873 GWh          71%
Geothermal Power     5,239 GWh         29%
Other 10 GWh            0%
Total 18,122 GWh        100%

NB: Electricity generated by wind power and fossil fuels was to small amount to be measured as a percentage on the scale of this table. This is the second year the NEA publishes data for generated wind power in Iceland. It was 8 GWh, which was less than 0.001% of all electricity generated in Iceland in 2014. 

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ELECTRICITY POWER CAPACITY:  

Hydro Power  1,986 MW
Geothermal Power     665 MW
Wind Power         3 MW
Fossil Fuels     106 MW
Total Power Capacity 2,760 MW

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ELECTRICITY CONSUMPTION SHARE:

Energy Intensive Industries 77%
General Consumption     17%
Other (losses)     5%
Total 99%

NB: In its report for 2014, NEA does not explain what happened to 1% of the electricity.

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

 

Norway’s Subsea Interconnectors

The following article is by Mr. Björgvin Skúli Sigurðsson. Mr. Sigurðsson is the Executive Vice President of Marketing and Business Development of Icelandic power company Landsvirkjun. The article was originally published in Icelandic, in the Icelandic newspaper Morgunblaðið. This translation into English is by Askja Energy Partners:

Norway’s Subsea Interconnectors

According to Norwegian energy policy, the resources are utilized to create maximum value for the country. Norwegians sell oil on the international market and with new subsea interconnectors they are increasingly becoming important players at the European electricity markets.

Bjorgvin-Skuli-Sigurdsson-VP-LandsvirkjunThe NorNed cable between Norway and the Netherlands is the world’ longest submarine interconnector, 580 km long. It started operating in 2008, after more than two years construction period. Today, four submarine electric cables link Norway and Denmark, the most recent one from last March (2015). Danes have constructed  numerous wind parks and when the wind is not blowing in Denmark (thus limited electricity production) the links to Norway are used to transport  hydropower between the countries.

Three Submarine Cables Being Planned 

Norwegians now have three submarine cables under planning. The largest project is the NSN-cable between Norway and the United Kingdom (UK). It will be 700 km long, thus becoming the world’s longest subsea interconnector when it starts operating in 2020. The NordLink-cable between Norway and Germany will be 570 km. Like the NSN-cable, the NordLink  is scheduled to become operational in 2020. The third project will be one more cable between Norway and UK, the NorthConnect.  The Norwegian state-owned energy company Statkraft expects that other cable projects of similar size will take place before 2025.

Constructing subsea cables is a complex issue. For example, the NSN-cable will cross at least 14 gas pipelines which extend from drilling rigs in the North Sea. Also the cable route must take notice of the busy marine transports and fishing.

Electricity Prices in Norway

Norwegian households are highly dependent on electricity, as most buildings have electric heating. In dry periods, when water in the Norwegian reservoirs is limited, the electricity price can be volatile. It may sound strange to some people, but the Norwegians have emphasized the importance of having subsea interconnectots to their neighbouring countries to keep electricity prices down, especially as a result of the high electricity prices during the drought of 2003. According to Norwegian authorities, electricity prices in Norway after 2008 would have been higher if the NorNed cable would not have come into operation.

Danish Interconnector

Recently Denmark announced plans for a subsea link to the UK. The idea behind the project is to transport wind power from Denmark to the UK, and also use the interconnectors from Norway and Sweden  to Denmark, to transfer the flexible Norwegian and Swedish hydropower through Denmark to the British electricity market.

The author is VP of Marketing and Business Development at the Icelandic power company Landsvirkjun.

Does Apple Not Want Truly Green Data Centers?

Denmark-Electricity-Sector-Mostly-Coal_March-2015Is there such a color as coal-green? This question comes in mind when reading about Apple’s new data center in Denmark. Apple recently announced it will construct two new large data centers in Europe, both to be “run on 100 percent renewable energy”. According to a press release from Apple, “the new facilities will run entirely on clean, renewable energy sources from day one”. These are interesting statements, having in mind that both data centers will be connected to a grid which mostly delivers electricity from fossil fueled power production. Here we will consider if a data centre located in Denmark can truly be said to run all the time on 100 percent renewable energy.

Denmark’s Own Power Mix is Dominated by Coal

Denmark-Coal-Plant-StudstrupværketDanmark generates substantial amount of green energy. According to the most recent information from the European Union (EU), the renewable’s share of Denmark’s gross electricity consumption in 2012 was close to 40 percent. More recent information from the Danish transmission system operator (TSO), Energinet, tells us that the share of renewable energy in 2013 was somewhat higher than in 2012, but still less than half of the total electricity consumption (47.5 percent).

Denmark’s electricity is mainly generated by coal. The Danish government has plans to decrease the importance of coal, but coal still constitutes for more than half of the fuel consumption of Danish power stations. Most of Denmark’s renewable energy comes from wind, which is of course somewhat a fluctuating and unreliable energy source. In 2013 the share of wind in the electricity consumption was almost one third (32.7 percent).

Connections to Other Countries are Based on Economics Rather than Green Energy

Denmark’s electricty grid is not an island, but connected with its neighbouring countries by several large cables. Therefore, Denmark sometimes exports electricity and sometimes imports electricity. Weather it is exporting or importing electricity depends on the price difference within the larger market area. Normally, Denmark exports electricity during night (because of its large wind power capacity) and imports during the day (when demand goes up and Norwegian and Swedish hydropower stations are utilizing the water in the reservoirs). However, imports and exports of electricity of course always depends very much on how the wind blows in Denmark.

Denmark Imports Power from Coal, Hydro, and Nuclear Power Stations

When Denmark imports electricity, it comes via cables from Germany, Norway, and/or Sweden. The imported electricity can, for example, be generated by fossil fuels (major coal power in Germany), by nuclear power (nuclear stations in Sweden and Germany), or by hydropower (especially from Norway, but hydropower is also a major source in Swedish power generation).

Denmark-Electricity-Imports-and-Exports-2013

Lately, most of the imported energy has been from Germany (as shown on the diagram at left, which is from the Danish TSO). Coal is the most important source of electricity generation in Germany, accounting for close to half of the generation. In Germany, only ¼ of the generation comes from renewable sources on average. Natural gas and nuclear energy account to close to ¼ of the generation. Thus, electricity imported to Denmark from Germany normally increases the share of fossil fuels and nuclear power in the Danish electricity consumption.

Data Centers in Denmark are Dependent on Fossil Fuels and Nuclear Power

It is highly unlikely that a data centre located in Denmark, connected to the grid.  will be run entirely on clean, renewable energy sources only. For the end-user in Denmark it is impossible to know how the electricity he consumes was generated. Even more important is that Denmark’s electricity mix is dominated by coal power stations.

Denmark-Electricity-Consumption-Mix_1990-2013-and-forecastIn fact every date centre in Denmark can be expected to mostly be run on coal power. Of course companies, including those running data centers, can try to find a generating company that only produces electricity from renewable sources and buy its electricity from that company. But the electricity put into the transmission grid can not be isolated – so to speak – from other electricity on the grid. Therefore, it is of course impossible for the buyer to promise that he is only using or consuming green energy.

It is possible to buy what is called Green Certificates, which are a tradable commodity proving that certain amount of electricity is generated using renewable energy sources only. However, this does not mean that the electricity being consumed by the buyer of the certificate is from renewable sources – it might as well be from a coal power station or from a nuclear plant. The result is that every data center in Denmark, connected to the grid, will in fact be using electricity from all kinds of power plants, including for example coal power stations.

Iceland is the Best Option for Green Data Centers

The only way for a major data center being truly able to run on 100 percent renewable energy is to take power from a grid that only delivers electricity from renewable sources. In Europe probably no grid comes as close to this as in Iceland. Iceland produces close to 99.9 percent of its electricity by utilizing hydro- and geothermal power (and some wind power).

Norway is in a similar situation, producing almost all the power from hydro resources. But Norway also imports power from other countries, thus distributing coal power and nuclear power to end-users. So Norway is not quite as green option as Iceland is.

Regarding Denmark, it is obviously not a very green option at all. The environmental accounting may tell us that a company there has a very low net carbon footprint, but in reality the electricity is not only from renewable sources at all. If Apple or any other firm in Denmark wants to run 100 percent on renewable energy it would in fact either have to disconnect from the grid – or set up its operation in Iceland.

World Class Wind Efficiency

In 2014 Landsvirkjun’s wind turbines efficiency was 44 percent! This is much higher than the world’s  average of 28 percent, meaning that each megawatt (MW) of a wind turbine in Iceland is generating substantially more electricity than wind turbines do elsewhere in the world. Here you can see real-time data from the wind turbines now operated by Landsvirkjun.

Iceland-Wind-Power-Landsvirkjun-Burfellslundur-Wind-ParkIt shall be stressed that Landsvirkjun still only operates two wind turbines. Utilizing wind power for generating electricity into the grid is still in its infancy in Iceland, as Iceland has so far mostly been focusing on low-cost hydro- and geothermal power sources. Last year (2014) was the  first full calendar year in which large wind turbines were operated in Iceland. These are two 900 kW turbines from Enercon and they are located near Landsvirkjun’s hydro power stations above Búrfell in Southern Iceland.

These two windmills were developed as a research project. In addition to the earlier mentioned high efficiency, it is also important that the operational availability of the two turbines in 2014 was almost 99 percent and 97.5 percent, respectively. The positive outcome of the research project is an important step in confirming optimistic views about possibilities of wind power in Iceland, as described in a report by Ketill Sigurjónsson to the Ministry of Industries and Innovation in 2009.

Due to these positive results, Landsvirkjun now has started planning for a large wind park in the area. The wind park is expected to have a total power capacity up to 200 MW and will be the first major utilization of wind power in Iceland. In the future, wind may become an important source for Iceland’s renewable energy production. Iceland’s extensive hydro- and geothermal sources have already made Iceland the world’s largest power generator per capita and the wind will be an interesting addition.

Build, Own or Operate Data Centers in Iceland

The Icelandic national power company Landsvirkjun has published a new video, explaining how data center operators in Iceland are using clean, renewable energy to power some of the world’s lowest total-cost-of-ownership (TCO) data centers. Landsvirkjun is Iceland’s  largest electricity generator, processing around 75 percent of all electricity used in Iceland. Iceland-data-centers-well-connected-by-optical-fiber-cablesAccording to a report by BroadGroup Consulting, Iceland is a highly attractive place to locate data centers. BroadGroup‘s, analysis show that on the key issue of power (encompassing everything from costs to quality to regulation) Iceland scores higher than leading global data centre locations such as the US, UK, Sweden, Singapore and Hong Kong. The report states that  power costs for data centers in Iceland can be half of those in Scandinavia, and significantly more competitive than other European countries. And what is even more important, Iceland’s power costs remain very likely to stay much lower than other countries. It is particularly important that data centers constructed in Iceland have the opportunity to cap the prices for ten years or even longer for greenfield projects. Opera-Software-logo-Data-Centre-IcelandIn addition to the low prices, it is an important fact that the power in Iceland is 100 percent from renewable sources. Iceland produces electricity using exclusively hydropower, geothermal energy and onshore wind. These are sustainable, environmentally green resources with zero carbon trade-offs. This makes Iceland an ideal location for addressing corporate responsibility considerations. On telecoms, existing connectivity (Greenland Connect, FARICE and DANICE) are being substantially upgraded. Significant new capacity is planned to be added over the next several years. The telecoms pricing attractiveness and strong telecom connections are well illustrated by existing users in Iceland, such as Opera Software. You are welcome to contact us at the Icelandic Energy Portal for more information on building, owning and/or operating data centers in Iceland.

UK Affirms Interest in IceLink Interconnector

HVDC-Letter-UK-to-Iceland_2015-01-29_17-55-03_GBG_January-2015Iceland’s Minister of Industry, Ms. Ragnheiður Elín Árnadóttir, recently received a letter from Mr. Matthew Hancock, UK’s Minister of Energy and Climate Change. In his letter, Mr. Hancock expresses his interest in an electric connector between Iceland and the United Kingdom (UK).  The letter is dated January 24th 2015 and reads as following:

Dear Ragnheiður Elín,

You met Michael Fallon in spring last year [2014] to discuss the possibility of an electricity interconnector between Iceland and the UK. I have taken over as Energy Minister and wanted to write following a meeting I had recently with one of the potential developers. I was very pleased to hear that a new Steering Committee is being set up to help you consider the impacts of such a major project. If it would be helpful, my officials stand ready to assist the work of this Committee, for example by providing information on the UK regulatory regime.

Studies we have commissioned indicate that an electricity interconnector between our two countries could provide economic benefits to us both and I am therefore interested in examining such a project further. The UK Government is considering options for sourcing low carbon, secure and affordable electricity post-2020 and an interconnector between our two countries might be one of the options we could examine in this process.

Matthew-Hancock_UK-Minister-Energy-Climate-Business-InnovationI would welcome your own views on the benefits of such a project and would of course, be very happy to discuss this with you if you have the opportunity to come to London at any time. I look forward to hearing your thoughts on the next steps.

Then the letter ends with Mr. Hancock’s signature [“Matt”]. It will be interesting to see how this possible project will develop in the next months.

Thorsil Secures Sales Contract with Dow Corning

Thorsil-Silcon-Helguvik-IcelandPlans for the new Thorsil silicon plant in Helguvík in Southwestern Iceland are moving well ahead.

Thorsil has already entered into contracts for the sale of 85 percent of the production from the plant which is being constructed in Helguvík. According to the Icelandic business media Viðskiptablaðið, the two sale contracts amounts to a total of 1.3 billion USD over the contract period. The newspaper Mogunblaðið reports that one of the two contracting parties is Dow Corning, which is the largest silicone product producer in the world. The two contracts are said to be for a period of 8 years and 10 years, respectively.

Dow-Corning-Slicon-Production-Thorsil-IcelandWhen in full production in 2017, the Thorsil plant is expected to produce up to 54 thousand tons of silicon metal, as well as 26 thousand tons of silica powder. The plant will utilize close to 85 MW of power capacity, all from Icelandic renewable energy sources. The decision to locate this new silicon plant in Iceland is based on many factors, including very competitive electricity prices and positive tax environment in Iceland.

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