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UK-Iceland Cable on the Global Infrastructure 100 List

A global panel of independent industry experts has identified a subsea electric cable between Iceland and the United Kingdom (UK) as one of the hundred most inspirational and innovative infrastructure projects in the world – many of which are expected to transform the way the world’s populations interact with their cities, governments and environment. This is the first time that an infrastructure project in Iceland is on this list, which is published by KPMG (download the report as pdf here).

KPMG-Global-Infrastructure-100-2014-coverKPMG International’s ‘Infrastructure 100: World Markets Report highlights key trends driving infrastructure investment around the world. In the report, a global panel of industry experts identifies 100 of the world’s most innovative, impactful infrastructure projects. Furthermore, the panel demonstrates how governments are coming together with the private sector to overcome funding constraints in order to finance and build projects that can improve quality of life – both solving immediate needs and planning for future societal demands.

The 2014 report focuses on key trends driving infrastructure investment in four key markets, one of the categories being smaller established markets, which are strong domestic markets open to private finance in infrastructure.

The subsea electric cable between Iceland and the UK is one of 25 projects falling under this market-category. The report describes the project, called IceLink, as an ambitious attempt to connect the power grids of Iceland and the UK. Iceland produces all of its electrical power by the means of renewable energy, such as hydro, geothermal and wind, and has potential well beyond local consumption.

According to KPMG, the total investment in the cable and related production and grid infrastructure in Iceland has been assessed in the range of USD 5 billion. When completed, this clean-tech venture would be the world’s longest subsea power cable, delivering as much as 5 TWh a year of renewable electricity to the UK – at a cost lower than offshore wind in UK territories. KPMG says that UK-based ventures have shown interest in funding the interconnector, while Icelandic power companies will build the power-generating facilities and onshore infrastructure in Iceland

KPMG-Global-Infrastructure-100-2014-enregy-and-resources-list-smallOf all the 100 projects listed in the 2014 KPMG-report, 27 projects are in the sector of energy and natural resources. Besides the IceLink, these projects are for example the Alaska LNG Project, the UK Hinkley Point C Nuclear Power Station, and Russia-China Gas Pipeline.

A total of 25 projects are classified as being in smaller established markets. The IceLink is one of these projects – other projects in this category are for example the Facebook Rapid Deployment Data Center in Luleå in Sweden, the Scandinavian 8 Million City High Speed Rail Link between the capitals of Norway, Sweden and Denmark, and the Rail Baltica, linking Finland, Estonia, Latvia and Lithuania with 960 km of railway track. Although many of the projects in this category face challenges regarding scale and investment, KPMG believes there are good possibilities to realize all the projects with increased access of private investment. With IceLink in mind, a perfect and realistic business model might be a private ownership of the cable, while the Icelandic TSO and the main Icelandic power firms would probably be in majority governmental ownership, possibly with private investors as co-owners.

Landsnet Strengthening the Grid

Demand for electricity in Iceland has grown immensely since the development of the current national transmission grid system, which was mostly constructed during the period 1972-1984. Since 1984 the amount of electricity being fed into the Icelandic grid has quadrupled.

Landsnet-Iceland-TSO-Grid-Upcoming-Map-1

The Icelandic Transmission System Operator (TSO) Landsnet is currently working on an environmental impact assessment (EIA) for a new high voltage transmission line between Southern and Northern Iceland; the South-North-Connection (SNC) over the Sprengisandur highland plateau. This new 220 kV transmission line will improve the current power transmission and increase security of supply and stability in the electric system.

Furthermore, the new line will substantially increase the transmission capacity. Thus, the project will not only be positive for better fulfilling current demand, but also prepare Landsnet to meet increased electricity demand in the coming years and decades. The increased demand will for example come from increased electrification of fish meal plants, and from new industrial production plants and services (such as data centers). Because of its stable energy supply, green energy portfolio, and yet-unharnessed renewable energy sources, Iceland is a very appealing location for companies that need substantial amount of electricity or heat for their production process. Iceland’s main power producer (Landsvirkjun) is currently offering long-term electricity contracts at a fixed price of 43 USD/MWh. Those long-term contracts are probably the most favorable in Europe and even in the whole OECD.

The Basic Transmission System to Become 220 kV

In its Transmission Systems Plan 2014-2023 (TSP), Landsnet has proposed three different options (platforms) for the development of the Icelandic electricity grid.  All three platforms aim to construct stronger connections between the major energy areas in the country, to increase stability in the transmission system and to ensure better delivery of electricity. The TSP is a.o. based on the National Master Plan for Hydro and Geothermal Energy Resources, which is a parliamentary resolution on future development of Icelandic energy resources, and an independent governmental forecast of how the electricity market will develop.

Landsnet-TSO-Transmission-System-Iceland-2010

According to Landsnet, the transport capacity of the Icelandic national transmission system will be developed to be at least 220 kV. Presently, 220 kV transmission lines have only been constructed in the southwestern part of the country (between the capital region and hydropower stations in the Þjórsá and Tungnaá region) and between Fljótsdalur power plant and the aluminum smelter in Reyðarfjörðir in Eastern Iceland. The new line between Southern and Northern Iceland (SNC), over the Sprengisandur highland plateau, could become the next major 220 kV connection. This will increase operational security, flexibility and efficiency of the Icelandic transmission.

Four Options of North-South-Connection Over Sprengisandur Will be Considered

Landsnet-Iceland-TSO-Grid-Upcoming-Map-2

Landsnet has started the process of examining the option of South-North-Connection more closely, preparing an environmental impact assessment (EIA) of the new transmission line. According to a draft already presented in the preparation for the EIA, Landsnet will compare four options of a South-North-Connection over the Sprengisandur highland plateau.

Special emphasis is placed to minimize the visual impact of the line, as the area is largely untouched (except from gravel summer road). Parallel to this work by Landsnet, the Icelandic Road Administration will perform an EIA of a new road in the area. Of the four options on the transmission line that will be examined, one option is specified as the main advantage (with a total length of 192 km). Interestingly, one of the other options is an underground cable as part of the route.

Iceland is the World Largest Energy Consumer (Per Capita)

Worlds-largest-energy-consuming-countries_OilPrice-2014Which countries are the largest energy consumers – and why? According to Andrew Topf at the energy-news-site Oilprice.com, Qatar has been the world’s largest energy consumer per capita most of the last three decades. Now, however, another country has taken the lead. Today, Iceland is the world largest energy user per capita.

The list is based on the most recent data available from the World Bank on energy used per person, measured in kilograms of oil equivalent (koe). The koe is a measurement of the units of energy equal to what’s generated by one kilo of crude oil per capita (the US Energy Information Agency also present comparison of this kind, but uses British thermal units or Btu). All types of energy can be broken down to koe, no matter what is the source of the energy, such as fossil fuels, nuclear energy, renewable energy etc. Note that when comparing energy consumption per capita, the World Bank refers to to indigenous production plus imports and stock changes, minus exports and fuels supplied to ships and aircraft engaged in international transport-use of primary energy before transformation to other end-use fuels, which is equal.

To most of our readers it is probably a quite well-known fact that people and companies in North America are among the world’s greatest oil and energy consumers (USA has only 5% of the global population but uses close to 20% of the global energy used each year). And it is certainly true that USA and Canada are among the greatest energy users. However, they only come as number eight and nine on the top-ten list of the world’s largest energy consuming nations per capita. The list is as following:

1.   Iceland                                18,774 koe
2.   Qatar                                   17,418 koe
3.   Trinidad and Tobago          15,691 koe
4.   Kuwait                                 10,408 koe
5.   Brunei                                   9,427 koe
6.   Luxembourg                         7,684 koe
7.   UAE                                      7,407 koe
8.   Canada                                7,333 koe
9.   USA                                      6,793 koe
10. Finland                                  6,183 koe

Energy-Use-per-capita-2011-2

Here we are not going to explain in details the reasons why the top-ten countries consume so much energy. However, it is quite clear that one of the main reason for scoring high on the list is a mixture of abundance of low-cost energy resources and fairly low population (at least this applies to the top-seven countries on the list). And the abundant domestic energy resources are fossil fuels and/or hydropower; the most economic energy sources we have access to here on our planet.

Many of the countries on this top-ten list are among the world’s largest producers of oil and gas. In some of these countries, the prices for the fossil fuel products are very low, resulting in more consumption than in countries were the prices are higher. This may, for example, apply to gasoline prices and to prices for electricity generated by burning natural gas. In addition, many of the counties in the list have major energy intensive industries (like aluminum smelters and LNG industry). These industries use cheap domestic energy resources, like electricity generated by natural gas. The result is very high energy use per capita in countries like Qatar, Trinidad and Tobago, Kuwait, Brunei and UAE (note that when using less recent numbers than Oilprice does, Trinidad and Tobago and Qatar switch the 2nd and 3rd place, as can be seen on the chart from Gapminder below; for other sources note IEA/NationMaster and OECD).

Worlds-largest-energy-consuming-countries-Gapminder-2010

So fossil fuels bring many of the Persian Gulf states on the top-ten list, plus Brunei and Trinidad and Tobago. Luxembourg, however, is one country on the list which is heavily dependent on energy imports. Thus, Luxembourg’s high energy use per capita can not be explained by access to abundant and cheap energy sources. The high ratio of energy use in Luxembourg has been partly explained by the low sales taxes on petroleum products, which encourage motorists and other consumers from neighbouring countries (Belgium, France and Germany) to buy their supplies in Luxembourg.

Interestingly, countries with huge energy resources do not necessarily make it to the top-ten list. This, for example, applies to Norway, which has both enormous oil- and gas resources and is a major producer of hydropower. Still, Norway is not on the top-ten list of the largest energy users per capita (although it comes very close).

USA of course has a long history of being an industrial giant, utilizing its large coal and natural gas resources and is one of the main oil consuming countries in the world (even per capita). For the USA, nuclear power and hydropower is also of great importance as sources of energy. Same applies to Finland, which has very substantial energy intensive pulp and paper industry. The same can be said about Canada, which also has a large aluminum industry.

Icelandic-Energy-Basics-2012Iceland is somewhat unique when it comes to energy. It is the world’s largest hydropower country per capita, the world’s largest geothermal energy producer per capita, and the world’s largest electricity producer per capita. Iceland’s competitively priced electricity (from hydro- and geothermal power) has attracted numerous industries and services. Currently, the aluminum industry in Iceland consumes close to 75% of all the electricity produced in Iceland (of course Iceland’s location result in large amounts of energy being used by logistics, but as already mentioned energy use in international transportation is not included when comparing countries energy use per capita).

This, with Iceland’s large fleet of fishing vessels and high automobile ownership, are the most important reasons for why Iceland is the world’s largest energy user per capita. But keep in mind that very high share of Iceland’s energy comes from renewable sources, making Iceland one of the greenest country in the world with regard to energy consumption. In total, approximately 86% of Iceland’s consumption of primary energy comes from renewable sources. And what is especially interesting, is the fact that Iceland still has access to numerous competitive renewable energy sources yet to be harnessed.

UK Energy Investors Looking Towards Iceland

Over the next few years billions of pounds are expected to be invested in new energy projects in the United Kingdom (UK). One of the projects may be a HVDC electric cable between UK and Iceland.

First Step: 12 Billion GBP for Wind and Biomass Projects

Earlier this year (2014), the UK government made Contracts for Difference (CfD) with eight renewable energy projects, with a total capacity of more than 4,500 MW. Five of these projects are large wind farms (more than 3,100 MW in total capacity) and the three others are biomass projects (close to 1,400 MW).

The list of participants e.g. includes the Danish energy firm Dong, Spanish Repsol, Scottish SSE, and Norwegian Statkraft and Statoil. The eight projects are expected to contribute around 15 TWh annually, which will be 14% of the expected renewable electricity to be added to the British electricity generation by 2020.

Together, these contracts open the door for a private investment of 12 billion GBP in the British renewable energy sector. However, this is only the start of a much larger energy investments in the British energy system. In total, these investments are estimated to be about 110 billion GBP by the year 2020, including 40 billion GBP in renewable electricity generation projects.

Groundbreaking Policy and Legislation

The investments mentioned above are possible due to the recently approved energy policy and electricity market reform of the UK. The recently adopted Energy Act calls for higher proportion of renewable energy and the strengthening of energy security of the UK by increased access to more diversified energy production.

DECC-cfd-strike-prices-december-2013-cover

This is a very interesting step by the UK. The new energy policy introduces special Contracts for Difference (CfD) to replace earlier system of incentives. The CfD sets certain strike prices for electricity, which is a pre-defined long-term price. This system will substantially limit the risk of new power projects and be an important driver for projects giving access to more reliable power.

This may offer a variety of opportunities, such as for Icelandic engineering firms with geothermal expertise. Even more interesting, may be the possibility of a submarine electric cable between Iceland and Great Britain.

Nordic Companies Among the First to Benefit

The new British energy policy and electricity market reform is already being implemented. It is an interesting fact that energy firms from the Nordic countries are the main players in four of the first eight projects involving CfD’s. These are the Danish Dong Energy and the Norwegian Statoil and Statkraft (the latter company is wholly owned by the Norwegian state).

All of the four “Nordic projects” are new offshore wind power parks, with a total capacity of close to 2,600 MW (CfD has also been awarded to a fifth wind park – Beatrice – with a capacity of 664 MW). The projects have gained authorization by the EU Commission, thus fully in consistency with competition and state aid rules. And the fixed strike price is 140-155 GBP/MWh (equivalent to approximately 220-250 USD/MWh).

New Power Plants and New Submarine Cables

The new investments, according to UK’s energy policy, will primarily be in new power plants and development of electricity transmission and distribution systems. In the coming months, the policy will be further developed and the UK Department of Energy & Climate Change (DECC) will continue to prioritize projects.

IceLink-HVDC-Disruptive-Capital-Atlantic-Superconnector-Map

The CfD-system applies to energy projects in Britain. However, the British energy policy also focuses on special arrangements to increase UK’s access to energy and electricity from abroad. This will e.g. happen with new cable connections (submarine electric cables) between the UK and its neighboring countries.

For the UK it will be especially important to gain access to flexible hydropower, to balance the electricity system. A HVDC cable between Iceland and UK could be an important part of such balancing and create high value to both countries. Such a project would also attract the interest of private investors, as already can be seen on the website of Disruptive Capital.

IceLink Offers High Increase in Social and Economic Welfare

ENTSOE-HVDC-Iceland-2014-coverThe European Network of Transmission System Operators for Electricity (ENTSO-E)  has submitted the final draft of the community-wide Ten-Year Network Development Plan (TYNDP) to the Agency for the Cooperation of the Energy Regulators; ACER. Following reception of the ACER opinion, the final TYNDP 2014 will be published by end of December 2014.

The TYNDP 2014 explores the evolution of the electricity system until 2030 in order to identify potential system development issues and to be able to address these proactively. The objectives of the TYNDP are to ensure transparency regarding the electricity transmission network and to support decision-making processes at the regional and European level.

IceLink Would Result in Highly Increased Social and Economic Welfare

The report from ENTSO-E includes analysis and evaluation of numerous possibilities for new electric cables interconnecting different electricity markets in Europe. One of the possible cables is a submarine HVDC cable (High Voltage Direct Current) between Iceland and the United Kingdom (UK); sometimes referred to as IceLink. The cable is expected to have a capacity somewhere between 800-1,200 MW, and be close to 1,000 km long.

ENTSOE-HVDC-Iceland-2014-mapAccording to ENTSO-E the IceLink could offer an increase in social economic welfare of up to 470 million EUR annually. This is higher SEW than most other of the interconnectors evaluated by ENTSOE-E in the new report. The social and economic welfare (SEW) is characterized by the ability of a power system to reduce congestion and thus provide an adequate transmission capacity so that electricity markets can trade power in an economically efficient manner. In addition, the IceLink offers much more flexibility or steerability than for example the numerous large scale wind power projects, evaluated in the report.

ENTSO-E Presents Four Different Scenarios

The 2014 version of the TYNDP covers four scenarios, known as the 2030 Visions. The visions were developed by ENTSO-E in collaboration with stakeholders through the Long-Term Network Development Stakeholder Group, multiple workshops and public consultations. The four visions are contrasted in order to cover every possible development foreseen by stakeholders. The visions are less forecasts of the future than selected possible extremes of the future so that the pathway realized in the future falls with a high level of certainty in the range described by the visions. The span of the four visions is large and meets the various expectations of stakeholders. The four visions for IceLink have a span of 290-470 million EUR annually in increased social and economic welfare.

Top-Down, Open and Constantly Improving Process

The first Ten-Year Network Development Plan was published by ENTSO-E on a voluntary basis in 2010. The 2012 release built on this experience and the feedback received from stakeholders, proposing the first draft of a systematic cost benefit analysis. In the last two years, ENTSO-E has organized exchanges with stakeholders to ensure transparency as much as possible.

ENTSOE-HVDC-Iceland-2014-1For the 2014 release, ENTSO-E launched a large project, where the expertise of the members of ENTSO-E; the Transmission System Operators (TSO’s). This included the Icelandic TSO; Landsnet. Having regard to the high SEW of IceLink and its highly flexible power production, it can be expected that the project will attract strong political interest and positive financing.

Are You Applying for Startup Energy Reykjavík?

Startup Energy Reykjavik is a business accelerator program, aimed at accelerating the business of seven energy related startups through a ten week program. Now you can apply for the upcoming program, which begins in next January (2015). For example, startups in software, machinery, agriculture, maintenance, chemistry, transportation, professional service, power plants and more are all eligible for the program. Application deadline is November 11th 2014.

startup-energy-reykjavik-logoSelected companies or ideas get USD 40,000 in seed funding. Startup Energy Reykjavik founders also get great place to work at Reykjavik University, ten weeks of intensive top-notch mentorship, and the chance to pitch to angel investors and venture capitalists at the end of the program. There is immeasurable value in the mentorship-driven connections and advice that you’ll receive when you start your company with Startup Energy Reykjavik. The opportunity to pitch to angel investors and venture capitalists at the end of the program is provided during our Investor and Demo Day.

The upcoming program of Startup Energy Reykjavík starts on next January 14th (2015) and ends with the Investor Day on March 26th. For more information, note the homepage of the program. And Startup Energy Reykjavík is also on Facebook.

Norway’s Positive Experience from Interconnectors and Open Electricity Market

Earlier this month, Mr. Ola Borten Moe, former energy- and petroleum minister of Norway, was in Iceland, discussing the development of the Norwegian electricity market.

In a presentation, at the Harpa Conference Hall in Reykjavík, Mr. Borten Moe gave a comprehensive insight on the matter. This open meeting took place on September 9th (2014) and was hosted by VÍB. The meeting was very well attended; in addition to the crowd at the hall at Harpa close to two thousand people watched the event live on the web (where a video recording is now available).

Iceland-Energy-Harpa-September-2014_Norway-Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-Sigurjonsson-1After the keynote speach by Mr. Borten Moe, there were panel discussion with three more participants; Ms. Ragnheiður Elín Árnadóttir, Icelandic Minister for Energy and Industries, Mr. Hörður Arnarson, CEO of Landsvirkjun Power Company, and Mr. Ketill Sigurjónsson, Managing Director of Askja Energy Partners. In his presentation Mr Borten Moe especially focused on two main issues; .Norway’s experience from the liberalization of the electricity market and Norway’s experience from the interconnectors (electric HVDC cables) between Norway and outher countries. Here we will highligt some parts of Mr. Borten Moe’s presentation. For reference, we will quote a transcript from the meeting, now accessible at the website of Landsvirkjun.

Positive Economic and Environmental Effects

Mr. Borten Moe explained how the Norwegian deregulation of the elctricity market, which happened in the 1990’s, became a model for similar changes in Europe a decade later. He also described how interconnectors (electric cables) between Norway and other countries have benefitted both the Norwegian people and the domestic energy industry in Norway.

According to Mr. Borten Moe, the market deregulation and the interconnectors have been very positve for the Norwegian society. It has lead to more efficiency in the Norwegian hydropower industry, wich is mostly in public ownership. Also Mr. Borten Moe stated, that the interconnectors have resulted in a better access to electricity supply, which has especially been important for Norway in dry periods (as Norway’s electricity generation is almost 100% based on hydropower). Even more, the result of the more competitive electricity market has not only been the financial benefit, but also a better stewardship of the natural resources. In Borten Moe’s own words:

Iceland-Energy-Harpa-September-2014_Norway-Borten-Moe-1“We [Norwegians] experienced a huge efficiency gain in the power production industry. And not did they only turn around all the heads in all of the industry, but […] also turned around the head to everyone owning the industry. Meaning that thousands of people could be liberated or do something else and more productive for society.”

“From the mid-1990s and outwards, the [electricity generating] industry produced huge surpluses, and these are values that are put back into work for the Norwegian society through the fact that there are municipalities, counties, and the government owning it. So we build roads, we build schools, we build health care systems for the values created in our power industry.”

“I foresee Norway being willing to take a bigger place when it comes to capacity regulating systems, using our hydropower system more to regulate for necessary regulations of the European power markets being more dependent on renewables […] and also maybe even selling electricity, being a net exporter. That is basically what we do with oil and gas.“

“So far in Norway, this has been the story that I told you. It has been more well functioned markets, increased efficiency, more values created, more security of supply and now lower electricity prices because we have introduced more production capacity into the market.”

Efficiency in the Electricity Industry Serves as Natural Protection

The Norwegian electricity market was tightly regulated up until the 1990’s. This meant very limited competition. Low returns were a normal condition in the electricity production and this lead to overinvestment in the hydropower sector. One of the effects of the deregulation was more access to economical supply outside of the former small highly regulated markets in Norway. Thus, the deregulation served as an incentive to not utilize some of the less economic hydropower sources. Or as Mr. Borten Moe explained:

Iceland-Energy-Harpa-September-2014_Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-Sigurjonsson-panel“[My] predecessor, Eivind Reiten, who is the father of the new energy system, when he presented the new energy bill to Parliament in 1990, deregulating the whole sector as one of the first countries in the world, he said that this bill would save more Norwegian nature and water and waterfalls than any gang in chains would ever do. And he was right. So the deregulation and the market system in Norway has also been one of the biggest reforms to save Norwegian nature.”

“Norwegians strongly believe that access to electricity should be cheap, it should be unlimited, and it should be safe. And it should not disturb the nature, which basically means that you have a lot of wishes and demands and it’s not always very easy to fulfill all those wishes at once.”

“I think it is a fact that you need to consume nature to produce electricity and power but basically I would say that if you are to do it at least you need to produce a lot of money, a lot of values for society doing it.”

Competitiveness of Norwegian Industries is Still Strong

The deregulation of the Norwegian electricity market and increased interconnectors have had fairly limited impact on industries in Norway; even energy-intensive industries. Electricity prices have indeed risen, but the competitiveness of the industry relies much more on the global market conditions rather than the electricity price in Norway.

Iceland-Energy-Harpa-September-2014_Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-SigurjonssonThe interconnectors and increased efficiency in the Norwegian electricity sector has been a success in increasing profits in the industry. One of the results is increased tax-revenues. This has created more possibilities for the Norwegian government to set up incentive schemes to positively increase investment of industries in Norway. When valuating the financial effects of the deregulation and more interconnected electricity market, the wholistic economic result in Norway has been very positive. As Mr. Borten Moe explained:

“What we have seen when it comes to our industries during the last 25 years, both through the deregulation and now with the more Nordic and European electricity market, is not that they have fled the country.”

“The world markets are far more important for the development of our power intensive industries than the electricity prices, and the electricity prices have not gone all that much up.”

“We see a new interest in reinvesting in Norway, Norwegian power intensive industries. Norwegian, our Norsk Hydro, which is our huge aluminum smelter company, is probably going to build a huge new smelter up in Karmøy [in Southwestern Norway].

Ola-Borten-Moe-Presenting-in-Norway-2011“And it is also a fact that in Norway, the power companies, the production companies, when they negotiate long term contracts, they know that they need the power intensive industries, after all, it’s their biggest clients. They use around 40 out of 120 terawatt hours, and if they go away, you would completely take the floor out of the Norwegian electricity market and the prices of the whole portfolio would go to the bottom. And they would lose a lot of money.“

“In Norway at least, I am convinced that we are not going to produce aluminum because we have cheaper prices than anywhere in the world or because we have lower regulations on the environment. On the contrary I think that we should have good prices on energy, meaning also [the aluminum smelters] should pay enough for the energy to make them wish every day they wake up to get a little better and a little bit more efficient and a little bit more competitive and it should be the same when it comes to environmental regulations.“

Stable and Secure Energy Supply

According to Mr. Borten Moe, increased interconnection has contributed to strengthening the electricity supply for Norwegian consumers. Norway’s electricity production is close to 100% based on hydropower. In dry periods, less water in rivers and reservoirs can result in temporarily very high electricity prices and even problems in supplying enough electricity to meet the demand. The possibility of importing electricity through subsea cables and other interconnectors, makes it much easier for the generating industry to offer stable and secure supply of electricity.

Karahnjukar_Hydropower_spillwayThe interconnectors also offer the possibility to export electricity when prices at the other end of the cable (such as in the Netherlands) are high. This means that interconnectors improve yield and profitability of the utilization of hydropower resources in Norway.

With this in mind, it is interesting that on average approx. 10% of the water in the Icelandic hydro reservoirs flows through spillways. If Iceland would be connected with another electricity market (preferably fairly large market, such as the British or German markets) it could be very economic and efficient to add more turbines and utilize the spillwater to generate electricity and sell it through such a subsea cable (interconnector). With regard to this, it is interesting to consider Norway’s experience as described by Mr. Mr. Borten Moe:

“In 2003, I think we had a summation, a mind gobbling situation, because the prices of electricity peaked, and the population asked serious questions about is Norway really able to secure the amount of energy that we need when we need it, and at a price that is affordable. At that time, I would say that this was a fair question. And if you look at […] 2002, 2003 in this form, you’d also see that production was fairly low and that it was a combination of little rain, low temperature, and lack of import capacity that brought us into this situation.“

Norway-Electricity-Balance_2009-2013_SSB-table“In 99% of the cases we manage to get the electricity out on the market, use more of it but as you said, if we had been an island, well then we, the electricity that we [sold to] Sweden, Denmark, Finland, Russia, the Netherlands would have been water going over the dams.”

“The question of interconnectors in Norway is not only a question about selling electricity, or selling energy. It’s also a question about buying electricity, and it is a question about security of supply, even when the weather is dry and the weather is cold.“

Modest Electricity Prices for Norwegian Households

In his presentation, Mr. Ola Borten Moe stated that despite increased interconnection of electricity markets the electricity price in Norway is generally less than for example on the European mainland. In the opinion of Borten Moe, the impact the interconnectiors have on the electricity price is limited in comparison with the effects of the relative supply and demand within each of the connected electricity markets. As Norway is currently increasing domestic investment in electricity generation, Mr. Borten Moe expects price reductions. In addition, Norwegians have used the revenue from the international connections to lower the electricity bill of Norwegian consumers.

Norway-Electricity-Prices_1998-2013“It is basically the balance in the market, or the lack of balance in the market, that is the most important factor for price. If we have good security of supply, a good balance in market, and slightly more production and consumption, prices will be fairly low.“

“In Norway we are interconnected, but not a part of a perfect market with the European electricity markets. There are still differences in price, between our price and the European price, and it will probably continue to be so.”

“The surplus from these interconnectors goes to lowering the electricity bills to all Norwegian consumers, including industry. So as long as they produce a surplus, it’s a direct benefit to the Norwegian household and the Norwegian industry.“

Issues to Consider

The conclusion is that Norway’s experience from the increased interconnection of electricity markets has been positive. Mr. Ola Borten Moe stated that despite this fact, there are nonetheless several issues that Iceland must consider before it is possible to decide on the possible construction of a subsea cable between Iceland and Europe.

Iceland-Energy-Harpa-September-2014_Norway-Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-Sigurjonsson-HarpaBorten Moe expressed that the Norwegians emphasize the importance of utilizing their infrastructure in a sound economical manner and that further disturbance of the environment must be based on guaranteed profitability. He also mentioned that although subsea electric cables would generally have the effect that electricity prices at the markets at each ends of the cable have the tendency to be similar, at least to some extent, nevertheless it is the supply and demand in each market that is dominating in deciding the prices in each of the markets. As Borten Moe said:

“We like to have control over this kind of infrastructure, we need to know how much goes in, how much goes out. We need to keep control about how the values flow and who gets the benefits.“

Iceland-Energy-Harpa-September-2014_Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-Sigurjonsson-panel-questions

“It is possible to foresee a future when we use subsidies to get new electricity into the market, taxpayers’ money, new production capacity, and we sell this production capacity with a loss to the European markets and we lose both money and Norwegian nature. And that, of course, would be a whole different story.”

“If you have two markets and you make an interconnector, you will basically have a price that are more of the same. That’s the law of nature and the whole ratio for building such an interconnector. But it’s also fair to say that it’s also a question of what kind of capacity you introduce. In a perfect market, you would have the same price, but these are not perfect markets.”

EIA: Iceland Tops Europe’s No-Carbon List

Europe-No-Carbon-Electricity-Generation-EIA-2012-1Countries of Europe are increasing electricity generation using no-carbon sources. According to the US Energy Information Administration, Iceland is at the top of the list of no-carbon electricity generation countries in Europe. Electricity generation in Iceland is 100% from no-carbon hydro- and geothermal power sources, and the country is completely self-sufficient in electricity supply.

Only France, Iceland, Norway, Sweden, and Switzerland generate more than 90% of their net electricity from no-carbon sources (data from 2012). Only in Iceland and Norway this number of no-carbon electricity sources was 100%.

Eight other countries had no-carbon electricity accounting for at least 50% of their generation. Countries in Europe generate most of their no-carbon electricity from nuclear and hydroelectric sources, along with a smaller portfolio of other renewables.  No-carbon sources generate power while releasing virtually no carbon dioxide emissions. This includes geothermal, hydroelectric, nuclear, solar (both utility scale and distributed solar), tidal, and wind generation (although biomass power plants emit carbon dioxide during operation, the full life cycle of biomass fuels is often considered to be carbon neutral for the purposes of satisfying these countries’ goals).

Europe-No-Carbon-Electricity-Generation-EIA-2012-2 Penetration rates of no-carbon generation have increased from 50% to 56% in recent years in Europe, as European Union countries (EU) work toward renewable energy and greenhouse gas emissions targets. The share of no-carbon generation in European countries is expected to continue to increase, as the EU’s 2020 Climate and Energy Package targets both a decrease in greenhouse gas emissions and an increase in the share of energy consumption generated from renewable sources.

Main source: US Energy Information Administration.

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.

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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.