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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:

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TOTAL ELECTRICITY GENERATION:          18,116 GWh (2013)

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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).

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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

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ELECTRICITY CONSUMPTION SHARE:

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

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

Icelandic Researchers Transforming the Geothermal Industry?

“The worldwide market is moving towards double-digit growth,” said Karl Gawell, executive director of the Geothermal Energy Association (GEA) during the organization’s recent International Geothermal Showcase in Washington, DC. “There’s lots of exciting things going on. Several years ago there were projects in 24 countries, this year almost 700 projects are under development in 76 countries across the globe.”

Iceland_Geothermal_Deep_Drilling_ExplainedWhat is especially interesting in this context, is how researchers in Iceland have found a new way to transform the heat generated by volcanic magma into electricity. The advancement could be especially valuable in Iceland, that has capitalized to derive a quarter of its electricity production and around 90 per cent of household heating from geothermal energy.

The Icelandic know-how may be creating interesting possibilities for high-growth in utilization of geothermal resources worldwide. Currently, the main interest seems to be from the United States (USA). In the western USA, geothermal prospects are on the rise, especially in Nevada and California. California already has the largest geothermal field in the world, the Geysers, which contains 22 geothermal power plants amid 45-square miles in the Mayacamas Mountains north of San Francisco.

With greenhouse gases rising just as sharply as energy production, climate change is creating a similar global push for a paradigm shift to clean, sustainable sources in the electricity sector. In all this, geothermal has a powerful role to play. Unlike intermittent renewable power sources, such as wind and solar, geothermal can provide consistent energy 24-hours a day, making it an appealing baseload replacement for coal and nuclear power that are responsible for keeping the power supply stable and reliable.

Krafla-geothemal-power-stationWhile electricity-generating geothermal technology is advancing, the bulk of the time and cost expended goes to exploration and drilling for the resource. Recent advances in oil and gas drilling, which can translate over to geothermal sensing, exploration and drilling techniques, are helping to facilitate innovation in the area. And because geothermal energy is not intermittent like wind or solar power, which generate when the wind blows or sun shines, it can fill the role that has long been played by fossil fuels and serve as a baseload power source. That not only helps to lower emissions but provides needed stability to the electric grid.

Internationally, the geothermal industry is growing fast. The new GEA report (pdf) released at the recent GEA showcase found that there were almost 700 projects under development in dozens of countries across the globe. With the international power market booming, geothermal showed a sustained growth rate of around five per cent. And the best thing about this expansion of geothermal energy, is that it competes with other energy sources on a pure cost basis.

The Importance of Diversifying Europe’s Energy Sources

Economist-Euorope-Energy-Security-april-2014-3The Economist recently wrote about how Europe is highly vulnerable to Russian control over gas supplies – and how Europe can reduce its reliance on Russia by changing generating technology. In the article, it states that “better electricity interconnectors could reduce that need for gas by making it easier to export electricity from renewables-rich markets like Germany on sunny or windy days and to import it on dark or still ones.“ This brings attention to the great importance of strengthening the electric grid in Europe and construct new electric cables, such as to Norway and to Iceland.

The Economist correctly points out that interconnectors can help substitute one type of renewable energy for another. Hydropower (like gas-fired power stations) can easily be turned on – when the wind in Germany or United Kingdom  falters. But hydropower is not evenly spread. As stated in the article, “Sweden and, particularly, Norway have a lot of it, Germany and Benelux not so much.” Iceland is a country with abundant hydropower, that by far exceeds the country’s own electricity needs. In addition, Iceland also has extensive geothermal resources, that offer stable electricity generation for domestic use and for exports via submarine electric cable(s). Thus, Icelandic energy can be an excellent option for diversifying Europe’s energy sources.

Icelink-Bloomberg-HVDC-2“Forging such links requires a pan-European push”, the Economist-article continues. To make it work on a large scale will require new pricing strategies to recompense the owners of fossil-fuel plants pushed off the grid when renewable energy from other countries flows in. According to the Economist, Norway could generate much more hydropower, given a market. The Economist states that there are currently plans for up to five new interconnectors from Norway to the EU to be built by 2020, with a capacity of up to 5GW. An inteconnector to Iceland would easily offer 1 GW more.

In last March (2014) the EU’s Heads of Government told the EU Commission to produce a plan for reducing energy dependence. The plan is to be finalized by June, and some of the key elements of the strategy are to include an in-depth study of EU energy security and plan for the diversification of supply. That is likely to give a push to storage capacity and both more and larger interconnectors. Iceland is the world’s number one electricity generator per capita and still has substantial unharnessed hydro- and geothermal resources. Thus, the development and implementation of such an action plan may offer very interesting possibilities for the Icelandic energy sector.

Feasibility of IceLink (Iceland-UK Interconnector)

The Icelandic Energy Portal is cooperating with the University of Iceland and Reykjavik University, as scientific and educational partners. Thus, we sometimes introduce research by university scholars and students. Today, we will focus on the findings in a recent thesis towards MSc in Sustainable Energy at Reykjavik University, by Mr. Randall Morgan Greene.

HR-RU-WelcomeThe title of the thesis is “Iceland-UK Interconnector: Strategy for Macroeconomic and Legal Feasibility”. According to the thesis, the UK must undertake drastic changes in their energy system if they are to achieve energy policy goals of competitive electricity prices, ensuring security of supply, and decarbonization of generation. Interconnection with Iceland, which is dominated by renewable energy, could offer an enticing, cost-competitive alternative to building new low-carbon generation in the UK and carries the potential for positive economic and technical benefits for both countries.

However, the author points out that the structure of EU and UK electricity systems and legislation places some blockades in this project attaining legal and macroeconomic feasibility. While there is some regulatory uncertainty associated with it, there is a potential that the status quo merchant interconnection investment model could be applied to the Iceland-UK in order to attain the aforementioned feasibility – especially if there is a potential for the application of the emerging legal precedent and business model framework in the Imera/ElecLink merchant interconnection exemption request (at this stage the concept of ElecLink seem to be advancing faster).

LV-HVDC-Iceland-UK-London-august-2012-1The macroeconomic feasibility of this framework could potentially be strengthened if there is a possibility to apply the UKs new Feed-in-Tariffs with Contract-for-Difference (FiT CfD) to generators in Iceland. The Imera/ElecLink framework adequately covers investor concerns over stable, long term returns while satisfactorily addressing regulator concerns over competition and third-party access rules for transmission assets. When combined with the FiT CfD program, there is a strong potential that this project can attain macroeconomic feasibility while still being feasible under EU energy legislation.

However, due to the ElecLink exemption not being due till spring 2014 and there being no clear precedent concerning the application of the UKs FiT CfD program to non-UK generators, this potential still requires more in-depth investigation. For more information, this link will take you to the whole text (pdf) of the thesis “Iceland-UK Interconnector: Strategy for Macroeconomic and Legal Feasibility”.

UK is Looking to Iceland for Electricity

In last March (2014), UK’s National Grid published a new paper exploring the potential benefits of greater electricity interconnection. According to the paper, new interconnectors will have positive economic and environmental effects. The benefits include lower energy prices for consumers, enhanced energy security, a cleaner environment and wider macro-economic effects. National Grid believes that a full understanding of the benefits of greater interconnection is important to inform the debate on an appropriate ambition to meet the country’s need, and the timeframe within which it should be achieved

UK_National-Grid-Interconnectors-fig4-march-2014The debate on how the United Kingdom (UK) can best meet its energy needs has intensified over recent months. There is broad agreement that energy should be affordable, greenhouse gas emissions need to be reduced, and energy supplies need to be reliable for businesses and consumers to facilitate the UK’s economic recovery. Despite these benefits, Britain’s 4 GW of existing interconnector capacity is relatively small; representing around 5%of total installed electricity generating capacity. This compares with the benchmark highlighted by the European Commission in January 2014 for all EU Member States to have a level of electricity interconnection equivalent to at least 10% of theirinstalled production capacity to realize the full benefits of the Internal Energy Market.

In order to reach this benchmark Britain would need to double its existing interconnector capacity.Britain is therefore poised to complete the final design elements of the new regulatory regime, enabling developers to secure the considerable capital required to deliver these complex and technically challenging projects. Through continuing to work together, the above stakeholders are now well placed to build on the successful momentum developed to date, to secure the necessary regulatory and investment decisions for a 4-5 GW portfolio of new links in 2014/2015 and unlock the benefits including a GBP 1 billion wholesale electricity price reduction per year by 2020.

UK_National-Grid-Interconnectors-fig3-march-2014As renewable electricity forms an increasing part of the energy mix, interconnection is becoming an important tool in managing the intermittent power flows associated with these sources. Based on the consumer, energy security, environmental and economic benefits which could be accessed, greater GB electricity interconnection is considered a ‘no regrets’ investment by a wide range of informed stakeholders within the UK and beyond. This consensus includes the UK Government, the regulator, consumer organizations, green groups, think tanks, academics and the main European Union institutions.

An interconnector between UK and Iceland (sometimes referred to as the IceLink) could become an important part of the additional interconnection. UK already has four interconnectors to France, Holland, Ireland, and Northern Ireland. These links, with a total capacity of 4 GW, represent around 5% of the existing electricity generation capacity in the UK. However, this level remains low compared to the 10% benchmark proposed by the EU Commission and there is strong consensus that this gap should be filled.

While GB remains a net importer of power, economic benefits are available through greater disposable income from lower domestic electricity prices, and enhanced competitiveness for businesses benefitting from reduced energy input costs. Were a portfolio of new projects to be commissioned, the economy would also benefit from new jobs created in activities such as planning, construction and maintenance. They could also catalyse new domestic manufacturing industries in areas such as sub-sea cabling.

Electric interconnectors allow low carbon electricity to flow between European countries more easily and could enable carbon and renewables targets to be met more cost effectively. Significant volumes of low carbon electricity could, for instance, be imported into UK from hydropower in Norway, wind power in Ireland and Denmark, nuclear in France and hydropower / geothermal energy in Iceland.

Copyright statement regarding the NG Paper: © National Grid Interconnector Holdings Limited 2014, all rights reserved.