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Sep 29

Aluminum smelters of the World (outside of China)

The aluminum industry has for years been plagued by over-capacity, often resulting in to much supply and depressed aluminum prices. The situation has lead to closure of number of smelters, not least in Brazil and in the United States. Several smelters are currently not being utilised at full capacity, which has limited the over-supply.

Below is a list of all the primary aluminum smelters in the world outside of China, listed by countries in alphabetical order. Soon we at the Independent Icelandic and Northern Energy Portal, will also be presenting a list of smelters in China, which will put the limelight on the much more severe over-capacity in the Chinese aluminum sector.

Given figures are for 2019. Main sources are annual reports for individual companies, information as presented by the International Aluminum Institute, and research by Askja Energy Partners. In some cases the presented information may not be exact, due to lack of reliable information. However, we are confident that this is currently (Sept 2020) the most accurate publicly available list of its kind.

No. Country Location Capacity* Owner**
1 Argentina Puerto Madryn 470.000 Aluar
2 Australia Boyne Isl., Queensl. 545.000 Rio Tinto (JV)
3 Australia Tomago, NSW 585.000 Rio Tinto (JV)
4 Australia Portland, Victoria 358.000 Alcoa (JV)
5 Australia Kurri Kurri,  NSW 180.000 Norsk Hydro
6 Australia Bell Bay, Tasmania 189.000 Rio Tinto
7 Azerbaijan Ganja 50.000 Ganja Aluminum
8 Bahrain Askar 1.540.000 Alba
9 Bosnia and Herzegovina Mostar 130.000 Aluminij Mostar  (JV)
10 Brazil São Luís 465.000 Alumar
11 Brazil Vila dos Cabanos 460.000 Albras
12 Brazil Sorocaba 455.000 CBA
13 Brazil Ouro Preto 150.000 Hindustan Alum. (JV)
14 Brazil Poços de Caldas 106.000 Alcoa
15 Brazil Santa Cruz 95.000 Metalisul
16 Brazil Saramenha 51.000 Novelis do Brasil
17 Cameroon Edéa 100.000 Rio Tinto (JV)
18 Canada Kitimat, BC 420.000 Rio Tinto
19 Canada Sept-Iles, QC 600.000 Rio Tinto (JV)
20 Canada Arvida, QC 230.000 Rio Tinto
21 Canada Grande Baie, QC 235.000 Rio Tinto
22 Canada Laterrière, QC 240.000 Rio Tinto
23 Canada Alma, QC 470.000 Rio Tinto
24 Canada Bécancour, QC 455.000 Acoa (JV)
25 Canada Baie Comeau, QC 300.000 Alcoa
26 Canada Deschambault, QC 285.000 Alcoa
27 Egypt Nag Hammadi 320.000 Egyptalum
28  France Dunkerque 285.000 Liberty Aluminium
29  France St. Jean de Maurienne 145.000 Trimet Aluminium (JV)
30  Germany Neuss 230.000 Norsk Hydro
31  Germany Voerde 96.000 Trimet Aluminium
32  Germany Hamburg 135.000 Trimet Aluminium
33  Germany Essen 170.000 Trimet Aluminium
34  Ghana Tema 200.000 Valco
35  Greece St. Nicolas 170.000 Aluminium de Grèce
36  Guinea Sangaredi N/A South32 (JV)
37  Iceland Reyðarfjörður 346.000 Alcoa
38  Iceland Grundartangi 312.000 Century Aluminum
39  Iceland Straumsvik 210.000 Rio Tinto
40  India Korba 570.000 Vedanta Resources
41  India Jharsuguda 1.750.000 Vedanta Resources
42  India Angul 475.000 Nalco
43  India Hirakud 213.000 Hindalco
44  India Renukoot 345.000 Hindalco
45  India Lapanga 360.000 Hindalco
46  India Bargawan 360.000 Hindalco
47  India Belgaum, Karnataka 390.000 Hindalco
48  Indonesia Kuala Tanjung 265.000 Inalum
49  Iran Arak (1 &2) 180.000 Iralco
50  Iran Bandar Abbas 1 110.000 Al-Mahdi Aluminium
51  Iran Bandar Abbas (2) 147.000 Hormozal
52  Italy Portoscuso 159.000 Alcoa
53  Kazakhstan Pavlodar 250.000 Kazakhstan Aluminum
54  Malaysia Mukah 120.000 Press Metal
55  Malaysia Samalaju 323.000 Press Metal
56  Montenegro Podgorica 75.000 Uniprom KAP
57  Mozambique Maputo 565.000 Mozal
58  Netherlands Delfzijl 180.000 Aldel
59  New Zealand Tiwai Point 360.000 Rio Tinto (JV)
60  Nigeria Ikot Abasi 200.000 Alscon
61  Norway Høyanger 64.000 Norsk Hydro
62  Norway Husnes 185.000 Norsk Hydro
63  Norway Karmøy 275.000 Norsk Hydro
64  Norway Årdal 204.000 Norsk Hydro
65  Norway Sunndal 400.000 Norsk Hydro
66  Norway Lista 127.000 Alcoa
67  Norway Mosjøen 222.000 Alcoa
68  Oman Sohar 390.000 Sohar
69  Qatar Mesaieed 645.000 Qatalum
70  Romania Slatina 282.000 Alro Slatina
71  Russia Boguchany 600.000 Rusal
72  Russia Bratsk 1.020.000 Rusal
73  Russia Kandalaksha 72.000 Rusal
74  Russia Khakas 300.000 Rusal
75  Russia Krasnoyarsk 1.025.000 Rusal
76  Russia Novokuznetsk 215.000 Rusal
77  Russia Sayanogorsk 545.000 Rusal
78  Russia Shelekhovo 420.000 Rusal
79  Russia Volgograd 70.000 Rusal
80  Saudi Arabia Ras Al Khair 740.000 Ma’aden
81  Slovakia Ziar nad Hronom 175.000 Slovalco
82  Slovenia Kidricevo 85.000 Talum
83  South Africa Richards Bay, Hillside 720.000 South32
84  South Africa Richards Bay, Bayside 100.000 South32
85  Spain San Ciprian 250.000 Alcoa
86  Spain Aviles 93.000 Alcoa
87  Spain La Coruna 87.000 Alcoa
88  Sweden Sundsvall 130.000 Kubal
89  Tajikistan Tursunzoda 450.000 Talco
90  Turkey Seydisehir 82.000 Eti Alüminyum
91  UAE Jebel Ali, Dubai 1.160.000 Dubal
92  UAE Taweelah, Abu Dhabi 1.500.000 Emal
93  Ukraine Zaporozhye 120.000 Zalk
94  United Kingdom Burntisland 120.000 Rio Tinto
95  United Kingdom Fort William 42.000 Rio Tinto
96  United Kingdom Holyhead 142.000 Rio Tinto
97  USA Hawesville, KT 250.000 Century Aluminum
98  USA Mount Holly, NC 229.000 Century Aluminum
99  USA Sebree, KY 220.000 Century Aluminum
100  USA Ravenswood, WV 180.000 Century Aluminum
101  USA Columbia Falls, MT 180.000 Glencore
102  USA Evansville.  IN 161.000 Alcoa
103  USA Newburgh, IN 270.000 Alcoa
104  USA Wenatchee, WA 144.000 Alcoa
105  USA Ferndale, MT 279.000 Alcoa
106  USA Massena, NY 135.000 Alcoa
107  USA St. Lawrence, NY 125.000 Alcoa
108  USA Rockdale, TX 176.000 Alcoa
109  USA Goldendale, WA 172.000 Goldendale Aluminum
110  USA New Madrid, MO 280.000 Magnitude 7 Metals
111  USA Hannibal, OH 270.000 Ormet
112  Venezuela Matanzas 448.000 Venalum
113  Venezuela Puerto Ordaz 170.000 Alcasa
114  Vietnam Lam Dong 600.000 Vinacomin
Total capacity 36.526.000
Closed capacity 5.002.000
Total operational capacity 31.524.000
Idled capacity 11% 3.622.000
Total production 89% 27.902.000

*    Capacity in tonnes/year.
**  Parent company (or strategically important owner, if joint venture).
Capacity figures in red mean the smelter has been closed.
Some of the other smelters are not operated at full capacity.
All numbers are in European format.

May 7

Norwegians see high value in Icelandic wind

Sarpsborg, Norway and Reykjavík, Iceland.
Media release, May 7 2019.

The Norwegian wind power developer Zephyr has established a wind energy firm in Iceland; Zephyr Iceland. The company intends to invest considerable funds in research on Icelandic wind conditions, with the aim of constructing wind farms in the coming years, offering new type of renewable power at competitve prices.

Public Norwegian ownership

Norwegian Zephyr is owned by three Norwegian hydropower companies. They are Glitre Energi, Vardar, and Østfold Energi. These three companies are owned by Norwegian municipalities and counties. The projects of Zephyr Iceland will be managed by Ketill Sigurjónsson, who is also shareholder in the wind power firm. Ketill is the founder of Askja Energy Partners and chief editor of the Icelandic and Northern Energy Portal.

More than 500 MW of wind power in operation

In Norway, Zephyr has already constructed more than 300 MW of wind power capacity, representing an investment of more than ISK 35 billion. Having regard to current projects, the company will soon be operating close to 500 MW of wind power in Norway. This equals the electricity consumption of approximately 75.000 Norwegian households.

Major international customers

Zephyr not only possesses high level of technical knowledge of experience in all aspects of wind power development, but also has good relationships with major international investors and customers.  Among Zephyr’s partners in its projects so far are technology giant Google, global investment management corporation Black Rock, and aluminum producer Alcoa.

Olav Rommetveit, CEO of Zephyr and Chairman of the board of Zephyr Iceland:

“Iceland has amazing wind resources. Even better than Norway. So I am very pleased with our decision in Zephyr to have Iceland as our first market outside Norway. Iceland’s excellent wind resources in combination with the strong flexibility of the Icelandic hydropower system creates exceptionally good opportunities to utilize the wind energy very efficiently.”

Morten de la Forest, member of the board of Zephyr Iceland:

“Zephyr has for some time carefully been studying the Icelandic power market and the relevant legislation and policies. Our company sees strong indications that Icelandic wind will be competitive with both hydropower and geothermal power, creating significant opportunities for Iceland to develop economical green wind power projects.”

Ketill Sigurjónsson, Managing Director of Zephyr Iceland:

“Having regard to Iceland´s strong winds it is about time to start utilizing the Icelandic wind resources for electricity production. This will contribute to an even stronger competitiveness of the Icelandic electricity sector. With an experienced and qualified partner as Norwegian Zephyr, Zephyr Iceland will have great possibilities to implement our vision for a new low-cost and environmental friendly type of green energy production. At Zephyr Iceland our focus will be on careful project preparation and good cooperation with all parties involved. Iceland’s future is windy and bright.”

For further information please contact Ketill Sigurjónsson, Managing Director of Zephyr Iceland, by sending message here.

The photo above shows the 160 MW Tellenes wind farm of Zephyr in Norway.

Oct 25

Peak of the Norwegian Petroleum Adventure

At the turn of the century it looked like the Norwegian petroleum adventure had reached its peak. And that from then on, the petroleum production on the Norwegian continental shelf would only decrease.

Oil production on the Norwegian continental shelf did indeed hit a plateau in 2001 and started soon to decline. However with new major discoveries of additional petroleum resources, including both oil and gas, this amazing period of the Norwegian petroleum-age has been extended further into the 21st century.

Now it is expected that petroleum production (combined production of oil and natural gas) on the Norwegian shelf will grow somewhat in the coming years (at least until 2023). Then the production will reach the final plateau and start a real and steady decline. And the slope of the decline may become quite steep.

Norway’s population is only close to five million. Yet, Norway is the world’s third largest exporter of oil and gas (after Saudi Arabia and Russia). And there is only one country that produces more petroleum from the continental shelf than Norway, which is Saudi Arabia.

Although Norway describes itself as “a small player in the global crude market”, with its oil production covering about 2% of the current global demand, Norway is the third largest exporter of natural gas in the world. And Norway supplies about ¼ of the EU gas demand.

When having in mind the population of countries, Norway is the second largest petroleum producer (per capita). Only Qatar produces more oil and gas per capita. Other major petroleum producers per capita, are mostly other states at the Persian Gulf, like Kuwait and UAE.

Another interesting fact regarding Norway’s massive petroleum production, is the enormous size of the Norwegian Oil Fund (the Government Pension Fund Global). Last year (2017) the value of the fund reached over 1,000 billion USD.

The Oil Fund of Norway is the world’s largest sovereign wealth fund. With recent decline in share prices, right now the value of the fund may be somewhat lower than 1,000 billion USD. However, most countries and governments accept that Norwegians have done very well with their petroleum wealth. And although Norway may be reaching its peak in petroleum production, the peak of the Oil Fund is probably much farther in the future.

Apr 17

IceLink interconnector in operation by 2025?

The proposed HVDC power interconnector between UK and Iceland, sometimes referred to as IceLink, seems to be moving along. This is happening despite the imminent Brexit and the uncertainty that the Brexit creates regarding Britain’s future energy policy.

The British company Atlantic SuperConnection, which seems to be a subsidiary of Disruptive Capital Finance, has for years been introducing plans for a 1,200 MW subsea power cable between Britain and Iceland. About a year ago, Atlantic SuperConnection claimed the cable might be in operation already by 2023. Now the company says that the plan is to have the cable ready and operating in 2025. It is also interesting that Atlantic SuperConnection recently announced plans for constructing a factory in Northeastern England where the cable will be made. This new highly special cable-factory is supposed to be ready within a few years from now.

If these plans of Atlantic SuperConnection will be realised, the demand for Icelandic electricity will probably increase by many thousands of GWh annually, even as soon as in 2025. In this article we discuss these very ambitious (and somewhat unrealistic) plans of Atlantic SuperConnection.

No new power plant required?

As described later in the article, the required annual generation for the IceLink cable is estimated to be approximately 5,000-6,000 GWh. Current total electricity production and consumption in Iceland is about 19,000 GWh per year. It is interesting to examine how it will be possible to provide all the electricity needed for the IceLink cable.

Having regard to the current electricity production and consumption in Iceland at 19,000 GWh, it is interesting that on its website Atlantic SuperConnection says that it will be possible to have the IceLink operating even with “few or no new power plants” in Iceland. This statements by Atlantic SuperConnection is somewhat misleading, as it is obvious the IceLink will call for major construction of  new (and upgraded) power plants in Iceland.

Landsvirkjun’s view is very different from Atlantic SuperConnection

The view of Atlantic SuperConnection, introducing that there may be no need for any new power plant in Iceland, is in contrast to the vision that the Icelandic national power company Landsvirkjun has introduced regarding the cable. In a series of presentations and interviews Landsvirkjun’s management has said that the IceLink cable would need a supply of between 5,000-6,000 GWh. Landsvirkjun has also introduced that most of this electricity needs to come from new power plants. According to current information on the website of Landsvirkjun, the cable would export about 5,700 GWh and due to transmission losses in Iceland the cable will need a generation of close to 5,800 GWh. Here we should also have in mind that, according to estimates by Atlantic SuperConnection, the transmission losses in the subsea cable are expected to be close to 5%.

Electricity generation in Iceland must be increased by 30%

For a number of years Landsvirkjun’s scenario regarding power generation for the IceLink was as follows:

  • Total additional generation in Iceland for the cable was expected to be 5,000 GWh annually.
  • 2,000 GWh would be achieved by better utilization of the existing power system in Iceland, including utilisation of current over-flow in the hydropower plants, and by putting up new turbines in existing hydroelectric power plants (including 150 MW in the Kárahnjúkar power station).
  • 3,000 GWh would be achieved by constructing new power plants in Iceland, including both geothermal, hydro and wind power.

Landsvirkjun has now increased these figures and now assumes the following:

  • Total generation in Iceland for the IceLink cable is now expected to be 5,800 GWh annually.
  • 1,900 GWh would be achieved by better utilization of existing power system in Iceland, including new turbines in existing hydroelectric power plants and utilisation of hydro over-flow.
  • 3,900 GWh would be achieved by constructing new power plants in Iceland, including both geothermal, hydro and wind power.
  • This means that just to fulfill the power demand of the IceLink cable, it would be necessary to increase electricity production in Iceland from the current 19,000 GWh to approximately 24,800 GWh. Which is approximately 30% increase.

So the national power company of Iceland introduces that to have enough power available for IceLink, Iceland needs to increase its electricity generation by 30% and approximately 3,900 GWh of this will need to come from new power plants. At the same time, Atlantic SuperConnection says that “ideally” the IceLink will call for none or at et last few new power plants in Iceland. This statement by Atlantic SuperConnection is not realistic, and becomes even more puzzling when having regard to the fact that the figures from Landsvirkjun are based on the prerequisite that the IceLink will have a capacity of 1,000 MW. While Atlantic SuperConnection says the cable will be 1,200 MW.

Discrepancy between Landsvirkjun and Atlantic SuperConnection

In fact several important aspects in the presentation of IceLink by Atlantic SuperConnection are at odds with facts and reality. And the difference between Landsvirkjun’s scenario and the claims made by Atlantic SuperConnection may even weaken the credibility of the IceLink project. Probably it would be advisable for Atlantic SuperConnection and Disruptive Capital to clarify or explain the inconsistency. In addition, Atlantic SuperConnection seems to misunderstand the energy situation  in Iceland. On its website the company states that it can approach and ”bring a near-limitless source of clean hydroelectric and geothermal power to the UK”. This is far from the reality.

Solutions to consider

However, it is indeed possible to supply IceLink with enough green power from Iceland. There are roughly three options how to do this:

  1. By major construction of new geothermal-, hydro-, and wind power plants, in addition to major upgrading in current hydropower plants and utilisation of over-flow from current hydro reservoirs. This is the scenario which has been introduced by Landsvirkjun and is the most realistic way to develop the project.
  2. By utilizing the power that currently is consumed by the aluminum smelter of Norðurál (Century Aluminum). Most of the power contracts with the Norðurál smelter will run out in the period 2023-2026, which may fit the timeline for IceLink. However, this scenario would probably be met with heavy resistance from the communities close to the smelter, and is hardly a realistic option.
  3. By scaling the cable down to a maximum size of approximately 600-700 MW. Then the generation-need for the cable would probably be around 3,000-4,000 GWh. Although this size of cable would also call for substantial increase of power generation and construction of some new power stations in Iceland, it would make the project more manageable. The question remains if a cable of such a limited size would ever become economical.

If Atlantic SuperConnection really wants to see a power cable between Iceland and UK become a reality, the company should probably emphasise scenario no. 1 above (although scenario no. 3 may also be considered). This kind of project is indeed an interesting option for both countries; Iceland and Britain. Yet, it will never be realised unless it will be based on facts and the will and support of the Icelandic government.

Jan 30

Oil exploration at Dreki on hold

Five years ago, when the Icelandic National Energy Agency (NEA) granted two licences for oil exploration to Faroe Petroleum and Valiant Petroleum (now part of Canadian Ithaca Energy), there were high hopes this would be the start of an Icelandic oil adventure. The optimism even increased a year later, when the Chinese giant CNOOC became operator in a third license.

Now all the three licenses at the Dreaki-area have been relinquished by the operators, putting oil exploration in Icelandic jurisdiction on hold. The reason for the waning interest in the area is low likelihood of finding commercially recoverable hydrocarbons. The area is extremely complex in terms of geology, making project evaluation difficult. As described by Norwegian Petoro, “[v]olcanic activity in the area camouflages seismic responses to some extent, and has contributed to very intense heat, which creates major challenges for both potential hydrocarbon sources and reservoir quality.”

At this stage it is unclear what steps the Icelandic NEA will take regarding the oil exploration, such as if the agency will start a new licensing round. It should be noted that one of the partners in the license hold by CNOOC as operator, is still holding on the license, trying to find new qualified partner(s). Those who may be interested in stepping into the license, should contact Eykon Energy. Those who seek, find – perhaps!

Jan 18

Higher electricity tariffs for smelters in 2017

The Icelandic national power company Landsvirkjun supplies three aluminum smelters with power. The graph below shows how the electricity tariffs in this business have developed in the past ten years. As clearly can be seen on the graph, the electricity tariffs paid by the three smelters were somewhat higher in 2017 than the year before.

The main explanation for the higher tariffs in 2017 is the rising price of aluminum. Two of the three smelters buying electricity from Landsvirkjun have their power tariff linked to the price of aluminum at the London Metal Exchange (LME), while the tariff to the third smelter (Rio Tinto / ÍSAL) is linked to US consumer price index (CPI).

In 2017, as ever since the re-negotiation of 2010, the aluminum plant of Rio Tinto (ÍSAL) in Straumsvík paid the highest power tariff. The lowest price was paid by the smelter of Century Aluminum (Norðurál), while the smelter of Alcoa (Fjarðaál) paid slightly higher tariff than Century.

Dec 7

The pricing policy of Landsvirkjun

This article focuses on the pricing policy of the Icelandic national power company Landsvirkjun. Although starting price in recent new contracts seems to have been between 25-35 USD/MWh, we may expect higher tariffs in the future. Due to rising cost of new power plants in Iceland, it seems likely that from now the normal starting price in new electricity contracts will be close to 35 USD/MWh, rising towards 40 USD/MWh.

Wholesale power company

Landsvirkjun produces close to 75% of all electricity generated in Iceland. The company sells most of this electricity directly to four large consumers; three aluminum smelters and one ferro-silicon plant. Landsvirkjun also has contracts with smaller consumers, such as other types of industrial plants and data centers. Finally, substantial part of the generation is sold in wholesale-contracts to other power companies, for resale on the general power market.

“Headline rate of 43 USD/MWh”

According to Landsvirkjun’s website the company is “committed to offering competitive electricity contracts, based on the European electricity market, by offer­ing long-term agree­ments, favour­able prices and an unparalleled security of supply.” Lands­virkj­un has since 2011 offer­ed 12 year power con­tracts with a head­line rate of 43 USD/MWh. Landsvirkjun has also expressed that the company offers electricity-contracts at a fixed real price of 43 USD/MWh, with discounts for selected greenfield projects.

New customers offered starting tariff between 25-35 USD/MWh

These general statements by Landsvirkjun do not make it very clear what tariffs Landsvirkjun offers. We can assume though, that Landsvirkjun aims at a price close to 43 USD/MWh, arguably indexed to inflation within European Union (and/or within United States / Canada, as Landsvirkjun sometimes refers to these countries as their competitive markets). Still, it is somewhat unclear what tariffs new customers may expect from Landsvirkjun.

What we do know, is that new customers of Landsvirkjun are offered power tariffs starting well below the said 43 USD/MWh. We also know that this lower tariff may extend for a period of at least five to seven years, as described in a presentation in 2012 by the current CEO of Landsvirkjun.

So what are the tariffs offered to new customers for the first five to seven years? According to information we have from the data centre services in Iceland, starting price in such contracts seem to be close to or somewhat below 35 USD/MWh. In larger contracts, such as with the new silicon industry in Iceland, Landsvirkjun seems to have been offering a starting tariff below 30 USD/MWh. In general we can assume that recent starting tariff to Landsvirkjun’s new customers has in general been somewhere between 25-35 USD/MWh (the transmission cost is not included).

Tariff in renegotiated large contracts is probably close to 30 USD/MWh

During the last few years Landsvirkjun has renegotiated with two of the aluminum smelters located in Iceland. According to analysis by Askja Energy Partners, the power tariff to the Straumsvík smelter is approaching 35 USD/MWh. Note that the transmission cost is included in this price, which means that the smelter in Straumsvík (Rio Tinto Alcan / ÍSAL) is currently paying Landsvirkjun close to or slightly below 30 USD/MWh (without the transmission cost). This tariff is linked to the US consumer price index  (CPI).

Landsvirkjun’s new tariff negotiated with the aluminum smelter of Norðurál at Grundartangi is set up by a very different method, as it is aligned to market price of electricity on the Nordic power market. The new tariff for Norðurál (Century Aluminum) goes into effect in 2019. When looking at the current monthly market price at the Nord Pool Spot we can assume that from 2019 Norðurál will be paying Landsvirkjun close to 30 USD/MWh when the transmission cost is not taken inro account. Thus it may be fair to say, that Landsvirkjun’s wholesale tariff in renegotiated large contracts is close to 30 USD/MWh.

Tariffs are sometimes linked to product prices

Tariffs in new power contracts by Landsvirkjun are probably in general indexed to price inflation (such as in USA or EU). Also it is likely that the contracts include fixed price increase after five to seven years, resulting in tariffs heading towards 40 USD/MWh (and possibly towards the advertised 43 USD/MWh). This, however, does not apply to renegotiated contracts with heavy industries such as aluminum smelters, where the tariffs are either aligned with the power price on the Nordic market or consumer price index in the USA.

In recent years, the management of Landsvirkjun has repeatedly expressed that the company wants to move away from power contracts having tariff linked to the price of aluminum (or other relevant products such as ferrosilicon). However, it seems clear that Landsvirkjun is sometimes still open to such product-pricing methods. According to information from the EFTA Surveillance Authority (ESA), the new silicon plant of PCC in Iceland seems to have its power price linked to the price of silicon metal.

Strong demand and rising costs of new power plants will push tariffs up

Due to strong demand for electricity, the Icelandic power market is currently a sellers-market. Furthermore, it is hardly possible to construct a new power plant in Iceland unless the electricity can be sold at an average price close to at least 35 USD/MWh. Of course this means that when offering a 12 year contracts, Landsvirkjun may be able to offer lower starting price if the tariff will rise towards 40 USD/MWh after approximately five years or so. But in general we can expect that due to the strong demand for electricity in Iceland and rising cost of new power plants in the country, the general wholesale power prices will in general not be lower than 35 USD/MWh and even soon be heading towards 40 USD/MWh. In fact the general wholesale price for electricity in Iceland in 2016 was close to 38 USD/MWh.

Nov 29

Electricity tariff to Elkem could double

With close to 1,100 GWh annually, the ferro-silicon plant of Elkem in Iceland is the 4th largest power consumer in the country. The power is supplied by the state-owned power firm Landsvirkjun. Elkem is a Norwegian firm, owned by China National Bluestar Group.

Current power contract of Landsvirkjun and Elkem was agreed two decades ago, at times when heavy industries were offered very low tariffs when locating in Iceland (as for example advertised in a brochure from the Icelandic government in 1995; note cover at left). The power contract is valid until 2019. Elkem and Landsvirkjun have still been unable to reach a new agreement, so it is not certain if Elkem will continue its Icelandic operations after 2019.

The most likely scenario seems to be a new contract where the power price will align with the market price on the Nordic electricity market (Elspot on NordPool Spot), as was the result in recent negotiations regarding the Norðurál aluminum smelter owned by Century Aluminum. According to current prices, this would result in approximately doubling of the electricity tariff paid by Elkem in Iceland.

Elkem buys 8% of the energy, but pays only 5% of the revenues

Most of the revenues from the electricity sales of Landsvirkjun are derived from the aluminum smelter of Rio Tinto (ÍSAL) in Straumsvík, which supplies Landsvirkjun with close to 1/3rd of it revenues although the smelter purchases only 1/4th of Landsvirkjun’s production.

The second most important customer of Landsvirkjun is the aluminum smelter of Alcoa, as can be seen on the table at left. When taken together, the other power firms in Iceland and the TSO Landsnet are Landsvirkjun’s third most important customer.

The sales to Elkem alone amount to about 8% of Landsvirkjun’s electricity sales, ie. when based on the amount of electricity. Although this is not a very high percentage of the total electricity generated by Landsvirkjun, it is of course important for the power firm to obtain increased revenues from Elkem, as Elkem now only returns about 5% of the income of the company. Actually the percentage for the net-income is even lower, as the power tariffs to heavy industries include the transmission cost (this part of Landsvirkjun’s revenues is forwarded to the TSO).

Power tariffs not to be lower than in Norway or Canada

Elkem has been paying the lowest electricity price of all the industrial companies in Iceland. The CEO of Landsvirkjun has previously said that the current tariff Elkem pays reflects very different economic environment from now, indicating that a sharp increase in the power price would be absolutely normal. Earlier this month (November 2017), the CEO also pointed out that now “there is no reason why the price of electricity should be lower in Iceland than in the markets of [Canada and Norway].” This is a very clear statement, expressing that Elkem may be able to get a new contract where the power price will be aligned to the market price in Norway or Canada, but not lower tariff than that.

Landsvirkjun probably wants more than 100% price increase

In 2016, Elkem paid Landsvirkjun close to USD 18 million for the electricity (estimates by Askja Energy Partners). In a new contract that would come into effect in 2019, Landsvirkjun is probably aiming for a tariff that would mean extra USD 20 millions added to Elkem’s power bill. The total annual power cost of Elkem would then rise to approximately USD 38 millions (those figures include the transmission cost).

As it is possible and even likely that Elkem’s new tariff will be linked or aligned to the Elspot price on the Nordic power market, the power price would of course fluctuate. The given figure of USD 38 millions assumes that the Elspot price will be close to 30 EUR/MWh. If/when the price will become higher, the tariff of Elkem would rise. Probably the only option for Elkem to receive a more positive tariff for the company in Iceland after 2019, is to expand its operations in the country. For example it will be interesting to see if Elkem offers Landsvirkjun and the Icelandic government to move some of its solar-silicon production from Norway to Iceland.

NB: All figures on revenues in the table above are approximate / rounded. More precise figures are available only to customers of Askja Energy Partners. 

Nov 23

Electricity statistics update 2016

The Icelandic National Energy Authority (NEA) has published statistics regarding the electricity industry in 2016. You can access the publication in English on NEA’s website (link to the pdf-file). Here are some of the key numbers:

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TOTAL ELECTRICITY GENERATION:          18,549 GWh (2016)

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ELECTRICITY GENERATION SHARE BY SOURCE:

Hydro Power 13,470 GWh          73%
Geothermal Power     5,067 GWh         27%
Other 11 GWh            0%
Total 18,549 GWh        100%

NB: 2016 is the fourth year the NEA publishes data for generated wind power in Iceland. Electricity generated by wind power (9 GWh) and fossil fuels (3 GWh) was to small amount to be measured as a percentage on the scale of the table above. The combined wind- and fossil fuels generation amounted to 12 GWh, which was less than 0.001% of all electricity generated in Iceland in 2016.

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ELECTRICITY POWER CAPACITY:  

Hydro Power  1,988 MW
Geothermal Power     665 MW
Wind Power         3 MW
Fossil Fuels     117 MW
Total Power Capacity 2,773 MW

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ELECTRICITY CONSUMPTION SHARE:

Energy Intensive Industries 77%
General Consumption     18%
Other (losses)     5%
Total 100%

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

Nov 21

Icelandic wind power becoming highly interesting

So far, less than a handful of modern wind turbines have been constructed in Iceland. It has simply been more economical to harness geothermal- and hydro resources for power generation. This situation may be changing, as it is becoming economically interesting to harness Icelandic wind energy. In this article we take a look at some hydropower projects that are currently being considered in Iceland, comparing them to the cost of utilising wind energy. It turns out that harnessing the Icelandic wind may indeed becoming a very interesting investment.

Astonishing cost decline of wind power

Hreyfiafl-wind-power-cost-development_2009-2017_Lazard-LCOE-version-11

LCOE for onshore wind. Analysis by Lazard.

It has been called “the fastest and most astonishing turnarounds in the history of energy“: In some areas, building and running new renewable energy has become cheaper than just running existing coal and nuclear plants.

As Iceland is or at least has been quite special, by generating all its electricity through harnessing fairly low-cost geothermal- and hydropower sources, one might wonder if the declining cost of wind and solar will have any consequences for the Icelandic power sector? The answer is not very complicated. Due to Iceland’s northerly location, solar power is not becoming a real competitive option in generating electricity in Iceland. On the other hand, Iceland offers numerous locations with very high wind capacity factor. Thus, the declining cost in the wind power industry may soon drive important changes in the Icelandic power sector, where wind farms will become a lucrative business.

Several small [expensive] hydropower plants being prepared

Several small hydroelectric projects (with a capacity below 10 MW) are currently being prepared in Iceland. These include 9.9 MW Brúará hydropower station in South Iceland, 9.8 MW Svartá hydropower station in Northern Iceland, 9.3 MW hydroelectric plant in glacial river Hverfsfljóti in Southwest Iceland, and 5.5 MW Hólsvirkjun hydropower station in Northern Iceland. The combined capacity of these four stations would be close to 35 MW. With an estimated cost well above 3 million USD pr. each megawatt, all those projects will be quite costly and probably more costly than harnessing Icelandic wind energy.

Somewhat larger project is the 55 MW Hvalá River hydropower station, to be constructed in the faraway Northwestern part of Iceland (Vestfirðir or West Fjords). This power plant will be quite costly and the transmission cost will be high, as the project is far away from the current transmission system. However, due to the high reliability of the Hvalá station with its mountain reservoirs, the project can be seen as quite sensible. On the other hand, wind farms may also offer quite strong reliability, such as if constructing three 30-40 MW of wind power in different locations in or close to the West Fjords. By locating the wind farms adjacent or close to the current transmission lines, such a project might be less costly than the somewhat expensive Hvalá hydroelectric station with its high transmission cost.

Icelandic wind power becoming competitive

According to a recent study published by the federation of energy and utility companies in Iceland (Samorka), the levelized cost of energy (LCOE) for upcoming Hvalá River hydropower station is expected to be 49.70 USD/MWh (and then the transmission cost is not included). In comparison, in its most recent “levelized cost of energy analysis” 
(LCOE), financial advisory and asset management firm Lazard now estimates the LCOE for wind farms in good locations in the USA as low as 30 USD/MWh (as explained on the slide at top of the article).

Slide by IIT Comillas and MIT.

It is also interesting that according to a new study by the universities IIT Comillas in Madrid and MIT in Boston, wind farms in Iceland could generate electricity at LCOE close to or even below 35 USD/MWh. This low cost beats all planned geothermal projects in Iceland and is lower cost than most of the hydropower projects under consideration, making the development of wind farms in Iceland highly interesting.

However, it is still interesting to invest in new geothermal- and hydropower plants in Iceland, as they in general offer very reliable power production. Iceland is an isolated power market with no interconnectors to other countries, and thus the country has to rely on domestic access to spare capacity when the wind would not be blowing well enough.

For wind farms to be competitive in Iceland, they need to be cheap enough to make it an interesting option to increasing the output from the robust system of the Icelandic hydro reservoirs (such process of adding new turbines to conventional hydropower stations has already started in Iceland). By such methodology it will be possible to add substantial capacity in the power system without constructing expensive new hydropower reservoirs or geothermal stations. Also, low-cost Icelandic wind power could be harnessed to save water in the current reservoirs, and/or work as pumped hydroelectric storage. Due to such interesting possibilities, it is likely that wind farms will soon be constructed in Iceland even without any connection with foreign power markets. Of course an interconnector like IceLink would make Icelandic wind power even more interesting to harness.

One wind farm instead of four hydroelectric plants?

Earlier we mentioned the four fairly small hydroelectric projects (each below 10 MW) currently being prepared in Iceland. When comparing how much wind power would be needed to offer equal generation as the four hydropower stations, it seems quite clear that harnessing the Icelandic wind would be less costly and have less negative environmental impacts.

The total power capacity of the said four hydropower stations (Brúará, Svartá, Hverfisfljót and Hólsvirkjun) will/would amount to approximately 35 MW. Some of them would have the advantage of offering quite stable generation all year around, while a project like the 9.3 MW Hverfisfljót hydropower station would be harnessing glacial water where the flow in winter is very low. This means that the yearly capacity-factor of the Hverfisfljót station will probably be quite low; even under 50%.

Of course a wind farm would deliver more fluctuating production than the combined four hydropower stations, thus needing more backup power. And in the long run, hydropower is probably almost always the lowest cost option (due to very long life time), at least if the environmental damage by dams and head-race canals of the hydro projects are not taken into account.

It is not simple to estimate how much Icelandic wind power would be needed to generate a similar amount of electricity as the four hydropower stations. Probably a well-located Icelandic wind farm(s) with a capacity of approximately 70-80 MW could generate as much electricity annually as the four hydropower stations of totally 35 MW. The cost of the hydroelectric stations would most likely be close to USD 120 million. The cost of 70-80 MW wind farm in Iceland could be substantially lower; probably below USD 100 million.

When also having regard to the environmental impact, the option of wind power in Iceland becomes even more attractive. Besides the wind farm(s) of 70-80 MW being less costly than the four hydropower stations of 35 MW, the wind farm offers the chance of avoiding severe environmental damages to some of Iceland’s wild and free running rivers. For example in the case of the Hverfisfljót hydropower project, the waterfalls in the river-canyon would become close to dry substantial part of the year. However, the key issue for harnessing Icelandic wind power is the declining cost in wind energy technology. Which now is making wind power a real option in the Icelandic energy sector.

NB: Icelandic wind power development firm Hreyfiafl has same ownership as Askja Energy Partners. Hreyfiafl aims to have its first wind farm in Iceland in operation within five years from now. Icelanders can follow the process through the Twitter-account of Hreyfiafl.

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