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Incentives for investing in Iceland

According to Icelandic law and regulations, businesses and industries are generally open to foreign investment. Because of Iceland’s strong legal relationship with Europe, the legal framework of the Icelandic energy industry is very similar to what applies in the European Union (EU). All individuals and other legal residents of Iceland or other member states of the European Economic Area (EEA),  European Union (EU), and European Free Trade Association (EFTA) are permitted to own enterprises which produce or distribute energy, and own energy exploitation rights with regards to water and geothermal energy.

The Icelandic Parliament has adopted a general act on incentives for initial investment in Iceland (law no. 99/2010). Governmental authorities are permitted to grant both general and regional incentives for new investments in Iceland up to a defined ceiling, in line with EU legislation. In addition to certain derogations from taxes and charges, incentives can also come in the form of direct cash grants, training aid and lease of land. Industrial sites are available around Iceland at competitive cost and local communities may offer certain extra incentives.

As a member of the EEA, Iceland has access to research funds of the EU for research and development programs and joint ventures undertaken with companies from at least one other EEA country (including all the countries within the EU). In addition, EU’s energy policy is a strong driver for the Icelandic energy sector. Close to 85% of Iceland’s consumption of primary energy is renewable energy, while renewable energy sources now account for only 12% of the final consumption of energy within the EU (this refers to energy used as electricity, heating, cooling, and transportation). The European Union has a target to increase the share of renewable energy sources in its gross final consumption of energy from 12% to 20% by 2020.

This policy by the EU not only calls for major investment in renewable energy production, but creates great possibilities for countries with unharnessed green energy sources available. With this in mind, it is interesting that only a portion of Iceland’s renewable hydro- and geothermal energy resources have been harnessed (approx. 20–25% of the total and probably around 40-50% when environmental concerns have been taken into account). Iceland may also offer interesting possibilities for large-scale wind power generation. In a nutshell, it is likely that EU’s energy policy will create substantial more interest in Iceland’s green energy industry and more demand for Iceland’s renewable energy sources.