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Hellisheiði Geothermal Plant to be Sold?

A firm called MJDB has made offer to buy the Hellisheiði geothermal plant in SW-Iceland.

hellisheidivirkjun_geothermal_power_plantThe Hellisheiði plant is the largest and most recent geothermal plant in Iceland, starting operation in 2003 (the next geothermal plant in Iceland will be the 45 MW station at Þeistareykir in NE-Iceland). Hellisheiði station has a generation capacity of 303 MW and 130 MW in thermal energy. It is owned and operated by the energy firm Orka náttúrunnar (ON), which is a subsidiary of Orkuveita Reykjavíkur (OR); sometimes referred to as Reykjavík Energy. OR / Reykjavík Energy is owned by the city of Reykjavík and couple of other municipalities in SW-Iceland.

The thermal production from the Hellisheiði geothermal station is mainly used by households and businesses in the capital area of Reykjavík. Most of the electricity generated by the plant is sold to the Norðurál aluminum smelter, owned by Century Aluminum.

Not much public information is available about the interested buyer; MJDB. According to Icelandic media, MJDB is mostly owned by Magnús B. Jóhannesson, who is director of a firm with the name of America Renewables, in Rolling Hills in California. No public information is available about the offering price for the geothermal plant.

iceland-grundartangi-century-nordural-elkem-china-bluestarInvestors and large industrial power consumers may see opportunity in owning the Hellisheiði geothermal plant. Two large industrial companies at Grundartangi in Southwestern Iceland, an aluminum smelter owned by the American firm Century Aluminum and a ferrosilicon plant owned by Elkem / China National Bluestar, have major power purchasing agreements running out in the coming years. Due to the current tight power supply situation in Iceland, it may become very valuable to own Iceland’s largest geothermal plant.

As the Hellisheiði Station has been under stress due to falling pressure in the geothermal area, with substantial investment needed to keep up full production, the interested buyers may also foresee a chance to get the plant for a fairly low price. However, having Icelandic politics in mind, it is very unlikely that the City of Reykjavík has any interest in selling the plant.

Lower Cost of Wind Power

wind-lcoe_2010-2016_lazard_askja-energy-partners-2017The competitiveness of new wind power has been increasing rapidly. According to Lazard, the levelized cost of energy (LCOE) from onshore wind power in USA, is approximately 50% lower now than it was four years ago, and the lowest cost onshore wind projects now have a LCOE that is 33% lower than it was four years ago. As can be seen on the graph at left.

The lowest cost wind projects in the USA now have a LCOE of 32 USD/MWh. The lowest cost projects are mainly wind farms in the US Mid-West, where wind conditions are good, resulting in a high average capacity factor. And even though the lowest cost was steady (did not decline) between 2015 and 2016, new very large wind farms can be expected to offer even lower cost than 32 USD/MWh. For example, Morocco did receive average bids from Enel and Siemens of 30 USD/MWh from its tender for totally 850 MW wind energy projects (with the lowest offer at around 25 USD/MWh).

kvika-poyry_electricity-generation-cost-lcoe-iceland-slide-13-with-more-recent-figures-2For the Icelandic energy sector, it is interesting to compare the figures in the reports from Lazard on LCOE, with a recent report by Kvika bank and Pöyry. In the report by Kvika/Pöyry the LCOE for up to 6 TWh of new onshore wind power in Iceland is set at a fixed price (LCOE) of approximately 51-52 EUR/MWh. This is quite close to the average LCOE for onshore wind in USA as assumed by Lazard in 2015 (shown with red line on the graph at left).

When having regard to Lazard’s most recent report, from December 2016, it becomes obvious that the LCOE for onshore wind has declined further (the blue line on the graph shows Lazard’s average for onshore wind in its report from 2016). What then becomes especially important, is that now new onshore wind projects in Iceland can be expected to be even more economical than new geothermal projects. For more information on this issue, we refer to our earlier post on the subject.

The most Surprising Energy Fact?

Here at the Icelandic Energy Portal, we are very proud of the fact that power consumption in Iceland is almost totally based on renewable power sources. And when we look at gross energy consumption, Iceland is also the green leader.

iceland-coal-consumption-2015_askja-energy-partners-2017Therefore, it may be a surprising fact that Iceland is fast increasing its coal consumption. In fact the country is becoming a major user of coal (per capita).

According to information from the International Energy Agency (IEA), coal consumption in Iceland (per capita) is now almost on pair with the coal consumption in the United Kingdom (UK). As can be seen on the graph at left.

In the coming years, it is expected that coal consumption (per capita) in Iceland will grow quite fast. And soon become close to the present world average coal consumption (per capita).

Iceland has no coal power station. The reason for the growing use of coal in Iceland, is the heavy industries located in the country. They import and use the coal in their industrial process.

united-silicon-plant_helguvik-icelandIceland has a major aluminum industry and the aluminum smelters need carbon materials for the production. Also, Iceland has a fast growing silicon industry, which also uses coal in their production. These are the reasons why Iceland is becoming such a substantial coal consumer.

The growing use of coal in Iceland in the coming years, is all related to new and upcoming silicon plants. These industrial plants are the main reason why Iceland is scoring much higher on the list of coal consuming countries, than people in general may assume.

Highly Competitive Wind Power

In their recent report on subsea electric cable between Iceland and Britain, Kvika bank and Pöyry predict what new power projects will be developed in Iceland to fulfill the electricity demand. In this article we will focus on why wind power is likely to be an important part of the power development in Iceland. Also we will explain how the information in the said report about cost of wind generation is outdated, and how wind power in Iceland is far more competitive than presented in the report.

According to the report by Kvika and Pöyry, levelized cost of energy (LCOE) for 6 TWh of new wind power generation in Iceland will on average be approximately 51-52 EUR/MWh (as can be seen on the top-slide below, which is from a presentation by Kvika/Pöyry). It is interesting to compare this cost figure with LCOE for wind generation as represented by the financial firm Lazard. Note that the cost figures presented by Lazard are in USD, and here we use the average exchange rate in 2016, where one USD equals 0.9 EUR.

  • In 2014, Lazard LCOE for onshore wind was 33-73 EUR/MWh (with 53 EUR/MWh as average).
  • In 2015, Lazard LCOE for onshore wind was 29-69 EUR/MWh (with 49 EUR/MWh as average).
  • In 2016, Lazard LCOE for onshore wind was 29-56 EUR/MWh (with 42.50 EUR/MWh as average).

kvika-poyry_electricity-generation-cost-lcoe-iceland-slide-13The report by Kvika/Pöyry, mentioned above, was officially published around mid-year 2016. However, the main work on the report took place in the latter half of 2015. This means that the most recent LCOE-figures for wind power available when the research for the report was ongoing, were LCOE-calculations for the year of 2014.  Thus, it is not surprising that the average LCOE for wind in the report by Kvika/Pöyry is close to Lazard’s result as presented in their report from September 2014 (LCOE version 8.0). The numbers are 51-52 EUR/MWh and 53 EUR/MWh, respectively.

We want to emphasise that Kvika/Pöyry did not use Lazard as a reference. Instead, the assumed LCOE in the report by Kvika/Pöyry is based on numbers from IRENA (IRENA Power Costs Report 2014, published in January 2015). However, what is especially important is how the figures for LCOE of wind power generation were presented in the work by Kvika/Pöyry. While the companies estimated the cost of each new geothermal- and hydro project to be developed, they simply used the average LCOE for wind (approximately 51-52 EUR/MWh) as a fixed LCOE for all new wind power projects in Iceland generating up to 6 TWh annually. Which is a very general and/or imprecise presentation of LCOE for wind.

kvika-poyry_electricity-generation-cost-lcoe-iceland-corrected-2017It would have been much clearer, for the comparison, to estimate not only average cost of wind, but also the lower cost and the higher cost of wind power, when developing 6 TWh of new wind generation. Having regard to the figures from Lazard, it can be expected that such a methodology would have resulted in a LCOE between 33-73 EUR/MWh. This is reflected by the red line on the graph at left (the average cost being the same as estimated by Kvika/Pöyry).

It should also be noted that due to good wind conditions in Iceland, the average cost of 6 TWh of new wind generation development might be even lower than the average given by Lazard. This could result in a less steep red line on the graph. Then, more than 2 TWh and possibly up to 3 TWh of new wind generation might be less costly than the high-cost geothermal projects planned in Iceland.

What now becomes quite clear, is how substantial low-cost wind power can be expected to be developed in Iceland, before constructing some of the new high-cost geothermal plants. It seems likely that at least up to 2 TWh of new wind power may be developed in Iceland much earlier than projected by Kvika/Pöyry. This conclusion was totally missing in the work of Kvika/Pöyry. As a result, Kvika/Pöyry under-estimated the possibilities of wind power in Iceland in the coming years.

kvika-poyry_electricity-generation-cost-lcoe-iceland-corrected_lazard-2017In addition, the cost figures used in the report by Kvika/Pöyry are already outdated. LCOE for onshore wind has gradually been decreasing. Therefore, wind power is likely to develop faster in Iceland than in the scenario(s) presented by Kvika/Pöyry. According to the most recent report by Lazard (version 10.0 from December 2016), LCOE for wind in the USA is now estimated to be between 28 and 56 EUR/MWh (with an average of 42 EUR/MWh).

These figures are strong arguments for assuming wind power in Iceland will be even more competitive than predicted a couple of years ago. This is explained by the additional red line on the last graph, which is based on the most recent figures from Lazard. The conclusion is that wind parks at sites in Iceland offering high capacity factor, will be more economical than many of the geothermal projects now being considered in Iceland.

Declining Interest in the Dreki Area

Ithaca Energy, along with its partners Icelandic Kolvetni/Eykon and Norwegian Petoro, have relinquished their hydrocarbon exploration- and production licence, which was issued by the Icelandic National Energy Authority (NEA) in 2013.

iceland-oil-dreki-area-two-first-licenses-2013The license is is one of three licenses that the NEA has issued for for exploration and production of hydrocarbons in the Dreki Area, on the continental shelf north of Iceland. The first license was handed in already by December 2014, so now there is only one active hydrocarbon license on the Icelandic continental shelf.

According to a press release by the NEA, the holders of the license now being relinquished “acquired more than 1,000 km of 2D seismic in the summer of 2016. Based on interpretation of the data the operator concluded that the results of the completed exploration work in the 1st sub-period of the licence did not merit the continuation of exploration into the 2nd sub-period.” Geological studies based on the new seismic data indicate that the probability of finding oil and/or gas in commercial quantities in the selected focus area within their licence does not sufficiently support committing to the next phase in the work program.

The interpretation by Ithaca Petroleum suggests that there is more fracturing in their area of interest than had been initially considered. The potential source rocks are also deeper in the crust than anticipated, diminishing the chances of oil formation. Thus, the license has been handed in.

iceland-oil-dreki-area-three-first-licenses-2013According to the NEA, the geological setting of this licence-area is different from the area of the only remaining licence, which was granted in 2014 and has Chinese CNOOC as operator. However, it is still unclear if CNOOC will make any drilling in the area. In 2015, 2D seismic data was acquired, and possible acquisition of 3D seismic for selected parts of the licence area is expected to take place 2018. If the results of 3D seismic acquisition calls for further exploration, an exploration well may be drilled in the time period 2022-2026.

So far, is is uncertain whether hydrocarbons can be found in the Dreki Area and if so if it will be in commercial quantities. In the case of potential oil production in the area, the NEA expects it could take ten years until first oil following a discovery.

200 MW Búrfell Wind Park rejected by NPA

So far no wind farm has been constructed in Iceland. However, due to good wind conditions in the country and declining cost in wind power technology and generation, it is probably only a matter of time until we will see the first wind farm operating in Iceland.

Unfortunately, many of the best locations for wind farms in Iceland may be excluded from development, due to protection of the wilderness of the Icelandic highlands. The Icelandic National Planning Agency (NPA) recently gave its opinion on the environmental impact assessment (EIA) of the proposed 200 MW Búrfell Wind Farm (Búrfellslundur). This is an ambitious wind project, which the Icelandic National Power Company (Landsvirkjun) has been preparing for years, in the highlands of Southern Iceland.

The NPA concluded that the Búrfellslundur Wind Farm would have significant impact on the landscape and wilderness in the area, as well as on tourism and recreation. Furthermore, the NPA recommends that the power company should find another more suitable location, or scaling down the project. Both solutions would require a new environmental impact assessment.

iceland-wind-turbines-burfellThis opinion of the NPA means that Landsvirkjun’s first real wind farm project will be delayed. The company has already constructed two wind mills in the Búrfell area by Þjórsá river (photo at left), as part of a research and development project on the feasibility of wind power in Iceland. According to a statement from Landsvirkjun’s manager of wind projects, in 2015, the plan was to have the 200 MW Búrfell Wind Farm in operation as early as autumn 2017. Now, this plan has to be revised.

The Búrfell Wind Farm, as proposed by Landsvirkjun, would consist of up to 67 turbines, each with a maximum height of 150 m (to the tip of the blade). Each turbine was expected to have a capacity of 3-3.5 MW. Total capacity would have been close to 200 MW, generating approx. 705 GWh annually.

The main reason why the NPA gave a negative opinion regarding the project, is the location of the proposed wind farm. In March 2016, the Icelandic Parliament (Allþingi) adopted a special National Planning Strategy (Landsskipulagsstefna 2015-2026), emphasizing the environmental importance of the vast wilderness areas normally referred to as the central highlands of Iceland. According to the NPA, a 200 MW wind farm in the Búrfell-area does not align with the National Planning Strategy, thus recommending the power company to find another location for its wind farm, or scaling the project down.

landsvirkjun-burfell-wind-farm-proposal-1The area that was proposed for the wind farm by Landsvirkjun, spans up to 40 km2 of lava and sand plain. It is noteworthy that in the vicinity of this area, there are already two wind turbines (as mentioned above), in addition to several nearby large hydropower stations, with the relevant dams, reservoirs, transmission lines etc. However, the NPA is of the opinion that dozens of large wind turbines in the area will have such a strong visual effects it does not align with the recent National Planning Strategy.

Having to find another location for its first wind farm will be a disappointment for Landsvirkjun, as the area at Búrfell offers very high capacity factor for harnessing wind energy. According to information from Landsvirkjun, the Búrfell Wind Farm could be expected to deliver an average capacity factor of close to 50%, which is substantially higher than most wind farms in the world enjoy.

landsvirkjun-burfell-wind-farm-proposal-illustrationThe negative opinion of the NPA towards the project is obviously not what Landsvirkjun was expecting. The power company has for several years put enormous work and effort in preparing the Búrfell Wind Farm, including foreign consulting to ensure high quality development of the environmental impact assessment. However, it was always clear that placing large wind turbines within the wilderness areas close to the volcanic Mt. Hekla, and adjacent to popular tourist routes, would be controversial.

The decision of the NPA regarding the Búrfell Wind Farm will delay wind power development by Landsvirkjun. On the positive side, Landsvirkjun and other power companies now have the possibility to take note of an opinion by the NPA on wind power projects, in finding locations that are suitable for such major constructions. As there are numerous locations in Iceland that offer very high capacity factor for wind turbines, there is good reason to be optimistic on prosperous development of wind energy in Iceland in the coming years and decades.