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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.

Mar 14

IEEFA presents IceLink to be operational in 2027

In a new report, the Institute for Energy Economics and Financial Analysis (IEEFA) introduces IceLink HVDC electric cable between Iceland and Britain as becoming operational as soon as 2027. The IEEFA conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable energy resources.

One of the core findings in this new report, titled Electricity-Grid Transition in the UK: As Coal-Fired Generation Recedes, Renewables and Reliable Generation Can Fill the Gap, is that the UK grid is coping well with a coal phase-out, but requires greater investment in reliable generation to back up renewable power than the country is currently making. The report also explains how the UK is currently encouraging new investment in interconnectors; subsea cables linking its grid to neighbouring countries. The authors of the report claim such investment to be overdue, given present interconnection stands at 4GW, or 5% of existing generating capacity; just half the 10% benchmark proposed by the European Commission.

According to the report, interconnection can smooth variability in UK wind power by reaching into wider weather systems, and it can diversify generation. For example, the UK can receive electricity from hydropower stations in Norway and Iceland, where peak supply matches UK’s peak demand in winter. Also, inetrconnectors open access to various generation technologies elsewhere in continental Western Europe and to wind power in Ireland. In the UK, interconnection can lead to consumer savings of GBP 1 billion annually as a result of cheaper electricity imports, rather than having to build up all the necessary capacity within the UK.

The table at left is from the said report by IEEFA, explaining how potential electricity imports through interconnectors may offer UK an additional annual supply of 49 TWh by 2025 (if all projects proceed). This would be equivalent to more than a third of UK gas generation in 2016. One of the listed interconnector-projects is the IceLink cable, which would add close to 5 TWh. According to Natinal Grid, the IceLink is planned to be a 1,000 km long subsea cable with a capacity of 1,000 MM.

National Grid expects that the landing points for the cable will be in Northern Scotland and Southeastern Iceland. It will connect the electricity networks of Iceland and Great Britain, enabling electricity to flow in both directions and allowing electricity to be traded between the two countries.

As mentioned earlier, the IceLink-project is currently projected to be finished in 2027. According to National Grid it will make a positive contribution to European energy-policy objectives, helping Great Britain towards a minimum 10% interconnection target, facilitating renewables integration, reducing reliance on fossil fuels, and resulting in socio-economic welfare benefits. More information about IceLink can be seen on the website of Icelandic national power company Landsvirkjun.

Nov 26

Surprising claims about IceLink in the Financial Times

The Financial Times (FT) has published an interesting article, titled City financier urges UK support for £3.5bn Icelandic power cable – Plan to send geothermal electricity 1,000 miles under the sea to north-east England. The article is written by Andrew Ward, Energy Editor at Financial Times.

edmund-truell-icelink-hvdc-cableAccording to the article, the City financier Edmund Truell has “plans to open a £200m cable factory in the north-east of England if the government backs his project to build a £3.5bn undersea cable connecting the UK to geothermal power from the hot springs of Iceland.”  Actually, the article draws up a somewhat surprising and/or imprecise picture of the project, as explained here:

IceLink is indeed an interesting project. But is doubtful that Mr Truell’s proposal is the “most detailed” plan on the cable to emerge, as stated in FT. So far, the most detailed official document on the project yet, is a recent report by Kvika Bank and Pöyry (the report was published last summer but is in Icelandic only). Numerous of the comments made by Mr. Truell do not align well with this report.

According to Mr. Truell’s comments to the FT, “Iceland could supply 1.2 gigawatts of baseload power”. From this comment it seems that Mr. Truell has somewhat unclear understanding about how the project is seen by the governments of Iceland and UK.

The plan is not really sending “geothermal electricity” to UK. Nor will the cable serve as access to base-load power, but rather be access to a flexible hydro power source. Readers should note that Iceland’s power system is mostly based on hydropower. The idea regarding the cable is mainly to utilize large hydro reservoirs to offer access to highly flexible renewable power source.

Of course part of the power would be from geothermal sources (and also from onshore wind power which is likely to be constructed in Iceland). But the main power source for the cable would/will be the hydropower. In fact Iceland’s main problems in the power sector now relate to too fast construction of geothermal power plants. As was recently explained here on the Icelandic Energy Portal.

Iceland-Europe-HVDC-Interconnector-Landsvirkjun-Map_Askja-Energy-PartnersIt is possible that the cable would have a capacity of 1,2 GW. However, it is somewhat imprecise that the cable would offer a “supply of 1,2 gigawatts”, as Mr. Truell says to the FT. What really matters is how much electricity would be sent through the cable. According to plans introduced in Iceland, the annual amount is likely to be close to 5,000 GWh (5 TWh). This is the important power figure, rather than the capacity of the cable (which has not yet been decided and might be somewhat lower than the claimed 1,200 MW).

The length of the cable might indeed become 1,000 miles, as Mr. Truell is quoted to say in FT. But according to plans presented in Iceland it is more likely that the length would be closer to 750 miles. In the end the length will of course greatly depend on where the cable will/would come on land in Great Britain. No such decision has been taken yet.

According to reports presented in Iceland, the cost of the cable is not expected to be 3.5 billion GBP, as says in the FT article, but rather close to 2.4 billion GBP (central scenario). Total cost of the whole project would of course be a lot higher figure, due to the cost of new power plants and new transmission lines within Iceland. According to the Icelandic ministry of Industries and Innovation the total cost of the whole project would be 5-6 billion GBP (ISK 800 billion).

According to Mr. Truell, UK would get the electricity from Iceland at about 80 GBP/MWh. This figure is probably 25% to low (when having in mind the cost of the transmission from Iceland to UK). According to Pöyry, likely price would probably not be lower than close to 100 GBP/MWh.

urridafoss-vrirkjunIn the article in FT, it says that Iceland has offered “surplus electricity” to aluminium smelters, and Mr Truell says there is “still plenty left for export”. In reality the situation is a bit more complex. Currently, there is very little surplus-electricity in the Icelandic power system. It is expected that IceLink would need close to 1,500 MW of new capacity.  To be able to supply the subsea interconnector with electricity, Iceland would need to build numerous new and quite expensive power plants. Such plants would harness hydro, geothermal and wind. Also Iceland would need to strengthen its transmission system. So the cable would mean huge new investment in the Icelandic power system and the project is only partly based on “surplus” electricity.

An electric subsea HVDC cable between Iceland and the UK is indeed an interesting opportunity, such as to increase the amount of reliable and flexible renewable energy in UK’s power consumption. And it would be wise for the UK to make the project a priority. However, note that Iceland is not at all an endless source of green power. And the people of Iceland will hardly have much interest in such a project unless receiving strong economical gains from it. In addition the project would/will be a major environmental issue in Iceland, due to impacts from constructing new power plants and transmission lines. And to avoid misunderstanding about the project it is extremely important to have the facts right.

Nov 22

Facts or fiction about IceLink?

The IceLink subsea interconnector is a proposed power cable that would connect the power markets of Iceland and Great Britain (UK). On the website of Icelandic national power company Landsvirkjun, the rational for the IceLink cable is described. In this article we will fact-check this rationale:

Claim no.1:  IceLink lifts the isolation of the Icelandic electricity market and it assists Europe to achieve interconnection capacity targets amounting to 10% of installed capacity, and it opens up new markets for both Icelandic and UK suppliers.

  • Correct: The Icelandic power market is isolated. With IceLink, that would change.
  • Correct: IceLink would be part of Europe’s projects to achieve interconnection capacity targets.
  • Correct: IceLink do open up new markets for Icelandic and UK suppliers.

The EU Commission has set a target of 10% electricity interconnection by 2020. This means that all EU countries should construct electricity cables that allow at least 10% of the electricity produced by their power plants to be transported across its borders to its neighboring countries. However, IceLink will not be ready by 2020. Thus, it seems likely that the IceLink project would rather become a part of EU’s new energy policy and targets for 2030. In fact, this development or process has already started.

lv-hvdc-subsea-power-cables-mapThe EU Commission has already proposed to extend the interconnection target from 19% to 15% by 2030. The targets will be reached through the implementation of Projects of Common Interest. A new special expert group on electricity interconnection targets established by the EU Commission  had its first meeting in Brussels on 17th and 18th October 2016. It is yet to be seen what will become the new interconnection target for each of the EU member states, but so far the UK’s share is only less than 5%. In 2015 domestic installed capacity in GB was 91 GW, while total capacity of interconnectors between UK and other countries was 4 GW.

Regarding IceLink opening up new markets, it should be noted that the general power market in Iceland is very small compared to GB or UK. Thus, for suppliers in the UK the Icelandic power market is probably not very interesting. However, it might be positive for suppliers of wind energy in Scotland to have access to Iceland, as we will now explain:

Claim no.2:  Through bi-directional flows, IceLink could potentially reduce the cost of managing constraints between northern GB and the major consumption centres further south as energy is directed to Iceland at times of excess wind power generation in the north, stored in hydro reservoirs, and returned at times of lower wind output.

  • Correct: IceLink would open up the possibility to store for example Scottish wind power in Iceland’s reservoirs.
  • Correct: During time of low wind in Scotland, Icelandic hydropower stations could be utilized to bring  the wind power back to Scotland.

Claim no.3:  By providing flexible energy in near term spot markets and the balancing mechanism, IceLink can lower the cost of balancing, in particular in a system with a high penetration of intermittent generation.

  • Possibly: There is a possibility that IceLink would lower the cost of balancing electricity supply/demand. However, this of course depends on several factors, such as the British capacity market.

Claim no.4:  IceLink connects currently isolated Iceland´s renewable electricity system with the broader European system and offers a means to decrease Europe´s dependency on imported fossil fuels in a cost efficient way.

  • Correct, but not very relevant: IceLink is expected to offer the UK (and thus the European system) access to approx. 5,000 GWh annually. The current total annual electricity consumption in the UK is close to 335,000 GWh. Access to power generated in Iceland would thus only add a fraction to the current power supplied and consumed in the UK.

However, note that in 2015 the renewable power generation in the UK was close to 83 TW, so an addition of 5 TWh of renewable generation is substantial. This of course means that IceLink would in fact make UK (and Europe) a little bit less dependent on power from for example coal and natural gas (fossil fuels)

Claim no.5: IceLink increases diversity of power supply at both ends and enhances further deployment of renewables through coupling highly flexible hydro generation with that of intermittent wind and solar generation.

  • Correct: Iceland and UK utilize different sources for their power generation. While UK is mainly dependent on natural gas, coal and nuclear energy for its power generation, Iceland utilizes hydro and geothermal for close to all its generation. Moreover, most of the generation in Iceland comes from hydro. IceLink will thus indeed increase diversity of the power supply, and Iceland’s flexible hydro power is perfect to balance supply and demand while solar and wind power fluctuates.

Claim no.6: IceLink delivers reliable and flexible energy into the GB system at times of thin supply margins.

  • Correct: IceLink could indeed deliver reliable and flexible energy into the GB/UK system at times of thin supply margins. To better understand the importance of access to flexible hydropower, based on large reservoirs, we would like to refer to our earlier article; IceLink offers flexibility rather than base load power.

Claim no.7: IceLink allows energy to flow to Iceland at times of low hydro generation potential, e.g. due to unusually low precipitation levels.

  • Correct: Every few years, the Icelandic reservoirs fill up quite late due to low precipitation or cold weather (resulting in low glacial melting). This decreases the efficiency of the Icelandic hydropower stations and adds a risk to the system. With IceLink this risk would become less.

Claim no.8: Iceland generation is 100% renewable. The interconnector would provide an export opportunity for the surplus energy in the renewable hydro system that is not currently harnessed due to economical and operational limitations.

  • Correct: The closed Icelandic electricity system is constructed in the manner of securing stable supply to heavy industries (especially to aluminum smelters, who need stable power supply 24/7 all year around). In years with unusually much precipitation or heavy glacial melting (warm periods), excess amounts of water runs into the reservoirs, resulting in overflow. Turbines could be added to harness this excess, but such development is costly and not economic unless having access to a market where power prices are higher than in Iceland. IceLink would create access to such a market.

Claim no.9: The UK has committed itself to ambitious reduction of greenhouse gas emissions. IceLink contributes with its lower cost of low carbon energy compared to domestic marginal alternatives and its flexibility contributes to reducing the cost of enabling the integration of UK intermittent renewables.

  • Correct: Even though the Icelandic geothermal,- hydro- and wind power sources are fairly limited when having regard to the enormous size of the British power market, it would make economic sense for the UK to buy Icelandic renewable power instead of for example more expensive British offshore wind power. For more on this subject, we refer to our earlier article; UK’s electricity strike prices positive for IceLink. And we can add that even though strike prices for new offshore wind power seems to be coming down quite fast, electricity from Iceland could be substantially cheaper than new offshore wind farms off the British coast.

Claim no.10: IceLink involves the deployment of relatively mature low carbon technologies. As such, it allows GB to reduce reliance on particular domestic technologies, thereby reducing exposure to lower than expected cost reduction trajectories.

  • Correct: Currently, almost all power generation in Iceland comes from mature geothermal- and hydro technology. In the coming years and decades the Icelandic power sector is likely to also start utilizing wind power on land – which is also a mature technology and less problematic than offshore wind power.

The conclusion is that most of the claims set forward by Landsvirkjun, regarding IceLink, are not only correct but also very relevant. However, it is possible that the project could be delayed by Britain’s decision to leave the European Union.

Jul 17

Cost of IceLink power cable: 2.8 billion EUR

According to a new report by Kvika Bank and Pöyry, prepared for the Icelandic Ministry of industries and Innovation, a subsea power cable between Iceland and the United Kingdom (UK) will cost EUR 2.8 billion (USD 3.1 billion).

HVDC-Icelink_Cost_Feb-2016-3This central cost scenario includes the 1,200 km long cable with a capacity of 1,000 MW, and the converter stations at both ends of the cable. When adding the onshore transmission installations needed in Iceland for connecting the cable to the power system, the total cost (central scenario) will be close to EUR 3.5 billion (USD 3.9 billion).

The report and additional material on the IceLink-interconnector can be downloaded from the Ministry’s website (the report is in Icelandic only). Note that all cost figures quoted in this article refer to the report’s central export scenario (there are several other scenarios, including a smaller cable of 800 MW).

To realize the project, it will be necessary for the British government to make a commitment of a minimum strike price of approximately 96-99 GBP/MWh (close to 130 USD/MWh).

HVDC-Icelink_strike-prices_Feb-2016-2Such a strike price would be quite similar to the strike price for new nuclear energy in the UK (as explained on the website of the UK government). And it would be substantially lower than recently agreed strike prices for new offshore wind power.

Now it has to be seen if the UK government wishes to pay GBP 115-120 for megawatt-hour of offshore wind power generated in British waters, or pay GBP 96-99 GBP for Icelandic renewable energy.

It should be noted that most of Iceland’s generation is and will be produced by hydropower and geothermal power (wind power in Iceland will increase but still be fairly small share of the total generation). This offers IceLink the possibility of much more flexibility than new British offshore wind power does. We, here at Askja Energy Partners, will soon be explaining further how the Icelandic power for IceLink will be generated.  Stay tuned!

Sep 28

Positive Interest in IceLink

The British-Icelandic Chamber of Commerce recently organized a seminar titled Interconnecting Interests – Examining the Issues Surrounding a Potential Submarine Cable that Might Supply the UK and Europe with Icelandic Green Energy. The event was held at the Hilton Reykjavik Nordica, with speakers from the energy industry, government and the environmental lobby, discussing the opportunities and difficulties of electricity interconnection.

Deep knowledge and experience

This seminar was an excellent opportunity for people to hear the views of specialists with extensive knowledge and experience on the subject. From their presentations it seems quite clear that there is a strong willingness on both the British and Icelandic side to consider the project very seriously.

IceLink-Iceland-UK-British-Chamber-of-Commerce_Sept-2015

It was the Icelandic Minister of Finance, Mr. Bjarni Benediktsson, who opened the seminar. He was followed by presentations by Mr. Charles Hendry, former Minister of State for the UK Department of Energy and Climate Change (DECC), Mr. Douglas Parr, Chief Scientist and Policy Director of Greenpeace UK, Ms. Charlotte Ramsay, Head of Commercial Regulation and New Business at UK National Grid, and Mr. Edward M. Stern, President and CEO of Power Bridge. Mr. Hörður Arnarson, CEO of Icelandic power company Landsvirkjun, took part in the Panel after the presentations.

Probable electricity price in the range of 80-140 USD/MWh

In their presentations and discussions, speakers at the seminar discussed the matter in general terms rather than for example specifying detailed cost or revenue numbers. However, it can be argued that the power price for electricity sold from Iceland to the UK can be expected to be in the range of 80-140 USD/MWh.

Statnett-Norway-Denmark-Viking-ConnectorThese figures are the wholesale price for the electricity; the transmission cost is not included. At this stage it is not possible to give a precise number for the transmission cost via the subsea cable, but according to a recent report by McKinsey it could be close to 30-40 USD/MWh. This would mean that the total cost for the green electricity from Iceland could be between 120-180 USD/MWh.

Having in mind recent Contracts for Difference (CfD), where new British offshore wind power projects have received commitments for power price in the range of 180-240 USD/MWh, the Icelandic electricity could be very competitive. With regard to this, it is also very important to keep in mind that Icelandic hydro- and geothermal power is much more reliable power-sources than offshore wind in the UK.

Great opportunities for both Iceland and the UK

For the UK, an interconnector to Iceland would give access to substantial amounts of reliable green electricity. Icelandic hydropower reservoirs make the Icelandic electricity generation perfectly steerable, thus an excellent source for power at times of high demand in the UK.  For Iceland, a submarine cable to the UK could also have numerous positive effects. Besides increased security of supply by linking the Icelandic electricity transmission system with another electricity market, the IceLink could offer positive returns for the Icelandic electricity sector.

Iceland-UK-HVDC_Cable-Route-Bathymetry-nordic-seasPresently, most of Iceland’s electricity is sold at very low prices to heavy industries. New sale-contracts with several data centers and silicon plants will mean rising average power price. However, when having in mind that last year (2014) the average wholesale price from Landsvirkjun was just above 20 USD/MWh, it would obviously create very interesting opportunities for increased profitability selling electricity to the UK at 80-140 USD/MWh. The conclusion seems to be clear; IceLink has potentials to be an excellent win-win project for both Iceland and the United Kingdom.

Mar 2

UK affirms interest in IceLink interconnector

HVDC-Letter-UK-to-Iceland_2015-01-29_17-55-03_GBG_January-2015Iceland’s Minister of Industry, Ms. Ragnheiður Elín Árnadóttir, recently received a letter from Mr. Matthew Hancock, UK’s Minister of State at the Department of Energy and Climate Change (DECC).

In his letter, Mr. Hancock expresses his interest in an electric connector between Iceland and the United Kingdom (UK).  The letter is dated January 24th 2015 and reads as following:

Dear Ragnheiður Elín,

You met Michael Fallon in spring last year [2014] to discuss the possibility of an electricity interconnector between Iceland and the UK. I have taken over as Energy Minister and wanted to write following a meeting I had recently with one of the potential developers. I was very pleased to hear that a new Steering Committee is being set up to help you consider the impacts of such a major project. If it would be helpful, my officials stand ready to assist the work of this Committee, for example by providing information on the UK regulatory regime.

Studies we have commissioned indicate that an electricity interconnector between our two countries could provide economic benefits to us both and I am therefore interested in examining such a project further. The UK Government is considering options for sourcing low carbon, secure and affordable electricity post-2020 and an interconnector between our two countries might be one of the options we could examine in this process.

Matthew-Hancock_UK-Minister-Energy-Climate-Business-InnovationI would welcome your own views on the benefits of such a project and would of course, be very happy to discuss this with you if you have the opportunity to come to London at any time. I look forward to hearing your thoughts on the next steps.

Then the letter ends with Mr. Hancock’s signature [“Matt”]. It will be interesting to see how this possible project will develop in the next months.

Nov 4

IceLink offers high increase in social and economic welfare

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

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

IceLink would result in highly increased social and economic welfare

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

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

ENTSO-E presents four different scenarios

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

Top-down, open and constantly improving process

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

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

Sep 1

IceLink offers flexibility rather than base-load power

In a recent publication, ”Getting Interconnected – How can interconnectors compete to help lower bills and cut carbon?”, the British think tank Policy Exchange encourages the government of the United Kingdom (UK) to use subsidies to open up new electricity capacity market to power stations outside of UK. The electricity would then supply the British market via subsea high voltage direct current (HVDC) power cables, often referred to as interconnectors.

Policy Exchange sees Icelandic hydro- and geothermal power as base-load power source for UK

On its website, Policy Exchange is described as “an independent, non-partisan educational charity seeking free market and localist solutions to public policy questions”. Furthermore, Policy Exchange is said to be “an educational charity with the mission to develop and promote new policy ideas, which deliver better public services, a stronger society and a more dynamic economy”. Its research is supposed to be “evidence-based and strictly empirical”.

HVDC-Interconnectors-Report-Policy-Exchange-UK-2014-1

Unfortunately, it seems that the think tank has somewhat misunderstood the facts, advantages and possibilities of the Icelandic energy resources. In its report mentioned above, Policy Exchange claims that an “interconnector to Iceland would […] be an import-only connection, which would bring base-load Icelandic hydro and geothermal power to the GB market.” According to the report, such an “interconnector, like that to Iceland, which is expected to provide zero-carbon base-load power supply in one direction (i.e. from Iceland to the UK) is most directly in competition with other base-load power sources, such as nuclear power.”

This assumption by Policy Exchange is somewhat inaccurate. It ignores the fact that Iceland’s main source of electricity is hydropower, based on large reservoirs. Although it is true that Iceland’s geothermal- and hydropower resources can be good options for base-load energy, hydropower offers much more valuable characteristics. Here we will explain why an interconnector between UK and Iceland would have considerable better economical (and political) foundations if it is utilized as access to highly flexible renewable power source, rather than base-load energy.

The think tank is not realizing the main advantages of an interconnector to Iceland

The best opportunity offered by a HVDC cable connecting Iceland and UK, is to harness the Icelandic hydropower resources (and reservoirs) for high demand peak load power in the UK – and as energy storage during low power demand in the UK. Icelandic reservoirs are like natural energy batteries, where Icelandic electricity firms can “store” the energy to the exact period when it is most needed. This makes it possible to manage the electricity generation very accurately – and thereby increase or decrease the production with a very short notice in line with changes in the electricity demand. Therefore, hydropower with large reservoirs are excellent system stabilizers. This flexibility or steerability of hydropower also offers possibilities for maximizing the profitability of the electricity production. The result is that utilizing the flexibility of Iceland’s hydro power would be a great benefit to both the UK and Iceland.

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Steerable hydropower is tremendously important and valuable. The reliable and controllable renewable power source of hydropower from reservoirs is by far the best choice to meet increased (or decreased) electricity demand and balancing the system. This positive feature of hydropower is reflected by the well known concept of pumped hydropower storage, where it makes economical sense to spend electricity on pumping water up to reservoirs. In a nutshell, hydropower plants with large reservoirs can serve as energy storage when electricity demand is low, and when the demand rises it only takes a few moments for the hydropower plant to increase production. This is obviously a very positive feature, such as at peak load times (normally occurring during the day rather than night). It also means that the operator of a hydropower plant can maximize the profitability of the plant by utilizing the flexibility of the plant – by running the plant at full capacity when electricity prices are highest. Therefore, hydropower can be substantially more profitable than other electricity sources.

Having this feature of hydropower in mind, it is quite surprising to see Policy Exchange suggesting to market Icelandic hydropower as base-load energy source. By doing so, Policy Exchange is ignoring the fact that the Icelandic hydropower could create much more value if the business model would focus on peak demand rather than base-load power supply. And this would not only benefit Iceland, but also the UK.

Icelandic hydropower would be an important system stabilizer for the the UK

In its report, Policy Exchange recommended that the interconnector between Iceland and UK should be one way export of electricity from Iceland and be directly in competition with other base-load power sources, such as nuclear power. This suggestion ignores how the flexibility of hydropower stations with large reservoirs (like in Iceland) makes hydropower quite unique and very different from nuclear power (only gas powered generators have the possibility to respond as quickly to changing system conditions as hydroelectric generators). In fact, nuclear power plants must be run at close to full output all of the time – and they actually need capacity liked pumped hydro storage for excess power at times of low demand. Therefore, it is quite obvious that the main advantage for the UK, by the construction of an interconnector between UK and Iceland, is the access to peak load renewable power from Iceland, rather than base-load.

Iceland-Europe-submarine-hvdc-cable_routesThe interconnector between Iceland and the UK should also be in the role of bringing electricity from the UK to Iceland at periods of low demand in the UK. This would maximize the flexibility and steerability of the Icelandic reservoirs, and at the same time increase the opportunities for the UK to stabilize the British electric system. In this case, the Icelandic reservoirs would act as valuable energy storage for the British electricity market. This is especially important as more and more wind power is harnessed in the UK. More wind power will mean increased fluctuation in the electricity system and call for increased access to reliable flexible power source – like Icelandic hydropower.

It will not only be important to export electricity from Iceland to UK. Exporting electricity from UK to Iceland will also benefit both nations. During periods of low power demand in the UK (such as at nighttime), electricity generated by power plants in the UK could be used to fulfill electricity demand in Iceland. At the same time, water flowing from the Icelandic highlands and mountainous areas would be saved in the Icelandic reservoirs. When electricity demand in UK rises in the morning and during the day, the water in the Icelandic reservoirs would be utilized for generating electricity at high capacity to meet the increased demand. The result is that an interconnector between UK and Iceland offers access to valuable and renewable energy storage, ready for peak load demand – at relatively low price. It is even possible that electricity from the UK might be used for pumping water up to the Icelandic reservoirs from downriver during the periods of low electricity demand in the UK – this pumped water would then be available as a increased power source when demand in the UK rises during the day.

Win-win situation

Although Policy Exchange is somewhat inaccurate when it sees Icelandic electricity as basload power, the think tank is correct in its conclusions, when it states that “interconnectors appear to be an attractive option for the British electricity sector”. Policy Exchange is also correct when saying that “British consumers would benefit from importing overseas-generated power which is cheaper than domestic alternatives”. Electricity generated by hydropower (and geothermal power) in Iceland would be less costly for consumers in UK than electricity from for example new wind parks or new nuclear plants. And it is true that an interconnector between UK and Iceland would be “one way of achieving the oft-sought goal in energy policy of diversification of supply” – as Policy Exchange mentions in its report . And such a project would indeed provide both technical and geographic diversification, as the report says.

UK-Policy-Exchange-_Interconnectors-HVDC-Report-Cover-2014In its report, Policy Exchange expresses, that the UK wants more electricity from overseas and that there is no good reason to stand in the way of new interconnectors (“we want their electricity; they want our money”) . This argument is e.g. based on the fact that Icelandic renewable electricity would be available to the Brits for less money than the electricity would cost if it was generated at home (in UK). In addition, an Interconnector between UK and Iceland would offer British consumers access to much more reliable energy sources than for example British wind energy can ever be.

Economically and politically it is highly unlikely that the project will ever be realized if the business model is a one-way base-load interconnector. To create a win-win situation for both UK and Iceland the electricity must be able to flow in both directions, where the cable would have the purpose to meet peak load demand and also offer the possibility to utilize Iceland’s flexible hydrpower system as energy storage. Finally, it is worth mentioning that according to the latest news from ABB the technology for an interconnector between Iceland and UK is available.

Apr 30

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”.

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