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Posts from the ‘EU Energy Policy’ Category

HVDC Hansa PowerBridge Cooperation Agreement

A new 700 MW HVDC (high voltage direct current) subsea electric cable is planned to be constructed between Sweden and Germany. The cable is refereed to as the Hansa PowerBridge. The project has been on preparation level for several years, and now it has been decided that the 300 km long interconnector will be commissioned by 2025/26.

hansa-power-bridge-map-2In last January (2017) the Swedish and German transmission system operators (TSO’s) Svenska kraftnät and 50Hertz  agreed on further details regarding the planning and construction of the Hansa PowerBridge, when a cooperation agreement was signed in Berlin. The new agreement includes time-schedule and provisions on the technical design, project organisation, ownership structures, cost allocation, tendering, construction and commissioning of the planned interconnector.

The approximately 300 km long Hansa PowerBridge will be submarine at 200 km. The German grid connection point for the cable is planned in Güstrow, Mecklenburg-Western Pomerania. On Swedens side the cable will connect to the Swedish transmission network at Hurva in Skåne. It is expected that German consumers will benefit greatly from being connected to Scandinavian hydropower capacities. Also the cable makes it possible for Sweden to import electricity generated by strong winds in the north-eastern part of Germany .

germany-new-planned-electricity-interconnectors-mapThe Hansa PowerBridge is seen as one more important step towards a common European electricity market, as it will improve the integration of renewable energy sources in the transmission system. As such it enables an even more efficient use of the renewable generation capacities across the border. This should contribute to the climate-friendly and cost-efficient generation of electricity.

The next steps in the project will be preparations for the permitting procedure (to be concluded by end of 2021), then having call for tenders for the installations (in 2022), and finally the interconnector being operational in 2025/2026. The total investment costs is estimated close to 600 million EUR, and will be evenly distributed among the two TSOs.

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.

Viking Link ready in 2022?

We already have subsea HVDC power cables being constructed between Norway and the United Kingdom (UK) and between Norway and Germany. These cables will be 700 km and 570 km, respectively. And now one more major connector if this kind is planned in the area, between UK and Denmark. That cable is referred to as Viking Link, will be 650 km long.

HVDC-Viking-Link-Uk-Denmark-MapViking Link is expected to have a capacity of up to 1,400 MW. Recently, the Danish Transmission System Operator Energinet and the UK National Grid decided to launch a tendering process for the examination of the seabed between the two countries. Both companies have expressed their strong believe in the positive effects of such a power connection, which will open up possibilities to harness more wind energy at competitive prices. The successful tenderer will carry out geophysical surveys and sampling to pinpoint areas of environmental and archaeological interest and help identify the best route for the marine cables and suitable landing locations.

For the UK, the main advantage of Viking Link would be in the access to more power, at the same time as that power will mostly be generated by harnessing renewable sources. For Denmark, the cable will open access to much larger market for Danish wind power. The plan is to take the final investment decision no later than in 2018. The cable could then become operational about four years later or 2022.

Does Apple Not Want Truly Green Data Centers?

Denmark-Electricity-Sector-Mostly-Coal_March-2015Is there such a color as coal-green? This question comes in mind when reading about Apple’s new data center in Denmark. Apple recently announced it will construct two new large data centers in Europe, both to be “run on 100 percent renewable energy”. According to a press release from Apple, “the new facilities will run entirely on clean, renewable energy sources from day one”. These are interesting statements, having in mind that both data centers will be connected to a grid which mostly delivers electricity from fossil fueled power production. Here we will consider if a data centre located in Denmark can truly be said to run all the time on 100 percent renewable energy.

Denmark’s Own Power Mix is Dominated by Coal

Denmark-Coal-Plant-StudstrupværketDenmark generates substantial amount of green energy. According to the most recent information from the European Union (EU), the renewable’s share of Denmark’s gross electricity consumption in 2012 was close to 40 percent. More recent information from the Danish transmission system operator (TSO), Energinet, tells us that the share of renewable energy in 2013 was somewhat higher than in 2012, but still less than half of the total electricity consumption (47.5 percent).

Denmark’s electricity is mainly generated by coal. The Danish government has plans to decrease the importance of coal, but coal still constitutes for more than half of the fuel consumption of Danish power stations. Most of Denmark’s renewable energy comes from wind, which is of course somewhat a fluctuating and unreliable energy source. In 2013 the share of wind in the electricity consumption was almost one-third (32.7 percent).

Connections to Other Countries are Based on Economics Rather than Green Energy

Denmark’s electricity grid is not an island, but connected with its neighbouring countries by several large cables. Therefore, Denmark sometimes exports electricity and sometimes imports electricity. Weather it is exporting or importing electricity depends on the price difference within the larger market area. Normally, Denmark exports electricity during night (because of its large wind power capacity) and imports during the day (when demand goes up and Norwegian and Swedish hydropower stations are utilizing the water in the reservoirs). However, imports and exports of electricity of course always depends very much on how the wind blows in Denmark.

Denmark Imports Power from Coal, Hydro, and Nuclear Power Stations

When Denmark imports electricity, it comes via cables from Germany, Norway, and/or Sweden. The imported electricity can, for example, be generated by fossil fuels (major coal power in Germany), by nuclear power (nuclear stations in Sweden and Germany), or by hydropower (especially from Norway, but hydropower is also a major source in Swedish power generation).

Denmark-Electricity-Imports-and-Exports-2013

Lately, most of the imported energy has been from Germany (as shown on the diagram at left, which is from the Danish TSO). Coal is the most important source of electricity generation in Germany, accounting for close to half of the generation. In Germany, only ¼ of the generation comes from renewable sources on average. Natural gas and nuclear energy account to close to ¼ of the generation. Thus, electricity imported to Denmark from Germany normally increases the share of fossil fuels and nuclear power in the Danish electricity consumption.

Data Centers in Denmark are Dependent on Fossil Fuels and Nuclear Power

It is highly unlikely that a data centre located in Denmark, connected to the grid.  will be run entirely on clean, renewable energy sources only. For the end-user in Denmark it is impossible to know how the electricity he consumes was generated. Even more important is that Denmark’s electricity mix is dominated by coal power stations.

Denmark-Electricity-Consumption-Mix_1990-2013-and-forecastIn fact every date centre in Denmark can be expected to mostly be run on coal power. Of course companies, including those running data centers, can try to find a generating company that only produces electricity from renewable sources and buy its electricity from that company. But the electricity put into the transmission grid can not be isolated – so to speak – from other electricity on the grid. Therefore, it is of course impossible for the buyer to promise that he is only using or consuming green energy.

It is possible to buy what is called Green Certificates, which are a tradable commodity proving that certain amount of electricity is generated using renewable energy sources only. However, this does not mean that the electricity being consumed by the buyer of the certificate is from renewable sources – it might as well be from a coal power station or from a nuclear plant. The result is that every data center in Denmark, connected to the grid, will in fact be using electricity from all kinds of power plants, including for example coal power stations.

Iceland is the Best Option for Green Data Centers

The only way for a major data center being truly able to run on 100 percent renewable energy is to take power from a grid that only delivers electricity from renewable sources. In Europe probably no grid comes as close to this as in Iceland. Iceland produces close to 99.9 percent of its electricity by utilizing hydro- and geothermal power (and some wind power).

Norway is in a similar situation, producing almost all the power from hydro resources. But Norway also imports power from other countries, thus distributing coal power and nuclear power to end-users. So Norway is not quite as green option as Iceland is.

Regarding Denmark, it is obviously not a very green option at all. The environmental accounting may tell us that a company there has a very low net carbon footprint, but in reality the electricity is not only from renewable sources at all. If Apple or any other firm in Denmark wants to run 100 percent on renewable energy it would in fact either have to disconnect from the grid – or set up its operation in Iceland.

NordLink: 1,400 MW Interconnector Between Norway and Germany

Earlier this month (February 2015) final investment decision for the NordLink high voltage direct current (HVDC) interconnector was made by partners Statnett, TenneT and KfW.

HVDC-Nordlink-MapThis will be the first direct connection between the German and Norwegian electricity markets and is yet another indicator how positive interconnectors are for the Norwegian electricity market. This development is also likely to strengthen interest in a cable project connecting Iceland and Europe (sometimes referred to as IceLink). Thus, we at Askja Energy will closely be following the construction of the NordLink.

NordLink is a turning point in the development of subsea electric cables. The longest cable of this kind today is the 580 km long NorNed between Norway and the Netherlands, which has been in operation since 2008. The length of NordLink will be close to 600 km, of which 516 km will be a subsea cable. Furthermore, the capacity of NordLink will be 1,400 MW and the voltage will be 500 kV, while NorNed is only 700 MW (and 450 kV).

The NordLink will be realized by the Norwegian Statnett and Nordseekabel, each with 50 percent ownership in the project. The Dutch TSO TenneT (which also operates transmission system in Germany) and the German promotional bank KfW each have shares of 50 percent in Nordseekabel.  The tender process has been finalized, where Nexans and ABB have been awarded contracts for the HVDC cable itself and ABB has been awarded the contract for the converter stations (on each end of the cable in Germany and Norway). Lead insurer for the project will be Codan.

NordLink signingThe NordLink comprises a total investment volume of approximately EUR 1.5 – 2 billion EUR (equivalent to 1,7-2,3 billion USD). The interconnector is scheduled for commissioning and trial operation in the last quarter of 2019, and after the trial period the interconnector will go into commercial operations in 2020.

The most important aspect of NordLink’s business model is to utilizing the flexibility of Norway’s hydropower system as storage for German wind power. This will increase the utilization of the German wind power capacity and also make it possible to maximize profits of the Norwegian hydropower industry, creating a win-sin situation. The result will also be increased proportion of renewable electricity and increased security of supply. Without doubt, an interconnector between Iceland and Europe would offer similar advantages.

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.

EIA: Iceland Tops Europe’s No-Carbon List

Europe-No-Carbon-Electricity-Generation-EIA-2012-1Countries of Europe are increasing electricity generation using no-carbon sources. According to the US Energy Information Administration, Iceland is at the top of the list of no-carbon electricity generation countries in Europe. Electricity generation in Iceland is 100% from no-carbon hydro- and geothermal power sources, and the country is completely self-sufficient in electricity supply.

Only France, Iceland, Norway, Sweden, and Switzerland generate more than 90% of their net electricity from no-carbon sources (data from 2012). Only in Iceland and Norway this number of no-carbon electricity sources was 100%.

Eight other countries had no-carbon electricity accounting for at least 50% of their generation. Countries in Europe generate most of their no-carbon electricity from nuclear and hydroelectric sources, along with a smaller portfolio of other renewables.  No-carbon sources generate power while releasing virtually no carbon dioxide emissions. This includes geothermal, hydroelectric, nuclear, solar (both utility scale and distributed solar), tidal, and wind generation (although biomass power plants emit carbon dioxide during operation, the full life cycle of biomass fuels is often considered to be carbon neutral for the purposes of satisfying these countries’ goals).

Europe-No-Carbon-Electricity-Generation-EIA-2012-2 Penetration rates of no-carbon generation have increased from 50% to 56% in recent years in Europe, as European Union countries (EU) work toward renewable energy and greenhouse gas emissions targets. The share of no-carbon generation in European countries is expected to continue to increase, as the EU’s 2020 Climate and Energy Package targets both a decrease in greenhouse gas emissions and an increase in the share of energy consumption generated from renewable sources.

Main source: US Energy Information Administration.

Iceland and Greenland as Strategic Energy Storage for Peak Load Demand

In 2004, the engineering giant ABB marked the 50th anniversary of its pioneering of high voltage direct current technology (HVDC). In the decade that has passed since then, we have experienced numerous new world records regarding the HVDC technology. An electric cable between Europe and America is probably becoming a question of when, not if.

Strong HVDC Technology Advancement

The first submarine HVDC cable was commissioned in 1954. The cable connected the island of Gotland (in the Baltic Sea) with the mainland of Sweden. This was a 100 kV subsea cable with a capacity of 20 MW and the length was 90 km.

HVDC-Europe-Subsea-2014As earlier mentioned, this first HVDC subsea cable was constructed by ABB in 1954. Fifty years later, in 2004, ABB proudly looked back to its HVDC achievements. Which included the highest voltage cable in the world (600 kV cable in Brazil), the longest HVDC line and highest converter power rate (in China), and the world’s longest underground cable (Murray Link in Australia).

Another of ABB’s achievements in its 50 year history of HVDC technology, was the world’s longest submarine electric cable; the 260 km long Baltic Cable between Sweden and Germany, which began operation in 1994. Now, a decade later, ABB still holds the world record of the longest submarine HVDC cable. It was in 2006 that construction started of the 580 km Norned cable between Norway and Netherlands. ABB supplied the main part of the NorNed cable as well as the converter stations at both ends. With 450 kV DC, the NorNed now has the highest voltage rating of all submarine HVDC cables (on pair with two other cables in the Baltic).

The next world-record-length for a submarine HVDC cable will probably be a cable that will connect Norway and the UK. The cable length will be close to or a little more than 700 km. The planned capacity is 1,400 MW (double the capacity of NorNed) and the voltage 500 kV. Yet, this new cable between Norway and UK will not have the highest voltage of all submarine HVDC cables. Currently, Prysmian and Siemens are constructing the first HVDC subsea cable link in the world with a voltage of 600 kV. This project is the the 420 km UK Western Link between Scotland and Wales.

This high voltage of 600 kV helps increase line capacity by 20% and reduces transmission losses by nearly a third. The Western Link will also set a new world record for capacity of subsea HVDC cables, as it will have a transmission capacity of 2,200 MW. It is Siemens that will be delivering the HVDC converter stations, and Prysmian, which will deliver the cable.

Electric Cable(s) Between Europe and America

The longest electric HVDC cables on land today are 2,000-2,500 km long. (cables in Brazil and China). It is unclear when submarine electric cables will be as long. But it is evident that we will soon experience subsea cables that will be more than 700 km long and operate at more than 600 kV. Predicting further into the future, it seems realistic that the development of the subsea cable technology will reflect what has been happening on land.

HVDC-Europe-America_Hydro-Power_Askja-Energy-Partners-Map-2It is probably just a matter of time until the first electrical cable will be laid across the Atlantic. Cables from Greenland to North America and/ or Europe would be 2,000-3,500 km long. A submarine HVDC cable between Greenland and Iceland could be as short as 800 km. This is a very interesting fact, as Greenland has enormous hydropower resources, that could be utilized as a a peak power source for areas in Europe (where electricity prices are among the highest in the world).

The idea of an electric subsea cable between Europe and America may sound like a fantasy. And it is quite possible that the combined length and depth will stand in the way for such a project. However, as 700 km subsea HVDC cables at 600 kV are becoming a reality, and the deepest subsea electric cables today are already working well at a depth in the range of 1500-1700 m, it seems that cables between Europe and Iceland, Iceland and Greenland, and Greenland and Canada (North America) are all becoming technically possible within a decade or few decades from now.

Renewable-Energy-Integration_Practical-Management-of-Variability-Uncertainty-and-Flexibility-in-Power-Grids_2014Therefore, it is no surprise that it is becoming increasingly more common to see for example articles in international academic journals focusing on the potential of electric cables between Europe and North America. However, in the literature the focus is surprisingly often primarily on the potential of harnessing the wind power (in both Greenland and Iceland). The best opportunity offered by HVDC cables connecting Greenland and/ or Iceland with Canada and/ or Europe, is definitely to utilize the great hydropower resources (and reservoirs) for high demand peak load power. The hydropower is not only a less costly process to generate electricity than wind power; hydropower is also much more reliable and controllable power source than wind. Therefore, the hydropwer has great possibilities for maximizing the profitability of energy production, by producing and selling electricity only at day time when electricity prices are highest and receive more water in the reservoirs at night time.

The total hydropower resources in Greenland are believed to be equivalent to 800 TWh annually. By harnessing only approximately 1-2% of that would be enough supply more than two HVDC cables. Iceland already has a large hydropower sector, based on large reservoirs and modern generating stations, where it is possible to add capacity (turbines) at very low-cost. Thus, Greenland and Iceland could develop a perfect strategic partnership in supplying Europe with peak load energy.

Icelandic Hydropower Offers Great Possibilities for the UK

FT-Electricity-2014-1The Financial Times (FT) recently published an interesting story about how electricity suppliers in the UK “struggle to quench business thirst for power”. This article in the FT is an excellent reminder about how important and valuable it is to have access to reliable on-demand power whenever necessary.

Here, we will explain how the flexibility of the Icelandic water reservoirs can be utilized as a source for peak load electricity demand in Europe, and at the same time substantially increase revenues and profits in the Icelandic energy sector. Such a value creation could be a great business opportunity for the steerable Icelandic hydropower.

Access to flexible electricity is extremely important

In most European countries demand for electricity can fluctuate significantly between day and night. The electricity consumption within the day can also fluctuate – sometimes with a very short notice.

As an example, electricity consumption can change suddenly at commercial brakes within popular television broadcasting shows – when tens of thousands of families suddenly put the kettle on and/or the microwave. Such fluctuations in electricity demand are often unforeseen. That’s why most European nations need to have good access to energy sources that offer highly flexible and controllable production.

But not all energy sources offer good possibilities to increase or decrease electricity-production rapidly. It is actually only natural gas-fired stations and hydropower stations with reservoirs that are flexible enough to fulfill the need of stability in the electricity system.

Hydropower and natural gas are the best options for stabilizing the system

Yes – It is a well known fact that when demand for electricity changes significantly and abruptly, it is natural gas fried power plants and hydroelectric power plants (with reservoirs) that have the best capabilities to meet such changes. This both applies to the need of increased or decreased production.

UK-Electricity-typical-weekly-demand_University-of-Glasgow-presentation-2012Response time of coal power plants is much slower. And nuclear power stations offer base load power and must be run at close to full output all of the time (therefore storage capacity is needed for excess power generated by nuclear plants at times of low demand).

Wind power and solar power plants are almost useless in the regard of flexibility. Because they are subject to the present natural forces (the wind and the sun). In fact, increased use of wind and solar energy in Europe has made it even more difficult to control the balance in the electricity system. Hence, the need for flexible and controllable power production has become ever greater as the use of wind and solar energy increases.

Steerable renewable electricity is tremendously valuable

Because of the flexibility of hydropower- and natural gas plants – these are the best energy sources to take advantage of price volatility on the power market. The water reservoirs make it possible to manage the production very accurately – and thereby increase or decrease the electricity production with very short notice in line with changes in the electricity demand. Thus, hydropower plants have excellent possibilities to maximize their revenues and profits with regard to price fluctuations in the electricity market.

This feature makes hydropower quite unique and makes it the energy source that can deliver the highest return on investment. Moreover, hydropower has the advantage over natural gas being a renewable source of energy. Thus, hydropower can be described as the jewel in the electricity sector – at least if the hydropower station has access to a traditional power market where the demand for electricity fluctuates substantially.

Pumped storage is an excellent example of the great value of hydropower

To have a better access to flexible electricity, there are examples of water being pumped up to reservoirs (pumped storage). This same water is utilized for electricity production later, when demand is high. Pumped storage also serves as important factor in load balancing. This kind of electricity production is e.g. well known in Austria and Switzerland, as well as in the United Kingdom.

Obviously substantial amount of energy is needed for the pumping. But as the pumping primarily takes place during night (when electricity demand is minimum and electricity prices are low) and the water from the upper reservoir is used for electricity production when the demand is high (and prices also), this is a viable option.

Countries with extensive hydro resources are in a key position as system stabilizers

Pumped storage is a good example of how hydropower with water reservoirs offers the best opportunity to be in the role of flexible electricity supply. However, possibilities for pumped storage are limited. Thus, large electricity markets can gain tremendously from being connected to even faraway hydropower sources – like if the UK had a connector to Iceland.

LV-Autumn-Meeting-2013-slide-11This is also an interesting option for Iceland. Areas that enjoy substantial opportunities for developing hydropower stations beyond their local market need can take advantage of sudden price changes on fluctuating electricity markets. It is precisely such given flexibility with water reservoirs, that has greatly increased the value of the Norwegian hydropower. The worlds’ longest subsea electric cable today is the NorNed cable between Norway and the Netherlands. And now a cable between Norway and the UK is being planned and also another cable between Norway and continental Europe.

All this is an indicative of how profitable it is for countries with steerable hydropower to have access to electricity markets where electricity demand fluctuates substantially. In this context electricity from hydropower can be described as the most prestigious product in the energy market.

Iceland has one of the worlds’ most flexible power system

Overseas Iceland is quite well known for its geothermal energy. However, geothermal is the source for only 25 per cent of Iceland’s electricity production. It is hydropower that is Iceland’s most important energy source. The country’s mountainous areas and high precipitation create perfect conditions for utilizing hydropower. Large and small reservoirs are like natural energy batteries, where Icelandic electricity firms can “store” the energy to the exact period it is most needed and sold at the highest prices.

LV-Autumn-Meeting-2013-slide-26Iceland is the largest hydroelectric producer in the world per capita (Norway comes in second place). But Iceland has not yet taken advantage of the flexibility of its hydropower. In most other European countries the reservoirs would normally be in the role of highly profitable flexible energy sources. In Iceland, however, the main role of the reservoirs has been to serve as energy reserves available for aluminum smelters, which require access to cheap and highly reliable energy source.

Moreover, the isolated and closed Icelandic electricity market sometimes results in water flowing from full reservoirs by spillway and into sea without creating any value. Such waste of hydropower is like throwing away the most luxurious goods in the energy market.

If Iceland had access to a more normal electricity market (the aluminum industry uses about 75% of all electricity generated in Iceland) it could present Iceland with an unparalleled business opportunity. At the same time, the overseas market linked with Iceland by an interconnector would have substantially increased access to highly reliable flexible renewable energy source. This can truly been described as a win-win situation.

Interconnector between Iceland and Europe may be within reach

Subsea electric cables are steadily becoming longer and going through more depths. A cable between Iceland and Europe (UK) would probably be close to 1,200 m in length and the greatest depth would be close to 1,000 m. Today the longest cable of this kind is close to 600 km and it is likely we will soon see cables extending 700-800 km (a cable between Norway and the UK may become the next record length). And there are already examples of such subsea cables where the sea is more than 1,600 m deep.

LV-Autumn-Meeting-2013-slide-28It seems becoming both technically and financially possible to have an interconnector between Iceland and Europe and at modest cost. The advantages are obvious; both for Iceland and the European country at the other end of the cable. Due to the distance, the UK seems to be the best option. And actually the energy policy of the UK is also very positive for such a project. Thus, an interconnector between Iceland and the UK may be within reach.

In the earlier mentioned article in the FT, it is described how manufacturing companies in the UK are finding it hard to access electricity for their production: “[A]ccording to research by Edison Group, a consultancy, one in four UK midsized companies are planning for power shortages over the next few winters.” This situation is obviously very worrying for the UK and calls for immediate measures to ensure future access to more (stored) power.

This alarming issue for the UK was the subject of an editorial in the FT on last June 10th (2014). We will conclude this article about how the Icelandic hydropower offers great opportunities – for both Iceland and the UK – by quoting this FT editorial:

FT-Electricity-2014-2

Britain’s supply of electricity is dangerously close to resurgent demand. The safety margin of capacity has been shrinking and now stands well below the 20 per cent necessary to insure against shocks. When demand rises in winter there is a risk that the margin will disappear altogether.

To avert this grim possibility, Britain’s National Grid has just announced measures intended to stave off the risk of looming winter blackouts. The regulated utility plans to pay large users of power to be cut off should demand risk outpacing supply. It also intends to recommission about a dozen mothballed gas-fired power plants to establish a capacity reserve. […] The immediate need is to keep the lights burning. National Grid should do whatever it takes to achieve this until new capacity can be commissioned. This will mean higher bills. But house insurance is never cheap when smoke is pouring from one’s windows.

NB: The three slides above from Landsvirkjun (the Icelandic state owned energy company)  are from a presentation given by the company’s management in late 2013. The presentation is accessible on the company’s website.

The Importance of Diversifying Europe’s Energy Sources

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

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

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

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

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