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Posts from the ‘EU Energy Policy’ Category

UK is looking to Iceland for electricity

In last March (2014), UK’s National Grid published a new paper exploring the potential benefits of greater electricity interconnection. According to the paper, new interconnectors will have positive economic and environmental effects. The benefits include lower energy prices for consumers, enhanced energy security, a cleaner environment and wider macro-economic effects. National Grid believes that a full understanding of the benefits of greater interconnection is important to inform the debate on an appropriate ambition to meet the country’s need, and the timeframe within which it should be achieved

UK_National-Grid-Interconnectors-fig4-march-2014The debate on how the United Kingdom (UK) can best meet its energy needs has intensified over recent months. There is broad agreement that energy should be affordable, greenhouse gas emissions need to be reduced, and energy supplies need to be reliable for businesses and consumers to facilitate the UK’s economic recovery. Despite these benefits, Britain’s 4 GW of existing interconnector capacity is relatively small; representing around 5%of total installed electricity generating capacity. This compares with the benchmark highlighted by the European Commission in January 2014 for all EU Member States to have a level of electricity interconnection equivalent to at least 10% of theirinstalled production capacity to realize the full benefits of the Internal Energy Market.

In order to reach this benchmark Britain would need to double its existing interconnector capacity.Britain is therefore poised to complete the final design elements of the new regulatory regime, enabling developers to secure the considerable capital required to deliver these complex and technically challenging projects. Through continuing to work together, the above stakeholders are now well placed to build on the successful momentum developed to date, to secure the necessary regulatory and investment decisions for a 4-5 GW portfolio of new links in 2014/2015 and unlock the benefits including a GBP 1 billion wholesale electricity price reduction per year by 2020.

UK_National-Grid-Interconnectors-fig3-march-2014As renewable electricity forms an increasing part of the energy mix, interconnection is becoming an important tool in managing the intermittent power flows associated with these sources. Based on the consumer, energy security, environmental and economic benefits which could be accessed, greater GB electricity interconnection is considered a ‘no regrets’ investment by a wide range of informed stakeholders within the UK and beyond. This consensus includes the UK Government, the regulator, consumer organizations, green groups, think tanks, academics and the main European Union institutions.

An interconnector between UK and Iceland (sometimes referred to as the IceLink) could become an important part of the additional interconnection. UK already has four interconnectors to France, Holland, Ireland, and Northern Ireland. These links, with a total capacity of 4 GW, represent around 5% of the existing electricity generation capacity in the UK. However, this level remains low compared to the 10% benchmark proposed by the EU Commission and there is strong consensus that this gap should be filled.

While GB remains a net importer of power, economic benefits are available through greater disposable income from lower domestic electricity prices, and enhanced competitiveness for businesses benefitting from reduced energy input costs. Were a portfolio of new projects to be commissioned, the economy would also benefit from new jobs created in activities such as planning, construction and maintenance. They could also catalyse new domestic manufacturing industries in areas such as sub-sea cabling.

Electric interconnectors allow low carbon electricity to flow between European countries more easily and could enable carbon and renewables targets to be met more cost effectively. Significant volumes of low carbon electricity could, for instance, be imported into UK from hydropower in Norway, wind power in Ireland and Denmark, nuclear in France and hydropower / geothermal energy in Iceland.

Copyright statement regarding the NG Paper: © National Grid Interconnector Holdings Limited 2014, all rights reserved.

New electric interconnector: Sweden-Germany

On March 27th 2014, plans for one more electric cable connecting the European mainland with the Nordic countries were revealed. The plans involve a new high voltage interconnector between Sweden and Germany. The interconnector is called Hansa PowerBridge.

Svenska-kraftnat-logoThis took place at the Annual Stakeholder Meeting of the Swedish National Grid (Svenska kraftnät) in Stockholm. The day after (March 28th 2014), Mr. Mikael Odenberg, CEO of Svenska kraftnät, and Mr. Boris Schucht, CEO the German Transmission System Operator 50Hertz, signed a Memorandum of Understanding (MOU) at the German Embassy in Stockholm. The signing was made in the presence of Mr. Rainer Baake, German State Secretary at the Ministry for Economics and Energy and Mr. Christian Pegel, Minister for Energy in Mecklenburg-Vorpommern.

50hertz-logoAccording to a press release from 50Hertz and Svenska kraftnät, the main objective under the MOU is to examine the feasibility for such a new link between Sweden and Germany. In a joint statement from the companies, such an interconnector is said to be another step towards a better integrated European grid and will allow for increased electricity trade between Germany and Sweden and contribute to the security of supply.

Such a new interconnector between Germany and Sweden is believed to make sense both from a commercial and from an environmental point of view. It links directly the huge storage potentials in Sweden to the wind electricity production centres in Northeastern Germany, thus creating value for both partners. The new interconnector is intended to be put into operation within the next decade. This is one more interesting project to have in mind, regarding the possible interconnector between Iceland and Europe.

Iceland is far shead of EU’s renewable energy targets

In 2012, energy from renewable sources within the European Union (EU) was estimated to have contributed 14.1% of gross final energy consumption in the Union, compared with 8.3% in 2004 (the first year for which this data is available).

EU-Energy-Renewable-Sources-Share_2004-2012The share of renewables in gross final energy consumption is one of the headline indicators of the Europe 2020 strategy. The target to be reached by 2020 for the EU is a share of 20% renewable energy use in gross final energy consumption. The national targets take into account the EU’s Member States’ different starting points, renewable energy potential and economic performance.

Since 2004, the share of renewable sources in gross final consumption of energy grew in all the EU Member States. The highest shares of renewable energy in final energy consumption in 2012, within the EU Member States, was found in Sweden (51.0% of energy from renewable sources in gross final consumption of energy), and the lowest in Malta (1.4%), Luxembourg (3.1%), the United Kingdom (4.2%) and the Netherlands (4.5%).

EU-Iceland-gross-final-energy-consumption-renewable-share-2012-and 2020-targetsIn 2011, Estonia was the first EU Member State to reach its 2020 target and in 2012 Bulgaria, Estonia and Sweden already achieved their 2020 targets (16%, 25% and 49% respectively). Since 2004, the share of renewable sources in gross final consumption of energy grew in all the EU Member States. The largest increases during this period were recorded in Sweden (from 38.7% in 2004 to 51.0% in 2012), Denmark from 14.5% to 26.0%), Austria (from 22.7% to 32.1%), Greece (from 7.2% to 15.1%) and Italy (from 5.7% to 13.5%).

This is a good progress. However, this is very far from the share of renewable energy in Iceland, which now account for close to 76% of the gross final consumption of all energy in the country (already higher than the 2020 target of 72%). See further information in the Icelandic National Renewable Energy Action Plan (published in December 2012).

UK National Grid: IceLink is feasible, achievable and viable

Economist-Iceland-UK-HVDCAccording to a recent article in the Schumpeter column of the Economist, the proposed IceLink power cable between Iceland and Britain seems to be getting a deservedly serious hearing.

The IceLink would be the longest undersea cable in the world, at at least 1,000 km, costing on current estimates billions of EUR.  According to the Economist It would take four years to construct the cable and would have a capacity of 1,000 MW. And the Economist is very positive about the project:

Iceland is in a unique position with regard to energy: it has in effect unlimited power, from both geothermal and hydro-electric. Apart from keeping the hardy Icelanders warm, it also runs aluminum smelters. But exporting electricty would give the small island economy a new source of income (the main other ones, since the collapse of the financial bubble, are fish and tourism).

HVDC-Cable-Iceland-Europe-map-slideThe Economist goes on by pointing out that the attraction of the IcLink for Britain is flexibility. The increasing dependence on wind energy, which produced a record ten percent of Britain’s power in last December (2013), may be questionable from an economic point of view. And it creates a technical difficulty too: if the wind drops, you need a speedy alternative source of power. When it blows strongly, you need somewhere to store it. Iceland’s stable geothermal- and hydro-electric generation is ideal for both purposes. But Britain has rather little hydro and close to none geothermal.

According to the Economist, the UK National Grid (the transmission operator for electricity and gas) likes the project, describing it as “Technically feasible…Politically achievable…Commercially viable”. Britain and Iceland signed an intergovernmental memorandum of understanding on the project in 2012. In June last year, the project won backing from an UK cross-party government advisory committee. Now the British government is waiting for the Icelandic side to come out with a firm proposal.

Interesting development in UK electricity strike prices

Earlier this month (December 2013), the British Department of Energy and Climate Change (DECC) introduced the strike prices that will be on offer to energy developers in the coming years.

UK_DECC_Final_Document_-_Investing_in_renewable_technologies_-_CfD_contract_terms_and_strike_prices_UPDATED_6_DEC-coverThis new regime especially focuses on increasing investment in new renewable energy projects. According to Ed Davey, UK’s Energy and Climate Change Secretary, the new levels of support are designed to provide certainty to investors and will ensure the UK meets its 30 percent renewable electricity target in 2020 (doubling the current percentage of electricity generated from renewable sources, which now is 15 percent). The package will deliver record levels of investment in green energy by the end of the decade (GBP 40 billion) and is expected to attract investors from around the world so Britain can replace its ageing power stations, ensure access to sufficient electricity, reduce greenhouse gas emissions, and create green jobs.

The geothermal industry is  likely to welcome the plan by the UK Government to increase geothermal strike price by extra 20 GBP/MWh each year, meaning geothermal developers can expect at least 140-145 GBP/MWh in the coming years. It is also interesting, that hydropower schemes have been allocated a boost of extra 5 GBP/MWh, with strike prices to be 100 GBP/MWh. However, most of the new green electricity will come from offshore wind power, where the strike prices will be 140-155 GBP/MWh.

Iceland-Electricity-HVDC-Cable-to-Europe-at-competitive-prices-McKinsey-2012It is worth having in mind that Iceland could most likely offer the UK base-load green electricity (from geothermal- and hydropower sources) at substantially lower prices than the average strike prices. A recent independent report by the well known management and consulting firm  McKinsey, introduced a positive view towards constructing an interconnector (HVCD cable) between Iceland and Europe. According to McKinsey, such an interconnector could offer substantial cost savings for the buyer of the Icelandic electricity.

McKinsey puts forward the idea that price for the Icelandic electricity might be somewhere between 50-95 GBP/MWh (60-115 EUR/MWh). This is a much lower price than the UK strike price for offshore wind power.  By sharing the benefits, offered by the cheaper Icelandic electricity, between Iceland and the UK the strike price for the Icelandic electricity could possibly be as low as 75 GBP/MWh (which is equivalent to 90 EUR/MWh and approximately 125 USD/MWh). And even if the strike price for the Icelandic electricity would be close to 95-100 GBP/MWh (115 EUR/MWh or 155 USD/MWh), this would be lower than the British strike price for geothermal-, hydro- and wind power.  Therefore it is quite clear that an electric interconnector between Iceland and UK is a very interesting business opportunity.

Upcoming new world-record subsea electric cables

An electric subsea cable between Iceland and Europe is currently being considered.

HVDC-Euroasia-Interconnector-map-2The cable, sometimes referred to as IceLink, will be approximately twice as long as the longest subsea electric cable today, which is the NorNed cable between Holland and Norway (NorNed is 580 km, with a capacity of 700 MW). It seems likely that we will soon see a substantially longer cable than the NorNed, which will be a new cable between Norway and the United Kingdom (this new cable will be more than 700 km long, with a capacity of 1,400 MW). However, an even more ambitious project is being planned in the Mediterranean; the EuroAsia Interconnector.

The EuroAsia Interconnector project aims to link the power grids of Cyprus, Greece (including both Crete and the Greek mainland) and Israel. The total length of the cable will probably be between 1,000 and 1,500 km, and have a capacity of 2,000 MW. It will travel through an enormous depth of more than 2,500 m.

HVDC-Euroasia-Interconnector-2Firstly, a 330 km cable will link Israel with Cyprus. Further, Cyprus will be connected with the Greek island of Crete via an 880 km long cable. From there Crete will be connected to Greece via a 310 km long cable, providing a connection to the pan-European electricity grid.

In March 2012, Cyprus and Israel initiated a feasibility study to explore the possibility of the EuroAsia Interconector connecting the grids of the two countries. The project is expected to be completed in 36 months from the start of construction. The interconnector will be funded and developed by DEH Quantum Energy, a joint venture consisting of Greece’s DEH and Cyprus’ Quantum Energy, with the Bank of Cyprus as a minority shareholder.

HVDC-Euroasia-Interconnector-1In comparison with the EuroAsia Interconnector, the IceLink between Iceland and Europe seems to be a very positive and even a simple project. While the EuroAsia Interconnector will mainly transfer electricity generated by burning natural gas, the IceLink is based on renewable hydro- and geothermal power. The IceLink is likely to be close to 1,200 km (if connecting Iceland and UK) and the maximum depth of the route is close to 1,000 m. As the depth is one of the main challenges for subsea electric cables, it is interesting that the EuroAsia Interconnector will be at more than twice as much depth as the IceLink.

The EuroAsia project has recently been added to the European Commission’s list of Projects of Common Interest (PCI). This recent list of 248 key energy infrastructure projects was adopted by the European Commission on 14 October 2013. These projects will benefit from faster and more efficient permit granting procedures and improved regulatory treatment, and may also have access to financial support from the Connecting Europe Facility (CEF). The CEF has a budget of EUR 5.85 billion that has been allocated to trans-European energy infrastructure for the period 2014-20. The current plan is to have the EuroAsia Interconnector up and running as soon as 2017.

UK’s electricity strike prices positive for IceLink

In last October, the Government of the United Kingdom (UK) gave the go-ahead for a new nuclear plant. This will be the first nuclear power station to be be constructed in the UK for numerous decades. The agreement regarding this nuclear plant shows well how competitive Icelandic electricity is, and makes it clear that an electric cable between Iceland and the UK could be very positive for both countries.

The nuclear strike price will be 92.50 GBP/MWh (close to 150 USD/MWh)

The above mentioned agreement on the nuclear energy involves an enlargement of the Hinkley Point Nuclear Plant in Somerset (Hinkley Point C). The new reactors are scheduled to be completed ten years from now (2023). The plant will be built and operated by the French energy firm EDF (Électricité de France) in cooperation with Chinese investors.

UK-Hinkley-Point-C-new-Nuclear-Plant-diagramEDF has negotiated a guaranteed fixed price – a strike price – for the nuclear electricity at 92.50 GBP/MWh (equivalent to approximately 150 USD/MWh). This strike price is in 2012 prices. The price will be adjusted according to inflation during the construction period and over a subsequent period of 35 years. According to the BBC, the existing nuclear plant at Hinkley produces about 1 per cent of the UK’s total electricity. This is expected to rise to 7 per cent once the construction of Hinkley Point C will be completed in 2023.

Strike Prices effectively remove price volatility risk for electricity generated from low-carbon sources. This ensures greater certainty to generators and minimizes their risk. The goal is to bring forward investment in affordable low-carbon electricity generation, including renewables and new nuclear. In total, renewable energy is expected to make up more than 30 per cent of the UK’s electricity mix in 2020, helping to significantly decarbonize the power sector by 2030. This means that the UK has very ambitious plans in expanding the production of renewable power.

Strike price for renewable power will be even higher

Earlier this year (2013), the British Government introduced the strike price which renewable energy technologies can expect in the coming years (2014-2019). The proposals are expected to become legislation in early 2014. According to a publication by the UK Department of Energy and Climate Change (DECC) the new regime will make the UK market one of the most attractive for developers of most renewables technologies, whilst minimising the costs to consumers. The proposed renewable electricity technologies eligible for the strike prices for example include hydro, geothermal, onshore and offshore wind, tidal and solar projects.

UK-Renewable-Energy-Strike-Price_2014-2019-The strike price for geothermal power will be 120-125 GBP/MWh (approximately 190-200 USD/MWh) and strike price for hydro will be 95 GBP/MWh (approximately 150 USD/MWh). The lowest strike price is for sewage gas; 85 GBP/MWh (close to 135 USD/MWh).

However, what is probably most important and interesting is the strike price for wind power. The British Government expects the overwhelming majority of the new renewable-capacity will be new wind farms, both onshore and offshore. This is understandable, because the utilization of wind power for electricity production is a well known and mature technology. In fact the strike price for wind power can be said to be the base price for new renewable generation. And the strike price introduced for onshore and offshore wind is 95-100 GBP/MWh and 135-155 GBP/MWh, respectively.  This is equivalent to approximately for 150-180 USD/MWh for onshore wind, and 215-250 USD/MWh for offshore wind.

IceLink could be an important part of the solution

In comparison, Iceland could most likely offer the UK electricity from renewable sources at prices similar or even substantially lower than the strike price for new offshore- or even onshore wind capacity in the UK. And actually the Icelandic electricity can be seen as a better product and thus a better option than massive wind power in the UK. Both hydro- and geothermal power offer stable base load electricity, which is very different from the unstable wind power.

Iceland-UK-BICC-meeting-Nov-2013-Landsvrkjun-Hordur-Arnarson-slide-7With an electric cable between Britain and Iceland (IceLink), the Icelandic energy sector could provide the UK with stable and reliable power from the Icelandic hydro- and geothermal power plants, at very competitive prices. Iceland could also import some of the unstable wind power from the UK; especially during the night. This would give an option to “store” even more of the controllable hydro power in the dams in Iceland during the night. When demand in UK rises during the day this power can then be transferred through the cable to the electricity markets in UK.

The UK wants to be able to move away from fossil fuels towards low-carbon power. What is even more important for the UK is to gain more energy independence and be able to rely on energy from politically stable neighbours (rather than for example importing more LNG from Algeria). Both the nuclear plant at Hinkley Point and plans for more renewable energy in the UK’s energy mix, are important in this context. In addition, a fifth of Britains’ aging power plants are due to close over the coming decade (with further closures in the 2020’s). Thus, the UK needs not only huge investment in energy production and -infrastructure, but also need to secure it self access to numerous reliable energy sources. Therefore the IceLink is a project that undoubtedly will interest the British energy sector and investors.

Iceland offers unique renewable opportunities

Iceland and Norway are the world’s largest electricity producers (per capita). The reason for this huge electricity production is simple. Compared to the low population, both countries are rich in natural renewable resources that offer good opportunities to produce green electricity at a very competitive price.

Iceland-Renewable-Opportunities-10

Well-Known Business Concept

Like Norway, Iceland has extensive renewable hydropower. Iceland’s geothermal sources are also harnessed for electricity production. In addition, the windy conditions in Iceland may offer interesting possibilities to generate electricity at substantially lower costs than at wind-farms in other European countries.

Norway has numerous electric cable connections with other countries and is a net-exporter of electricity. An important part of the business concept of the cable connections is to be able to use the flexibility of the hydropower to maximize revenues. The Norwegian power companies have the possibility to  “save” the hydropower in the dams during night (when electricity prices tend to be low) and produce electricity at full capacity when prices are high (normally during the day).

This not only maximizes the revenues of the Norwegian hydropower firms, but also opens up the possibility for European power companies to export electricity to Norway during the night. Such exports are especially interesting for European power plants that have high fixed cost and low flexible cost, like wind farms (and nuclear power stations that are operated at a stable capacity).

Iceland-Renewable-Opportunities-12

Win-Win Situation

Iceland has no electrical cable connection with markets outside of Iceland. The country is a closed electric system, but with abundant hydro- and geothermal sources. Thus, heavy industries like aluminum smelters, have been able to access very low priced electricity in Iceland. If Iceland would be connected to a European electricity market, by an electric cable, this would offer European markets access to new sources of reliable renewable energy. At the same time the cable (sometimes referred to as the IceLink) would offer Iceland access to  a market willing to pay substantially higher price for the electricity than the heavy industries are. Thus, an electric cable between Iceland and Europe would create a win-win situation.

Actually, the heavy industries in Iceland would not necessarily close down if there came an electric cable between Iceland and Europe. First of all they have long-term energy contracts (up to 40 years). Secondly, there are numerous unharnessed hydro- and geothermal power options in Iceland. An electric cable to Europe would be like adding a new large consumer that is willing to pay higher price but can only receive a fixed amount of electricity (the capacity of IceLink would possibly be close to 1,000 MW).

Iceland-Renewable-Opportunities-13

The IceLink would mean that new hydro- and geothermal power stations in Iceland would be more profitable than they would be today (by selling the electricity to heavy industries). At the same time the green Icelandic electricity could be offered in Europe at prices that are very competitive. Even despite the long transmission, the Icelandic green  electricity could be a better choice (economically) for the European markets than offshore wind, biomass, coal and/or nuclear. In a nutshell, Iceland is in the position to be the best economic option for other European countries to access more renewable energy.

The illustrations above are from a presentation by Mr. Hörður Arnarson, CEO of Landsvirkjun, presented at the Iceland Energy Summit in London on November 1, 2013.

Icelandic Energy Summit, London, November 1st 2013

The British Icelandic Chamber of Commerce is introducing the Icelandic Energy Summit, hosted by Bloomberg, in London on Friday, 1 November 2013.

Iceland-Europe-mapAccording to the website of the British Icelandic Chamber of Commerce the event “will provide participants an insight into Iceland´s renewable energy resources, the birth and growth of the data storage industry in the country, the search for offshore oil – and what all this means for the country and its neighbours. The BICC is proud to have assembled some of the most dynamic voices in the developing story of Iceland and its energy potential.” The event, which is free, is said to be of interest “to finance professionals who conduct business with Iceland, or would like to, renewable energy specialists, academics and all those who take an interest in the future development of the Arctic. Feel free to pass on this invitation to colleagues, but  we expect this event to be well attended.”

The Agenda is as following:

10:30 Registration & Coffee
11:00 Welcome
William Symington, BICC
Keynote speech
Olafur Ragnar Grimsson, President of Iceland
11:45 UK-Iceland Interconnector
Charles Hendry, MP
Hörður Arnason, CEO Landsvirkjun
Paul Johnson, National Grid
Mike Lawn, Bloomberg New Energy Finance
13:00 Buffet Lunch
13:45 Data Centres in Iceland
Verne Global – Isaac Kato, CFO
Risk Management Solutions Inc, Robert Muir-Woood, Chief Research Officer
14:45 Geothermal
Sigurður St Arnalds, Senior Energy Advisor, Mannvit
Mark Taylor, Bloomberg New Energy Finance
15:45 Icelandic Oil exploration and the development of Arctic Resources
Michael Evans, Chief Operating Officer, Iceland Petroleum
Heiðar Guðjónsson, author “The Push for the Arctic”
16:30 Closing & Drinks

Here is a link to the registration.

10 TWh of green energy available

Iceland-Landsvirkjun-New-Renewable-Electricity-GenerationThe Icelandic power company Landsvirkjun has introduced plans for several new renewable energy projects.

If all these projects will be realized, they will add close to 7 TWh of annual generation from natural hydro- and geothermal sources. All the projects have been identified. As Landsvirkjun is owned by the Icelandic government, formal decisions about which of the projects will be realized first depends on the Icelandic parliament.

In addition, Landsvirkjun has put a figure on several other possible new power projects, that could be generating electricity within a decade or so. In total, Iceland may within near future be producing 9-10 TWh more electricity than today. This is not an exact figure; the new additional capacity could be somewhat less or even more. This will depend on the interest of new users of electricity, such as data centers, silicon industry etc. However, the most interesting option may be selling part of the new electricity production to markets in Europe.

Iceland-Landsvirkjun-HVDC-Feasabilty-StudyA feasibility study on a possible electrical cable (high voltage direct current cable; HVDC) between Iceland and Europe is currently being carried out by a special working group. The group includes people from the Icelandic power sector and other stakeholders, appointed by the Icelandic Minister of Industries and Innovation. It is expected that the working group will deliver its report  during next year (2014).

The high electricity prices in Europe make a cable to Europe an especially interesting option for the Icelandic power generating firms. During the last few years, wholesale electricity prices in Western Europe have often been around three times higher than in Iceland. Thus, an electric cable between Iceland and Europe could increase the profits of Icelandic power companies  substantially.

EU-energy-policy-20-20-20There would be numerous other positive gains from such a cable, as presented on the slide at left (the slide is from a presentation by Landsvirkjun). For example, the Icelandic power companies would be able to maximize the current capacity, resulting in more production. Europe would enjoy access to new green electricity generation, which would help the member states of the European Union (EU) in achieving climate- and energy goals (the EU aims at raising the share of EU energy consumption produced from renewable resources to 20% no later than 2020). The issues of such a connection between Iceland and Europe was described in more details in one of our earlier posts.

In the forthcoming months it will hopefully become clearer if Europe may gain access to the geothermal- and hydropower of Iceland.