Skip to content

Posts from the ‘Hydro Power’ Category

EU supports 1,400 MW NorthConnect HVDC cable

In mid February 2017 EU’s Innovation and Networks Executive Agency (INEA) published a list of energy infrastructure projects that have been selected to receive financial support from the European Union. One of these projects, designated as a Project of Common Interest, is the NorthConnect HVDC subsea cable, to connect the electricity markets in Norway and Scotland.

hvdc-north-connect_norway-uk-route-illustrationThis decision by INEA makes the approximately 655 km NorthConnect project eligible to apply for funding from the Connecting Europe Facility, the EU’s funding support programme for infrastructure, receiving over EUR 10 million to support its development. The NorthConnect cable will have a capacity of 1,400 MW. As other subsea interconnectors with Norway, the NorthConnect is expected to further balance the grid between the relevant countries and allowing wider electricity trading across Europe. Thus, this new cable will not call for increased hydro power capacity in Norway, which generates close to 100% of all electricity by utilizing hydro power.

Onshore Wind Farm Farr, Scotland / Onshore-Windpark Farr, SchottScotland has been developing major wind capacity. When strong winds will generate high amounts of electricity; the NorthConnect interconnector makes it possible to export part of the generation to Norway. Meanwhile, the massive hydro reservoirs in Norway will become like gigantic green batteries being charged. When the winds in Scotland will be calmer, the Norwegian hydro power companies will turn on their turbines, making it possible to export electricity to Scotland. This should increase security of supply and stabilize electricity prices for consumers. In addition, the new interconnector will increase the use of renewable energy in Europe.

The NorthConnect power cable will be routed from Simadalen in Norway, across the North Sea to Long Haven Bay, just south of Peterhead in Scotland. On the Norwegian side of the link, the cable will follow the long Hardangerfjord in western Norway, until landing at Simadalen. The exact route across the North Sea has yet to be determined. The project is due to start construction in 2019, reaching completion in 2022.

statnett-hvdc-subsea-cables-balancing-gridIf everything goes as planned, NorthConnect will be the first subsea interconnector from Norway owned by power companies. So far all the subsea power cables from Norway have been owned by the relevant transmission system operators. Current owners of the NorthConnect project are the Swedish national energy firm Vattenfall and three Norwegian power companies; Agder Energi, E-CO and Lyse Produksjon. All these four companies are in public ownership; the Swedish state owns Vattenfall and the three Norwegian firms are owned by several Norwegian municipalities and the national power company Statkraft.

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.

Highly competitive wind power

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

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

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

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

We want to emphasise that Kvika/Pöyry did not use Lazard as a reference. Instead, the assumed LCOE in the report by Kvika/Pöyry is based on numbers from IRENA (IRENA Power Costs Report 2014, published in January 2015). It is also important to keep in mind that cost figures used by Kvika/Pöyry included the average cost of linking wind power farms to the grid.

However, what is especially important is how the figures for LCOE of wind power generation were presented in the work by Kvika/Pöyry. While the companies estimated the cost of each new geothermal- and hydro project to be developed, they simply used the average LCOE for wind (approximately 51-52 EUR/MWh) as a fixed LCOE for all new wind power projects in Iceland generating up to 6 TWh annually. Which is a very general and/or imprecise presentation of LCOE for wind.

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

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

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

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

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

Iceland’s new energy segment

If the IceLink HVDC subsea interconnector between Iceland and UK, will be developed, more than 2,000 new megawatts (MW) of power capacity is expected to be developed in Iceland in the coming two decades. All these capacity additions will all be in renewable power technology. Most of it will be in the traditional types of Icelandic electricity generation, which is hydro- and geothermal power. However, substantial amount of the new capacity will be in wind power, making wind power the fastest growing type of generation in Iceland.

Low-Cost Wind means Slower Growing Geothermal

It is hard to predict with precision how much capacity will be added to each of the three types of renewable generation mentioned above. The table below shows two predictions, one by Kvika/Pöyry and the other by Askja Energy Partners. According to Kvika/Pöyry, IceLink will need approximately 1,459 MW of new capacity, bringing total new capacity in Iceland to 2,137 MW by 2035.

Analysis of Askja Energy shows that Kvika/Pöyry may be over-estimating how fast new geothermal power can be developed in Iceland (and under-estimating the potentials of Icelandic wind power). We at Askja Energy, predict slower growth in new Icelandic geothermal power, and somewhat faster growth in wind power. In addition, it is very likely that new Icelandic hydropower can be developed somewhat faster than Kvika and Pöyry are forecasting in their central scenario.

Table: New power capacity (MW) in Iceland until 2035
Central scenario with IceLink HVDC cable
Forecast by Forecast by
Technology Kvika/Pöyry Askja Energy
Geothermal 722 580
Hydro 865 933
Wind 550 768
Total new capacity added 2,137 2,281

Note that the Askja Energy scenario assumes faster capacity additions in hydropower and wind power than Kvika/Pöyry, but substantially slower geothermal capacity additions. The result is less generation pr. each new MW (thus, higher new capacity needed in total to deliver same/similar generation). All numbers are an estimation and may vary, such as due to what power projects exactly (in each category) will be developed.

Wind Power the Fastest Growing Segment

No matter if the forecast by Askja Energy or the forecast by Kvika/Pöyry will be closer to the real development, wind power can be expected to become Iceland’s fastest growing energy segment. If IceLink will be constructed, no type of generation in Iceland will grow as fast (in percentages) as wind power. As explained on the graph below.

iceland-power-capacity-additions-until-2035_ketill-sigurjonsson-2016The question that remains, is if and when the decision will be taken on IceLink. But even without IceLink, it is likely that new wind power will be developed in Iceland in the coming years, as numerous locations in Iceland offer very high capacity factor for wind turbines.

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.

Upcoming power projects in Iceland

The following list explains what power projects are being considered in Iceland, according to the Icelandic Master Plan for Nature Protection and Energy Utilization. The projects have been cost analyzed (levelized cost of energy; LCOE), as described in a recent report published by the Icelandic Energy Industry Association (Samorka).

The projects are classified into three different groups (not all the possibilities have been officially cost-analyzed):

Utilization category: The project is likely to be developed if/when there is power demand and interest by the energy sector.

Projects on hold: More information and/or data is needed to decide if the project will be classified as Utilization or Protection.

Protection category: The project is unlikely to be developed, due to environmental issues.

The current classification is being reconsidered by the government  However, it is the Icelandic Parliament (Alþingi) that takes final decision regarding how each project is categorized. This means that over time, project(s) may be moved from one category to another, based on a political decision by the Parliament. The following classification is up to date as of August 2016. Note that in Samorka’s report on the LCOE, the cheapest option, Norðlingaölduveita, is said to be on hold. In fact this option is currently in the protection category.

 Project name Current  Type MW Annual LCOE
  classification GWh USD/MWh
1 Norðlingaölduveita* Protection Hydro n/a 670 22.50
2 Búlandsvirkjun On hold Hydro 150 1,057 25.00
3 Jökulsárveita/Blönduveita On hold Hydro n/a 100 25.00
4 Urriðafossvirkjun On hold Hydro 140 1,037 25.00
5 Þeistareykir I** and II Utilisation Geothermal 270 2,214 28.90
6 Hrafnabjargavirkjun* On hold Hydro 89 585 30.50
7 Villinganesvirkjun On hold Hydro 33 215 30.50
8 Skrokkölduvirkjun On hold Hydro 45 345 30.50
9 Hólmsárvirkjun* Protection Hydro 72 470 30.50
10 Bjarnarflag Utilisation Geothermal 90 756 35.20
11 Meitillinn Utilisation Geothermal 45 369 35.20
12 Sandfell Utilisation Geothermal 100 820 35.20
13 Sveifluháls Utilisation Geothermal 100 820 35.20
14 Austurengjar On hold Geothermal 100 820 35.20
15 Gjástykki On hold Geothermal 50 420 35.20
16 Trölladyngja On hold Geothermal 100 820 35.20
17 Bitra Protection Geothermal 135 1,100 35.20
18 Brennisteinsfjöll Protection Geothermal 90 711 35.20
19 Hvammsvirkjun Utilisation Hydro 93 270 38.80
20 Búðartunguvirkjun On hold Hydro 27 230 38.80
21 Hagavatnsvirkjun On hold Hydro 20 120 38.80
22 Holtavirkjun On hold Hydro 57 450 38.80
23 Hraunavirkjun* On hold Hydro 126 731 38.80
24 Selfossvirkjun On hold Hydro 35 258 38.80
25 Stóra-Laxárvirkjun Unclassified Hydro 35 200 38.80
26 Tungnaárlón On hold Hydro n/a 70 38.80
27 Bláfellsvirkjun Protection Hydro 89 516 38.80
28 Djúpárvirkjun Protection Hydro 86 499 38.80
29 Markarfljótsvirkjun Protection Hydro 121 702 38.80
30 Gráuhnúkar Utilisation Geothermal 45 369 44.80
31 Eldvörp Utilisation Geothermal 50 410 44.80
32 Hverahlíð Utilisation Geothermal 90 738 44.80
33 Krafla II Utilisation Geothermal 150 1,260 44.80
34 Stóra-Sandvík Utilisation Geothermal 50 410 44.80
35 Botnafjöll On hold Geothermal 90 711 44.80
36 Fremrinámar On hold Geothermal 100 840 44.80
37 Grashagi On hold Geothermal 90 711 44.80
38 Hágönguvirkjun On hold Geothermal 150 1,260 44.80
39 Innstidalur On hold Geothermal 45 369 44.80
40 Sandfell On hold Geothermal 90 711 44.80
41 Þverárdalur On hold Geothermal 90 738 44.80
42 Grændalur Protection Geothermal 120 984 44.80
43 Hverabotn Protection Geothermal 90 711 44.80
44 Kisubotnar Protection Geothermal 90 711 44.80
45 Neðri-Hveradalir Protection Geothermal 90 711 44.80
46 Þverfell Protection Geothermal 90 711 44.80
47 Blanda II Utilisation Hydro 31 194 49.70
48 Hvalárvirkjun Utilisation Hydro 55 320 49.70
49 Austurgilsvirkjun On hold Hydro 35 228 49.70
50 Blöndudalsvirkjun On hold Hydro 16 92 49.70
51 Brúarárvirkjun On hold Hydro 23 133 49.70
52 Hafrálónsárvirkjun efri On hold Hydro 15 87 49.70
53 Hafrálónsárvirkjun neðri On hold Hydro 78 452 49.70
54 Haukholtavirkjun On hold Hydro 17 99 49.70
55 Hestvatnsvirkjun On hold Hydro 34 197 49.70
56 Hofsárvirkjun On hold Hydro 39 226 49.70
57 Hverfisfljótsvirkjun On hold Hydro 42 243 49.70
58 Hvítá við Norðurreyki On hold Hydro 14 82 49.70
59 Kaldbaksvirkjun On hold Hydro 47 273 49.70
60 Kljáfossvirkjun On hold Hydro 16 93 49.70
61 Núpsárvirkjun On hold Hydro 71 412 49.70
62 Reyðarvatnsvirkjun On hold Hydro 14 82 49.70
63 Skatastaðavirkjun* On hold Hydro 156 1,090 49.70
64 Vatnsdalsárvirkjun On hold Hydro 28 162 49.70
65 Gýgarfossvirkjun Protection Hydro 22 128 49.70
66 Bakkahlaup On hold Geothermal 15 119 57.30
67 Hrúthálsavirkjun On hold Geothermal 20 160 57.30
68 Hveravallavirkjun On hold Geothermal 10 79 57.30
69 Reykjabólsvirkjun On hold Geothermal 10 79 57.30
70 Sandfellsvirkjun On hold Geothermal 10 79 57.30
71 Sköflungsvirkjun On hold Geothermal 90 711 57.30
72 Seyðishólavirkjun On hold Geothermal 10 79 57.30
73 Fljótshnjúksvirkjun On hold Hydro 58 405 60.50
74 Vörðufellsvirkjun On hold Hydro 58 174 60.50
75 Glámuvirkjun On hold Hydro 67 400 nyca
76 Arnardalsvirkjun* Protection Hydro 587 3,404 nyca
77 Bjallavirkjun Protection Hydro 46 310 nyca
78 Blöndulundur Unclassified Wind 200 705 nyca
79 Búrfellslundur Unclassified Wind 100 350 nyca

 

Notes:
* The project may be developed in a different way for less environmental impacts, resulting in lower generation.
** 45 MW station at Þeistareykir is already under construction, with the electricity sold (long-term contract).
n/a Projects involving new reservoir for current power stations (turbines may be added, but not necessarily).
nyca Projects that have not yet been officially cost-analyzed.

———————————————————————————-

The list above may change at any time and new projects not listed may be introduced and developed.

Planned 45 MW wind power project of Biokraft in Southern Iceland is not included on the list.

No planned power projects under 10 MW (mainly small hydro) are included on the list.

Cost estimates do not include transmission or connection cost.

The list is up to date @ August 2016.

The wish-list of the Icelandic energy industry

Iceland may offer numerous new renewable energy projects where levelized cost of energy (LCOE) is very low. Or as low as 22.50 USD/MWh.

The weighted average cost (LCOE) for all new projects in Iceland needed to meet increased power demand until 2035, could be as low as 26.93 USD/MWh. This can be seen from a new report published by the Icelandic Energy Industry Association (Samorka). However, to realize such a low LCOE the Icelandic energy industry would have to be able to develop several projects that are currently not classified for development/utilization. When only taking into account projects already classified for utilization, the LCOE is substantially higher or 34.41 USD/MWh. Note that those figures are an estimation by contractors working for the Icelandic Energy Industry Association, and are based on cost-information from the Icelandic National Energy Agency (NEA).

LCOE for Projects in Utilization Category is 34 USD/MWh

The Icelandic government has adopted a special Master Plan for Nature Protection and Energy Utilization, where possible new hydro- and geothermal power projects are classified into three categories. The categories are protection, on-hold, and utilization. Many of the possible new energy projects have not made it into the utilization category.

Iceland-New-Power-Projects-Utilization-Category_Askja-Energy-Partners_August-2016The table at left lists the lowest-cost hydro- and geothermal power projects planned by the Icelandic government to be realized, currently classified in utilization category. Some of these projects have substantial higher LCOE than the lowest-cost projects not categorized for utilization. Note that the list is not absolute; for example the Eldvörp project may be developed before the Gráuhnjúkar project.

As can be seen on the table, the weighted average LCOE for all projects already categorized for utilization, needed to meet increased domestic demand until 2035, is close to 34 USD/MWh. Which probably explains why Icelandic energy companies are now, according to sources within the industry, offering new long-term power contracts where the tariffs are as low as 34-35 USD/MWh (common unofficial starting tariff; the advertised tariff is 43 USD/MWh).

Different Classifications May Offer LCOE as Low as 27 USD/MWh

Being able to offer new power contracts with a starting price close to 34 USD/MWh, may be quite competitive having regard to the international power market. However, Icelandic energy firms are eager to be able to develop projects that have even lower LCOE. Thus, the industry hopes to have several low-cost projects re-classified by the Icelandic parliament (Alþingi).

Iceland-New-Power-Projects-Wish-List_Askja-Energy-Partners_-Twitter-August-2016To reach the lower LCOE of 26.93 USD/MWh, several projects need to be re-classified. Meaning low-cost projects that are now classified as protection or on-hold, would be re-classified as projects in utilization category. This is illustrated on the table at below.

If the energy industry will be able to convince the Icelandic government and parliament to move certain possible projects from the categories of protection and on-hold, to the utilization category, the levelized cost of new generation needed until 2035 may drop from approximately USD 34 USD/MWh to close to only 27 USD/MWh (meaning almost 20% lower cost). So, the projects listed on the table at left can be said to reflect the wish-list of the Icelandic energy industry (the industry hoping to have all these projects listed for utilization).

With IceLink LCOE Could be Somewhere Between 28-37 USD/MWh

The two tables above also illustrate how different selection of projects affect the LCOE when/if the IceLink subsea power cable between Iceland and United Kingdom (UK) will be realized. If power will be exported from Iceland to UK, Icelandic generation naturally needs to increase more than without IceLink (as we have explained earlier here at the Icelandic and Northern Energy Portal). Depending  on which projects will/would be developed with IceLink, the LCOE for new traditional hydro- and geothermal projects could be as low as 28.49 USD/MWh (note that the overall LCOE for all the generation needed for IceLink would be higher, as it is expected that close to 550 MW of wind power would also be developed in Iceland to fulfill the demand of the cable). To reach such a low target for LCOE, 28.49 USD/MWh, the Icelandic energy industry would have to have its wish-list, as shown on the second table, accepted by the Icelandic authorities.

Holmsa-Axlarfoss

Having regard to projects currently categorized for utilization in the Master Plan, the LCOE will be much higher (with IceLink) than the said 28.49 USD/MWh. The LCOE for new traditional hydro- and geothermal stations currently categorized for utilization and needed for IceLink, is expected to be 37.21 USD/MWh (as can be seen on the first table above). Which is close to 30% more than the low-cost options on the wish-list. Thus the Icelandic government and politicians now face difficult and controversial decisions how to balance the economics and environmental issues, when deciding if changes will be made to the Master Plan. It is expected that a new version of the Master Plan may be adopted by the Parliament (Alþingi) even before the end of this year (2016).

Almost 1,000 MW of new large hydro- and geothermal power plants until 2035

If IceLink subsea HVDC power cable will be constructed, it is expected that totally 954 MW of new traditional large hydro- and geothermal plants will be needed in Iceland. These power plants would be constructed during the next two decades.

IceLink-Kvika-Poyry_New-Power-Stations_Askja-Energy-Partners-Twitter-_July-2016According to the Icelandic Master Plan for Nature Protection and Energy Utilization, the Icelandic government would most likely fulfill the increased demand by permitting the development of twelve new large hydro- and geothermal projects (as listed on the table at left). These are two hydropower projects and ten geothermal projects (or nine projects if Þeistareykir I and II would be defined as one project).

The ten geothermal projects are Þeistareykir I and Þeystareykir II in NE-Iceland, Bjarnarflag and Krafla II in NE-Iceland (Krafla I was constructed almost 40 years ago), Gráuhnúkar and Meitillinn in the Hengill geothermal area in SW-Iceland, Eldvörp and Stóra-Sandvík on the Reykjanes peninsula in SW-Iceland, and Sandfell and Sveifluháls in the Krýsuvík area in SW-Iceland. The two hydropower projects would be Blanda II in NE-Iceand and Hvammsvirkjun in Þjórsá in S-Iceland.

Eldvorp-Geothermal-Area-IcelandAll these twelve projects are already defined in utilization-category in the Master Plan for Nature Protection and Energy Utilization. However, some of these projects are somewhat costly to develop when compared to all possible energy projects in Iceland (which means there are several cheaper options available, although today they are not classified as utilization-projects, by either classified as protected or on hold).

Recently, the Icelandic Energy Industry Organization and some of the power companies in Iceland started pushing for changes of the Master Plan, to have the Icelandic government and the parliament (Alþingi) to include several other lower-cost projects in the utilization-category (we will soon explain the cost-issues further, here at the Independent Icelandic and Northern Energy Portal). As several of the cheapest options for harnessing more hydro- or geothermal power are in environmentally sensitive areas, there will without doubt be strong opposition against major changes of the Master Plan.

IceLink-Kvika-Poyry_Increase-in-Power-Generation_2015-2035_Askja-Energy-Partners-Table-Portal_July-2016If/when the IceLink project will go through, the total Icelandic power generation will have to increase enormously. Most of the new generation, or 7,400 GWh of the total increase of 12,800 GWh in annual production. would be added as exported power to the UK. In this same period (2015-2035) Icelandic general consumption of electricity is expected to increase by 1,700 GWh and power consumption by heavy industries in Iceland is expected to increase by 3,700 GWh. In total, Icelandic electricity generation would thus increase 68 percent in the period 2015-2035. For more on this subject, we refer to the table at left, and our earlier post from last July 22nd.

UK-Iceland power cable needs 1,459 MW of new capacity

A subsea HVDC power cable between Iceland and the United Kingdom (UK) would call for proportionally extreme increase in Iceland’s generation capacity. According to a new report by Kvika Bank and Pöyry, Iceland needs to build new power capacity of 2,137 MW to supply both the cable and the domestic demand. The figure for the necessary new capacity for the cable only is expected to be 1.459 MW (as shown on the table below). The rest of the new capacity is to meet expected increase in domestic demand for electricity (until 2035).

IceLink-Kvika-Poyry_New-Capacity_Askja-Energy-Partners-Twitter_July-2016The cable is normally referred to as IceLink. The report by Kvika and Pöyry (available in Icelandic only) claims that high proportion of the needed new capacity for IceLink can be met with wind power (today Iceland has very small wind power industry, as new geothermal- and hydropower projects have been the least costly way to generate electricity in Iceland). The authors of the report expect that 550 MW of new wind power would be constructed to meet demand by the cable.

The second largest increase in Icelandic power capacity would be in the form of hydropower refurbishments (which would probably mostly be new turbines in current hydropower stations). This figure is expected to be 448 MW. However, the report does not explain in a clear manner how these refurbishments would be carried out. From the report it is also somewhat unclear why it is believed that 550 MW of new wind power will be a good opportunity for the business case – instead of for example somewhat less wind power and somewhat more hydropower.

Iceland-Small-Hydro-Power-Bruarvirkjun-Project_9-MWSubstantial part of the expected new Icelandic capacity until 2035 would come from new small hydropower stations. Such new small hydropower stations, each with a capacity less than 10 MW, would in total be close to 150 MW. This would probably mean dozens of new small running-river hydropower projects in Iceland. Such projects tend to be more costly than the traditional large Icelandic hydropower projects. However, high strike price for the electricity make such expensive projects financially viable, according to the report.

According to the report, 276 MW of new traditional hydro- and geothermal power will be needed to meet demand from the cable. Most of this capacity will be in geothermal (245 MW).

IceLink-Kvika-Poyry_New-Capacity-and-Generation_Askja-Energy-Partners-Twitter-_July-2016-2When also taking increased domestic power demand into account, the total new traditional hydro- and geothermal capacity needed by 2035 is expected to be 954 MW; 124 MW in traditional large hydropower and 830 MW in traditional geothermal power. Today, Iceland has 665 MW of geothermal power (and 1,986 MW of hydropower). So the expected increase in utilization of Icelandic geothermal power is quite enormous. It should be noted that figures on traditional hydro- and geothermal power projects in the report are based on the Icelandic Master Plan for Nature Protection and Energy Utilization.

According to the report, considerable part of the new Icelandic power capacity to be developed is to meet expected increased demand from heavy industries in Iceland. Today, heavy industries in Iceland (which are mostly aluminum smelters) consume close to 80% of all electricity generated in the country. According to the report by Kvika Bank and Pöyry on IceLink, all the three aluminum smelters in Iceland will continue their operations in the coming years and decades. And the authors of the report expect that in the coming years and decades power demand of heavy industries in Iceland will increase. It is noteworthy that such assumptions could change dramatically, if for example one of the aluminum smelters in Iceland would close down.

Iceland-Geothermal-Theistareykir-areaFinally we should mention that if/when IceLink will be constructed, it is expected that the total increased power capacity in Iceland will be around 77% (increase from beginning of 2016). The increase in generation will be somewhat more or close to 68%. According to the above mentioned report, all the projects to meet this increase will be developed in the next 15-20 years. We will soon be revisiting this subject, explaining in more details what power projects will be needed to meet this high increase. Obviously such an increase will/would make Iceland’s position as the world’s largest electricity producer even more pronounced.

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!

%d bloggers like this: