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Posts from the ‘Hydro Power’ Category

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!

Subsea HVDC cable between Norway and the UK

A subsea high voltage direct current (HVDC) electric cable will be constructed between Norway and the United Kingdom; the NSN Link. This was reported earlier this year (2015). And earlier this month (July 2015), it was announced that contracts have been awarded to build the cable and the converter stations.

NSN-Link_UK-Norway-HVDC-Cable-MapThe NSN Link (or NSN Interconnector) will be the longest subsea electric cable so far. The cable will connect Blyth in Northumberland on the UK side and Kvilldal in Rogaland on the Norwegian side. Today, the record length of such a cable is the NorNed cable between Norway and the Netherlands. NorNed is 580 km long, but NSN Link will be 730 km long. Thus, this new cable will increase the world record length of approx. 25%.

According to ABB, even longer submarine cables of this kind are already both technically and financially possible. Therefore it seems increasingly more likely that an interconnector between Iceland and Europe is only a matter of time.

NSN-Link-UK-Norway-HVDC-CableAs the NSN Link will be twin cabling, the total length will be approximately 1,460 km of cable. The capacity will be 1,400 MW. Owners and operators of the cable will be the Norwegian Transmission Operator Statnett and UK National Grid. The NSN Link is expected to be in operation by 2021.

By the NSN Link, Norwegians can take advantage of their highly flexible hydropower to increase the efficiency of their utilization of this great natural and renewable resource. By taking advantage of the price differences in the Norwegian and British electricity markets, and the price fluctuations within each day and night, the cable offers positive possibilities to maximize profits in the Norwegian electricity production.

NSN-Link-UK-Norway-HVDC-Cable-More-EfficiencyThe cable will also create new revenues for British electricity companies, as there will for example be an incentive for Norway to buy and import electricity from wind power farms in UK at periods when electricity demand is low. This creates opportunity to save water in the Norwegian reservoirs, which then will be used for generating electricity and export it to the UK when power prices are high.

An electric cable between Iceland and the UK would create similar opportunities. Currently, the pros and cons of such a cable are being considered by the Icelandic Ministry for Industry and Innovation. A further governmental decision on the matter may be expected early next year (2016).

Norway’s subsea interconnectors

The following article is by Mr. Björgvin Skúli Sigurðsson. Mr. Sigurðsson is the Executive Vice President of Marketing and Business Development of Icelandic power company Landsvirkjun. The article was originally published in Icelandic, in the Icelandic newspaper Morgunblaðið. This translation into English is by Askja Energy Partners:

Norway’s subsea interconnectors

According to Norwegian energy policy, the resources are utilized to create maximum value for the country. Norwegians sell oil on the international market and with new subsea interconnectors they are increasingly becoming important players at the European electricity markets.

Bjorgvin-Skuli-Sigurdsson-VP-LandsvirkjunThe NorNed cable between Norway and the Netherlands is the world’ longest submarine interconnector, 580 km long. It started operating in 2008, after more than two years construction period. Today, four submarine electric cables link Norway and Denmark, the most recent one from last March (2015). Danes have constructed  numerous wind parks and when the wind is not blowing in Denmark (thus limited electricity production) the links to Norway are used to transport  hydropower between the countries.

Three submarine cables being planned 

Norwegians now have three submarine cables under planning. The largest project is the NSN-cable between Norway and the United Kingdom (UK). It will be 700 km long, thus becoming the world’s longest subsea interconnector when it starts operating in 2020. The NordLink-cable between Norway and Germany will be 570 km. Like the NSN-cable, the NordLink  is scheduled to become operational in 2020. The third project will be one more cable between Norway and UK, the NorthConnect.  The Norwegian state-owned energy company Statkraft expects that other cable projects of similar size will take place before 2025.

Constructing subsea cables is a complex issue. For example, the NSN-cable will cross at least 14 gas pipelines which extend from drilling rigs in the North Sea. Also the cable route must take notice of the busy marine transports and fishing.

Electricity prices in Norway

Norwegian households are highly dependent on electricity, as most buildings have electric heating. In dry periods, when water in the Norwegian reservoirs is limited, the electricity price can be volatile. It may sound strange to some people, but the Norwegians have emphasized the importance of having subsea interconnectots to their neighbouring countries to keep electricity prices down, especially as a result of the high electricity prices during the drought of 2003. According to Norwegian authorities, electricity prices in Norway after 2008 would have been higher if the NorNed cable would not have come into operation.

Danish interconnector

Recently Denmark announced plans for a subsea link to the UK. The idea behind the project is to transport wind power from Denmark to the UK, and also use the interconnectors from Norway and Sweden  to Denmark, to transfer the flexible Norwegian and Swedish hydropower through Denmark to the British electricity market.

The author is VP of Marketing and Business Development at the Icelandic power company Landsvirkjun.

Ireland and United Kingdom are best options for electricity exports from Iceland

It would be a positive step for Europe to become connected with Iceland by a subsea electric cable. Compared to other countries in Europe, Iceland has low electricity generation costs. In addition to the attractive electricity price, the Icelandic hydro- and geothermal resources offer very reliable and stable generation.

With this in mind, it is interesting that Iceland’s next door neighbours are electricity markets where the electricity prices are among the highest in Europe. Here we are referring to Ireland and the United Kingdom (UK). What is also important, is the fact that UK and Ireland are much closer to Iceland than for example Denmark, Holland (the Netherlands) or Germany. It is obvious that a subsea electric cable between Iceland and the European mainland would be substantially more expensive than to UK or to Ireland. There fore there are strong arguments for Iceland to consider Ireland or the UK as the best financially feasible options for such a connection.

UK is an excellent option and Ireland even better

UK-Ireland-Electricity-Prices-Industrial-2013_5-3-1

The two graphs (at left and below) show the electricity prices in 2013 in selected European countries, in USA and in Japan. The blue portion of the bars is the cost of electricity including transmission cost. The white bars show the price of the electricity when all the relevant taxes have been added (such as VAT and environmental taxes).

The first graph (chart 5.3.1) shows the electricity price to industries while the second graph (chart 5.5.1 below) is the price to households  (domestic prices), The average price of electricity (excluding tax) to industries in the UK in 2013 was close to 8 pence pr. kWh in 80 GBP/MWh. And the price to households in the UK in 2013 was close to 15 pence pr. kWh (150 GBP/MWh). In Ireland the prices were substantyally higher.

UK-Ireland-Electricity-Prices-domestic-households-2013_5-5-1

In 2013, wholesale electricity prices in the UK were close to 45% of the total price. Thus, the average wholesale electricity cost for industries in the UK in 2013 was close to 35 GBP/MWh, and for households the cost was close to 65 GBP/MWh. This means that the wholesale price of electricity to industries in the UK in 2013 was being close to equivalent of 55 USD/MWh. And the wholesale price to households was close to 100 USD/MWh.

According to Platts, the average wholesale electricity price in the UK in 2013 was close to 45 GBP/MWh, which is more than 70 USD/MWh. In Ireland the average wholesale electricity price in 2013 was higher or close to being equivalent to 80 USD/MWh.

UK-and-Ireland_-Electicity-Prices-Wholesale-2013

For comparison, in Iceland about 80% of all electricity produced is sold to aluminum smelters and other energy intensive industries, at a price close to 25 USD/MWh. If Iceland could sell electricity to UK, the revenues pr. every sold unit of electricity could be close to triple the current price in Iceland. Of course there would be a high transmission cost via subsea cable; probably close 35-40 USD/MWh. Still, the added profits would be substantial – if the electricity would be sold to UK or Ireland at 70-80 USD/MWh . At the same time, the UK or Ireland would get access to reliable renewable energy.

Will the UK be interested in Icelandic CfD’s?

UK-Decc-Energy-Policy-CfD-Strike-Prices-Cover_dec-2013At first glance, one might consider Ireland more interesting market for Icelandic electricity than the UK. It is indeed so that the price of electricity in Ireland would probably justify a submarine cable between Iceland and Ireland. However, the energy policy of the UK makes the UK more attractive for Icelandic electricity suppliers.

The energy policy of the British government involves ensuring new energy projects, by securing a minimum price for the electricity from new generating projects, in special contracts called Contracts for Difference; CfD’s. The minimum electricity price in such contracts (called strike price) is quite high. For electricity from geothermal and hydro power sources the strike prices are equivalent to 155-220 USD/MWh.

UK-Decc-Energy-Policy-CfD-Strike-Prices-Table_dec-2013It is also interesting that the strike price for electricity from new offshore wind farms is equivalent to 220-240 USD/MWh. It is likely that the UK could negotiate with Iceland for a strike price that would be substantially lower, thus saving Uk’s taxpayers money. What the exact price would be would be decided in negotiations between Iceland and the UK, but it could be somewhere between 155-240 USD/MWh. This option should be interesting to both Iceland and the United Kingdom.

UK energy investors looking towards Iceland

Over the next few years billions of pounds are expected to be invested in new energy projects in the United Kingdom (UK). One of the projects may be a HVDC electric cable between UK and Iceland.

First step: 12 billion GBP for wind and biomass projects

Earlier this year (2014), the UK government made Contracts for Difference (CfD) with eight renewable energy projects, with a total capacity of more than 4,500 MW. Five of these projects are large wind farms (more than 3,100 MW in total capacity) and the three others are biomass projects (close to 1,400 MW).

The list of participants e.g. includes the Danish energy firm Dong, Spanish Repsol, Scottish SSE, and Norwegian Statkraft and Statoil. The eight projects are expected to contribute around 15 TWh annually, which will be 14% of the expected renewable electricity to be added to the British electricity generation by 2020.

Together, these contracts open the door for a private investment of 12 billion GBP in the British renewable energy sector. However, this is only the start of a much larger energy investments in the British energy system. In total, these investments are estimated to be about 110 billion GBP by the year 2020, including 40 billion GBP in renewable electricity generation projects.

Groundbreaking policy and legislation

The investments mentioned above are possible due to the recently approved energy policy and electricity market reform of the UK. The recently adopted Energy Act calls for higher proportion of renewable energy and the strengthening of energy security of the UK by increased access to more diversified energy production.

DECC-cfd-strike-prices-december-2013-cover

This is a very interesting step by the UK. The new energy policy introduces special Contracts for Difference (CfD) to replace earlier system of incentives. The CfD sets certain strike prices for electricity, which is a pre-defined long-term price. This system will substantially limit the risk of new power projects and be an important driver for projects giving access to more reliable power.

This may offer a variety of opportunities, such as for Icelandic engineering firms with geothermal expertise. Even more interesting, may be the possibility of a submarine electric cable between Iceland and Great Britain.

Nordic companies among the first to benefit

The new British energy policy and electricity market reform is already being implemented. It is an interesting fact that energy firms from the Nordic countries are the main players in four of the first eight projects involving CfD’s. These are the Danish Dong Energy and the Norwegian Statoil and Statkraft (the latter company is wholly owned by the Norwegian state).

All of the four “Nordic projects” are new offshore wind power parks, with a total capacity of close to 2,600 MW (CfD has also been awarded to a fifth wind park – Beatrice – with a capacity of 664 MW). The projects have gained authorization by the EU Commission, thus fully in consistency with competition and state aid rules. And the fixed strike price is 140-155 GBP/MWh (equivalent to approximately 220-250 USD/MWh).

New power plants and new submarine cables

The new investments, according to UK’s energy policy, will primarily be in new power plants and development of electricity transmission and distribution systems. In the coming months, the policy will be further developed and the UK Department of Energy & Climate Change (DECC) will continue to prioritize projects.

IceLink-HVDC-Disruptive-Capital-Atlantic-Superconnector-Map

The CfD-system applies to energy projects in Britain. However, the British energy policy also focuses on special arrangements to increase UK’s access to energy and electricity from abroad. This will e.g. happen with new cable connections (submarine electric cables) between the UK and its neighboring countries.

For the UK it will be especially important to gain access to flexible hydropower, to balance the electricity system. A HVDC cable between Iceland and UK could be an important part of such balancing and create high value to both countries. Such a project would also attract the interest of private investors, as already can be seen on the website of Disruptive Capital.

IceLink offers flexibility rather than base-load power

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

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

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

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

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

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

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

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

HVDC-Interconnectors-Report-Policy-Exchange-UK-2014-3

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

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

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

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

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

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

Win-win situation

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

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

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

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.

Upcoming silicon plant and new hydropower station

The National Power Company of Iceland, Landsvirkjun, will provide electricity to a new power a metallurgical grade silicon metal production plant being, built by German PCC Group. The plant is to be constructed in Bakki near Húsavík on Northeast Iceland.

PCC-Silicon-logoPCC Group is a privately owned industrial holding and participation company based in Duisburg in Germany. The group operates in 16 countries with a total workforce of around 2,800 employees. PCC’s silicon plant in Iceland will be a 32,000 ton facility and is scheduled to start operating in early 2017. It will require 58 MW of power, which will be derived entirely from the renewable energy sources of Icelandic hydro and geothermal power. The contract is subject to certain conditions set to be finalised later this year. These include the appropriate licensing and permit requirements, financing for the project, as well as the approval of the Boards of both parties.

The Icelandic Landsvirkjun is one of Europe’s leading renewable energy companies. Landsvirkjun is Iceland’s largest generator of electricity, currently operating 16 renewable hydro- and geothermal power stations, producing approximately 75% of all electricity in Iceland. The company has for over 45 years generated renewable electricity from hydro, geothermal and onshore wind power sources.

Budarhals-Landsvirkjun-Hydropower-Iceland-WinterRecently, Landsvirkjun was also starting up its newest hydropower station in Iceland. This is the Búðarháls Hydropower Station, and the official start-up ceremony was on March 7th (2014). The Búðarháls Station is Landsvirkjun’s 16th power station and the seventh largest power station owned and operated by Landsvirkjun. This new station utilises the 40 metre head in the Tungnaá River from the tail water of the Hrauneyjafoss Hydropower Station to the Sultartangi Reservoir. The installed capacity of the Búðarháls Hydropower Station is 95 MW and it will generate approximately 585 GWh of electricity per year for the national grid. Most of the electricity added by Búðarháls has already been purchased by long term agreement with Rio Tinto Alcan’s smelter in Straumsvík in Southwestern Iceland.

Successful energy summit in London

The Iceland Energy Summit was held in London on November 1, 2013. The event was organized by the British-Icelandic Chamber of Commerce (BICC) and hosted by Bloomberg.

Iceland-UK-BICC-meeting-Nov-2013-CHThe event provided insight into Iceland’s renewable energy resources, the birth and growth of the data storage industry in the country, as well as the search for offshore oil on the Icelandic continental shelf. Strong focus was on a plan for an undersea power cable to connect the British and Icelandic grids. This plan or proposal is attracting strong investor interest, according to Mr. Charles Hendry, the former Energy Minister of the United Kingdom and current Member of Parliament.

Mr. Hendry, who promoted the project, said that there’s “no doubt that in Britain the political will is there, so if there is a political will in Iceland, we want to work together”. According to Mr. Hendry the project offers low-risk, predictable returns attractive to institutional investors including pension funds. The UK is preparing to change policies needed for the cable, Mr. Hendry said.

In May last year (2012), Mr. Hendry helped spur an agreement between Iceland and the UK to explore proposals regarding the cable (sometimes referred to as the IceLink). The cost of the link is still not clear, but if it will go ahead it could probably be completed within 7-10 years.. It would extend more than 1,000 kilometers,  thus be longer than any of the subsea electrical cables currently in operation.

Iceland-UK-BICC-meeting-Nov-2013-Landsvrkjun-Hordur-Arnarson-slide-7Electric cables like that already connect the grids of Norway and Britain to the Netherlands. The Dutch grid operator (TenneT) is planning links between Germany and Norway and the Netherlands and Denmark. There are already connections of this type between Britain and France, between Vancouver island and Canada, between Sardinia and Italy, and between Tasmania and Australia, to name a few well known examples .

According to Bloomberg, Mr. Andrew Perkins, a partner in energy and environmental finance at Ernst & Young, stresses that these assets are attractive to financiers, suggesting that the capital costs to build the IceLink should be financed by the private sector. As close to 100 percent of all electricity generated in Iceland comes from natural renewable sources, and several promising renewable energy options are still unharnessed, the IceLink offers great opportunity for the UK to access substantial green power at a very competitive cost.

Here, at the Icelandic Energy Portal, we will soon be covering the Energy Summit in more details. Note that the slides (and videos) from the event can be downloaded from the website of the BICC.