Skip to content

Posts from the ‘Investing and Legal Issues’ Category

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.

Norway’s positive experience from interconnectors and open electricity market

Earlier this month, Mr. Ola Borten Moe, former energy- and petroleum minister of Norway, was in Iceland, discussing the development of the Norwegian electricity market.

In a presentation, at the Harpa Conference Hall in Reykjavík, Mr. Borten Moe gave a comprehensive insight on the matter. This open meeting took place on September 9th (2014) and was hosted by VÍB. The meeting was very well attended; in addition to the crowd at the hall at Harpa close to two thousand people watched the event live on the web (where a video recording is now available).

Iceland-Energy-Harpa-September-2014_Norway-Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-Sigurjonsson-1After the keynote speach by Mr. Borten Moe, there were panel discussion with three more participants; Ms. Ragnheiður Elín Árnadóttir, Icelandic Minister for Energy and Industries, Mr. Hörður Arnarson, CEO of Landsvirkjun Power Company, and Mr. Ketill Sigurjónsson, Managing Director of Askja Energy Partners. In his presentation Mr Borten Moe especially focused on two main issues; .Norway’s experience from the liberalization of the electricity market and Norway’s experience from the interconnectors (electric HVDC cables) between Norway and outher countries. Here we will highligt some parts of Mr. Borten Moe’s presentation. For reference, we will quote a transcript from the meeting, now accessible at the website of Landsvirkjun.

Positive economic and environmental effects

Mr. Borten Moe explained how the Norwegian deregulation of the elctricity market, which happened in the 1990’s, became a model for similar changes in Europe a decade later. He also described how interconnectors (electric cables) between Norway and other countries have benefitted both the Norwegian people and the domestic energy industry in Norway.

According to Mr. Borten Moe, the market deregulation and the interconnectors have been very positve for the Norwegian society. It has lead to more efficiency in the Norwegian hydropower industry, wich is mostly in public ownership. Also Mr. Borten Moe stated, that the interconnectors have resulted in a better access to electricity supply, which has especially been important for Norway in dry periods (as Norway’s electricity generation is almost 100% based on hydropower). Even more, the result of the more competitive electricity market has not only been the financial benefit, but also a better stewardship of the natural resources. In Borten Moe’s own words:

Iceland-Energy-Harpa-September-2014_Norway-Borten-Moe-1“We [Norwegians] experienced a huge efficiency gain in the power production industry. And not did they only turn around all the heads in all of the industry, but […] also turned around the head to everyone owning the industry. Meaning that thousands of people could be liberated or do something else and more productive for society.”

“From the mid-1990s and outwards, the [electricity generating] industry produced huge surpluses, and these are values that are put back into work for the Norwegian society through the fact that there are municipalities, counties, and the government owning it. So we build roads, we build schools, we build health care systems for the values created in our power industry.”

“I foresee Norway being willing to take a bigger place when it comes to capacity regulating systems, using our hydropower system more to regulate for necessary regulations of the European power markets being more dependent on renewables […] and also maybe even selling electricity, being a net exporter. That is basically what we do with oil and gas.“

“So far in Norway, this has been the story that I told you. It has been more well functioned markets, increased efficiency, more values created, more security of supply and now lower electricity prices because we have introduced more production capacity into the market.”

Efficiency in the electricity industry serves as natural protection

The Norwegian electricity market was tightly regulated up until the 1990’s. This meant very limited competition. Low returns were a normal condition in the electricity production and this lead to over-investment in the hydropower sector. One of the effects of the deregulation was more access to economical supply outside of the former small highly regulated markets in Norway. Thus, the deregulation served as an incentive to not utilize some of the less economic hydropower sources. Or as Mr. Borten Moe explained:

Iceland-Energy-Harpa-September-2014_Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-Sigurjonsson-panel“[My] predecessor, Eivind Reiten, who is the father of the new energy system, when he presented the new energy bill to Parliament in 1990, deregulating the whole sector as one of the first countries in the world, he said that this bill would save more Norwegian nature and water and waterfalls than any gang in chains would ever do. And he was right. So the deregulation and the market system in Norway has also been one of the biggest reforms to save Norwegian nature.”

“Norwegians strongly believe that access to electricity should be cheap, it should be unlimited, and it should be safe. And it should not disturb the nature, which basically means that you have a lot of wishes and demands and it’s not always very easy to fulfill all those wishes at once.”

“I think it is a fact that you need to consume nature to produce electricity and power but basically I would say that if you are to do it at least you need to produce a lot of money, a lot of values for society doing it.”

Competitiveness of Norwegian industries is still strong

The deregulation of the Norwegian electricity market and increased interconnectors have had fairly limited impact on industries in Norway; even energy-intensive industries. Electricity prices have indeed risen, but the competitiveness of the industry relies much more on the global market conditions rather than the electricity price in Norway.

Iceland-Energy-Harpa-September-2014_Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-SigurjonssonThe interconnectors and increased efficiency in the Norwegian electricity sector has been a success in increasing profits in the industry. One of the results is increased tax-revenues. This has created more possibilities for the Norwegian government to set up incentive schemes to positively increase investment of industries in Norway. When valuating the financial effects of the deregulation and more interconnected electricity market, the wholistic economic result in Norway has been very positive. As Mr. Borten Moe explained:

“What we have seen when it comes to our industries during the last 25 years, both through the deregulation and now with the more Nordic and European electricity market, is not that they have fled the country.”

“The world markets are far more important for the development of our power intensive industries than the electricity prices, and the electricity prices have not gone all that much up.”

“We see a new interest in reinvesting in Norway, Norwegian power intensive industries. Norwegian, our Norsk Hydro, which is our huge aluminum smelter company, is probably going to build a huge new smelter up in Karmøy [in Southwestern Norway].

Ola-Borten-Moe-Presenting-in-Norway-2011“And it is also a fact that in Norway, the power companies, the production companies, when they negotiate long term contracts, they know that they need the power intensive industries, after all, it’s their biggest clients. They use around 40 out of 120 terawatt hours, and if they go away, you would completely take the floor out of the Norwegian electricity market and the prices of the whole portfolio would go to the bottom. And they would lose a lot of money.“

“In Norway at least, I am convinced that we are not going to produce aluminum because we have cheaper prices than anywhere in the world or because we have lower regulations on the environment. On the contrary I think that we should have good prices on energy, meaning also [the aluminum smelters] should pay enough for the energy to make them wish every day they wake up to get a little better and a little bit more efficient and a little bit more competitive and it should be the same when it comes to environmental regulations.“

Stable and secure energy supply

According to Mr. Borten Moe, increased interconnection has contributed to strengthening the electricity supply for Norwegian consumers. Norway’s electricity production is close to 100% based on hydropower. In dry periods, less water in rivers and reservoirs can result in temporarily very high electricity prices and even problems in supplying enough electricity to meet the demand. The possibility of importing electricity through subsea cables and other interconnectors, makes it much easier for the generating industry to offer stable and secure supply of electricity.

Karahnjukar_Hydropower_spillwayThe interconnectors also offer the possibility to export electricity when prices at the other end of the cable (such as in the Netherlands) are high. This means that interconnectors improve yield and profitability of the utilization of hydropower resources in Norway.

With this in mind, it is interesting that on average approx. 10% of the water in the Icelandic hydro reservoirs flows through spillways. If Iceland would be connected with another electricity market (preferably fairly large market, such as the British or German markets) it could be very economic and efficient to add more turbines and utilize the spillwater to generate electricity and sell it through such a subsea cable (interconnector). With regard to this, it is interesting to consider Norway’s experience as described by Mr. Mr. Borten Moe:

“In 2003, I think we had a summation, a mind gobbling situation, because the prices of electricity peaked, and the population asked serious questions about is Norway really able to secure the amount of energy that we need when we need it, and at a price that is affordable. At that time, I would say that this was a fair question. And if you look at […] 2002, 2003 in this form, you’d also see that production was fairly low and that it was a combination of little rain, low temperature, and lack of import capacity that brought us into this situation.“

Norway-Electricity-Balance_2009-2013_SSB-table“In 99% of the cases we manage to get the electricity out on the market, use more of it but as you said, if we had been an island, well then we, the electricity that we [sold to] Sweden, Denmark, Finland, Russia, the Netherlands would have been water going over the dams.”

“The question of interconnectors in Norway is not only a question about selling electricity, or selling energy. It’s also a question about buying electricity, and it is a question about security of supply, even when the weather is dry and the weather is cold.“

Modest electricity prices for Norwegian households

In his presentation, Mr. Ola Borten Moe stated that despite increased interconnection of electricity markets the electricity price in Norway is generally less than for example on the European mainland. In the opinion of Borten Moe, the impact the interconnectiors have on the electricity price is limited in comparison with the effects of the relative supply and demand within each of the connected electricity markets. As Norway is currently increasing domestic investment in electricity generation, Mr. Borten Moe expects price reductions. In addition, Norwegians have used the revenue from the international connections to lower the electricity bill of Norwegian consumers.

Norway-Electricity-Prices_1998-2013“It is basically the balance in the market, or the lack of balance in the market, that is the most important factor for price. If we have good security of supply, a good balance in market, and slightly more production and consumption, prices will be fairly low.“

“In Norway we are interconnected, but not a part of a perfect market with the European electricity markets. There are still differences in price, between our price and the European price, and it will probably continue to be so.”

“The surplus from these interconnectors goes to lowering the electricity bills to all Norwegian consumers, including industry. So as long as they produce a surplus, it’s a direct benefit to the Norwegian household and the Norwegian industry.“

Issues to consider

The conclusion is that Norway’s experience from the increased interconnection of electricity markets has been positive. Mr. Ola Borten Moe stated that despite this fact, there are nonetheless several issues that Iceland must consider before it is possible to decide on the possible construction of a subsea cable between Iceland and Europe.

Iceland-Energy-Harpa-September-2014_Norway-Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-Sigurjonsson-HarpaBorten Moe expressed that the Norwegians emphasize the importance of utilizing their infrastructure in a sound economical manner and that further disturbance of the environment must be based on guaranteed profitability. He also mentioned that although subsea electric cables would generally have the effect that electricity prices at the markets at each ends of the cable have the tendency to be similar, at least to some extent, nevertheless it is the supply and demand in each market that is dominating in deciding the prices in each of the markets. As Borten Moe said:

“We like to have control over this kind of infrastructure, we need to know how much goes in, how much goes out. We need to keep control about how the values flow and who gets the benefits.“

Iceland-Energy-Harpa-September-2014_Borten-Moe_Ragnheidur-Elin-Arnadottir_Hordur-Arnarson_Ketill-Sigurjonsson-panel-questions

“It is possible to foresee a future when we use subsidies to get new electricity into the market, taxpayers’ money, new production capacity, and we sell this production capacity with a loss to the European markets and we lose both money and Norwegian nature. And that, of course, would be a whole different story.”

“If you have two markets and you make an interconnector, you will basically have a price that are more of the same. That’s the law of nature and the whole ratio for building such an interconnector. But it’s also fair to say that it’s also a question of what kind of capacity you introduce. In a perfect market, you would have the same price, but these are not perfect markets.”

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.

New silicon metal plant

United-Silicon-Plant-Helguvik-Iceland-illustrationA new silicon plant is being constructed in Southwest Iceland. Earlier this week, the Icelandic National Power Company (Landsvirkjun) and United Silicon announced that all conditions precedent had been lifted with regard to the power purchase agreement signed by the two parties in last March. Now, all the conditions of the agreement which included the issuance of permits, electricity transmission contracts and financing, have been fulfilled. The boards of both companies have confirmed the agreement.

According to the contract, Landsvirkjun will provide electricity to power a metallurgical grade silicon metal plant being built by United Silicon in Helguvik in Southwest Iceland. United Silicon intends to begin construction on the plant this summer (2014) and ground preparation work is already underway in the area. The facility is expected to start operations in early 2016 and will require 35 MW of power capacity. The plant will create around 70 permanent jobs, while 250 people will be working on the construction.

Hordur-Arnarson-CEO-of-Landsvirkjun-and-Magnus-Gardarsson-CEO-of-United-SiliconUnited Silicon is a company established by a conglomerate of silicon industry participants in Europe, which have taken the initiative to establish a silicon production plant for the growing consumption of their customers in Europe. Following the decision to establish the plant in Iceland, United Silicon has finalised purchase of all the shares in the Icelandic company Stakksbraut 9 Ltd., which owns the land in Helguvík. The Environmental Impact Assessment for the plant, was concluded and approved by the Icelandic Planning Agency in 2013. United Silicon has been working with the Icelandic Arion bank, which has concluded financing for the project (through senior bank debt and a forthcoming bond issue).

This is the second major industrial project announced in Iceland in this month. Few days ago Silicor Materials, a manufacturer of solar silicon and a producer of aluminum by-products, announced its solar silicon production facility to be built in Iceland. That plant also has power agreement with Landsvirkjun, which is Iceland largest energy firm and a cooperative partner with the Icelandic Energy Portal.

Silicor Materials to build large-scale solar silicon plant in Iceland

Silicor Materials, a manufacturer of solar silicon and a producer of aluminum by-products, has announced that it has selected Grundartangi in Iceland as the site for the company’s first large-scale solar silicon production facility.

Silicor-Materials_Theresa-Jester-ceoAccordig to Ms. Theresa Jester, CEO of Silicor Materials, Grundartangi is a world-class manufacturing and transportation infrastructure, and Iceland provides low-cost renewable energy, enabling Silicor to produce the only truly green silicon in the world. Further, Iceland ranks among the top aluminum producers worldwide, providing Silicor with a built-in market for its premium aluminum-based products.

Silicor Materials has engaged with an Icelandic bank lead the debt financing for the plant. Currently, Silicor’s executives are active discussions with Iceland’s Ministry of Industries and Innovation to finalize an incentives package. The facility in Iceland will have a nameplate capacity of 16,000 metric tons, with the ability to yield up to 19,000 metric tons of solar silicon each year. This will create as many as 400 full-time jobs in addition to up to 100 construction positions.

Silicor-Materials-site-at-grundartangi-icelandTo date, the silicon of Silicor Materials has powered more than 20 million solar cells, now installed and generating clean electricity worldwide. According to the company,  the manufacturing process requires two-thirds less energy than conventional processes and uses no toxic chemicals, allowing manufacturing facilities to be sited in light industrial parks. Silicor’s solar silicon is produced specifically for the solar sector, as compared to conventional processes, which were originally produced for the electronics industry and later modified to serve the solar sector.Additionally, Silicor’s premium aluminum products— master alloys and polyaluminum chloride —are feedstocks for the automotive and wastewater treatment industries, respectively.

Silicor has obtained heads of terms, and a letter of intent from two Icelandic power companies, Landsvirkjun and Orka Náttúrunnar (a subsidiary of Reykjavík Energy), to supply 100 percent renewable energy to the operations. Pending final negotiations, Silicor aims to break ground later this year (2014) and bring the plant online in 2016.

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.

Startup Energy Reykjavik investment day

The closure of Startup Energy Reykjavik program was held on Arion Bank head office the 28th may. The program is a mentorship-driven seed stage investment program with focus on energy related business ideas. After 10 intensive weeks, the final teams presented their projects to possible investors.

Startup-Reykjavik-logo-arion-bank

The Minister of Industry and Commerce, Ragnheidur Elín Arnadottir, congratulated and encouraged the teams to start new companies in this strategic sector, and remarked the strong commitment the Icelandic Government has with young entrepreneurs, announcing an increase up to 3% of the GPD for 2016 in research and development programs.

These are the main business ideas that the seven young energy companies presented to investors:

  • DTE Dynamic Technology Equipment is specialized in developing equipment for aluminum industry. They presented their latest innovation, PEA Aluminum (Portable Element Analyzer). This innovative tool allow testing aluminum properties “in situ”, avoiding long time waits from laboratory responses. Their expertise background in the sector and the big market are one of the strengths. Contact: Karl Águst Mattíasson (karl@dtequipment.com).
  • BMJ Energy makes the smartest micro-hydro stations available on the market. Able to use smaller creeks to produce electricity, with their unique control system, they maximize the energy production without the need of big reservoirs.  The company also offers real time monitoring for hydros. BMJ focuses on micro-hydro stations, from 1kw to 50kW. With already some stations working in Iceland, they see their future in the global market. BMJ energy makes every drop count. Contact: Bjarni Malmquist Jónsson (b.malmquist@bmj.is).
  • The objetive of Fjárfestingafélagið Landsvarmi is to introduce heat pumps for district heating in iceland by using the thermal heat source of the ocean. This improvement will reduce the electric consumption in cold areas up to less than half of the current figures. The potential market is the entire artic region, with four million inhabitants. Contact: Kristján M.Ólafsson (kolafsson@kpmg.is).
  • BigEddy provides accurate site assessments for wind farms by combining weather observations with state of the art models that reveal the true potential of prospective sites. Furthermore BigEddy specialises in high accuracy wind energy forecasts to enable operators to accurately predict the production of wind farms worldwide. Contact: Ólafur Rögnvaldsson (or@belgingur.is).
  • Research in geothermal fields are normally costly and time consuming. Geodrone works with unmmanned aerial vehicles (UAVs) with remote sensing technologies to provide customized measurement, a way to reduce cost, time and risk in exploratory stages. Contact: Alicja W. Stoklosa (ailcjastoklosa@gmail.com).
  • Eta-nýtni is developing a plant that produces Sodium chlorate and hydrogen, using sea water. The expected 13 millions of m3 of Hydrogen will be sell in the local market, meanwhile the 20,000t/year of Sodium chlorate will be export for paper industry in Europe. Contact: Gunnar Tryggvason (guntry@gmail.com).
  • Gerosion is a knowledge based company that specializes in solutions for the geothermal, oil and gas industries, in material testing and selection for casings and equipment, in deep high temperature and pressure wells. The company is buying a unique AutoClave pressure vessel with a specific gas injection system, for simulated testing of materials, including metals and well cement grouts, in supercritical conditions. Contacts: Sunna Ó. Wallevik (sunna@gerosion.com) and Kolbrún R. Ragnarsdóttir (kolbrun@gerosion.com).

By Contributing Author: Scherezade D. MartosHydrogeologist,  MSc Sustainable Energy.

Iceland’s growing silicon industry

The world’s silicon industry is aiming at rapidly increasing production in Iceland. This is unerstandable, as Landsvirkjun (the Icelandic National Power Company) offers very competitive electricity prices and better opportunities for long-term contracts than can be found elswehere in Europe or even in North America. At the same time, Landsvirkjun is diversifying its customer base in very positive way. Today we will be looking at the growing silicon industry in Iceland.

United Silicon production plant

In last March Landsvirkjun signed a power purchase agreement with United Silicon; a new company established by a conglomerate of silicon industry participants in Europe. Under this agreement, Landsvirkjun will provide electricity to power a metallurgical grade silicon metal production plant being built by United Silicon in Helguvík in Southwest Iceland.

Solar-PV-Market-Future-May-2013

The 20,000 ton facility is scheduled to commence operations in early 2016 and will require 35 MW of power which will be derived entirely from the renewable energy sources of Icelandic hydro and geothermal. During the past year, United Silicon has been evaluating several sites around the world to establish its new silicon production facility, there amongst in the Middle East and Malaysia. Because of the excellent conditions in Iceland, it was decided that Helguvík would be the right location for the plant.

The construction of the plant is expected to start already this summer (2014). Arion Bank will be financing the project, which is expected to take place both through a senior loan as well as junior bond. The Icelandic TSO Landsnet has  signed agreement with United Silicon regarding transmission of the energy to the upcoming plant.

Thorsil silicon metal plant

Earlier this year, the Icelandic company Thorsil and Icelandic engineering firm Mannvit signed an agreement for the engineering of a silicon metal plant that Thorsil intends to construct and operate in Southwest Iceland (at the same location as United Silicon). The plant may need close to 85 MW of power.

Mannvit-logo-largeIn December 2013 Thorsil increased its share capital in order to finance this part of the project. That same year Thorsil and municipality of Reykjanesbær signed a contract for the 16 hectare plant site at the industrial and port area of Helguvík. The plant’s environmental impact assessment (EIA) is under way. Construction og the facility is set to start in late 2014 and scheduled to commence operationsin late 2016.

The plant will have an annual production capacity of 54,000 tons per year.

 Roughly 300 people will be employed during the construction phase. Some 160 new jobs will be created once the production is up and running (in addition to jobs at related service providers and vendors).

PCC Silicon metal production plant

PCC-Silicon-Bakki-Iceland

In last March (2014) Icelandic National Power Company Landsvirkjun and PCC Bakki Silicon announced a power purchase agreement for a new metallurgical grade silicon metal production plant. The plant will be built by PCC close to Husavik in Northeast Iceland. PCC is a German industrial group, operating in 16 countries. The three main divisions of the group are chemicals, logistics and energy.

Production in the new plant at Bakki is estimated to start in early 2017 and will produce up to 36,000 tons, using 58 MW of power which will mostly be derived from renewable geothermal power in Northeast Iceland.The contract is subject to certain conditions set to be finalised later this year. The energy for the plant will be delivered by the Icelandic TSO Landsnet, as already has been negotiated between Landsnet and PCC.

Silicor Materials

The US company Silicor Materials has signed terms of a contract to build a solar silicon factory at Grundartangi in Soutwest Iceland. Silicor Material is a leading manufacturer of high-quality solar silicon, currently powering more than 20 million solar photovoltaic cells for customers around the world.

The Icelandic plant is expected to produce up to 16,000 tonnes of solar silicon annually (for solar panels). This investment will be close to 700 million USD and the plant will employ more than 400 people on completion. The construction of the plant is expected to start later this year (2014) and be operational in 2017. Although it has yet to be seen if all the projects above will be realized, there is obviously great interest in the silicon industry to gain from the positive location and business environment in Iceland.

The importance of diversifying Europe’s energy sources

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

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

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

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

Feasibility of IceLink (Iceland-UK interconnector)

The Icelandic Energy Portal is cooperating with the University of Iceland and Reykjavik University, as scientific and educational partners. Thus, we sometimes introduce research by university scholars and students. Today, we will focus on the findings in a recent thesis towards MSc in Sustainable Energy at Reykjavik University, by Mr. Randall Morgan Greene.

HR-RU-WelcomeThe title of the thesis is “Iceland-UK Interconnector: Strategy for Macroeconomic and Legal Feasibility”. According to the thesis, the UK must undertake drastic changes in their energy system if they are to achieve energy policy goals of competitive electricity prices, ensuring security of supply, and decarbonization of generation. Interconnection with Iceland, which is dominated by renewable energy, could offer an enticing, cost-competitive alternative to building new low-carbon generation in the UK and carries the potential for positive economic and technical benefits for both countries.

However, the author points out that the structure of EU and UK electricity systems and legislation places some blockades in this project attaining legal and macroeconomic feasibility. While there is some regulatory uncertainty associated with it, there is a potential that the status quo merchant interconnection investment model could be applied to the Iceland-UK in order to attain the aforementioned feasibility – especially if there is a potential for the application of the emerging legal precedent and business model framework in the Imera/ElecLink merchant interconnection exemption request (at this stage the concept of ElecLink seem to be advancing faster).

LV-HVDC-Iceland-UK-London-august-2012-1The macroeconomic feasibility of this framework could potentially be strengthened if there is a possibility to apply the UKs new Feed-in-Tariffs with Contract-for-Difference (FiT CfD) to generators in Iceland. The Imera/ElecLink framework adequately covers investor concerns over stable, long term returns while satisfactorily addressing regulator concerns over competition and third-party access rules for transmission assets. When combined with the FiT CfD program, there is a strong potential that this project can attain macroeconomic feasibility while still being feasible under EU energy legislation.

However, due to the ElecLink exemption not being due till spring 2014 and there being no clear precedent concerning the application of the UKs FiT CfD program to non-UK generators, this potential still requires more in-depth investigation. For more information, this link will take you to the whole text (pdf) of the thesis “Iceland-UK Interconnector: Strategy for Macroeconomic and Legal Feasibility”.