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Posts from the ‘Northern Energy’ Category

Joint statement from UK–Iceland Energy Task Force

In October 2015, the governments of UK and Iceland agreed to create a special Energy Task Force to look at the benefits of a subsea interconnector between the two countries. The project is referred to as IceLink.

Following their work, the energy task force issued a statement on 12th July 2016, stating that their work was concluded and they would leave the decision to continue the work of the energy task force with their respective governments. The text of the statement (unsigned) can also be seen on the website of the Icelandic government. The title of the statement is “Joint statement from UK – Iceland energy task force“, and it reads as follows.

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The idea of an electricity interconnector between the UK and Iceland has been explored on various occasions in recent years. At a meeting between Prime Minister David Cameron and Prime Minister Sigmundur Davíð Gunnlaugsson in Reykjavík on 28 October 2015 it was agreed to explore further the possibility of an interconnector with initial discussions between the two Governments which should be concluded within six months.

Subsequently, a UK – Iceland Energy Task Force was established to carry out the discussions. The Task Force agreed that the discussions should be an early stage exploration of the issues which will inform decisions by Ministers on the extent of further work. The proposed areas for discussion between the two Governments were identified as interconnector models, regulatory treatment, financing and general impact assessment.

The objective of the UK – Iceland Energy Task Force was to consider whether further investigation of an interconnector between the UK and Iceland might have merit through identifying common ground between the two parties. It was a mutual understanding between the parties that the Task Force should conclude its work in May 2016.

Over the course of recent months, the two parties exchanged information on work already conducted, or in progress, concerning a possible interconnector between Iceland and the UK. The UK gave presentations on the UK electricity system, UK energy policy, interconnector projects, interconnector regulatory approaches and renewable support mechanisms. Iceland presented an overview of the work streams being carried out in relation to an interconnector and an overview of the Icelandic energy sector and energy policy, along with other issues related to the concept of an interconnector.

A large part of the discussions within the Task Force was on project economics, regulatory treatment and general impact assessment. Iceland presented a recent Cost Benefit Analysis and Impact Assessment, that they had commissioned on their own behalf, on an interconnector between Iceland and the UK. The UK delegation provided valuable feedback and comments on this report.

The Task Force discussed the potential mutual economic benefit for both parties in the project and the eligibility of support schemes. The Task Force acknowledged that a renewable export business model, with an appropriate support mechanism, could provide a viable business case and be compatible with a competitive market for low carbon electricity production. The interconnector‘s project costs could also be subject to an element of competition.

The Task Force acknowledged that the UK – Iceland interconnector concept is in many aspects different from other interconnector projects and that revised regulatory models may need to be considered as part of a further phase of work.

The Task Force agreed that a decision on whether to undertake a second phase of work is outside the scope of the Task Force. However, if a decision is taken to continue with a second phase of work, this could include further government-to-government discussions and investigation into regulatory approaches, revised regulatory models and a possible joint cost-benefit analysis to better understand the project economics and assumptions.

The Task Force is of the opinion that the work conducted in the last six months achieves the mandate of the group and should provide valuable information in order to assist in any decision making on the next steps of the potential UK – Iceland interconnector.

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NB: Iceland had general elections in October 2016, and now the country has a new government. Since then, there have been no formal talks between the governments of Iceland and UK on the IceLink cable project. This is not surprising as it is unclear what will be the energy policy of the UK after the Brexit.

IEEFA presents IceLink to be operational in 2027

In a new report, the Institute for Energy Economics and Financial Analysis (IEEFA) introduces IceLink HVDC electric cable between Iceland and Britain as becoming operational as soon as 2027. The IEEFA conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable energy resources.

One of the core findings in this new report, titled Electricity-Grid Transition in the UK: As Coal-Fired Generation Recedes, Renewables and Reliable Generation Can Fill the Gap, is that the UK grid is coping well with a coal phase-out, but requires greater investment in reliable generation to back up renewable power than the country is currently making. The report also explains how the UK is currently encouraging new investment in interconnectors; subsea cables linking its grid to neighbouring countries. The authors of the report claim such investment to be overdue, given present interconnection stands at 4GW, or 5% of existing generating capacity; just half the 10% benchmark proposed by the European Commission.

According to the report, interconnection can smooth variability in UK wind power by reaching into wider weather systems, and it can diversify generation. For example, the UK can receive electricity from hydropower stations in Norway and Iceland, where peak supply matches UK’s peak demand in winter. Also, inetrconnectors open access to various generation technologies elsewhere in continental Western Europe and to wind power in Ireland. In the UK, interconnection can lead to consumer savings of GBP 1 billion annually as a result of cheaper electricity imports, rather than having to build up all the necessary capacity within the UK.

The table at left is from the said report by IEEFA, explaining how potential electricity imports through interconnectors may offer UK an additional annual supply of 49 TWh by 2025 (if all projects proceed). This would be equivalent to more than a third of UK gas generation in 2016. One of the listed interconnector-projects is the IceLink cable, which would add close to 5 TWh. According to Natinal Grid, the IceLink is planned to be a 1,000 km long subsea cable with a capacity of 1,000 MM.

National Grid expects that the landing points for the cable will be in Northern Scotland and Southeastern Iceland. It will connect the electricity networks of Iceland and Great Britain, enabling electricity to flow in both directions and allowing electricity to be traded between the two countries.

As mentioned earlier, the IceLink-project is currently projected to be finished in 2027. According to National Grid it will make a positive contribution to European energy-policy objectives, helping Great Britain towards a minimum 10% interconnection target, facilitating renewables integration, reducing reliance on fossil fuels, and resulting in socio-economic welfare benefits. More information about IceLink can be seen on the website of Icelandic national power company Landsvirkjun.

EU supports 1,400 MW NorthConnect HVDC cable

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

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

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

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

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

Landsvirkjun and Century Aluminum agree on new power tariff

new power contract between Landsvirkjun and the Norðurál smelter of Century Aluminum at Grundartangi in Iceland, was negotiated in 2016. Landsvirkjun describes this contract as an extension of the original contract from 1997. That original contract was amended in 1999, extending the validity of the original power contract to 2019.

lv-nordural-ceo-new-power-contract-2016The new extension, concluded in May 2016, changes the terms of the older contract and will enter into force in 2019. This is a fairly short-time contract/extension, expiring already in 2023. This short time frame of the contract is interesting, as all the earlier Icelandic power contracts with aluminum smelters in Iceland have applied for much longer periods (usually from 20 to 40 years).

The new contract-terms include a major change of the pricing method for energy delivered to Norðurál. From 2019, the tariff will be linked to the market price for power in the Nordic power market (Nord Pool Spot; NPS). This replaces the previous price-link to aluminum prices at the London Metal Exchange (LME), which is used in the current power contract  from 1997/1999.

According to the EFTA Surveillance Authority (ESA), the electricity tariff in the new contract is “tied” to the monthly “market price for power in the Nordpool Elspot power market”. This clear reference to Elspot may not necessarily mean that the new price will be exactly the same as the spot market power price on NPS. However, it is clear that this new pricing method, replacing the previous/current price-link to aluminium price, will make the revenues of Landsvirkjun more aligned with power prices on the Nordic and European power markets. What is also new, is that this being the first power contract with an aluminum smelter in Iceland not having the transmission cost included. Norðurál will need to pay the transmission cost directly to the Icelandic TSO; Landsnet.

nordural-century-aluminum-smelter-grundartangi-iceland-in-winterLinking the power tariff to electricity prices abroad is a new approach in the pricing of Icelandic electricity to aluminum smelters.  This new approach is a clear sign of important changes in the Icelandic power market, moving towards the development on nearby power markets in NW-Europe. The result will probably be a doubling of the current power tariff to the Norðurál smelter, when the new extension comes into effect in 2019 (depending on price development in the Nordic power market).

The new pricing method may explain why the contract was only made for a four-year period (2019-2023). When negotiations between Landsvirkjun and Norðurál were ongoing, in 2015 and early 2016, the Elspot power price at NPS was very low (close to 21 EUR/MWh on average in 2015). The management of Norðurál most likely pushed for aligning the power tariff to the then current low electricity price in NW-Europe and/or N-America, in the hope of avoiding a higher tariff, like Landsvirkjun agreed with the ISAL smelter in 2010. The ISAL smelter in Straumsvík, owned by Rio Tinto, is now paying more than 30 EUR/MWh and a little under 30 EUR when transmission cost is excluded.

Although NPS did experience very low power price in 2015, it is quite possible that the spot price on the Nordic power market will rise in the coming years. Already in 2016, the average Elspot price on NPS was close to 27 EUR/MWh (up from 21 EUR/MWh the year before). So it was obviously quite risky for Norðurál to make a long-term contract based on the Elspot price; thus agreeing on a four year contract only.

Icelink-HVDC-UK-NG-nov-2013-4Landsvirkjun may also have wanted to avoid a new long-term contract, as the necessary power capacity is already available (no new investment in power generation is needed to deliver the power to the Norðurál smelter). The main reason for such a strategy of Landsvirkjun – going for a short-term contract – is the possible construction of an electric HVDC cable between Iceland and Britain (often referred to as IceLink).

If such a subsea interconnector will be developed in the near future, it might become operational around 2025 or few years later. Such an interconnector would offer Landsvirkjun the opportunity to sell power into the high priced electricity market on the UK.  Thus, a short time power contracts makes sense for Landsvirkjun, at this point, rather than making long-term commitments regarding electricity sales to aluminum smelters. This reflects the current strategy of the Norwegian power company Statkraft, which also is focusing on the spot market development rather than making new long-term power contracts.

We at the Icelandic and Northern Energy Portal will soon be analysing this new contract/extension of Landsvirkjun and Norðurál in more details, putting the new tariff into context with other new power contracts in Iceland and Canada. Stay tuned.

The green transformation of DONG Energy

Danish energy firm DONG Energy is in the process of selling all its oil and gas business. This is part of a major strategy where DONG is to lead the way in the transformation to a sustainable energy system and to create a leading green energy company.

Away from oil and gas

DONG’s oil and gas business on the continental shelf of Denmark, Norway and the United Kingdom has for decades been a core part of the company. According to Henrik Poulsen, CEO of DONG, the company now aims at selling all its oil and gas fields as one package, already this year (2017).

It has not been revealed who the potential buyer is. According to Danish media the most likely candidates are Maersk Oil and the US private equity fund EIG Global Energy Partners. EIG is the investor behind the company Chrysaor, which few days ago bought a variety of oil and gas fields in the North Sea from Shell.

Focusing on renewable power generation

dong-energy-green-transformation_2016DONG is also transforming its power production, by out-phasing coal. Not long ago coal used to be the overwhelming source for DONG’s (and Denmark’s) electricity- and heat generation. During the last ten years, DONG has reduced its coal consumption by 73% and is now aiming at phasing out coal completely from its power and heat generation by 2023. This will happen by replacing coal with sustainable biomass, at the same time as DONG will increase wind power generation.

dong-energy-mix_2006-2016-1This means that in just one decade, DONG Energy will have gone from being one of the most coal-intensive utilities in Europe to being among the greenest energy companies on the continent, being able to compare it self with Norwegian Statkraft and Icelandic Landsvirkjun.

Thus it may be no surprise that DONG now has launched a competition where Danes can try out their knowledge on green energy – and the winner will be awarded a week travel trip to Iceland. Iceland is of course the only European country fulfilling all its electricity consumption with renewable power generation. In addition, most of Iceland’s heating is supplied by utilisation geothermal sources, making Iceland the greenest energy country in Europe.

dong-energy-award-iceland-trip_2017

Does Facebook not want truly GREEN data centers?

facebook-zuckerberg-datacentre_screen-shot-2017-01-22-at-18-14-02Two years ago, we where wondering if Apple does not want truly green data centers. Now we might ask if this also applies to Facebook. Because it seems that Facebook is in fact not to keen on truly green data centers.

According to an announcement published in last January (2017), Facebook is going to build a new data centre in the Danish city of Odense, on the island of Funen (Fyn) west of Copenhagen. At a press conference with local authorities, the California-based tech company said this data centre to be the companies third such facility outside of USA.

And Facebook’s director of data center operations, Niall McEntegart, was quoted saying that “the Odense data centre will be one of the most advanced, energy-efficient data centers in the world”. It was also stated by Facebook management that the Odense data centre will be powered exclusively by renewable energy.

This is going to be an investment of more than USD 100 millions, and will provide 150 jobs when operational (in 2020). But in fact this new data centre will hardly be powered by 100% renewable energy.

denmark-gross-electricity-consumption_1990-2015-with-forecast-to-2025_table-from-energinet-denmark_sept-2016Surely Denmark generates substantial amount of its electricity by utilising renewable sources (mostly wind). Also, Denmark has interconnectors with major hydro power countries, like Sweden and Norway. However, the fact is that very large share of the electricity people and businesses in Denmark consume, is generated by burning fossil fuels (mostly coal).

According to the most recent information from the European Union, (see table here), the renewable’s share of Denmark’s gross electricity consumption in 2014 was close to 45 percent. More recent information from the Danish transmission system operator (TSO), Energinet, tells us that the share of renewable energy in net generation of 2015 was close to 67%. And according to Energinet, even in 2025 fossil fuels will be an important part of Denmark’s power mix (as explained on the graph at left).

facebook-data-centre_odense-denmark-electricity-supply-mapHaving regard to the facts, it is hardly correct to say that a data centre located in Denmark, connected to the grid.  will be run entirely on renewable energy sources only. Obviously Facebook intends to buy so-called Green Certificates, which are a tradable commodity proving that certain amount of electricity is generated using renewable energy sources only. However, this does not mean that the electricity being consumed by the buyer of the certificate is from renewable sources – it might as well be from a coal power station in Denmark or from a nuclear plant in Sweden.

The result is that every data centre in Denmark, connected to the grid, will in fact be using electricity from all kinds of power plants, including for example coal power stations. If Facebook truly wants to run its data centre on 100% renewable energy, the company should connect the data centre to a grid that only delivers electricity from renewable sources. In Europe probably no grid comes as close to this as in Iceland.

Iceland produces close to 99.9 percent of its electricity by utilising hydro- and geothermal power (and some wind power). So instead of claiming its data centre in Denmark being powered by 100% renewable energy, Facebook should consider Iceland as the location for its next data centre in Europe.

Surprising claims about IceLink in the Financial Times

The Financial Times (FT) has published an interesting article, titled City financier urges UK support for £3.5bn Icelandic power cable – Plan to send geothermal electricity 1,000 miles under the sea to north-east England. The article is written by Andrew Ward, Energy Editor at Financial Times.

edmund-truell-icelink-hvdc-cableAccording to the article, the City financier Edmund Truell has “plans to open a £200m cable factory in the north-east of England if the government backs his project to build a £3.5bn undersea cable connecting the UK to geothermal power from the hot springs of Iceland.”  Actually, the article draws up a somewhat surprising and/or imprecise picture of the project, as explained here:

IceLink is indeed an interesting project. But is doubtful that Mr Truell’s proposal is the “most detailed” plan on the cable to emerge, as stated in FT. So far, the most detailed official document on the project yet, is a recent report by Kvika Bank and Pöyry (the report was published last summer but is in Icelandic only). Numerous of the comments made by Mr. Truell do not align well with this report.

According to Mr. Truell’s comments to the FT, “Iceland could supply 1.2 gigawatts of baseload power”. From this comment it seems that Mr. Truell has somewhat unclear understanding about how the project is seen by the governments of Iceland and UK.

The plan is not really sending “geothermal electricity” to UK. Nor will the cable serve as access to base-load power, but rather be access to a flexible hydro power source. Readers should note that Iceland’s power system is mostly based on hydropower. The idea regarding the cable is mainly to utilize large hydro reservoirs to offer access to highly flexible renewable power source.

Of course part of the power would be from geothermal sources (and also from onshore wind power which is likely to be constructed in Iceland). But the main power source for the cable would/will be the hydropower. In fact Iceland’s main problems in the power sector now relate to too fast construction of geothermal power plants. As was recently explained here on the Icelandic Energy Portal.

Iceland-Europe-HVDC-Interconnector-Landsvirkjun-Map_Askja-Energy-PartnersIt is possible that the cable would have a capacity of 1,2 GW. However, it is somewhat imprecise that the cable would offer a “supply of 1,2 gigawatts”, as Mr. Truell says to the FT. What really matters is how much electricity would be sent through the cable. According to plans introduced in Iceland, the annual amount is likely to be close to 5,000 GWh (5 TWh). This is the important power figure, rather than the capacity of the cable (which has not yet been decided and might be somewhat lower than the claimed 1,200 MW).

The length of the cable might indeed become 1,000 miles, as Mr. Truell is quoted to say in FT. But according to plans presented in Iceland it is more likely that the length would be closer to 750 miles. In the end the length will of course greatly depend on where the cable will/would come on land in Great Britain. No such decision has been taken yet.

According to reports presented in Iceland, the cost of the cable is not expected to be 3.5 billion GBP, as says in the FT article, but rather close to 2.4 billion GBP (central scenario). Total cost of the whole project would of course be a lot higher figure, due to the cost of new power plants and new transmission lines within Iceland. According to the Icelandic ministry of Industries and Innovation the total cost of the whole project would be 5-6 billion GBP (ISK 800 billion).

According to Mr. Truell, UK would get the electricity from Iceland at about 80 GBP/MWh. This figure is probably 25% to low (when having in mind the cost of the transmission from Iceland to UK). According to Pöyry, likely price would probably not be lower than close to 100 GBP/MWh.

urridafoss-vrirkjunIn the article in FT, it says that Iceland has offered “surplus electricity” to aluminium smelters, and Mr Truell says there is “still plenty left for export”. In reality the situation is a bit more complex. Currently, there is very little surplus-electricity in the Icelandic power system. It is expected that IceLink would need close to 1,500 MW of new capacity.  To be able to supply the subsea interconnector with electricity, Iceland would need to build numerous new and quite expensive power plants. Such plants would harness hydro, geothermal and wind. Also Iceland would need to strengthen its transmission system. So the cable would mean huge new investment in the Icelandic power system and the project is only partly based on “surplus” electricity.

An electric subsea HVDC cable between Iceland and the UK is indeed an interesting opportunity, such as to increase the amount of reliable and flexible renewable energy in UK’s power consumption. And it would be wise for the UK to make the project a priority. However, note that Iceland is not at all an endless source of green power. And the people of Iceland will hardly have much interest in such a project unless receiving strong economical gains from it. In addition the project would/will be a major environmental issue in Iceland, due to impacts from constructing new power plants and transmission lines. And to avoid misunderstanding about the project it is extremely important to have the facts right.

Facts or fiction about IceLink?

The IceLink subsea interconnector is a proposed power cable that would connect the power markets of Iceland and Great Britain (UK). On the website of Icelandic national power company Landsvirkjun, the rational for the IceLink cable is described. In this article we will fact-check this rationale:

Claim no.1:  IceLink lifts the isolation of the Icelandic electricity market and it assists Europe to achieve interconnection capacity targets amounting to 10% of installed capacity, and it opens up new markets for both Icelandic and UK suppliers.

  • Correct: The Icelandic power market is isolated. With IceLink, that would change.
  • Correct: IceLink would be part of Europe’s projects to achieve interconnection capacity targets.
  • Correct: IceLink do open up new markets for Icelandic and UK suppliers.

The EU Commission has set a target of 10% electricity interconnection by 2020. This means that all EU countries should construct electricity cables that allow at least 10% of the electricity produced by their power plants to be transported across its borders to its neighboring countries. However, IceLink will not be ready by 2020. Thus, it seems likely that the IceLink project would rather become a part of EU’s new energy policy and targets for 2030. In fact, this development or process has already started.

lv-hvdc-subsea-power-cables-mapThe EU Commission has already proposed to extend the interconnection target from 19% to 15% by 2030. The targets will be reached through the implementation of Projects of Common Interest. A new special expert group on electricity interconnection targets established by the EU Commission  had its first meeting in Brussels on 17th and 18th October 2016. It is yet to be seen what will become the new interconnection target for each of the EU member states, but so far the UK’s share is only less than 5%. In 2015 domestic installed capacity in GB was 91 GW, while total capacity of interconnectors between UK and other countries was 4 GW.

Regarding IceLink opening up new markets, it should be noted that the general power market in Iceland is very small compared to GB or UK. Thus, for suppliers in the UK the Icelandic power market is probably not very interesting. However, it might be positive for suppliers of wind energy in Scotland to have access to Iceland, as we will now explain:

Claim no.2:  Through bi-directional flows, IceLink could potentially reduce the cost of managing constraints between northern GB and the major consumption centres further south as energy is directed to Iceland at times of excess wind power generation in the north, stored in hydro reservoirs, and returned at times of lower wind output.

  • Correct: IceLink would open up the possibility to store for example Scottish wind power in Iceland’s reservoirs.
  • Correct: During time of low wind in Scotland, Icelandic hydropower stations could be utilized to bring  the wind power back to Scotland.

Claim no.3:  By providing flexible energy in near term spot markets and the balancing mechanism, IceLink can lower the cost of balancing, in particular in a system with a high penetration of intermittent generation.

  • Possibly: There is a possibility that IceLink would lower the cost of balancing electricity supply/demand. However, this of course depends on several factors, such as the British capacity market.

Claim no.4:  IceLink connects currently isolated Iceland´s renewable electricity system with the broader European system and offers a means to decrease Europe´s dependency on imported fossil fuels in a cost efficient way.

  • Correct, but not very relevant: IceLink is expected to offer the UK (and thus the European system) access to approx. 5,000 GWh annually. The current total annual electricity consumption in the UK is close to 335,000 GWh. Access to power generated in Iceland would thus only add a fraction to the current power supplied and consumed in the UK.

However, note that in 2015 the renewable power generation in the UK was close to 83 TW, so an addition of 5 TWh of renewable generation is substantial. This of course means that IceLink would in fact make UK (and Europe) a little bit less dependent on power from for example coal and natural gas (fossil fuels)

Claim no.5: IceLink increases diversity of power supply at both ends and enhances further deployment of renewables through coupling highly flexible hydro generation with that of intermittent wind and solar generation.

  • Correct: Iceland and UK utilize different sources for their power generation. While UK is mainly dependent on natural gas, coal and nuclear energy for its power generation, Iceland utilizes hydro and geothermal for close to all its generation. Moreover, most of the generation in Iceland comes from hydro. IceLink will thus indeed increase diversity of the power supply, and Iceland’s flexible hydro power is perfect to balance supply and demand while solar and wind power fluctuates.

Claim no.6: IceLink delivers reliable and flexible energy into the GB system at times of thin supply margins.

  • Correct: IceLink could indeed deliver reliable and flexible energy into the GB/UK system at times of thin supply margins. To better understand the importance of access to flexible hydropower, based on large reservoirs, we would like to refer to our earlier article; IceLink offers flexibility rather than base load power.

Claim no.7: IceLink allows energy to flow to Iceland at times of low hydro generation potential, e.g. due to unusually low precipitation levels.

  • Correct: Every few years, the Icelandic reservoirs fill up quite late due to low precipitation or cold weather (resulting in low glacial melting). This decreases the efficiency of the Icelandic hydropower stations and adds a risk to the system. With IceLink this risk would become less.

Claim no.8: Iceland generation is 100% renewable. The interconnector would provide an export opportunity for the surplus energy in the renewable hydro system that is not currently harnessed due to economical and operational limitations.

  • Correct: The closed Icelandic electricity system is constructed in the manner of securing stable supply to heavy industries (especially to aluminum smelters, who need stable power supply 24/7 all year around). In years with unusually much precipitation or heavy glacial melting (warm periods), excess amounts of water runs into the reservoirs, resulting in overflow. Turbines could be added to harness this excess, but such development is costly and not economic unless having access to a market where power prices are higher than in Iceland. IceLink would create access to such a market.

Claim no.9: The UK has committed itself to ambitious reduction of greenhouse gas emissions. IceLink contributes with its lower cost of low carbon energy compared to domestic marginal alternatives and its flexibility contributes to reducing the cost of enabling the integration of UK intermittent renewables.

  • Correct: Even though the Icelandic geothermal,- hydro- and wind power sources are fairly limited when having regard to the enormous size of the British power market, it would make economic sense for the UK to buy Icelandic renewable power instead of for example more expensive British offshore wind power. For more on this subject, we refer to our earlier article; UK’s electricity strike prices positive for IceLink. And we can add that even though strike prices for new offshore wind power seems to be coming down quite fast, electricity from Iceland could be substantially cheaper than new offshore wind farms off the British coast.

Claim no.10: IceLink involves the deployment of relatively mature low carbon technologies. As such, it allows GB to reduce reliance on particular domestic technologies, thereby reducing exposure to lower than expected cost reduction trajectories.

  • Correct: Currently, almost all power generation in Iceland comes from mature geothermal- and hydro technology. In the coming years and decades the Icelandic power sector is likely to also start utilizing wind power on land – which is also a mature technology and less problematic than offshore wind power.

The conclusion is that most of the claims set forward by Landsvirkjun, regarding IceLink, are not only correct but also very relevant. However, it is possible that the project could be delayed by Britain’s decision to leave the European Union.

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

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

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

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

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

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

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

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

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

Cost of IceLink power cable: 2.8 billion EUR

According to a new report by Kvika Bank and Pöyry, prepared for the Icelandic Ministry of industries and Innovation, a subsea power cable between Iceland and the United Kingdom (UK) will cost EUR 2.8 billion (USD 3.1 billion).

HVDC-Icelink_Cost_Feb-2016-3This central cost scenario includes the 1,200 km long cable with a capacity of 1,000 MW, and the converter stations at both ends of the cable. When adding the onshore transmission installations needed in Iceland for connecting the cable to the power system, the total cost (central scenario) will be close to EUR 3.5 billion (USD 3.9 billion).

The report and additional material on the IceLink-interconnector can be downloaded from the Ministry’s website (the report is in Icelandic only). Note that all cost figures quoted in this article refer to the report’s central export scenario (there are several other scenarios, including a smaller cable of 800 MW).

To realize the project, it will be necessary for the British government to make a commitment of a minimum strike price of approximately 96-99 GBP/MWh (close to 130 USD/MWh).

HVDC-Icelink_strike-prices_Feb-2016-2Such a strike price would be quite similar to the strike price for new nuclear energy in the UK (as explained on the website of the UK government). And it would be substantially lower than recently agreed strike prices for new offshore wind power.

Now it has to be seen if the UK government wishes to pay GBP 115-120 for megawatt-hour of offshore wind power generated in British waters, or pay GBP 96-99 GBP for Icelandic renewable energy.

It should be noted that most of Iceland’s generation is and will be produced by hydropower and geothermal power (wind power in Iceland will increase but still be fairly small share of the total generation). This offers IceLink the possibility of much more flexibility than new British offshore wind power does. We, here at Askja Energy Partners, will soon be explaining further how the Icelandic power for IceLink will be generated.  Stay tuned!

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