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Posts from the ‘Northern Energy’ Category

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!

Viking Link ready in 2022?

We already have subsea HVDC power cables being constructed between Norway and the United Kingdom (UK) and between Norway and Germany. These cables will be 700 km and 570 km, respectively. And now one more major connector if this kind is planned in the area, between UK and Denmark. That cable is referred to as Viking Link, will be 650 km long.

HVDC-Viking-Link-Uk-Denmark-MapViking Link is expected to have a capacity of up to 1,400 MW. Recently, the Danish Transmission System Operator Energinet and the UK National Grid decided to launch a tendering process for the examination of the seabed between the two countries. Both companies have expressed their strong believe in the positive effects of such a power connection, which will open up possibilities to harness more wind energy at competitive prices. The successful tenderer will carry out geophysical surveys and sampling to pinpoint areas of environmental and archaeological interest and help identify the best route for the marine cables and suitable landing locations.

For the UK, the main advantage of Viking Link would be in the access to more power, at the same time as that power will mostly be generated by harnessing renewable sources. For Denmark, the cable will open access to much larger market for Danish wind power. The plan is to take the final investment decision no later than in 2018. The cable could then become operational about four years later or 2022.

Unique opportunity for Statkraft

Norwegian state-owned power company Statkraft is by far the largest power producer in Norway. The company produces almost all the electricity by hydropower plants, often at a very low cost.

Statkraft-long-term-contracts-2015Large share of the electricity Statkraft is selling today, is produced to fulfill long-term contracts with heavy industries, such as aluminum smelters in Norway. The tariffs for most of this power are very low; in general substantially lower than the electricity price on the spot market of Nord Pool Spot. In the coming years, most of these contracts will run out, creating a great opportunity for Statkraft to increase its revenues and profits.

Today, close to 20 TWh of Statkraft’s production are sold by long-term contracts. This is approximately 40% of all the electricity Statkraft generates by hydropower stations in Norway and other Scandinavian countries (Statkraft has significant operations outside of Norway, particularly in Sweden). Within a few years, Statkraft will be able to put up to 15 TWh of extra electricity into the spot-market.

Norway-Statkraft-Vannkraft-NorgeWith the construction of the NSN Interconnector (or North Sea Link) and NordLink, Norway will soon have stronger transmission-links with Britain and Germany. These HVDC cables will have a combined capacity of 2.800 MW. This  access to the higher priced European spot markets will open up the possibility for increased revenues for Norwegian-made green electricity.

Although it is possible, and even likely, that some of the long-term power contracts of Statkraft may be re-negotiated, the new cables and expired contracts will create unique opportunities for Statkraft. Making Norway’s position as a giant green power battery even stronger. This is a path that other countries with extensive hydropower resources may follow, making Northern renewable energy even more profitable than it presently is.

Wider energy horizon

polarsyssel-helicopter-fafnir-offshoreThe Icelandic Energy Portal has been undergoing development and thus not been publishing new material for a while.

From now on, the Portal will have a wider horizon, covering energy issues in the Northern Atlantic and Arctic Regions. We will be your leading independent provider of energy information and expertise in the region, delivering news, independent analysis and critical knowledge on energy industry trends, energy markets, geopolitics, law, and strategy.

Examples of some of our upcoming subjects:

  • Toxic Loans of Icelandic Banks in the Norwegian Energy Sector.
  • Increased Danish Exports of Wind Energy.
  • Newfoundland Offshore Oil Licences Extended.
  • Unique Opportunity for Statkraft.
  • Electricity Tariffs to Aluminum Smelters in Iceland Declined in 2015.
  • Current Low Oil Prices are Not Sustainable.

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HVDC-Electricity-Cables-Connecting-Europe-and-North-America-via-Iceland-and-Greenland_Askja-Energy-Partners-2016The Icelandic and Northern Energy Portal is owned and developed by the Iceland-based energy consulting firm Askja Energy Partners. We deliver independent analysis, critical knowledge and data on energy industry trends, energy markets, geopolitics, law, and strategy. You can contact us through this link.

Subsea HVDC cable between Norway and the UK

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

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

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

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

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

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

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

Norway’s subsea interconnectors

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

Norway’s subsea interconnectors

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

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

Three submarine cables being planned 

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

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

Electricity prices in Norway

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

Danish interconnector

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

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

UK affirms interest in IceLink interconnector

HVDC-Letter-UK-to-Iceland_2015-01-29_17-55-03_GBG_January-2015Iceland’s Minister of Industry, Ms. Ragnheiður Elín Árnadóttir, recently received a letter from Mr. Matthew Hancock, UK’s Minister of State at the Department of Energy and Climate Change (DECC).

In his letter, Mr. Hancock expresses his interest in an electric connector between Iceland and the United Kingdom (UK).  The letter is dated January 24th 2015 and reads as following:

Dear Ragnheiður Elín,

You met Michael Fallon in spring last year [2014] to discuss the possibility of an electricity interconnector between Iceland and the UK. I have taken over as Energy Minister and wanted to write following a meeting I had recently with one of the potential developers. I was very pleased to hear that a new Steering Committee is being set up to help you consider the impacts of such a major project. If it would be helpful, my officials stand ready to assist the work of this Committee, for example by providing information on the UK regulatory regime.

Studies we have commissioned indicate that an electricity interconnector between our two countries could provide economic benefits to us both and I am therefore interested in examining such a project further. The UK Government is considering options for sourcing low carbon, secure and affordable electricity post-2020 and an interconnector between our two countries might be one of the options we could examine in this process.

Matthew-Hancock_UK-Minister-Energy-Climate-Business-InnovationI would welcome your own views on the benefits of such a project and would of course, be very happy to discuss this with you if you have the opportunity to come to London at any time. I look forward to hearing your thoughts on the next steps.

Then the letter ends with Mr. Hancock’s signature [“Matt”]. It will be interesting to see how this possible project will develop in the next months.

NordLink: 1,400 MW interconnector between Norway and Germany

Earlier this month (February 2015) final investment decision for the NordLink high voltage direct current (HVDC) interconnector was made by partners Statnett, TenneT and KfW.

HVDC-Nordlink-MapThis will be the first direct connection between the German and Norwegian electricity markets and is yet another indicator how positive interconnectors are for the Norwegian electricity market. This development is also likely to strengthen interest in a cable project connecting Iceland and Europe (sometimes referred to as IceLink). Thus, we at Askja Energy will closely be following the construction of the NordLink.

NordLink is a turning point in the development of subsea electric cables. The longest cable of this kind today is the 580 km long NorNed between Norway and the Netherlands, which has been in operation since 2008. The length of NordLink will be close to 600 km, of which 516 km will be a subsea cable. Furthermore, the capacity of NordLink will be 1,400 MW and the voltage will be 500 kV, while NorNed is only 700 MW (and 450 kV).

The NordLink will be realized by the Norwegian Statnett and Nordseekabel, each with 50 percent ownership in the project. The Dutch TSO TenneT (which also operates transmission system in Germany) and the German promotional bank KfW each have shares of 50 percent in Nordseekabel.  The tender process has been finalized, where Nexans and ABB have been awarded contracts for the HVDC cable itself and ABB has been awarded the contract for the converter stations (on each end of the cable in Germany and Norway). Lead insurer for the project will be Codan.

NordLink signingThe NordLink comprises a total investment volume of approximately EUR 1.5 – 2 billion EUR (equivalent to 1,7-2,3 billion USD). The interconnector is scheduled for commissioning and trial operation in the last quarter of 2019, and after the trial period the interconnector will go into commercial operations in 2020.

The most important aspect of NordLink’s business model is to utilizing the flexibility of Norway’s hydropower system as storage for German wind power. This will increase the utilization of the German wind power capacity and also make it possible to maximize profits of the Norwegian hydropower industry, creating a win-sin situation. The result will also be increased proportion of renewable electricity and increased security of supply. Without doubt, an interconnector between Iceland and Europe would offer similar advantages.

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

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

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

UK is an excellent option and Ireland even better

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

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

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

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

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

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

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

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

Will the UK be interested in Icelandic CfD’s?

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

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

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