Skip to content

Posts from the ‘Transmission and Utilities’ Category

Gaining from the European green drivers

Electricity prices in Iceland are substantially lower than anywhere else in Europe. While common wholesale prices for electricity in Iceland are equivalent to 25-30 €/MWh, the wholesale prices in Europe are often double that and even more. This winter, for example, the average wholesale price at the European Power Exchange (EPEX SPOT) has been close to 50 €/MWh.

This means that if Iceland would have an electric cable connection with Europe, electricity could be sold from Iceland at a much higher price than being possible in the small Icelandic market. This  makes the European continent, Scandinavia and the United Kingdom a very interesting market for Icelandic generating firms.


Slide21High electricity prices in Europe are not the only driver, creating more demand for Icelandic electricity. Almost all electricity in Iceland is generated by utilizing renewable sources (hydro- and geothermal power). The European Union (EU) has adopted a binding plan to greatly increase the share of renewable energy. According to EU’s Renewable Energy Directive, the Union is going to reach a  20% renewable energy target for 2020 – more than double the 2010 level of 9.8% – as well as a 10% share of renewable energy in the transport sector. The targets will help to cut greenhouse gas emissions and – what may be even stronger incentive – reduce the EU’s dependence on imported energy.

According to the Directive, the member states have taken on binding national targets for raising the share of renewable energy in their energy consumption by 2020. These targets range from 10% in Malta to 49% in Sweden. The national targets will enable the EU as a whole to reach its 20% renewable energy target for 2020 – more than double the 2010 level of 9.8% – as well as a 10% share of renewable energy in the transport sector.


DECC-2011-Figure-2It is noteworthy that to be able to reach the targets, it is expected that for example the United Kingdom needs to add more than 170 TWh of annual renewable energy  by 2020 (UK needs to go from present less than 60 TWh to approximately 230 TWh by 2020). This is according to the 2011 UK Renewable Energy Roadmap (pdf) and the 2012 Update (pdf).

It is not clear how large share new renewable electricity will be of this total renewable energy addition of 170 TWh. However, from the 2011 UK Renewable Energy Roadmap it can be expected that the goal for 2020 may be somewhere between 104-155 TWh of annual renewable electricity generation (as described in a table marked as figure 2 in the Roadmap; shown here above). The current annual renewable electricity generation in the UK is somewhere between 34-38 TWh. Thus, the goal of 104-155 TWh of total electricity from renewable sources by 2020, will call for a new annual renewable electricity production of 66-121 TWh. Possibly, it would be fair to say that the UK needs to add close to 100 TWh to its annual renewable electricity generation. And this is to happen within seven years from now.


EU’s plan for increasing renewable energy allows the member states to import renewable energy from other countries. Iceland can offer substantial amount of electricity from renewable sources at very competitive prices (currently, the Icelandic power company Landsvirkjun offers new 12 year contracts at 43 USD/MWH, which equals approximately 32 €/MWh). It may be totally realistic that some of UK’s new renewable electricity will come from Iceland.

Slide22Iceland’s hydro- and geothermal power is less costly than for example new wind farms in the UK. In addition, Icelandic hydro- and geothermal power is a stable base-load power, unlike wind and unlike solar.

An electric cable between Iceland and the UK might be a win-win project. UK would gain access to reliable base-load renewable electricity. Icelandic power companies would increase their profits and could utilize the cable to import electricity from the UK when prices there are low (for example during the night, when demand is minimal).

Such a high voltage direct current (HVDC) cable is currently being seriously considered by a group of Icelandic power companies and other stakeholders. This would be a technically and financially complicated project and probably it will take a couple years until any decision will be taken on the matter. For more information you are welcome to contacts us at Askja Energy directly with your inquiries.

Icelandic electricity generation and transmission

The Icelandic electricity generation capacity and production has more than doubled in a decade. Today, the total capacity is 2,669 MW. The annual generation 2011 was 17,210 GWh.


Hydro Power              1,884 MW            12,507 GWh
Geothermal Power       665 MW              4,701 GWh
Fossil Fuels                   120 MW                      2 GWh
Total                            2,669 MW            17,210 GWh

Slide08Close to 100% of the electricity generation in Iceland is produced by harnessing renewable sources. Hydropower is the largest source with close to 73% of the annual generation. Geothermal accounts for about 27% of the generation. In addition, there are a few fossil fuel generating plants.

Several new power stations are under planning (both hydropower and geothermal power). The most recent one (now being constructed in South Iceland) will become operational in late 2013 .

Slide10The power stations in Iceland are located all around the country. The geothermal power plants (marked by red on the illustration at left) are of course to be found where it is easiest to harness the geothermal heat for electricity generation. All the main hydropower stations utilize glacial water, flowing from Iceland’s glaciers.

The largest hydropower system is the Þjórsá and Tungnaá river system in Southern Iceland (marked by a large blue dot on the map at left) . However, Iceland’s largest power station is in the Northwestern part of the country. This is the 690 MW Fljótsdalur / Kárahnjúkar hydropower plant, that started operating in 2007 (marked on the map by the large blue dot north of Vatnajökull Glacier).

Slide09The total annual Icelandic electricity generation of 17,210 GWh (17 TWh) makes Iceland one of Europe’s largest producers of renewable power.

Norway is in a strong first place with its massive hydropower capacity, generating approximately 120 TWh annually. However, the electricity price in Iceland is much lower than in Norway or other European countries. Iceland  has no electricity connections with other countries. Thus, the generating firms in Iceland do not have access to the large electricity markets in Northwestern Europe, where electricity prices tend to be much higher than in Iceland.


Despite Iceland’s isolated electricity market and sometimes severe weather conditions, the electricity supply in Iceland is renown for its reliability (see for example IMD’s and WEF’s World Competitiveness reports). This high reliability is the result of Iceland’s large reservoirs and the solid transmission system, which is operated by the Icelandic Transmission System Operator or TSO (Landsnet). The TSO connects all the large power stations to the Icelandic electrical grid, which runs around the country (all the nation lives in the lowlands, with the majority located in Southwestern Iceland).

Strong Icelandic electricity growth

The recent growth in electricity generation and transmission in Iceland has been impressive.

Between 2005 and 2010 the Icelandic electricity generation doubled. It is important to keep in mind that all this increase was in low cost renewable generation (mostly hydropower). And remember that almost 100% of all electricity generated in Iceland comes from renewable sources (hydro- and geothermal power).

This rapid increase in Iceland’s green electricity generation is shown on the histogram at left / above. Most of the increased production is supplied to new industries and services. One of the main explanation behind this growth is the competitive electricity price Iceland offers.

The abundant natural hydro- and high temperature geothermal resources make the Icelandic power industry able to offer electricity at substantially lower prices than for example can be found in any other European country. Even the present low spot-price for electricity in the USA (due to extremely low price of natural gas) are no threat to the Icelandic electricity industry. Companies that need substantial quantity of electricity and wish to operate within the OECD, will hardly find better long-term agreements than offered at the Icelandic market (43 USD/MWh in 12 year contracts are being offered by the Icelandic power company Landsvirkjun).

It is expected that demand for Icelandic renewable electricity will grow quite fast over the next few years. The fact that Iceland still has numerous very competitive unharnessed hydro- and geothermal options, makes the country an interesting location for all kinds of energy intensive industries and services. This may for example apply to data centers, aluminum foils production, several silicon production facilities etc.

When having in mind the probable high growth in Icelandic electricity generation in the forthcoming years, it is not surprising that Landsnet (the Icelandic Transmission System Operator; TSO) is considering major investments in the electricity transmission system. The diagram at left is from Landsnet. It is interesting that even the major increase in transmission investments during 2005-2010 is fairly small compared to what may be expected in the next 10-15 years.

This plan for new transmission projects is not final yet. But it gives a clear view of the opportunities Iceland has regarding new and competitive green energy projects. No other western country enjoys similar economic possibilities based on 100% renewable energy.

New development at Landsnet

The Icelandic electricity grid is highly modern and extraordinarily reliable and the Icelandic Transmission System Operator, Landsnet, is world-renown for its secure electricity supply to its customers. This fact has been confirmed in numerous international reports, where Iceland’s electricity supply is ranked among world’s most secure (see for example IMD’s and WEF’s World Competitiveness reports).

Landsnet owns and operates all bulk electricity transmission lines as well as all main substations in Iceland. The company is owned by four electricity generating companies, where the state-owned power company Landsvirkjun has almost a 65% share.

The total length of the transmission lines is currently close to 3,200 km. The power flow is always illustrated in real time on Landsnet’s website. To meet growing demand, the grid is constantly being developed and maintained at a high standard, which includes rebuilding older lines and adding new ones. The grid is free of serious bottlenecks and there are no permanent system constraints in Landsnet’s grid.

Although Iceland is already the world’s largest electricity producer per capita, the country has substantial hydro- and geothermal resources unharnessed. This includes numerous very economical options, with minimum environmental effects.

According to a special governmental plan for energy (Master Plan for Hydro and Geothermal Energy Resources) several new renewable energy projects can be expected in Iceland in the forthcoming years. This will call for major investments, not only in electricity generation but also in the construction of new transmission lines.

Recently, Landsnet introduced its vision or ideas towards strengthening the grid (as shown on the map above, with the title Next generation grid). However, this is a plan that the company will develop in full accordance with the Icelandic government and its energy policy. It is expected that the Icelandic parliament (Alþingi) will soon vote on the Master Plan, making it clear which new energy- and transmission projects will be emphasized in the coming years.

In addition to the expected build up in the Icelandic transmission system, a high voltage direct current cable (HVDC) is currently being considered between Iceland and Europe. Such a cable would obviously affect the Icelandic TSO. In early July (2012) the Icelandic Minister for Industry, Ms. Oddný Harðardóttir, appointed a working group to scrutinize the feasibility of such a interconnection. Of course Landsnet has a representative in this group, which will look carefully at all the relevant issues, such as the technical, financial, legal and social aspects.

However, the next major step for Landsnet is not regarding the transmission system, but has to do with the electricity market. Within a couple of months, Landnet will be establishing a new efficient electronic market for electricity trading. We at Askja Energy will soon be taking a closer look at this new Icelandic electricity market, that will have strong similarities to for example the Elbas Intraday Market at Nord Pool Spot.

Energy Security

Iceland’s stable renewable energy sources and secure and reliable electricity supply create competitive advantage and strong incentives for industries to locate in Iceland.

As Iceland is a member state of the European Economic Area (EEA), the energy business environment is based on the EU’s regulatory framework. This means that the arrangements applying to the single European market extends to Iceland.

Therefore EU and EEA firms can invest, for example, in industries and/or energy production in Iceland. Iceland is also participating in EU’s carbon trading scheme and has same kind of legal framework as the EU member states regarding electricity production and distribution.

Because of Iceland’s unharnessed renewable energy sources, it may be feasible to link Iceland and Europe with a green high voltage electricity cable. Recently, the world has been experiencing fast advancement in HVDC-transmission technologies, making this a real and an interesting possibility.

You will find more information about the technology and the business model behind such a connection under the transmission menu. Also, you may be interested in our investment section.

Forthcoming Projects

The Icelandic government has recently worked out a comprehensive Master Plan for Hydro and Geothermal Energy Resources in Iceland.

The new Master Plan is a pathway towards new renewable energy projects. At the same time it aims at protecting numerous areas from development.

According to the plan, several new hydroelectric and geothermal power plants can be expected to be constructed in Iceland in the forthcoming years. The upcoming power projects are further described under our renewable sources menu.

Environmental consciousness is always an important factor regarding utilization of renewable energy sources in Iceland. For more information about environmental protection in Iceland go to our environmental page.

%d bloggers like this: