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Posts from the ‘Wind Power’ Category

How fast will wind energy develop in Iceland?

So far only four large wind turbines have been constructed in Iceland, all of them in the southern part of the country. The first were two 900 kW turbines from Enercon, which started operating in early 2013. The second two were 600 kW used Vestas turbines, set up in Iceland in 2014. The project owners are the national power company Landsvirkjun and private firm Biokraft.

Wind-Power-IcelandThe nature of these first wind energy projects in Iceland is to obtain operational experience with onshore wind turbines in the Icelandic climate. The turbines are connected to the grid and both projects have been quite successful, offering more than 40% capacity factor.

According to a report by Kvika bank and Pöyry, published earlier this year (2016), most if not all upcoming power projects in Iceland will be either hydro or geothermal. Kvika and Pöyry are not expecting substantial wind power to become developed in Iceland unless Iceland will have an interconnector to Europe,

Having regard to the low- and central scenarios, according to the report by Kvika/Pöyry, absolutely no wind power is expected to be developed in Iceland in the next two decades unless the IceLink (or other subsea HVDC cable to Europe) will become reality. On the other hand, Kvika/Pöyry expect quite high investment in Icelandic wind power if IceLink will be developed.

iceland-new-generation-until-2035_kvika-poyry-report-2016According to the high scenario, 1,600 MW of new wind power capacity may be developed in Iceland if the subsea electricity interconnector will be constructed. This is explained on the graph at left; the wind power is expressed by the green part of the columns. The graph is from a recent presentation by Pöyry.

What is somewhat surprising about these assumptions by Kvika and Pöyry is the extremely low wind power investment expected in Iceland if an interconnector will not be developed. The fact is that Iceland has already harnessed the most economical options in geothermal power (and also in hydropower). The expected new geothermal projects will be quite costly.  According to a recent report published by Samorka (the Federation of the Icelandic electricity industry, district heating, waterworks and sewage utilities in Iceland), the levelized cost (LCOE) of many of the new geothermal projects expected until 2035 is believed to be close to 35-45 USD/MWh.

In addition, Kvika/Pöyry seem to have over-estimated how fast new geothermal power in Iceland can be developed. In fact Iceland does not have a very long history of extensive geothermal harnessing for electricity generation. The experience so far tells us that the geothermal areas are quite sensitive to over-exploitation. Thus, it seems possible if not very likely, that the true LCOE for new geothermal projects in Iceland may in fact normally be more expensive than Samorka claims. At least it is quite possible that to avoid over-exploitation, geothermal power development in Iceland may have to become substantially slower than expected by Kvika/Pöyry. Which would make more space for wind power development.

Iceland has very good wind conditions in numerous locations close to the grid; locations which offer wind capacity between 40-50%. This has been confirmed by the two positive research projects in Southern Iceland, developed by Landsvirkjun and Biokraft, as mentioned above. The project by Landsvirkjun consists of two 0.9 MW Enercon turbines, while Biokraft has relied on two somewhat smaller and older (used) Vestas turbines.

Iceland-Wind-Power-Landsvirkjun-Burfellslundur-Wind-ParkAs the cost of wind power technology has been coming down, and is expected to become even lower in the coming years and decades, it seems likely that wind power will be developed in Iceland even without IceLink. One should also have in mind that Icelandic power companies are already buying generation from the first wind turbines in Iceland at a price equivalent to roughly 40-45 USD/MWh.

Due to the positive outcome of the two ongoing experimental wind projects, both Landsvirkjun and Biokraft are now planning the construction of first wind farms in Iceland. The combined capacity is expected to be close to 350 MW. In addition, a company called Arctic Hydro has introduced plans for a wind park of 20-30 MW.

We, at the Icelandic Energy Portal, will be informing our readers more on these projects as they develop (two of the projects are currently in the phase of EIA). At this stage we will leave you with the claim that wind farms located in high-capacity locations in Iceland are likely to offer as low cost as new geothermal plants and even lower. This means a LCOE between 35-40 USD/MWh.

lazard-lcoe-wind-usa-version-9-0-2015Also, keep in mind that according to most recent report from Lazard, wind farms in Midwest USA offer as low LCOE as 32 USD/MWh. Having regard to Icelandic wind conditions, we should not be surprised if wind farms in Iceland may offer similar cost. And if so, wind power in Iceland is likely to develop a lot faster than predicted by Kvika/Pöyry.

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.

Upcoming power projects in Iceland

The following list explains what power projects are being considered in Iceland, according to the Icelandic Master Plan for Nature Protection and Energy Utilization. The projects have been cost analyzed (levelized cost of energy; LCOE), as described in a recent report published by the Icelandic Energy Industry Association (Samorka).

The projects are classified into three different groups (not all the possibilities have been officially cost-analyzed):

Utilization category: The project is likely to be developed if/when there is power demand and interest by the energy sector.

Projects on hold: More information and/or data is needed to decide if the project will be classified as Utilization or Protection.

Protection category: The project is unlikely to be developed, due to environmental issues.

The current classification is being reconsidered by the government  However, it is the Icelandic Parliament (Alþingi) that takes final decision regarding how each project is categorized. This means that over time, project(s) may be moved from one category to another, based on a political decision by the Parliament. The following classification is up to date as of August 2016. Note that in Samorka’s report on the LCOE, the cheapest option, Norðlingaölduveita, is said to be on hold. In fact this option is currently in the protection category.

 Project name Current  Type MW Annual LCOE
  classification GWh USD/MWh
1 Norðlingaölduveita* Protection Hydro n/a 670 22.50
2 Búlandsvirkjun On hold Hydro 150 1,057 25.00
3 Jökulsárveita/Blönduveita On hold Hydro n/a 100 25.00
4 Urriðafossvirkjun On hold Hydro 140 1,037 25.00
5 Þeistareykir I** and II Utilisation Geothermal 270 2,214 28.90
6 Hrafnabjargavirkjun* On hold Hydro 89 585 30.50
7 Villinganesvirkjun On hold Hydro 33 215 30.50
8 Skrokkölduvirkjun On hold Hydro 45 345 30.50
9 Hólmsárvirkjun* Protection Hydro 72 470 30.50
10 Bjarnarflag Utilisation Geothermal 90 756 35.20
11 Meitillinn Utilisation Geothermal 45 369 35.20
12 Sandfell Utilisation Geothermal 100 820 35.20
13 Sveifluháls Utilisation Geothermal 100 820 35.20
14 Austurengjar On hold Geothermal 100 820 35.20
15 Gjástykki On hold Geothermal 50 420 35.20
16 Trölladyngja On hold Geothermal 100 820 35.20
17 Bitra Protection Geothermal 135 1,100 35.20
18 Brennisteinsfjöll Protection Geothermal 90 711 35.20
19 Hvammsvirkjun Utilisation Hydro 93 720 38.80
20 Búðartunguvirkjun On hold Hydro 27 230 38.80
21 Hagavatnsvirkjun On hold Hydro 20 120 38.80
22 Holtavirkjun On hold Hydro 57 450 38.80
23 Hraunavirkjun* On hold Hydro 126 731 38.80
24 Selfossvirkjun On hold Hydro 35 258 38.80
25 Stóra-Laxárvirkjun Unclassified Hydro 35 200 38.80
26 Tungnaárlón On hold Hydro n/a 70 38.80
27 Bláfellsvirkjun Protection Hydro 89 516 38.80
28 Djúpárvirkjun Protection Hydro 86 499 38.80
29 Markarfljótsvirkjun Protection Hydro 121 702 38.80
30 Gráuhnúkar Utilisation Geothermal 45 369 44.80
31 Eldvörp Utilisation Geothermal 50 410 44.80
32 Hverahlíð Utilisation Geothermal 90 738 44.80
33 Krafla II Utilisation Geothermal 150 1,260 44.80
34 Stóra-Sandvík Utilisation Geothermal 50 410 44.80
35 Botnafjöll On hold Geothermal 90 711 44.80
36 Fremrinámar On hold Geothermal 100 840 44.80
37 Grashagi On hold Geothermal 90 711 44.80
38 Hágönguvirkjun On hold Geothermal 150 1,260 44.80
39 Innstidalur On hold Geothermal 45 369 44.80
40 Sandfell On hold Geothermal 90 711 44.80
41 Þverárdalur On hold Geothermal 90 738 44.80
42 Grændalur Protection Geothermal 120 984 44.80
43 Hverabotn Protection Geothermal 90 711 44.80
44 Kisubotnar Protection Geothermal 90 711 44.80
45 Neðri-Hveradalir Protection Geothermal 90 711 44.80
46 Þverfell Protection Geothermal 90 711 44.80
47 Blanda II Utilisation Hydro 31 194 49.70
48 Hvalárvirkjun Utilisation Hydro 55 320 49.70
49 Austurgilsvirkjun On hold Hydro 35 228 49.70
50 Blöndudalsvirkjun On hold Hydro 16 92 49.70
51 Brúarárvirkjun On hold Hydro 23 133 49.70
52 Hafrálónsárvirkjun efri On hold Hydro 15 87 49.70
53 Hafrálónsárvirkjun neðri On hold Hydro 78 452 49.70
54 Haukholtavirkjun On hold Hydro 17 99 49.70
55 Hestvatnsvirkjun On hold Hydro 34 197 49.70
56 Hofsárvirkjun On hold Hydro 39 226 49.70
57 Hverfisfljótsvirkjun On hold Hydro 42 243 49.70
58 Hvítá við Norðurreyki On hold Hydro 14 82 49.70
59 Kaldbaksvirkjun On hold Hydro 47 273 49.70
60 Kljáfossvirkjun On hold Hydro 16 93 49.70
61 Núpsárvirkjun On hold Hydro 71 412 49.70
62 Reyðarvatnsvirkjun On hold Hydro 14 82 49.70
63 Skatastaðavirkjun* On hold Hydro 156 1,090 49.70
64 Vatnsdalsárvirkjun On hold Hydro 28 162 49.70
65 Gýgarfossvirkjun Protection Hydro 22 128 49.70
66 Bakkahlaup On hold Geothermal 15 119 57.30
67 Hrúthálsavirkjun On hold Geothermal 20 160 57.30
68 Hveravallavirkjun On hold Geothermal 10 79 57.30
69 Reykjabólsvirkjun On hold Geothermal 10 79 57.30
70 Sandfellsvirkjun On hold Geothermal 10 79 57.30
71 Sköflungsvirkjun On hold Geothermal 90 711 57.30
72 Seyðishólavirkjun On hold Geothermal 10 79 57.30
73 Fljótshnjúksvirkjun On hold Hydro 58 405 60.50
74 Vörðufellsvirkjun On hold Hydro 58 174 60.50
75 Glámuvirkjun On hold Hydro 67 400 nyca
76 Arnardalsvirkjun* Protection Hydro 587 3,404 nyca
77 Bjallavirkjun Protection Hydro 46 310 nyca
78 Blöndulundur Unclassified Wind 100 350 nyca
79 Búrfellslundur Unclassified Wind 200 705 nyca
Notes:
* The project may be developed in a different way for less environmental impacts, resulting in lower generation.
** 45 MW station at Þeistareykir is already under construction, with the electricity sold (long-term contract).
n/a Projects involving new reservoir for current power stations (turbines may be added, but not necessarily).
nyca Projects that have not yet been officially cost-analyzed.

———————————————————————————-

The list above may change at any time and new projects not listed may be introduced and developed.

Planned 45 MW wind power project of Biokraft in Southern Iceland is not included on the list.

No planned power projects under 10 MW (mainly small hydro) are included on the list.

Cost estimates do not include transmission or connection cost.

The list is up to date @ August 2016.

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.

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.

World class wind efficiency

In 2014 Landsvirkjun’s wind turbines efficiency was 44 percent! This is much higher than the world’s  average of 28 percent, meaning that each megawatt (MW) of a wind turbine in Iceland is generating substantially more electricity than wind turbines do elsewhere in the world. Here you can see real-time data from the wind turbines now operated by Landsvirkjun.

Iceland-Wind-Power-Landsvirkjun-Burfellslundur-Wind-ParkIt shall be stressed that Landsvirkjun still only operates two wind turbines. Utilizing wind power for generating electricity into the grid is still in its infancy in Iceland, as Iceland has so far mostly been focusing on low-cost hydro- and geothermal power sources. Last year (2014) was the  first full calendar year in which large wind turbines were operated in Iceland. These are two 900 kW turbines from Enercon and they are located near Landsvirkjun’s hydro power stations above Búrfell in Southern Iceland.

These two windmills were developed as a research project. In addition to the earlier mentioned high efficiency, it is also important that the operational availability of the two turbines in 2014 was almost 99 percent and 97.5 percent, respectively. The positive outcome of the research project is an important step in confirming optimistic views about possibilities of wind power in Iceland, as described in a report by Ketill Sigurjónsson to the Ministry of Industries and Innovation in 2009.

Due to these positive results, Landsvirkjun now has started planning for a large wind park in the area. The wind park is expected to have a total power capacity up to 200 MW and will be the first major utilization of wind power in Iceland. In the future, wind may become an important source for Iceland’s renewable energy production. Iceland’s extensive hydro- and geothermal sources have already made Iceland the world’s largest power generator per capita and the wind will be an interesting addition.

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.

Premature story in the Guardian

Yesterday, the Guardian published a story about Iceland seeking UK funding for subsea cable project. This is a somewhat premature statement by the Guardian. It is certainly true that the possibility of an electric cable between Iceland and the UK is being considered. However, no formal decision on such a project has been taken yet.

UK-Electric-Subsea-Cables-Map

The Guardian correctly states that such a project could possibly deliver 5 TWh’s of green electrity a year to Britain. And the price of the electricity could be very competitive (lower than from British offshore wind farms). It is also correct that all the electricity from Iceland would be generated by harnessing renewable natural sources (especially hydropower, but also geothermal and wind).

The project would most likely strongly appeal to the UK. The Guardian correctly points out that the highly reliable potential energy in Iceland’s hydro dams can be seen as neatly dovetailing with Britain’s expanding, but unpredictable, wind power generation:

“As wind has become an increasing component of UK electricity generation, those tasked with matching UK supply with demand are increasingly facing a difficulty when usage spikes at times of when wind speeds drop. Few sources of generation, other than hydropower, can be brought on-stream at short notice to cover for lulls in wind.”

According to the Guardian, Iceland’s president Mr. Ólafur Ragnar Grímsson is expected this week to call on the British government to provide financial support for the construction of the subsea electricity cable – which will be the longest in the world – linking the electricity grid’s of Iceland and the UK.  Actually, it is more likely that the president will urge the British government to further cooperate with Iceland in necessary research and development that will be necessary if the cable is to be realized.

HVDC-Cable-Iceland-Europe-map-slideAs mentioned in the Guardian’s article, the governments of Iceland and the UK have already stared exploring proposals for a cable, after a ministerial meeting in May last year (2012). It would be a sensible step to strengthen the cooperation between the two countries in preparing to link the countries with an electric cable. Hopefully, the necessary cost analysis and research on for example the sea-bed can take place soon. When this will be finished, the financing of the cable may become a relevant issue.

NB: The Guardian says that the length of the cable would be 10,000 km. This is of course wrong; an electric cable between Iceland and the UK would be close to 1,200 km (somewhere between 1,000 and 1,500 km). The Guardian also says that the electricity industry in Iceland produces 12 GWh of electricity annually. The correct number is of course much higher or close to 17.2 TWh (17,200 GWh). Hopefully, the Guardian will correct their numbers. More information about the Icelandic power sector can be found here.

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