The Energy Sector

Natural hydro- and geothermal resources have made Iceland the world’s largest green energy producer per capita. For an overview of Icelandic energy data, please go to our special data section.

Presently, the hydro- and geothermal resources supply almost 100% of Iceland’s consumption of electricity and approximately 85% of Iceland’s total consumption of primary energy. Of the total primary energy consumption, approximately 20% comes from hydropower- and 65% from geothermal sources. This is the world’s highest share of renewable energy in any national total energy budget.

Iceland’s current power generation totals about 19 TWh annually (which is about 35% of the estimated potential geothermal- and hydropower sources). This makes Iceland world’s largest electricity generator per capita with approximately 55,000 kWh per person.  In comparison, the EU average is close to 6,000 kWh. In recent years Icelandic companies have started to harness wind energy, which is likely to grow substantially in the coming years.

Due to economics and unharnessed possibilities, hydropower and geothermal power will continue to be the main source of growth of the energy industry in Iceland. The total potential generating capacity of Icelandic hydro- and geothermal resources has been estimated 50 TWh/year. When environmental concerns are taken into account the expected total electric generation is probably close to 30 TWh annually.

Note that this estimate only takes hydro- and geothermal resources into consideration. Iceland has yet to actualize its potential wind and marine energy, both of which may become important for the economy in the future.

Iceland’s renewable energy sources are not only abundant, relative to the size of the nation as a whole, but they are also available at a comparatively low-cost. For this reason electricity prices in Iceland are much lower than in most other OECD countries.

If electricity prices in Europe and around the world will keep on rising, the Icelandic energy industry will continue to become even more competitive than it is already. This development seems already to be underway and can be expected to gradually increase both profits in the Icelandic energy sector and be a strong incentive for more investment in the industry.

It is important to keep in mind that although Iceland has potentials to increase its renewable energy production substantially, both the hydro- and geothermal power sources are limited. Thus, early investors will have the best choice of Iceland’s green and low-cost energy potential.

There is a small but growing Icelandic green fuel sector that produces bio-methane and green methanol.  For the most part, however, Iceland still imports nearly all of the fuel necessary for vehicles, shipping and airplanes. This may be changing, as the international oil & gas industry is currently taking the first steps searching for hydrocarbons on the Icelandic continental shelf.

THE MAIN ENERGY COMPANIES IN ICELAND

Landsvirkjun (owned by the Icelandic state).
Orkuveita Reykjavíkur / Orka náttúrunnar (owned by municipalities).
HS Orka (owned by Canadian firm Alterra Power and a group of Icelandic pension funds).

Landsvirkjun:

State-owned Landsvirkjun is by far the largest energy company in Iceland, providing approximately 75% of all the electricity produced in Iceland (12.6 GWh annually of total 16.8 GWh). Landsvirkjun is responsible for more than 96% of all hydro generation in Iceland, and its share in the generation of electricity from geothermal power is around 11% of the total.

Most of the electricity (80%) Landsvirkjun generates is sold to energy intensive industries via long-term contracts. The remaining 20% is bought by public utilities and the Icelandic Transmission System Operator (TSO).

Landsvirkjun was established by the Icelandic Parliament in 1965. It is an independent legal entity and is 100% state-owned. The Icelandic Government is a guarantor for all borrowings of the company. The Minister of Finance manages the ownership of Landsvirkjun and appoints all five board members and five alternate members.

Today Landsvirkjun owns 11 hydropower stations and two geothermal power stations with a combined capacity of close to 1,950 MW.  Its stations generate close to 13,500 GWh annually. Most of the capacity is in hydropower (almost 1,900 MW), while the geothermal stations have a capacity of 63 MW. In addition there are 35 MW in one gas-powered reserve station. Lansdvirkjun is also the main owner of the Icelandic Transmission System Operator (TSO), with a share of 65%.

Landsvirkjun’s hydropower plants generate around 95% of the company’s total production, while geothermal power contributes around 5%. The share of geothermal power may increase in the forthcoming years with the planned execution of several large geothermal projects in the near future.

Landsvirkjun receives much of its revenue in foreign currency (USD) as a result of extensive electricity sales to large foreign-owned aluminum smelters in Iceland. Thus, the economic turbulence Iceland experienced recently did not affect Landsvirkjun nearly as much as most other Icelandic firms (the devaluation of the Icelandic currency did not have negative effects on Landsvirkjun’s income).

Landsvirkjun is one of Iceland’s largest companies and currently it has more equity than any other Icelandic firm . Of all the Icelandic power companies, Landsvirkjun is by far the strongest player and currently the only Icelandic power company expanding its operations.

Orkuveita Reykjavíkur / Orka náttúrunnar:

Orkuveita Reykjavíkur (OR) is a public utility company that provides electricity and hot water for heating. It is by far the largest local provider of electricity and heating to end-users. The main service area of the company is the larger Reykjavik Metropolitan Area, covering two-thirds of the Icelandic population. The generation of OR is run by its subsidiary, Orka náttúrunnar (ON).

The power-generation plants of OR/ON currently have a total capacity close to 450 MW. Most of the electricity from OR is generated at two geothermal plants that utilize high-pressure steam. Their capacities are 303 MW (Hellisheiði Station) and 120 MW (Nesjavellir Station). In addition the company operates two small hydroelectric plants (Andakílsstöð and Elliðaárstöð). In total, OR generates close to 3,000 GWh of electricity annually.

Besides, producing and distributing electricity, OR sells and distributes both hot and cold water (from groundwater reservoirs). Also it operates an extensive sewage system for the Reykjavik area, as well as some adjacent municipalities. OR’s largest single customer is Norðurál Aluminum Smelter, that is located not far from Reykjavík.

Every year OR produces and distributes approximately 85 million m² of thermal hot water (for district heating, swimming pools and industries). The water from OR for space heating comes from low-temperature fields in and close to the city and from the combined heat and power plants at the Nesjavellir and Hellisheiði Stations. Cold water is collected from reservoirs outside of Reykjavík.

The operation of OR as a geothermal heating utility dates back to the 1940s. The City of Reykjavík is the largest owner with a 93.5% share.  The rest is owned by adjacent municipalities.

HS Orka:

HS Orka is the third main electricity-generating firm in Iceland. Until 2007 it was a public company owned by the Icelandic state and few municipalities in Southwest Iceland. It was later privatized and today its largest shareholder is the Canadian Alterra Power, which owns two-thirds of the company. The rest is owned by a group of Icelandic pension funds.

HS Orka operates two geothermal power stations, Svartsengi Station and Reykjanes Station, with a total capacity of 175 MW and generates around 1,350 GWh annually. HS Orka is also a large provider of hot water and owns a few subsidiaries, including on-third of the well known Blue Lagoon.

Other energy companies:

There are several other small electricity firms and utilities in Iceland such as HS Veitur, Norðurorka, Orkubú Vestfjarda, Orkuveita Húsavíkur, Rarik, and some other small firms. All the five mentioned companies are owned by the Icelandic state and/or municipalities. A minority share in HS Veitur have been sold to private investors.

Icelandic firms are also focusing on other sectors of the energy industry, such as Metanorka (Methane Energy) that produces bio-methane from waste and sells it as fuel for vehicles. We have more information about some of those companies in our investment-section. You are welcome to contact us with special inquiries about the Icelandic energy sector.

Fuel importers & distributors:

Iceland currently imports all of its hydrocarbon fuel, though there is a possibility of finding hydrocarbons on the Icelandic continental shelf in the near future. There are several firms that specialize in importing and selling gasoline, diesel, and other petroleum products. The three main companies are Skeljungur, N1 and Olíuverslun Íslands (OLÍS) . Skejljungur uses the Shell brand, while N1 and OLÍS use their own domestic brands.  OLÍS and Skeljungur also run self service retails (under the brands ÓB and Orkan).

In the past, all three companies listed above had franchise-contracts with three of the world’s major oil firms: Shell, Esso (ExxonMobil) and BP. Today, however, Skeljungur is the only fuel-retailer in Iceland that is still involved in a franchise partnership (with Shell). Thus, foreigners driving around Iceland will not recognize many well-known international automotive fuel brands. A fourth Icelandic fuel importer and retail company, Atlantsolía, was established in 2002. It specializes in low-cost self service stations and has grown substantially in the last decade.