The Electricity Market and ISBAS

The transmission and distribution of electricity in Iceland remain under concession arrangements and regulatory oversight by the National Energy Authority or NEA (Orkustofnun), according to the Electricity Act and other relevant regulation. The NEA oversees aspects such as pricing (revenue caps and tariffs), quality and security of supply. The NEA arbitrates on any disputes arising under its remit.

Under Icelandic law, a single power company can function as generator, distributor and supplier. However, accounting separation is required between concession (transfer of electricity in a certain area) and competitive activities. While consumers must use the distributor holding the concession for their respective area, the distributor need not be the same company as the supplier.

SUPPLIERS – TSO – LOCAL DISTRIBUTORS – CONSUMERS

The bulk of the electricity in Iceland comes from less than a handful of generating companies, but there are also several small power stations that feed electricity directly into a distribution system. Generating companies in Iceland produce most  of their electrical power in either hydroelectric or geothermal power plants before feeding it into the transmission system og the Icelandic Transmission System Operator (TSO).

The electricity is transmitted from power stations to end-consumers (end-user) via the transmission system. In Iceland, there is only one defined transmission system (“the grid”) but there are a number of distribution networks. The distribution networks are regional and carry power to consumers in their respective regions.

The Icelandic Transmission Operator or TSO (Landsnet) operates the national grid and administers its system operations; it is at the centre of Iceland’s entire electricity system. The company owns and operates all bulk electricity transmission lines as well as all main substations in Iceland. Landsnet is responsible for developing the transmission system and administering system operations.

Power stations generate electricity into the grid, which in turn transmit the electricity to both distributors and energy-intensive industries around the country. Distributors convey this power onwards, via their own networks, to the end-consumers in a defined concession area. Energy-intensive industries buy large quantities of electricity from suppliers and receive it directly from Landsnet’s grid.

Suppliers are the companies that sell electricity to the end-consumer, either through their own generation or by purchasing electricity from others. Such purchases take place through bilateral contracts between the supplier and the generator, but could also be effected through a power exchange. The consumer receives the power from the concessionaire distributor in his or her respective area.

The supplier may generate electricity using its own power stations or purchase it from generating companies and then sell it onwards to the end-consumer. The expense for the consumer is based on the cost of generating the electricity and transmitting it from the power station to the consumer.

ISBAS

One of Landsnet’s key roles is to promote a more efficient market for electricity trading. Landsnet has been working on establishing an electronic market for electricity trading (ISBAS), which may open in a the near future. We will be publishing more information about this market as the project develops.