The Icelandic energy industry is unique in the most positive sense.
ECONOMIC GREEN ELECTRICITY IS AVAILABLE
Iceland produces 100% of its electricity by harnessing renewable sources. What is even more unique is that the country still offers numerous unharnessed and very economical renewable energy options. It is expected that in forthcoming years, Iceland will be able to add 10-15 TWh of annual renewable generation.
These options include both hydro- and geothermal power. Both the geothermal and hydroelectric production in Iceland are extremely reliable due to glacial reservoirs, geophysical conditions, and a strong, modernized transmission system.
In addition, Iceland has yet to actualize its potential wind and marine energy, both of which may become important for the economy in the future. The wind energy may be especially attractive because of the windy weather conditions in Iceland and vast empty spaces for constructing large wind farms. Currently, the Icelandic National Power Company (Landsvirkjun) is preparing to set up the first large wind turbines in the country.
VARIOUS GEOTHERMAL POSSIBILITIES
Most of Iceland’s space-heating comes from natural geothermal sources. This renewable heating makes the Icelandic energy portfolio the greenest in the world.
Geothermal plants now account for approximately one-quarter of all electricity generated and consumed in Iceland. As new geothermal power stations are being built and with many more in the pipelines, the share of geothermal electricity in Iceland’s overall energy production is expected to grow substantially.
In addition to renewable electricity production, Icelandic geothermal water and steam is harnessed directly for central heating and used for in several industries, such as methanol production (the methanol is used as blend in gasoline). Even geothermal wastewater has practical uses such as running through pipes under the streets of Reykjavik to melt off ice and snow during winter.
Because of its stable energy supply, green energy portfolio, and yet-unharnessed renewable energy sources, Iceland is in the position of being able to offer some the most competitive electricity prices in the world. Iceland’s main power producer is currently offering long-term electricity contracts at a fixed price of 43 USD/MWh. Those long-term contracts are probably the most favorable in Europe and even in the whole OECD.
If electricity prices in Europe and around the world continue to rise, the Icelandic energy industry will become even more competitive than it is today. This development is already underway and will gradually increase profits in the Icelandic energy sector and be a strong incentive for more investment in the industry.
Besides its low-cost electricity, Iceland is also gaining from some of the strongest drivers affecting the world’s energy sector. Iceland’s green energy portfolio, the European legal framework, rising world energy consumption, concerns about global warming, growing demand for renewable energy, and international geopolitics are likely to create rising demand for Icelandic energy. Iceland’s abundant land, competitive costs for skilled labor, and fairly low corporate tax are also of importance.
STRONG EUROPEAN CONNECTION
Although Iceland is an independent country with its own currency, the country has a very close economic relationship with its Nordic neighbors as well as the European Union (EU). In this regard, Iceland’s membership in the European Economic Area (EEA) is of special importance.
The EU has adopted an ambitious and binding renewable energy policy, generally referred to as the 20/20/20. The policy requires:
- a reduction in EU greenhouse gas emissions (by 2020) of at least 20% below 1990 levels,
- 20% of EU energy consumption to come from renewable resources,
- and finally a 20% reduction in primary energy use compared with projected levels, to be achieved by improving energy efficiency.
These climate and energy targets will result in a highly increased demand for renewable energy, a demand where Iceland is well-suited to contribute. No less important for the green Icelandic energy sector is the upward-pressure this policy will put on electricity prices. In a nutshell, the EU’s legally binding energy and environmental legislation is making Iceland’s renewable energy more competitive than ever before.
The Icelandic energy and business sectors have been attracting numerous new types of foreign companies to the country in recent years, such as firms in the solar silicon business and data centers. The latest large energy project is the ongoing construction of the 95 MW Búðarháls Hydropower Station. Several other power projects are being considered and planned, with a total capacity of several hundred MW.
A recent benchmarking study by PricewaterhouseCoopers in Belgium described Iceland as the most competitive location for the operation of data centers. Iceland also has low corporate taxes (20%), highly skilled IT labor at competitive prices, and low land and lease costs.
The Icelandic infrastructure for telecommunications networks and services is highly advanced. Mobile phone and Internet penetration in Iceland are among the highest in the world. Iceland is linked with Europe and North America via number of fiber-optic submarine systems. They are called Farice, Danice and Greenland Connect. Additionally, the new Emerald Express trans-Atlantic cable is scheduled to be ready for service by fall 2013.
The Icelandic energy industry itself has also gained interest from foreign investors. Recently, Iceland’s third major electricity company was bought by a Canadian energy investment firm. The electricity industry in Iceland is open to direct investment by all legal entities registered within the European Union (EU) and the European Economic Area (EEA). You can read more about this in our section about Foreign Investment.
For those considering major energy related investments in Iceland, whether technology, industries or the energy sector, a positive first step is contacting Icelandic professionals offering services on the relevant subjects. At Askja Energy Partners we provide access to the most experienced and knowledgeable engineering, legal, tax and accounting services.