The Icelandic TSO

The Icelandic market for electricity generation and supply has been opened up to free competition. However, transmission and distribution are subject to concession arrangements, based on the rationale that these are utility services to which the general public should have equal access. A similar argument can be applied to public highways.

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

Landsnet operates under a concession arrangement and is subject to regulation by the National Energy Authority (NEA). The NEA determines the revenue framework on which Landsnet’s tariff is based.

Landsnet was founded in 2003. The Icelandic state-owned power company Landsvirkjun owns almost 65% of Landsnet:

THE GRID

The Icelandic electricity grid is highly modern and extraordinarily reliable. 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.

The total length of the transmission lines is currently close to 3,200 km. There are 72 substations (structures and equipment used to convey electricity in and out of the transmission system) and 77 supply points. The power flow is always illustrated in real time on the Icelandic TSO’s website.

The grid must always meet established quality standards. Landsnet has the obligation to ensure balance between power generation and consumption and maintain satisfactory frequency quality (50 Hz). It must also ensure that the transmission system always has sufficient spinning reserves available, with adequate voltage levels for all customers.

The largest part of the grid’s transmission infrastructure operates at a voltage between 30 and 220 kV. The operating voltage of such cables has been rising in recent decades, in keeping with growing transmission needs and technological advancements in cable design. For example, the bulk transmission lines of Reykjavik Energy’s substations are 132 kV underground cables.

Any party wishing to connect to the grid must enter into a contract on connection for electricity supply and delivery must enter into a contract with Landsnet. Such contracts with prospective electricity suppliers, whether wholesale or retail, stipulate that the electricity supplier must maintain a balance between the procurement and supply of the power in which it trades. 

The contracts are standard and identical for all Landsnet customers.

In the first decade of this century electricity production and consumption in Iceland increased dramatically. At the start of 2008, the amount of electricity transmitted by Landsnet’s grid had doubled since the company’s inception in 2005. A total of 8.3 TWh were generated into the grid in 2005, comparing to more than 18 TWh in 2013.

This increase of Landsnet’s electricity transmission took place almost entirely within to energy-intensive industries. Today, such transmission accounts for approximately 80% of the total national level of transmission, up from just over 60% when Landsnet was established in 2005. The greatest contributors to this increase were two new aluminum smelters.

ELECTRICITY LINES AND CABLES

Electricity use in Iceland has grown rapidly over the past few decades, driven largely by an increase  in energy- intensive industries. The number of generating units has climbed, as has electricity transmission both through Landsnet’s grid and through distribution networks. The vast majority of transmission lines are overhead, with underground lines composing the minority.

However, in urban areas the emphasis is on undergrounding all cables . Underground transmission is also often used near airport runways and for crossing rivers and lakes where overhead lines are not suitable. In some cases, there are special technical reasons for using underground lines, e.g. proximity to substations or when there is a risk of crossing an overhead line.

The main reason why underground cables are not used as widely as overhead lines is the high initial cost of installation. With growing environmental awareness in Iceland, the move to installing power lines underground has received increased discussion of late.

Recently, Landsnet has emphasized the selection of new transmission line routes and the associated organizational work earlier than has hitherto been the case, particularly for major long-term projects. This is important for shortening the time that can elapse between identifying a need for refurbishment in the transmission system and commencing on-site work. One of the most important projects already launched with these aims in mind is the strengthening of the regional network around the country.

ROLE OF LANDSNET

Landsnet is responsible for maintaining a balance between power generation and consumption in the electricity system. To be able to correct imbalances, the company operates a balancing energy market  and may ask generation companies to reduce or increase their output depending on whether the system has an excess or shortage of power.

Landsnet has a long experience in forecasting electricity consumption growth. The most recent forecast is that electricity generation in Iceland will exceed demand in all load circumstances in the forthcoming years.

Landsnet’s System Operations division is located in the Control Centre in Reykjavík, operating an extensive control network for the entire country’s electricity system. The Control Centre collects a wide array of data on the electricity system’s operations and condition at any given time. The Control Centre is on standby 24 hours a day, year round, to ensure that the electricity system’s operational security always meets the highest standards.

Iceland’s electricity system is designed to detect faults and any deviation from normal operating parameters. In addition to its own systems, Landsnet also services the same type of protective systems for generators, transformers and other electrical equipment in Landsvirkjun’s power stations. In areas connected to the transmission system through only a single, vulnerable interconnection point, Landsnet has access to reserve power in order to provide back-up electricity. In the event that this single connection fails, the area in question can then resort to reserve power.

BALANCING THE POWER MARKET

Generated power flows continuously into the transmission network (the grid) and cannot be stored; it needs to be consumed as soon as it is generated. Therefore, a balance must be ensured between generation and consumption – power generation must equal consumption at any given time.

One of the key roles of the Icelandic Landsnet is to administer system operations, which includes maintaining a balance between power generation and demand. The company must be able to meet deviations from scheduled quantities swiftly by asking generating companies to increase or reduce output in line with consumption.

This is done by operating a balancing energy market and having balanced energy available for customers to correct any imbalances between generation and consumption in real-time operations. To this end, Landsnet operates a regulating power market for electricity provided by the company to balance disparity between projected and actual power consumption in the electricity system.

Generation companies and suppliers must prepare a detailed day-ahead schedule for their transactions, stating that the amount of power they plan to generate or purchase for the next day equals their intended sale to customers or other power companies. Generating companies must also submit offers and bids in the regulating power market, either for up-regulation (increased generation) or down-regulation (reduced generation). Suppliers may also submit offers and bids in the name of consumers, i.e. for upward or downward regulation. The bids and offers are valid for at least one hour, but the actual demand only becomes clear in real time. Bids and offers are accepted in merit order.

The Icelandic balancing system resembles similar systems in other European countries. Offers for up-regulation specify a price to be paid by Landsnet to the applicant, while bids for down-regulation state a price payable by the bidder to Landsnet. For up-regulation, the lowest offer is accepted first, followed by the second lowest, and so on. The opposite applies to down-regulation. The price of the last bid or offer accepted is set as the balancing energy price. This is the price at which all imbalances within the hour in question are settled.

Those consuming less than they expected receive payment for the surplus energy at the balancing energy price, while those consuming more than expected pay for the deficit at the same price. Each month’s average balancing power price can be seen on Landsnet’s website.

ELECTRICITY TRANSMISSION TARIFF

The National Energy Authority regulates Landsnet’s tariffs using a revenue cap that they themselves determine. The transmission fee is based mainly on the amount of power drawn from the grid by distributors and power-intensive industries at delivery points.

Landsnet’s tariffs apply to power-intensive industries on the one hand and general consumers on the other. Prices are independent of the distances travelled by the electricity within the grid as well as the distance between the sites where the power is injected into and drawn from it.

The tariffs apply to power-intensive industries on the one hand and general consumers on the other. Prices are independent of the distances travelled by the electricity within the grid as well as the distance between the sites where the power is injected into and drawn from it.

There are two types of charges: a capacity charge and an energy charge. The capacity charge is calculated on the basis of the average of the four highest 60-minute monthly power peaks of the year for each delivery point. The energy charge is calculated from each MWh transmitted via Landsnet’s grid. A fixed annual delivery charge is payable for all supply/delivery points connected to the grid, whether for power supplied into or drawn from it.

There is also a charge for ancillary services and transmission losses, at a fixed amount per each kWh drawn from the grid. The purpose of this charge is to cover the expense of Landsnet’s purchasing of these services at any given time. The tariff for consumption by power-intensive industries is provided in US dollars. Other items are denominated in Icelandic krónur (ISK). Landsnet also has an important task in balancing the power market, as is described in our section about the Icelandic electricity market.