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Iceland Pushes Energetically Ahead

Lowana Veal

REYKJAVIK, May 29 2011 (IPS) - Iceland’s national power company, Landsvirkjun, has announced that it intends to double its generating capacity over the next 15 years, with a blend consisting mostly of hydroelectric and geothermal plants but potentially using wind and tidal energy as well.

Some of these plants have been announced previously but have not progressed due to opposition, which in some cases has led to planning complications. This is the case with the three plants in the Lower Thjorsa river, the Hvammur, Holt and Urridafoss Power Stations, which were first designed between 1998 and 2000.

In Skafta district in Southeast Iceland, several hydroelectric plants are being considered, one of which, the Holmsar power plant, might be developed by Landsvirkjun. Opposition has arisen to these too.

Olafia Jakobsdottir is a member of the Eldvatn environmental group in her area. Asked why they oppose the plant, she replied: “The Skafta district is undisturbed as there are no power plants in the region. The Holmsar Plant would damage the reputation of the area. A reservoir, transmission lines, roads, canals and other developments that would be part of such a project could have an extremely negative effect on tourism and agriculture, which are the main industries in Skafta district.”

“Just because we investigate the feasibility of building a plant, that does not mean that we will eventually build it,” says Ragna Sara Jonsdottir, director of corporate communications for Landsvirkjun. “Only a small proportion of plants investigated will come to fruition. The final decision hinges on what the Icelandic master plan for hydro and geothermal energy resources says about the matter,” she told IPS.

This plan has been expected for several years and is expected to appear sometime this summer.

Even though Iceland’s electricity comes from renewable sources, “Landsvirkjun accepts that new power plants can be controversial,” says Ragna Arnadottir, executive vice-president of the company. “We also want to ensure higher prices for the energy we produce.”

Iceland has always been considered a cheap place for aluminium companies as the price they paid for electricity was linked to the price of aluminium on the world market. This is no longer the case. Now, these companies have to negotiate their electricity prices with Landsvirkjun.

Over 80 percent of the energy produced by Landsvirkjun goes to heavy industry, including aluminium plants. Its 15 existing plants include the controversial Karahnjukar dam, site of many protests a few years ago. The development is now called the Fljotsdalur power plant and is used purely to fuel the Alcoa aluminium smelter in East Iceland. This was the last plant to be developed by Landsvirkjun.

The next plant in the pipeline is a geothermal plant in northeast Iceland. However, very little has happened in terms of building new power plants since the financial crash in October 2008. “Financing was difficult in the wake of the banking crisis, but the company’s access to financing has improved gradually,” says Jonsdottir.

To a certain extent, funding in Iceland has been affected by the IceSave dispute, which is about Iceland’s reluctance to guarantee repayment to British and Dutch savers who had high-interest savings accounts in Icelandic banks and lost their money when the banks crashed.

“The discussion on IceSave and the uncertainty connected with it have certainly had an effect on Landsvirkjun’s access to finance, though not to the degree that it has stopped the flow of money to the company,” says Jonsdottir.

Full financing was finally procured from the European Investment Bank and Nordic Investment Bank, together with Icelandic sources, for one hydroelectric plant, the Budarhals power plant, construction of which started in November 2010. It is expected to start operating at the beginning of 2014.

The Budarhals plant will feed into the national grid, although it is supposed to provide electricity for increased capacity of the Straumsvik aluminium smelter, run by Rio Tinto Alcan on the edge of Reykjavik.

Although the Budarhals plant should not be affected, international credit rating company Standard & Poor’s has just lowered Landsvirkjun’s long-term corporate credit rating, after it had lowered the credit rating for Iceland as a whole.

But Landsvirkjun is not worried. “We expect this rating to be temporary as the long-term prospects of Landsvirkjun and Iceland are good. In general we can say that it will make foreign funding of new projects more expensive,” says Jonsdottir. “We do not have any pressing developments at the moment and are continually working on improving our key financial figures.”

Wind power has not yet been exploited on a commercial level in Iceland, but Landsvirkjun is now participating in the Nordic research project ICEWIND that is looking at ice build-up on turbines, how wind energy works in cold climates, off-shore wind generation and development of wind turbine parks in Iceland.

In addition, an experimental 50-metre-high mast for measuring wind has been constructed in South Iceland. Various measurements are currently being taken. It is not certain yet, though, that windmills could become part of Landsvirkjun’s energy portfolio in the next 15 years.

“It’s hard to say. It depends how these measurements turn out, but I’m optimistic,” says Ulfar Linnet, director of research at the company.

Wind energy is thought to work well with hydropower as the two balance each other out in terms of peak demand. While wind energy is being produced, less output is needed from hydro stations, and the reservoirs can be used more efficiently.

“Tidal energy could be a possibility within five to ten years,” affirms Ingolfur Orn Thorbjornsson from Innovation Centre Iceland (ICI). Research is ongoing in the West Fjords region of Iceland, and a prototype is being developed with support from ICI.

Landsvirkjun supplies 74 percent of Iceland’s electricity.