Iceland has little in the way of natural resources with the exception of clean energy, which it is putting to good use to boost the economy, as Alan Swaby discovers.
From an energy point of view, environmentalists must love Iceland: where else do you have 99.9 per cent clean and near zero per cent controversial energy? Up until 30 years ago, electricity was exclusively hydro-generated; these days, one third comes from geothermal—but whichever way you look at it, it’s clean and sustainable.
Nor is there any energy wasted in exporting electricity to the outside world. Iceland produces what it needs and consumes what it produces.
In a model similar in every way to the pre-privatisation days of the United Kingdom, Iceland once had a number of state and municipal owned, vertically integrated companies that generated, distributed and sold electricity to the end users. Landsvirkjun (the national power company) operated the main grid with a centrally fixed tariff. In 2003, the government brought that to an end when a new energy act was passed, complying with EU requirements to separate the three functions and have them operate independently with as much competition as possible. The idea was not to sell off the family silver, nor to generate revenue for the exchequer; but rather to produce an element of competition and get the various components working with improved efficiency in order to drive down costs and tariffs.
There are mixed views within Iceland as to whether these objectives have been universally met; but at least Landsnet can hold its head up high. Landsnet is the middle link of the chain—between generators and consumers—with the responsibility of managing the national grid. All power stations with a capacity of 7.0 MW and higher must be connected to the grid. As such, Landsnet presently receives power generated at 19 different locations. Then, though a network of more than 3,000 kilometres of transmission lines and about 70 substations and transformer stations, electricity is supplied to distribution system operators at 57 locations who have the responsibility of transmitting power onwards to end consumers via their own distribution networks. In addition to electricity distributors, Landsnet’s customers include end users with extremely high energy consumption, such as aluminium and ferro-silicon alloy producers.
“When Landsnet took over responsibility in January 2005,” explains CEO Thordur Gudmundsson, “the grid was transporting 8.300 GWh per annum. Now, the figure is double that and the new Alcoa aluminium smelter at Fjardaál alone is accounting for a major part of this increase.”
In fact, underlying increase in demand for energy is currently a modest one per cent per annum. It had been bobbling along at two or three times this rate until the economy was de-railed by the financial crisis. Nevertheless, the grid has doubled its load in a relatively short time. This has involved considerable investment in new lines and switching equipment but the investment would have been considerably more had Landsnet not squeezed the last drop of efficiency out of the network.
“We have been working closely with specialist consultants,” says Gudmundsson, “who have, together with our experienced engineers, given us the tools to monitor the grid’s performance and make modifications at the least hint of trouble. By being able to carry out on-line risk assessments by means of a wide area measurement system, we have largely been able to avoid disruptive problems. As such we have increased the grid’s productivity enormously.”
In one sense, Landsnet has come a long way in a relatively short period but in reality they had been planning for privatisation for almost a decade before it happened. Landsnet is largely run by the same management team in place before the segregation from Landsvirkjun. As long ago as 1977 they were planning the steps they thought would be needed when the inevitable structural changes came into place. “Of course,” says Gudmundsson, “until the actual details were published, our thoughts were largely hypothetical. Once the official regulator was appointed we were able to work together in a much more productive way. We hadn’t got everything right but nor were we far off the mark.”
The result has been a seamless transition, a huge improvement in capacity and performance—all achieved with only minor increase in its charges since 2005.
Iceland is Europe’s second largest island after Great Britain. It’s roughly circular in shape with a diameter of around 400 to 500 kilometres. Its 100,000 square kilometre area is home to a population of not much more than 300,000 people and they are weighted very heavily to the south-west corner, around the capital of Reykjavík. Nevertheless, the whole perimeter of the island needs to be serviced with transmission lines crossing countless mountains and fiords.
Despite the benign influence of the Gulf Stream, which helps to moderate the subarctic climate, planners of Iceland’s grid have to design for fierce winds and frequent icy conditions. So much so that Iceland is a key test laboratory for researchers into how best to cope with harsh climatic conditions.
Designers and engineers have also had to learn how to cope with the demands of supplying such an energy-hungry plant as the recently completed Alcoa Fjardaál in the east of Iceland. It’s one of the most modern aluminium production facilities in the world and represents Alcoa’s first greenfield project in 20 years.
Since 1900, when the electrical energy required to convert aluminium from alumina was more than 55 kWh per kilogram, technological advancements have driven that down to 13.3 kWh per kilogram at the company’s most productive plants. Even so, the 336 pots at Fjardaál consume 5,050 GWh a year.
As part of Landsnet’s commission, it has the authority to set up an energy market where the market players will be able to shop around and get the best deals for themselves. This is expected to help drive down costs, although it’s unknown at this point whether the pain will simply be transferred onto weaker shoulders who have no strength to bargain for a better deal.
The mechanisms are in place for such a system to be introduced; but the powers that be have decided that such a new system would be one headache too many in the current financial climate, and its introduction has been deferred until the economy has regained equilibrium. www.landsnet.is
