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In Iceland, Geothermal Energy is "Use It or Lose It"

If a country has an overabundance of a globally coveted product, should it export it or keep the product for its own use? That is the question that Icelanders are grappling with regarding to the country's vast and overabundant supply of clean energy.

Much in the same way that analysts predict that the abundant supply of natural gas in the U.S. will eventually lead to higher domestic natural gas prices because gas companies will export their resource to fetch a greater price than they can get for it if they keep it for domestic use, Iceland is grappling with what to do with all of its abundant geothermal energy.

And many Icelanders feel that export is not the answer. Instead, the country hopes to attract large energy end-users to the country so they can benefit from the cheap, 100 percent green power that Iceland provides.  “We already do export the power,” said Invest in Iceland Director, Thordur Hilmarsson, “We export it through the products that are created by energy-dependent industries.”  For now, those products include aluminum from Alcoa, Fish from Stolt Sea Farm and silicon metal from Globe Specialty Metals, but if Hilmarsson and his compatriots have their way, some day soon that will be a lot more products. 

Invest in Iceland is actively pursuing huge data centers, fish farms, industrial-scale greenhouses and other industries hoping to lure them to set up shop in Iceland and take advantage of the country’s abundant, cheap clean energy. They brought over nine journalists to the nation this March to show us what the country has to offer.

The organization declines to give the prices that large energy-dependent companies likely will pay for power but say that a 20-year contract with power prices at US $0.04 per kWh is where the utility will likely begin negotiations. Industries that use large amounts of power are well suited for Iceland, and companies that can take more than one form of energy are the best fit.  For example a greenhouse would use electricity for lighting and heat from the low-temp geothermal wells to power its operations.  Data centers would take advantage of the low cost of electricity and almost non-existent cooling costs that Iceland offers.  “If the data center gets too hot, they can just open the windows,” said Project Manager Kristinn “Kiddy” Haflidason. Invest in Iceland is also looking to attract emerging energy-intensive industries such as advanced carbon fibers.

While the jobs and other economic development benefits, like increasing the tax base, are certainly part of the motivation for Invest in Iceland’s interest in having other industries make the country their home, the main reason that it wants more industries in the country is to use more of its energy. Indeed some believe that in Iceland, it may be coming to a “use it or lose it” situation regarding the cheap green energy it has to offer. Because if industries don’t set up shop here, the green energy might just be shipped elsewhere.

Last May a proposal to build a huge interconnector cable between Iceland and the U.K. was put on the table through an agreement between the Icelandic and U.K governments. If built, the interconnector would allow Iceland utilities like Reykjavik Energy to sell its green power, at premium prices, to the U.K. and in the EU where clean power is needed to fulfill mandates. Iceland’s President Ólafur Ragnar Grímsson (left) offered six reasons why the prospect of building the cable is interesting.  “This will provide clean energy to the European grid, not only Britain but through Britain to the European grid in a bigger way than any other clean energy project within Europe,” he said.

Second, Grímsson explained that the there are potential savings that Iceland could realize if an interconnector were put in place. He said that at times during a 24-hour cycle, electricity is cheaper in the EU than it is in Iceland. “So we could actually buy [power], like the Norwegians do. We could buy energy from Europe when it is cheaper.”  Third, Grímsson said is the overabundance of clean energy in Iceland, “which we could make more use of in a sophisticated control system when we have the option to sell,” he explained.  Next Grímsson gave a reason that he said he had not spoken of publicly yet.  He explained that the large power users in Iceland, such as Alcoa, who buy 80 percent of the power produced in the country might be forced to pay more for the energy they purchase if Iceland had other options through which to sell it:

We have these three big aluminum companies that have deals with the electricity company that will have to be renewed. If the cable is built, we have a stronger bargaining position when they have to renew their agreement with Iceland to buy the electricity. Because at the moment, there is no other option, there is no other big buyer of electricity. They are in a very strong position when it comes to renewing their contracts. [If we had a cable] we could say to them, ‘look guys, ok, if you are not willing to pay, we’ll just sell the power to the U.K.

Grímsson also said that putting in a cable might even be a way to preserve Iceland’s natural beauty, something that many Icelanders are concerned about.  He said that the power companies feel if they could get a higher price for the energy they sell, perhaps there would be less interest in building new large geothermal power plants to sell more power. “One of the arguments used by the national power companies is that this would enable us to get more profit out of what we have already created,” he explained.

And last he said that Iceland hasn’t even begun to take advantage of its incredible wind resources.  The winds that blow across the country are strong and potentially could be harnessed for wind power.  Further, he feels that the introduction of larger and larger capacity wind turbines, some as large as 5 MW, means that with just a few turbines lots of energy could be harnessed. So rather than dotting the landscape with hundreds of turbines, only, say, 20 could be installed to achieve a 100-MW capacity.

All of this, of course, makes no sense unless there is “broad political support,” said Grímsson. Because the undertaking is so large that “it’s not even worth starting on unless there is solid support for it,” he said.  And for now this “broad public support” doesn’t exist.

“The power we have is finite,” explained Invest in Iceland’s “Kiddy” Haflidason, “the energy it provides is renewable and infinite but the potential power that we have is a finite amount." Haflidason estimates that were Iceland to build geothermal power plants at all of the places that it could, the potential total capacity would be around 12 GW. “If we build a connector, and export all of that power, that’s our raw material,” he explained. Haflidason said that a complete economic analysis is what is needed. “You would have to look at the total social benefit of the whole venture,” he said. “Either you export the raw material and sell it at a higher price or you bring more large energy users into the country.  Those uses would then provide “the economic influence of that industry in the country,” which could include offshoot industries like IT and software development.  

“You need to do the calculation to determine what is better for the whole of Iceland,” said Haflidason.

A report about the interconnector is due out in May and then the country will be allowed to vote on the decision. Haflidason doesn't believe that an entire economic analysis like the one he would like to see is being done, however. He'd like to compare the entire economic impact of building a cable with a reference case scenario in which multiple new industries would set up shop in Iceland and bring with them more economic development, jobs, and increased tax revenue.

Truthfully, however, both endeavors have their challenges. Iceland's value proposition of cheap clean energy is offset by its difficult climate and distance from the U.S. and Europe.  And no one knows who would pay for the billion-dollar interconnector cable. will continue to watch this story and post updates as they unfold.  

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