Icelandic Energy Situation: Risks, Challenges, and Opportunities

1. On the Icelandic Energy Situation(HÍ, political science dep., presentation in a course on security) Gústaf Adolf Skúlason Deputy Director General Samorka – Icelandic Energy and Utilities

2. Briefly on the speaker • B.A., political science, HÍ, 1992 • M.Sc., international relations, LSE, 1993 • Research + assistant lect., HÍ, ‘93-’95 • Althingi, international relations, ’95-2000 • SA-Confederation of Icelandic Employers (director of policy and communic.), ’01-’06 • Samorka – Icelandic Energy and Utilities since 2007

3. A brief description of the Icelandic energy system Some comments on possible risks and challenges Structure

4. Iceland: Rich in Renewables • Abundant energy potential in the form of geothermal energy and hydropower. • (Oil a totally different issue, possibly a domestic energy source in 20 years) • Energy consumption per capita in Iceland among the highest in the world, mainly due to several energy intensive industry plants such as aluminium smelters.

5. About 90% of all housing in the country is heated with geothermal energy; the remainder being heated mainly with electricity (all such statistics from OS). • If oil was the source we would need some 800.000 tons annually, which today would cost around 400 million USD, or about 50 billion ISK • The majority of the country's electricity (80%) is generated using hydropower; the remainder being based on geothermal power. Around 99,95% of all electricity is generated using hydro or geothermal power – i.e. renewable energy sources.

6. Around 80% of all primary energy use is renewable energy, the remainder being mostly oil for use in transport and fisheries. A unique situation, envied the world over. • By way of comparison, EU’s new target for year 2020 is a 20% share of renewables. The current figure is around 8.5%.

7. EU’s targets for 2020 • Renewables’ share 20% • Reduction in green house gas emissions (from 2001) 20% • Increase in energy efficiency 20%

8. Iceland’s electricity consumption

9. Primary energy consumption in Iceland

10. Source of space heating

11. Share (%) of renewables in primary energy use

12. And cheap too! Standard home consumption

13. And cheap too!

14. Great potential • 30-40% of the economically feasible hydropower, and only 20% of the conventional geothermal potential available for electricity production in Iceland, have already been harnessed. • Percentage of econ... hydropower already harnessed in Norway, Sweden, Finland, Italy, Austria, Switzerland, France, Spain... : around 70-90%.

15. Great potential for... • ...further production of electricity for heavy industry, data centers... • ...further use of domestic, renewable energy in transport. Less demand for electricity during the night >> potential estimated for around 2/3rds of what the whole car fleet would need, without building any new power plants!

16. Possible risks • First of all: Much greater energy security than most other countries, very low dependence on imported energy sources. Iceland’s profile is definately that of an energy producer. • Yet, obviously some potential risk areas: • External developments: International oil prices, transport routes... war! We do need oil for transport and the fishing fleet, and our renewable energy system needs spare parts, cables... • EU: Need to have 90 day oil reserves (around 40-45 today) in the country or near and earmarked • Natural disasters, an example would be Krafla geothermal power plant and volcanic eruptions in the 1970s. • Terrorism. Easy access to energy infrastructure. • Economic disasters!

17. On economic disasters • Currency fluctuations and oil imports, plus imports of spare parts, cables... • Lack of confidence and imports • The biggest energy companies are quite indebted, some heavily since autumn 2008 due to the dramatic depreciation of ISK • Most of these same companies receive a large percentage of their income in USD and their status is stable, with huge sales contracts financing the power plants • Yet, this last year or two have been for most an unprecedented experience and it is impossible to rule out any future difficulties such as in relation with foreign creditors

18. Risks >> Opportunities • An external challenge can spark or at least accelerate positive developments: • International oil crisis in the 1970s > Huge increase in geothermal space heating investments in Iceland • Another oil or economic crisis might spark or accelerate the foreseeable development in electric transport

19. Other challenges • If we expand the definition of a challenge to our energy system to that of a challenge towards our future efficiency maximizing energy system, we can add: • Politics • Nature conservation lobby (in most countries this would be called the green lobby but that frase is not relevant here)

20. PoliticsChallenges “to our future efficiency maximizing energy system” • Efficiency maximizing is not necessarily the prime objective of politicians. Other (of course perfectly legitimate) priorities may include: • Prohibiting private ownership, which may reduce the value of natural energy sources and power plants • Preserving little or undisturbed nature areas, at least when it comes to possible power plants or transmission lines • Limited interest in (if not prejudice against) certain types of industry • Stress on price symmetry, in urban and rural areas • Popular but expensive demands, which may render projects economically unfeasable (strings vs. lines)

21. Nature conservation lobbyChallenges “to our future efficiency maximizing energy system” • Increasing in strength in recent years, a strong and visible voice – artists, journalists… • Some are constructive, others are against practically all new power plants, or against all the most economically efficient solutions. • Some even cite green house gas emissions, an imported but unadjusted debate • Constitute achallenge to our possibilities in terms of harnessing with max efficiency the clean energy the whole world envies us for. • “Activists” sometimes cause economic damages as well as threats to lives and safety

22. On the Icelandic Energy Situation(HÍ, political science dep., presentation in a course on security) Gústaf Adolf Skúlason Deputy Director General Samorka – Icelandic Energy and Utilities