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Deregulation, Environmental and Planning Policy in the Icelandic
Renewable Energy SystemA paper and presentation by
Egill Benedikt Hreinsson
Department of Electrical and Computer Engineering,
University of Iceland, Reykjavik, Iceland
The International Conference on CLEAN ELECTRICAL POWER - Renewable Energy Resources Impact, Capri – Italy,
May 21st - 23rd, 2007
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Introduction
• Iceland uses renewable, geothermal and hydro energy resources
• No European market participation via a HVDC cable interconnection
• High investment in Energy Intensive Industry• Market challenges for deregulation
–No short term cost signals–Deregulation challenges with diversity and no
conventional thermal backup
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The Scope of the Paper and Presentation
• The evolving Icelandic power and energy sector from a technical and market perspective (Section II).
• Policy issues in modeling and planning philosophy (Section III).
• Sustainability, efficiency and environmental issues (Section IV).
• Resource rent, resource access and future market based bulk energy sales (Section V).
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The evolving Icelandic power and energy sector from a technical and market
perspective (Section II).
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The Present Icelandic Renewable Based Power System (generation, transmission and EII).
Laxá 28 MW
Sog 90 MW
Blanda150 MW
Krafla 60 MW
EnergyIntensiveIndustry (EII)Substation
132/220 kV TransmissionLines (existing/future)Geothermal
Power generation:Hydro power
Búrfell270MW
Bjarnarflag3 MW
Nesjavellir 60 MWSultartangi 120 MW
Hrauneyjar 210 MWCentury Aluminum
FeSi
Sigalda 150 MWAlcan
AlcoaReyðarfjörður
Kárahnjúkar 690 MW
Reykjanes 100 MW
Vatnsfell 90 MW
Svartsengi 45 MW
Hellisheiði 120 MW
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The Icelandic Generation System and EII load with Possible Future Expansions
Laxá 28 MW
Sog 90 MW
Blanda150 MW
Krafla I 60 MW
EnergyIntensiveIndustry (EII)Geothermal
Power generation:Hydro power
Búrfell270MW
Bjarnarflag I 3 MW
Nesjavellir 60 MWSultartangi 120 MW
Hrauneyjar 210 MW
CenturyAluminum FeSi
Sigalda 150 MW
Alcan
AlcoaReyðarfjörður
Kárahnjúkar 690 MW
Reykjanes I 100 MW
Vatnsfell 90 MW
Svartsengi 45 MW
Hellisheiði I 120 MW
ExistingFuture/Planned
Hvammur 80 MW
Holt 50 MW
Urriðafoss 120 MW
Hellisheiði II 300 MW
Reykjanes II 50 MW
Krafla II 40 MWKrafla III 120 MW
Þeistareykir 120 MWGjástykki 40 MW
Bjarnarflag II 80 MW
Hágöngur 120 MW
Búðarháls 75 MW
Keilisnes
Húsavík
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Capacity and estimated electrical energy generation 2005 and 2010
50
40
30
10
0
32%
TWh/year
20
100%
16
2010
16 TWh/year
17%
2005
8.5 TWh/year
8.5
65%
35%
Geothermal
Hydro Energy intensive industry
General market
21%
General market
79%
Energy intensive industry
Source: Landsvirkjun/Þorsteinn Hilmarsson
8Hydro Geothermal Peat Coal Oil
0
20
40
60
80
100
120
140
160
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
PJ
(pet
ajou
le)
0%
20%
40%
60%
80%
100%
1900 1920 1940 1960 1980 2000
Fractional Breakdown by Primary Resource
Primary Energy Use in Iceland and Resource Substitution 1900 - 2003
1 petajoule = 1015 joule = 0,278 TWhSource: Landsvirkjun, Orkustofnun, Reykjavik, 2004
900
11
22
33
44
55
66
77Au
stra
liaAu
stra
lia
Uni
ted
Stat
esU
nite
d St
ates
Ger
man
yG
erm
any
Den
mar
kD
enm
ark
Finl
and
Finl
and
Sout
h Af
rica
Sout
h Af
rica
Gre
at
Gre
at B
ritta
inBr
ittai
n
Japa
nJa
pan
Ital
yIt
aly
New
Zea
land
New
Zea
land
Swed
enSw
eden
Fran
ceFr
ance
Chin
aCh
ina
Nor
way
Nor
way
Icel
and
Icel
and
Tons per year per capita
Source: Landsvirkjun/Þorsteinn Hilmarsson
CO2 emissions per capita by electricity generation in several countries
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From 2001 Iceland has the highest aluminum production (in kg per capita per year) in the world
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Use of electrical energy per capita
kWh/year/capita
Source: Landsvirkjun, ÞorsteinnHilmarsson/NationMaster.com 2003
0
5.000
10.000
15.000
20.000
25.000
30.000
Icel
and
No r
way
Finl
and
Swe d
en
A ust
ral ia
New
Zea
l an d
J ap a
n
F ra n
c e
Den
mar
k
Ge r
man
y
Ital
y
Sout
h Af
ri ca
Chin
a
40.000
45.000
50.000Forecast for 2010
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Krafla geothermal power plant (60 MW)
13
N
0 10 km Mýrdals-jökull
Þjórsá
Hvítá
Tungnaá
Vatnsfell90 MW
Hella
Hvolsvöllur
Sultartangi120 MW Hrauneyjafoss
210 MW Sigalda150 MW
Urriðafoss125 MW
Hvammur80 MW
Holt50 MW
Torfa-jökull
Búðarháls90 MW
Búrfell270 MW
Þóris-vatn
Tindfjalla-jökull
HydroReseroirGeothermal
DamCanalTunnel
In o
pera
tion
Plan
ned
Þjór
sá
HeklaNýr
vegur
Hydro Sites in the South West of Iceland
Source: Landsvirkjun, ÞorsteinnHilmarsson
14Source: Landsvirkjun, ÞorsteinnHilmarsson
Bird’s View of Hydro site prior to construction
15Holt 50 MW
Modified Bird’s View of Hydro site afterconstruction with reservoir and power house
Source: Landsvirkjun, ÞorsteinnHilmarsson
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Sigalda Station (150 MW)
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Hálslón reservoir
Snæ-fell
Eyja-bakkar
Jökulsá á Dal
Power house
Kelduárlón reservoir
Fjarðaál Aluminum Smelter
Egilsstaðir
Reyðarfjörður
FL 3 og 4 high voltage lines2x220 kV
Laga
rfljót
Þrándar-jökull
Mývatn
V a t n a j ö k u l l glacier
Brúarjökull
Jöku
lsáá Fjöllum
Ódáðahraun
Jökuldals-heiði
Krafla60 MW
Bjarnarflag3 MW
Héraðs-flói
Brúar-öræfi
Vestur-öræfi
Askja
Herðu-breið
Krep
pa
Kverkfjöll Hraun
Dyngjujökull
Ufsarlón reservoir
Kröflulína 2 high voltage line132 kV
132 kV
132 kV
Kárahnjúkar Hydroelectric Project690 MW
Kára-hnjúkar
Headrace tunnels
Jöku
lsáí F
ljótsd
al
N
Kárahnjúkar dam
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Installed capacity 690 MWFirm energy 4.6 TWh/yearHead 600 mHeight of dam 200 mTunnels 73 kmConstruction period 2003-2008
Installed capacity 690 MWFirm energy 4.6 TWh/yearHead 600 mHeight of dam 200 mTunnels 73 kmConstruction period 2003-2008
Kárahnjúkar project in figuresKárahnjúkar project in figures
Source: Landsvirkjun, ÞorsteinnHilmarsson
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Kárahnjúkar dam and Hálslón reservoir
7. nóv. 2006 Source: Landsvirkjun, ÞorsteiHilmarsson
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A photographer’s impression of Kárahnjúkar dam
18. nóv. 2006Source: Landsvirkjun, ÞorsteinnHilmarsson
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The Fjardaral Alcoa Aluminum smelter in Reydarfjordur(Shown under construction in August 2006)
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Power sector characteristics
• The first wave of deregulation • Partial unbundling• Public ownership• Rapid development of EII• Few market participants
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Policy issues in modeling and planning philosophy
• Complicated renewable system–Time and space interdependencies–No short term cost signals–Unique projects with different costs and rents
• Market power–Reservoirs bring market–Sharing of river with multiple firms operating in the
same river
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Sustainability, efficiency and environmental issues
• Long term geothermal energy inflow– More research is needed to determine the long term energy
inflow into underground geothermal reservoirs
• Energy Efficiency and Combined High Heat vs. Low Heat Generation– With electricity generation as the primary application a lot of
thermal energy is wasted in geothermal stations
• Energy Sales through an HVDC Connection– Transactions could be in both directions based an packets of
energy to utilize the flexibility and response time of emission free hydro with reservoirs and geothermal energy
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Sustainability, efficiency and environmental issues
• The Image of Hydroelectric Power in Iceland – Concerns have been raised by environmentalists on how
sustainable and environmentally friendly hydro- and geothermal projects are.
– Less attention is paid to their emission free characteristics• Artistic Inputs and the Image of Electric Power
– Artistic inputs could enhance the image of hydroelectric power– Artistic input could help with the visual pollution of transmission
lines• Renewable Energy, Tourism and Iceland’s Image
– Environmentalists have questioned the linking of clean power with (EII) Energy Intensive Industry, such as aluminum smelters
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Artistically Designed Electric Power Transmission Towers in Finland
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An artist’s rendering of the linking of transmission towers with Icelandic folklore by representing trolls and elves. These may also be engaged in Tugs-Of-War Could this mitigate the visual impact of transmission lines?
Jónína Magnúsdóttir (Ninný), Original work, dated February 22, 2007 (www.ninny.is)
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The Blue Lagoon in Iceland is an example of a spin-off operation from geothermal generation
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Artistic input, such as this piece by ÓlafurElíasson in the abandoned Turbine Hall of the Tate Modern Museum in London could enhance the image of hydroelectric power in “live” power stations
Artistic input
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Resource rent
Project cost
Power/Energy/Project capacity (for instance inMW or GWh/year, accumulated)
Demand curve
Supply curve
Unit cost or price (forinstance in €/MWh)
Taxted rentUntaxted rent
Market price
Projectsize
Proj
ect
Econ
omic
Ren
t
In a market environment, resource prices are based on the marginal cost of last and most costly resource to participate in the market supply. The difference between the market price and resource cost is the economic resource rent which may or may not be taxed.
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Resource rent, resource access and future market based bulk energy sales
• Resource rent { }1
( ) ( ) ( )N
i i i i i ii
R f V x C x T x=
= − −∑
where R is the resource rent, ( )i iV x is the discounted market
value of project #i with energy generation ix , (or alternatively
the cost of the long run back stop supply), ( )i iC x is thegeneration cost and ( )i iT x is the transmission cost of bringingthe resource to the market. All cost factors are discounted cost.The function, { }f z z= , if z > 0, otherwise { } 0f z = . N is the
number of potential projects.
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Conclusions
• Iceland is blessed with clean renewable energy …• The resource image has been questioned with linked to heavy
EII and a damaged natural environment• The private and public ownership raised concerns about
economic rent• Competitive environment difficult to implement• Market will gradually align to other electricity markets • Green energy benefits are likely to emerge• This will jeopardize the position of EII• The efficiency and long term input to geothermal reservoirs
raises concerns on sustainability
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References• Jonsson, O.P. “Mánudagsmorið”, Morgunblaðið
(Newspaper), Reykjavik (Iceland) September 18, 2005 (In Icelandic, www.mbl.is)
• Thorgeirsdottir, S. “Klisjur og draumsýnir um Ísland”, Morgunblaðið (Newspaper), Reykjavik
• Jónína Magnúsdóttir (Ninný), Original work, dated February 22, 2007 (www.ninny.is)
• Ambec, S. and Y. Sprumont, Sharing a River. Journal of Economic Theory, 2002. 107(2): p. 453-462.
• Amundsen, E.S.A., Christian, Rent Taxes on Norwegian Hydropower Generation. Energy Journal, 1992. 13(1).
• Rothman, M.P., Measuring and apportioning rents from hydroelectric power developments, World Bank, Washington, D.C., 2000
• Gardarsson, S.M. and Elíasson, J. Influence of Climate Warming on Hálslón Reservoir sediment filling. Nordic Hydrology. Vol. 37(3) pp 235–245. 2006
• Jonsson, B., Gardarsson, S.M. and Elíasson, J., Kárahnjúkavirkjun, langtímaþróun rensslis ogmiðlunar. Árbók VFÍ, Reykjavik (Iceland), 2005, pp 253-259 (In Icelandic)
• Hreinsson, E.B.: Economies of Scale and Optimal Selection of Hydroelectric Projects. Proc. of the IEEE/IEE DRPT2000 Conference, City University, London, (U.K.) April 4th -7th, 2000
• Hreinsson, E.B.: Supply Adequacy Issues in Renewable Energy and Hydro-Based Power Systems, Proc. of 2006 International Conference on Power System Technology, 22nd -26th October, 2006, Chongqing, China.
• Hreinsson, E.B., Helgason, T. and Sophusson, F.: "Planning and Utilization of Geothermal and Hydroelectric Resources in Iceland". A proceedings paper presented at the ENERGEX 2000, Las Vegas, Nevada, USA, July 23rd - 28th, 2000
• Hreinsson, E.B.: “Raforkuútflutningur frá Íslandi meðnotkun jafnstraums. Almennar tæknilegar forsendur". (Energy Export from Iceland by a Submarine Cable. General Technology Conditions.) Annals of the Association of Engineers in Iceland 1992/93. pp 238-253 (In Icelandic)
• Magnason, A. S.: Draumalandið (The Dream Country), (Book) Mál og Menning Publishers, Reykjavík (Iceland), March 2006 (In Icelandic).
• Björnsson, S.: Orkugeta jarðhita (Geothermal Energy Capacity). Proc. of the 2006 Icelandic Energy Conference, Reykjavik (Iceland), October 12th – 13th, 2006, pp. 332-342. (In Icelandic).
• Olsen, A.: Jarðgufuvirkjanir (Geothermal Power Stations). Proc. of the 2006 Icelandic Energy Conference, Reykjavik (Iceland), October 12th – 13th, 2006, pp. 351-356. (In Icelandic).
http://www.hi.is/~egill
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Thank you very much for your kind attention!
http://www.hi.is/~egill