ICELANDGEOTHERMAL ENERGY REGULATORY FRAMEWORK

JESDERFEBRUARY 2017

ICELAND/ TURKEYSIZE OF THE TWO COUNTRIES

103,000 km2337,000 population

783,562 km274,900,000 population

Source: TheTruesize.com

ICELANDA SHORT OVERVIEW

Size of country 103,000 km2Population 337,500Years of Geothermal Power production 47 years (1969)Installed capacity (geothermal)* 665 MWeInstalled capacity of other sources* 2,106 MWeElectricity production from geothermal* 5,003 GWhElectricity production from other sources* 13,795 GWhProportional Production of Electricity by Source*

Hydro73.30

%

Geo-thermal

26.60%

Wind0.10%

Petro-leum

0.00%* 2015

ICELANDGEOTHERMAL POWER PLANTS

Bjarnarflag 3.2 MW

Húsavík 2 MW

Reykjanes 120 MWHellisheidi 303 MW

Svartsengi 76.4 MW

Theistareykir 45 MW+

Krafla 60 MWNesjavellir 120 MW

To be replaced

Under construction

Not operational

ICELANDCOAL SMOKE ABOVE REYKJAVIK 1940

ICELANDREYKJAVIK GEOTHERMAL WELLS FOR DISTRICT HEATING TODAY

TOP 10 GEOTHERMAL COUNTRIESINSTALLED CAPACITY (FEB 2017)

OtherJapan

IcelandKenya

TurkeyMexico

ItalyNew Zealand

IndonesiaPhilippines

United States

0 500 1,000 1,500 2,000 2,500 3,000 3,500835

537665676821926944980

14501868

3567

Source: TGE Research (2017), GEA (2016), IGA (2015), Enerji Atlasi (2017)

TURKEY GEOTHERMAL DEVELOPMENT INSTALLED POWER GENERATION CAPACITY 1984-2017

1984

1985

-_x00

0d_20

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

1520

1620

17

Under

Constr

uction

In Deve

lopmen

t

Plann

ed0

200400600800

1,0001,2001,4001,6001,8002,000

15 15 23 23 3077 94 114 162 311 405

624 775 821

66405

580

Source: Enerji Atlasi (2017), TGE Research (2017)

ICELANDGEOTHERMAL RESOURCESOWNERSHIP AND ACCESS

ICELANDGEOTHERMAL RESOURCES

ICELAND – GEOTHERMAL RESOURCESRULES ON OWNERSHIP• Act on the survey and utilization of ground resources no. 57/1998

(“Natural Resources Act”). • Ownership of resources in the ground is attached to private

land. • Resources in public land are property of the State of Iceland. • Resources defined as “any element, compound and energy that

can be extracted from the earth, whether in solid, liquid or gaseous form, regardless of the temperature at which they may be found”

• As of June 7th 2008, geothermal resources and ground water resources owned by the State or municipalities can no longer be sold to private entities.

• Private entities or individuals are however generally not restricted from purchasing, selling or owning geothermal resources on privately owned land.

ICELAND - GEOTHERMAL RESOURCESACCESS TO RESOURCES/ FOREIGN OWNERSHIP

• National Energy Authority (“NEA”) is permitted to take the initiative in and/or give instructions for the exploration of resources in the ground,

• NEA may permit other private or public parties to explore, in which case an exploration license shall be issued to such other parties.

• If, however, the landowner holds a valid exploration license, the NEA cannot interfere and the landowner can either explore himself or allow third parties to explore, without interference.

• A landowner is required to grant exploration license holders unrestricted access to the private land involved.

• Only Icelandic citizens and other Icelandic persons are permitted to own energy exploitation rights for other than domestic use of geothermal. The same applies to enterprises which produce or distribute energy. Exemption for individuals and legal persons domiciled in the European Economic Area.

ICELANDDRILLING & RISK MITIGATION

ICELAND - GEOTHERMAL RESOURCESDRILLING SUPPORT AND RISK MITIGATION

• Early 1960s – Geothermal Fund was established, now National Energy Fund• Goal of fund:

1. To provide low-interest loans to municipalities, firms or individuals for geothermal drilling both for public supply, use in horticulture and similar economic activities and heating of individual homes, especially in rural areas

2. Sharing by the state of risk of geothermal development undertaken by developers.

• Provision that if an attempt to develop field is unsuccessful loan may be converted into a grant and does not have to be repaid

• Loans for drilling provided by the energy fund normally cover 60% of total drilling costs, grants up to 50%

• Arrangement has been instrumental over years in furthering geothermal development in Iceland

• Research on resources by National Energy Authority• 1940s State Drilling Company was established to drill, privatised in 1986. • Now Iceland Drilling is a private company is focusing on high heat drilling in

Iceland and internationally, while there are several small drillers focused on lower heat and shallower drilling for heating project across Iceland.

• Geoscience department of Authority was spin out in 2003 - Iceland GeoSurvey (ÍSOR)

ICELANDGEOTHERMAL LICENSING

ICELAND - GEOTHERMAL LICENSINGREQUIRED LICENSES

• Act on Natural Resources requires - Exploration License - Exploitation License- Power Plant License.

• Landowners may however without any license utilize geothermal energy extracted from the ground on their private land for household and agricultural use, including for greenhouse cultivation, industry and cottage industry up to 3.5 MW

• A landowner must notify the NEA of proposed drilling or other major undertakings for such purposes. The NEA may impose conditions on landowners as necessary for safety or technical reasons.

ICELAND – GEOTHERMAL LICENSINGROLE & VOICE OF LANDOWNER IN LICENSING PROCEDURE

• Landowner can provide written observations when reviewing applications for a license, but NEA is not bound by observations from landowner – but take into consideration

• Before extraction on landowners’s land – agreement needs to be reached on compensation

• If no agreement is reached a process for expropriation can be sought – guaranteeing public interest, legal basis and full compensation for expropriation

ICELAND – GEOTHERMAL LICENSINGCRITERIA FOR LICENSE – REQUIRED APPLICATION ELEMENTS

Exploration ExploitationPurpose of license Purpose of license

Detailed geographical boundaries Detailed geographical boundaries

Time schedule for execution of exploration Time schedule for execution of explorationReport on plausible effect on and around are of license Report on plausible effect on and around are of license

Exploration schedule, incl. date of commencement Exploration schedule, incl. date of commencement

Different stages and conclusion Different stages and conclusionPlan for drilling & other activities incl. clean-up of work area and altered land

Plan for drilling & other activities incl. clean-up of work area and altered landInformation on quantity and rate of utilization of resourceLiability Insurance information on environmental aspects incl. final decision on behalf of the administrative body of environmental matters.

Duration no maximum defined but usually 1-15 years Duration up to 65 years

ICELAND – GEOTHERMAL LICENSING CRITERIA FOR LICENSE – REQUIRED APPLICATION ELEMENTS

Power PlantIndependent, legal and taxable entities, unless <100 kW capacity

Conclusion of research made for plant

Description of plant, incl. maps, plans, stats and demarcation of area

Draft timeline for construction, planned completion and start of operation

Budget for construction of plant

Agreement with transmission and/ or distribution system operator

Information on agreement with landowner on compensation for resource

Information on environmental factor of plant and influence on relevant energy resourceEnvironmental Impact Assessment, if required by law

Information on other relevant elements and whether plant is fully consistence with existing town and country planning/ zoning. – and sufficient funding for plantDuration: no maximum, but license expires 10 years if the license holder has not begun development at that time and 15 years if a power plant has been constructed but not commenced operating.

ICELAND – GEOTHERMAL LICENSINGGENERAL TERMS OF LICENSE

Exploration & Exploitation Power PlantDuration of license, commencement of operation and by what time it should be completed

Size of plant and definition of relevant geographical area

Definition of relevant geographical area Information on when operation shall commence

Resources covered by license, incl. quantity and rate of utilization

Reporting obligations (NEA and transmission system operator) for performance of respective roles

Approval by NEA of preliminary drawings of any proposed facility Safety and environmental protection measures

Reporting obligations of license holder Conditions relating to technical and financial capacity of license holder

Safety and environmental protection measures Disposal of facilities and equipment when use is discontinued

Purchase of insurance for damage Other matters pertaining to conditions of license and obligations of license holder

Surveillance and cost of surveillancePayment of license feet to meet cost of preparation and issue of licenseHow extraction of facilities and equipment should be carried out after expiration of licenseClean up of work areas and land altered during exploration/ exploitation

ICELAND – GEOTHERMAL LICENSINGGENERAL TERMS OF LICENSE

Exploration Exploitation Power PlantExploration licenses granted on basis of Natural Resources Act

Exploitation license granted on basis of Natural Resources Act

Power Plant licenses granted on basis of Electricity Act

Does not grant pre-emptive right for Exploitation license

Landowner shall previously have been granted exploration license

Does not automatically convert into exploitation license

Holder of exploration license for district heating utility holds pre-emptive right with regards to exploitation license for up to 2 years after exploration license terminates

ICELANDSURVEILLANCE

ICELAND – GEOTHERMAL LICENSESSURVEILLANCE

Exploration & Exploitation License

• Monitoring based on Natural Resources Act• Purpose is to secure sustainable utilissation of natural resources, ensure

resources are not contaimnated or limited in any way for future use.• Responsibility of monitoring with National Energy Authority• Protection & monitoriing subject to Nature Conservation Act• Monitoring largely conducted by collecting data to be delivered by licensee• No regular onsite inspections or visits

Power Plant Licenses

• Monitoring based on Electricity Act• Purpose is to secure sustainable utilissation of natural resources, ensure

resources are not contaimnated or limited in any way for future use.• Compliance with Competition Authorities for vertically integrated companies• Monitoring under Act on Measures, Weights and Accreditations

ICELAND – GEOTHERMAL LICENSESREQUIREMENT FOR INFORMATION SUBMISSION

Exploration

• Report with all the results of exploration as well as information on the nature and size of the resource, no later than 1 May every year and at end of license term

• Information extent: exploration schedule sets the frame for information due.• Any drilling activity requires keeping diary describing the location of the hole,

sedimentary stratas, type and depth, when water enters the hole, temperature and other related information.

• License holders shall hand over a copy of the diary within a month from the drilling of the hole.

• The NEA can demand that specimens of rock and soil from the drilling be preserved.

ICELAND – GEOTHERMAL LICENSESREQUIREMENT FOR INFORMATION SUBMISSION

Exploitation

• Report on total quantity and estimated value of extracted resource and other information indicating situation of resource every 1 May

• License holders shall make sure that the know-how of the resource and experience gathered during exploitation is accessible and transparent both to the public and for academic purposes.

• Any drilling activity requires keeping diary describing the location of the hole, sedimentary stratas, type and depth, when water enters the hole, temperature and other related information.

• License holders shall hand over a copy of the diary within a month from the drilling of the hole.

• The NEA can demand that specimens of rock and soil from the drilling be preserved.• Information on extraction of energy and mass, release of liquid and gases, pressure draw

down, chemical changes and earthquake measurements shall be public within a year. Information and data to be handed in regarding the nature and size of the natural resource and the response of the geothermal system to production shall be made public within 5 years from the making of the data.

ICELAND – GEOTHERMAL LICENSESREQUIREMENT FOR INFORMATION SUBMISSION

Exploitation data to be handed in (total monthly):

• quantity of geothermal liquid extracted from the system (in kg) and the extraction per year (in Tg);

• quantity of geothermal liquid extracted from each borehole on area (in kg);• quantity of liquid drawn down into the system (in kg) and the draw down per year (in Tg);• reading of the temperature of water drawn down into the system (in ̊C);• measurements of the water level of the boreholes on the area and can be measured (in

m);• measurements of pressure or pressure draw down into the system (in MPa/ bar);• measurements made on the warmth of the borehole liquid from each borehole exploited

on the area in question (in kJ/kg) and the relevant data supporting it;• primary utilization from the well (in PJ/a). Primary geothermal energy is the energy that is

re- leased from the geothermal liquid on its way from the original state to the referred state at 15 ̊C at 1 bara;

• primary utilization of geothermal minus the primary energy of liquid drawn down into the same geo- thermal well within the same period;

• heat and pressure measurements in bore- holes on the geothermal area;• chemical analysis on geothermal water (and steam where applicable);• results of

simulator calculations made for the geothermal system;• measurements made to monitor the changes in the geothermal system;• information on new boreholes on the exploitation area; and• results from new boreholes regarding the nature of the geothermal system.

ICELAND – GEOTHERMAL LICENSESREQUIREMENT FOR INFORMATION SUBMISSION

Power Plant

• quantity of geothermal liquid extracted from the system (in kg) and the extraction per year (in Tg);

• quantity of geothermal liquid extracted from each borehole on area (in kg);• quantity of liquid drawn down into the system (in kg) and the draw down per year (in Tg);• reading of the temperature of water drawn down into the system (in ̊C);• measurements of the water level of the boreholes on the area and can be measured (in

m);• measurements of pressure or pressure draw down into the system (in MPa/ bar);• measurements made on the warmth of the borehole liquid from each borehole exploited

on the area in question (in kJ/kg) and the relevant data supporting it;• primary utilization from the well (in PJ/a). Primary geothermal energy is the energy that is

re- leased from the geothermal liquid on its way from the original state to the referred state at 15 ̊C at 1 bara;

• primary utilization of geothermal minus the primary energy of liquid drawn down into the same geo- thermal well within the same period;

• heat and pressure measurements in bore- holes on the geothermal area;• chemical analysis on geothermal water (and steam where applicable);• results of simulator calculations made for the geothermal system;• measurements made to monitor the changes in the geothermal system;• information on new boreholes on the exploitation area; and• results from new boreholes regarding the nature of the geothermal system

ICELANDPOWER PURCHASE & INCENTIVES

ICELAND – POWER PLANTSPOWER PURCHASE AGREEMENTS

PPA General terms

• No regulation under Icelandic law• If power producer is owned by the Icelandic state and/ or municipalities the

agreement is subject to notification and approval by the EFTA Surveillance Authority (“ESA”) in order to ensure that the agreement does not entail state aid

• Under ESA regulation it has been to assess whether the PPA made by a publicly owned company is made on terms acceptable to a private market investor and whether the sale of electricity would be expected to be sufficiently pro table for a private operator.

• For a new facility the basis for ESA ́s examination is whether the power producer obtains acceptable return on the new investment (the power plant).

Duration

• Duration not regulated – duration of existing PPA’s approved under ESA rules range from 15-40 years

• Duration of wholesale agreements to retail companies usually from 5-10 years

ICELAND – POWER PLANTSINCENTIVES

Incentives for geothermal development

• There are no specific incentives for geothermal development/ investment• General incentives for business investments are though available, e.g. in the form of

derogations from taxes and charges, a fixed income tax rate for a period of 10 years as well as exemptions from customs and excise duties on importation.

• The incentives are thus provided for the investment and not through the PPA.

ICELANDENVIRONMENTAL IMPACT ASSESSMENT

ICELAND – GEOTHERMAL DEVELOPMENTENVIRONMENTAL IMPACT ASSESSMENT

Subject to Environmental Impact Assessment (EIA)

• “when utilization could have significant environmental effects due to its scope, nature or location.

• Governed by the Environmental Impact Act, nr. 106/2000. • Developer shall notify the National Planning Agency (“NPA”) prior to utilizing geo- thermal

energy

EIA scoping document proposal - information

• the project site and alternatives which could be considered and provide information on• the planning of the project site;• how the project will comply with development plans;• what aspects of the project and of the environment should be emphasised;• description of data already available; and• a plan for making information available and for public consultation.

ICELAND – GEOTHERMAL DEVELOPMENTENVIRONMENTAL IMPACT ASSESSMENT

Environmental Impact Assessment (EIA) - Report

• Substance of report consistent to scoping document• Specifying

• Effects, cumulative and synergic, direct and indirect which the proposed project and activities may have on the environment and the interaction of individual environmental factors.

• Description of aspects of the proposed project regarded as most likely to have an impact upon the environment, including its scale, design and location, compliance with development plans, proposed mitigating measures and proposals for environmental monitoring where appropriate.

Other licenses required

• All major projects with potential effect on the environment and may change its appearance are subject to a development license from the relevant municipality subject to the Act on Planning no. 123/2010.

• All power plants must apply for a building permit from the NPA in accordance with the Act on Constructions no. 160/2002.

IGC TURKEY 2017 THE CONGRESS IN THE HEART OF THE GEOTHERMAL INDUSTRY IN TURKEY.2nd International Geothermal Conference IGC Turkey to be held 22-24 May 2017 in Izmir.

Izmir/ Turkey – 22-24 May 2017

Contact us for details on how to get involved via eren@jeotermalhaberler.com

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THINKGEOENERGYLEADING IN NEWS AND RESEARCH ON GEOTHERMAL ENERGY

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