March 2022

The State and Challenges
of Energy Affairs
with reference to thegoverment’s climate action
targets and emphases

The Government Offices of Iceland
Ministry of the Environment, Energy and Climate

The State and Challenges of Energy Issues

March 2022

The State and Challenges of Energy Affairs
Assembled by a working group on the state and challenges
of energy issues in Iceland

Responsibility: Ministry of the Environment, Energy and Climate
Issuer: The Government Offices of Iceland

Layout and text: The Government Offices of Iceland
Skuggasund 1 – 101 Reykjavik
545 8600 | urn@urn.is
March 2022
© 2022 Ministry of the Environment, Energy and Climate
ISBN 978-9935-9659-5-0

www.government.is
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The State and Challenges of Energy Issues

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Table of Contents
Summary	
1. Introduction	

1.1 Analysis and Key Issues	

12
17
17

1.3 Consultation and Information Acquisition	18

1.4 Structure and Content of the Report	20

1.2 The Task Force and Consultation	

1.5 The Unique Position of Iceland and Matters of Dispute	

2. Energy Policy and Goals for Climate and Energy Affairs	
2.1 Summary	

2.2 A Sustainable Energy Future	

2.2.1 The Energy Policy for 2050 Submitted to Parliament	
2.2.2 Key Targets of Iceland’s Energy Policy 

18
21

24
24

25
25
27

2.3 Energy and Climate Targets	28

2.4 Energy Commitments on the Basis of the EEA Agreement	29

2.3.1 Three Principal Goals	

2.5 Iceland’s Climate Commitments	
2.5.1 The Paris Agreement	

28
30
30

2.5.2 The Agreement with the EU and Norway to Enforce the Paris Agreement	 31
2.5.3 Joint Overall Target Updated from 40% to 55%	

3. Energy Security	

3.1 Summary	

3.2 Energy Supply and Development		3.2.1 Supply of Electricity and Geothermal Energy	

33

36

36
37
37

3.2.2 Masterplan and Power Production Capabilities Within Its Utilisation Category 40
3.2.3 Overview of Wind Power Projects at Various Stages	43

3.2.4 Expansion of Current Power Production Facilities 	

46

3.2.6 Small Power Plants (<10 MW) 		

46

3.2.5 Factory Waste Heat	

3.2.7 Tidal Power Plants	

3.2.8 Digital Infrastructure Security	

3.3 Community Development, Energy Forecasts and Energy Transition	

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47
47

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3.3.1 Criteria for Evaluating Energy Requirements and Energy Demand	
3.3.2 Electricity Consumption for 2020 and Predicted Consumption for 2021
and 2022 acc. to the National Energy Authority 	

3.3.3 Scenarios for Energy Requirements and Energy Demand
3.3.4 Power and Energy Balance		

3.3.5 Curtailable Load 2021 and 2022	

3.3.6 The Response of Landsvirkjun and Landsnet 2022 	
3.3.7 The State of Electric Heating Utilities	

3.3.8 The State of Geothermal Heat Utilities	

48
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50
56

57

61

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63

3.3.9 Public Electricity Security	

64

3.4.1 Electricity Transmission System	65

3.4 Transmission System	

65

3.4.2 Frequency, Voltage Quality and Transmission Security	

66

3.4.4 Infrastructure Development Over the Past 5 Years	

68

3.4.6 Double Connections (N-1) 	

70

3.4.3 Age of the Transmission System	

3.4.5 Strengthening of Transmission System Between Regions 	
3.4.7 Landsnet Emergency Committee	

3.4.8 Emergency Co-operation of the Electricity System (NSR)21 	
3.4.9 Cybersecurity	

3.4.10 Development of Infrastructure	

3.5 Distribution Network	

3.5.1 The Distribution Network	

3.5.2 Distribution System Operatos (DSOs) 	

3.5.3 Underground Cable Installation, Three-phase Distribution and RARIK
Smart Metre Installation	

3.5.4 The Distribution Network Operated by Orkubu Vestfjarda (OV)	

3.6 Matters of Opinion and Decision-making Issues	

4. Energy Transition	

4.1 Summary	

66
69
70

71

71

72

73
73
73

74
74

75

79

79

4.2 Energy Transition on Land 	

80

4.2.2 Transport	83

4.2.1 Government Actions	

82

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4.2.3 Agriculture	85

4.2.5 Industry Outside the ETS system	

85

4.2.4 Tourism and Other Services	

4.3 Domestic Fuel	

4.3.1 Electricity and E-fuel	

4.3.2 Hydrogen Produced at Filling Station	

4.3.3 Hydrogen Produced by Electrolysis in a Hydrogen Plant	
4.3.4 Production of Biodiesel	
4.3.5 Production of Methanol	
4.3.6 Production of Methane	

4.3.7 Overview of Several Companies in the Field of Hydrogen and E-fuelProduction and Related Services	

4.4 Marine-Related Energy Transition	
4.4.1 International Voyages	

4.4.2 Fishing Industry	
4.4.3 Aquaculture 	

4.4.4 Electric Ships and Electric Boats	

4.5 Energy Transition in Aviation	

4.5.1 Electric and E-fuel Aircrafts	
4.5.2 The Use of Electric Aircrafts	

4.6 Infrastructure for Energy Transition	

4.6.1 Development of Charging Stations	
4.6.2 Ports	

4.6.3 Batteries and E-fuel 	

4.7 Matters of Opinion and Decision-Making Issues	

5. Energy Efficiency and Savings 	
5.1 Summary	

5.2 Utilisation of Energy Resources Over the Years 	
5.3 Technological development	

5.3.1 Smart Energy System and Load Control 	
5.3.2 Smart Network	

5.3.3 Results of Smart Network Adaptation 	
5.3.4 New Technology for Energy Savings	

85
86
86

87
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87

88
88
88

90
90
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90
90

91
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91

92
92

95
95

96

98
98

99
99
99
99

100
100

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The State and Challenges of Energy Issues

5.4 Support Environment	

5.4.1 The Energy Fund	

5.4.2 Technology Development Fund	

5.4.3 Icelandic New Energy (Islensk NyOrka)	

5.5 Economy in Energy Consumption	
5.5.1 Household Savings	5.5.2 Incentives for Companies and the General Public	
5.5.3 Energy Efficiency of Buildings	
5.5.4 Grants for Heat Pumps	

5.6 Improved Energy Efficiency 	

5.6.1 Usable Energy Available	

March 2022

100
100

101
101
101

101

102

103
103

103
103

5.6.2 Waste Heat From Industrial and Energy Processes	

104

5.6.4 Better Utilisation of Older Power Plants and Multi-use	104

5.6.3 Utilisation of Natural Heat Reservoirs 	
5.6.5 Energy Storage – Batteries and Heat Storage	

5.7 Current Projects 2022	

5.7.1 ON Power Projects	
5.7.2 HS Orka Projects	5.7.3 Blami 	
5.7.4 Eimur	

5.7.5 Orkidea	

5.7.6 Grundartangi	

104
105

106
106
106
106

107
107

107

5.8 Matters of Opinion and Decision-Making Issues	108

6.1 Summary	110

6. Community and Economy 	

6.2 Organisation of Energy Issues in the Energy Market	
6.2.1 Management System	

6.3 Energy Market	

110

111
111

112

6.3.1 Transmission System	

114

6.3.3 Electricity Sales	

116

6.5 Gain from Energy Resources	117

6.3.2 Distribution System Operators (DSOs)	
6.4 Benefits of Competition – Price Trends	

115

116

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6.6 Heating Utilities and Their Value	

118

6.8 Industry and Economy	120

6.9.1 Future Growth 

124

6.7 Transmission Losses	

6.9 Export Revenue and Value Creation
6.10 State of Energy Affairs in Regions of Iceland 	
6.10.1 South Iceland 	

118
121

129
129

6.10.2 Westfjords	

130

6.10.4 Northwest Iceland	

130

6.10.3 Northeast Iceland	
6.10.5 East Iceland	

6.10.6 Greater Reykjavik Area	
6.10.7 West Iceland	

6.10.8 The Southern Peninsula	

6.11 Matters of Opinion and Decision-Making Issues	

7. Environment and Nature 	
7.1 Summary	

7.2 Energy Policy and Environmental Issues	
7.2.1 Uniqueness of Iceland	

130
131
131
131
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132

134

134
135
135

7.2.2 Main Targets	

136

7.2.4 Role of the Environment Agency of Iceland 	

137

7.2.3 The Masterplan (for Nature Protection and Energy Utilization)	
7.3 Environmental impact and Organisation 	

7.3.1 The Icelandic National Planning Strategy	

136
138
138

7.3.2 Process of Licensing for Transmission Lines and Power Plants	

140

7.3.4 Data and Planning Portal	

142

7.4 Sustainable Energy Transition 	

143

7.3.3 Changes to Licensing Process	

7.3.5 Wind Power, Planning and Nature Conservation	
7.4.1 Nature and Energy Transition 	

141

142

143

7.4.2 Involvement of the Public and Public Organisations 	

144

7.5 Underground Cables in Distribution and Transmission Networks	145

7.4.3 Economy, Standard of Living, Healthy Environment and Energy Transition

144

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7.6 Matters of Opinion and Decision-making Issues	146

8. Foreign Currents and Trends	148

8.2 Carbon Neutrality 	

148

8.1 Summary	

148

8.3 A Few Main Scenarios 	

8.3.1 Intergovernmental Panel on Climate Change (IPCC) 	

149
149

8.3.2 International Energy Agency (IEA) 	

150

8.3.4 Other Parties 	

154

8.3.3 International Renewable Energy Agency (IRENA) 	
8.4 Important Factors 	

8.4.1 Renewable Energy has Become the Most Economical According to IRENA

152

155

Assessment 	

155

Assessment 	

155

8.4.2 Price of Car Batteries Decreasing Quickly According to BloombergNEF
8.4.3 Increased Investments Necessary 	

156

8.5.1 World Economic Forum (WEF) 	

157

8.5 Climate Issues in the Field of Economic Organisations 	
8.5.2 International Chamber of Commerce (ICC) 	
8.5.3 BusinessEurope 	

8.6 Environmental Organisations 	

157

158

159

159

8.6.1 World Wildlife Fund (WWF) 	

159

8.6.2 350.org 	160

8.7 Denmark’s Climate Policy	

161

8.6.3 Address from Friends of the Earth 	

9. Appendix	163

9.1 Definitions 	

9.2 Reports and Plans	

9.2.1 Government Policies and Plans

163

		

9.2.2 Reports With Involvement from Government Offices

10. Letter of Commission	

160

167
167
172

174

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List of Illustrations
Figure 1. The Energy Demand Scenarios.	

14

Figure 3. A Vision of a Sustainable Energy Future from the Energy Policy.	

25

Figure 2. The Criteria for Scenarios.	

15

Figure 4. The Energy Policy Platform.	

26

Figure 6. Primary Energy Consumption.

38

Figure 8. Installed Power. 

40

Figure 5. Objectives of the Energy Policy.	

27

Figure 7. Electricity Producers. 	

39	Figure 9. From the Energy Forecast

Figure 10. Samorka’s Scenario. 					Figure 11. Loss of Load Probability (LOLP).

Figure 12. The Transmission System. 	Figure 13. The Age Distribution of Transmission Lines.
Figure 14. The Age Distribution of Substations.

	

Figure 15. The Transmission Capacity Between Regions.

54
57

66



	

51

67



68

69

Figure 16. The Proportion of Energy from Renewable Sources.	

80

Figure 18. Trends in alternative fuel use by type.

82

Figure 17. New Registrations of Electric and Plug-in Hybrid Vehicles (PHEV). 

81

Figure 19. The Rate of Eco-friendly Vehicles in New Registrations. 

84

Figure 21. Proportional Distribution of Energy Sources. 

85

Figure 20. The Rate of New Registrations.



Figure 22. Fast Charging Stations for Electric Cars. Figure 23. The Number of Charging Stations. Figure 24. The Number of Electric and Plug-in Hybrid Vehicles Per Charging Station. 
Figure 25. From Icelandic New Energy's 2021 Survey.	

Figure 26. The Energy Market.

Figure 27. The Energy Market.



Figure 28. The Transmission System.

Figure 29. DSOs. 		

	



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93
93

95

112

113

114
115

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The State and Challenges of Energy Issues

Figure 30. Average Energy Prices.

March 2022

Figure 31. Telecommunication Submarine Cables.	

Figure 32. National Planning Strategy.		
Figure 33. Interest Terms. 		

119

128



139

157

TablesTable 1. Power generating options in the utilisation category of the current Masterplan (for Nature
Protection and Energy Utilization) approved by the Parliament in 2013 and 2015. 	

Table 2. Power generating options in the utilisation category of a proposal for the third phase of the
Masterplan (for Nature Protection and Energy Utilization) currently pending before Althingi. If approved,

41

they will be added to the current Masterplan.	

42plans and environmental assessment of works, 23.02.2022.	

44

Table 5. Priority load and energy curtailed by consumers in the general category. 

50

Table 3. Overview of wind power options according to current planning, announced organisational
Table 4. Electricity consumption for 2020 and electricity forecast.

Table 6. Curtailable load 2017–2021. 

Table 7. Sales of load curtailable by energy company. 

Table 8. Energy Fund Grants for Charging Stations 2016–2021.



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58
59

94

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Summary•

Iceland’s energy transition goals need to be better aligned with energy pro-duction and energy transmission goals, which are the basis for the implementation of an energy transition in our society. The implementation of an energy

transition will add to the energy demand to support further industrial growth.
•

Energy security requires greater electricity production and a more robusttransmission and distribution network, which in turn calls for a comprehensiveplanning of the energy network and the integration of working procedures.

•

The assessment of the country’s need for electricity and heat energy for the

next two to four decades is set out in the form of numerical energy forecasts
which need to be reviewed regularly. Six scenarios are set out in the report,
four of which factor in Iceland’s climate goals, ranging from little to no ad-

dition to Iceland’s electricity output, up to more than doubling it to a 124%
increase by 2040.
•

Energy production aiming to reach, by stages, a full, sustainable energy transition also entails improved energy efficiency; increased energy savings, including through technological advances; increasing the power output of existing
power plants; and adding more power plants.

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The State and Challenges of Energy Issues•

Efforts must be made to attain maximum social accord on the protection and•

Investments in energy development have hitherto not been made with a view

March 2022

use of geographical areas and the natural resources found there.

to adhering to climate goals. A sufficient assessment of what those goals en-

tail has not been made, and no decisions have been reached as to appropriate
response. The opinion has been raised that the complexity of the regulatory

framework and the time-consuming permission process have delayed developments within the energy network and are factors in opportunities for indus-

trial development having not been implemented. There is an appeal for moreenergy and more energy security from all regions of the country.
•

Considering the developments in recent years and for the future, the possible
buyers of energy in this country include diverse industries, e.g. metalworks,

data centres, the biotechnology industry, food producers, aquaculture companies and producers of E-fuels.
•

Climate measures to reach carbon neutrality have set off a green industrial

revolution all over the world. Iceland must be able to approach this mission bychoosing methods that can range from being active participants in this revo-

lution through continuing economic growth and improved standards of living,to slowing down, looking inward, decreasing economic activities with a highenergy demand and looking towards other values.
•

If the first road is to be taken alongside reaching the climate goals, energy

production in Iceland must be increased by upwards of 100 MW per year forthe next 20 to 30 years and a clear message be sent. This would entail an effort
to increase exports, as well as a full energy transition. Additionally, the effi-

ciency of the preparatory and permission processes must be increased, andthe institutions involved must be given support to reach the investment andprotection goals involved.
•

It is important to fortify the Icelandic Energy Fund, increase research into local
energy opportunities and seek wide collaboration with foreign institutions
and companies to develop and implement energy solutions.

•

It is important to ensure that energy and climate measures lead to real reductions within the country and do not cause increased emissions elsewhere.

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Scenarios involving Iceland’s increased energy demand with reference to the climate goals
Scenario

Main criteria

Scenario 1• The basic public energy demand

The National Energy

Authority – Basic forecast
Scenario 2

The National Energy
Authority – “Green• Minimal energy transition• Basic public energy demand• Partial energy transition, climate goals not fully achieved

Future”• No growth in industries with a high energy demand /Scenario 3• Complete energy transition on land, at sea and in air

Hydrogen Roadmap(Roland Berger)

The additional energy
demand until 2040/2050
1,717 GWst by 2040

Change from
2020
+9%

2,519 GWst by 2050

+13%

2,688 GWh by 2040

+14%

13,000–24,000 GWh+68–125%

15,648 GWh by 2040

+82%

23,694 GWh by 2040

+124%

Not specified

Not specified

3,980 GWh by 2050

+21%

energy-intensive users• The energy demand of the public market and energy-

by 2050intensive users is not taken into consideration• Direct electricity supply to vehicles, ships and aircraft notincluded in the numbers

Scenario 4

Samorka – Newclimate goals
Scenario 5

Samorka – New climate
goals and energyintensive users• Complete energy transition on land, at sea and in air• The energy demand of the public market and energyintensive users is not taken into consideration• Basic public energy demand according to the National
Energy Authority’s forecast• Complete energy transition on land, at sea and in air• Including intensive users of electricity according to the
National Energy Authority’s forecast, industries with ahigh energy demand (export pillar)

Scenario 6

The Icelandic Environment
Association

The Iceland Nature Conservation Association – No
economic growth• Energy transition without an increase in electricity
production• GDP per person remains unchanged (no economic growth)• The 4 biggest users utilise waste energy to produce

electricity or for the closing of the aluminium smelterin Straumsvik before 2035

Figure 1. The Energy Demand Scenarios.

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Energy transition (full in certain categories)

Party

Passenger
cars

Heavy
vehiclesDomestic
flights

International
flights

Ocean

Government
climate goals

Energy demandof the generalmarketFull energy
transition, carbon
neutrality

Society andgeneraluse

ExportgrowthEnergydemand ofscenario

GWh by 2040(% increase)

The National
Energy Authority’s
basic forecast

9%

The National
Energy Authority’s“Green Future”

14%

HydrogenRoadmap

68–125%(2050)

Samorka I

82%

Samorka II

124%

The Icelandic Environment Association/The Iceland Nature
Conservation
Association*

Not

specified*no economic growth is assumed in the bottom scenario

Figure 2. The Criteria for Scenarios.

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1. Introduction
1.1 Analysis and Key Issues

On 11 January 2022, the Minister for the Environment, Energy and Climate appoint-

ed a working group which, according to the letter of commission, was tasked withpreparing a report on Iceland’s position and challenges in energy issues. The

objective and purpose of the report should be to present facts on the basis ofprofessional considerations and information on key aspects of energy issues inan accessible format for the information of the government, stakeholders and thegeneral public.1

The task force’s analysis was divided into the following components:•

Evaluating the current position, i.e. analysis of the information available and•Assessment of whether and what information is lacking in order to be able toevaluation of the information they provide.

assess the situation objectively, e.g. in terms of energy needs with regards toenergy transition.

•

Assessment of possible weaknesses or obstacles (to government policy for-mulation) that emerge following analysis and position-taking.

The report of the task force should also contain the following key issues:•

Energy demand should be explained with reference to the emphasis and goalsof the government on climate issues. Scenarios should be set up for energy

demand to complete the energy transition. Different scenarios depending on
which methods will be used in energy transition and which technology will
prevail. The discussion of energy demand should also look at the positionof district heating companies in meeting the demand for geothermal heat inparallel with population development.
•

The situation in the electricity transmission system shall be explained, i.a.
based on the parliamentary resolution on the government’s policy on thedevelopment of the electricity transmission system. Are there any obstacles
that prevent the system from being used in an optimal way and making full

1

For further details, see letter of commission dated 11 January 2022 in Annex.

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The State and Challenges of Energy Issues

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use of the energy that is put into the system? Assess the most urgent needs
for improvement and their reasons.
•

The state of the energy market in Iceland shall be reported with regard to thegovernment’s climate goals through energy transmission. Furthermore, themarket’s ability to ensure public energy security, whether government intervention is needed to ensure electricity security and available ways to do soshould also be stated. I.a. based on a report on energy security in the wholesale electricity market.
•

State the current state of affairs regarding the supply and demand of electricity as well as how it is anticipated that these matters will be able to develop

in the coming months and years. Who are the likely buyers of energy based on
current developments and in the future?

1.2 The Task Force and Consultation
The working group was composed as follows:
Vilhjálmur Egilsson, Economist, Chairman
Ari Trausti Guðmundsson, Geophysicist
Sigríður Mogensen, Division Manager at the Federation of Icelandic Industries
Erla Sigríður Gestsdóttir, Senior Advisor, and Magnús Dige Baldursson, Legal

Advisor from the Ministry of the Environment, Energy and Climate worked withthe working group

1.3 Consultation and Information Acquisition

According to the letter of commission, the working group was to consult regularly witha special consultation group of the Ministry and institutions, composed of the following
parties:

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The State and Challenges of Energy Issues

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Halla Sigrún Sigurðardóttir, Director General, Ministry of the Environment, Energy
and Climate

Steinunn Fjóla Sigurðardóttir, Director General, Ministry of the Environment,
Energy and Climate

Jón Geir Pétursson, Chairman of the project management team of the plan for theprotection and energy utilisation of land areas

Halla Hrund Logadóttir, Director General, National Energy Authority (NEA)
Sigrún Ágústsdóttir, Director General, The Environment Agency of Iceland
In addition to consultation with the consultation group, the working group sought
information from stakeholders in order to present as clear a picture as possibleof the facts regarding Iceland’s state of and challenges in energy issues. The

following stakeholders assisted the working group in gathering and compilinginformation of various kinds:
Blami

Landvernd

EM Orka

Iceland Nature Conservation Association

Fallorka

Nordurorka

Fjordungssamband Vestfirdinga

Orka heimilanna(Westfjords Regional Development Office)Graenvangur
Hafthorsstadir vindorka
HS Orka
IcewindÍSORLandsnet
Landsvirkjun(National Power Company of Iceland)

Orkubu Vestfjarda
OrkusalanOrkuveita Reykjavikur (Reykjavik Energy)
Qair
RARIK
Icelandic Association of Local Authorities
Association of Municipalities in East Iceland
Association of Municipalities in theSouthern Peninsula

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The State and Challenges of Energy Issues

Samorka
Federation of Icelandic Industries
Association of Southern Municipalities
Association of municipalities in the
Greater Reykjavik Area

Association of municipalities inNorth-East Iceland

March 2022

Association of municipalities in NorthWest Iceland

Association of Municipalities in West
IcelandThe Icelandic National Planning Agency
Straumlind
Zephyr Iceland

The above-mentioned parties provided a great deal of information that forms thebasis of this report. These include responses to a detailed questionnaire sent by
the working group to the above-mentioned stakeholders and others.

The working group met regularly with the consultation group, which assisted in the
preparation of the report. The working group also met with stakeholders.

The report is also based on public information and government policies regarding,or related to, energy and climate issues. These include the Energy Policy, theEnergy Policy Action Plan, the Climate Action Plan, the National planning strategy,
the Systems Plan and the parliamentary resolution on the government’s policy on
the development of the electricity transmission system and the report on energy
security in the wholesale market.

1.4 Structure and Content of the Report
The object of this report is to present facts on the basis of professional

considerations and information on key aspects of energy issues in an accessible

format for the information of the government, stakeholders and the general public.
The presentation of the report takes into account the presentation and structureof the Energy Policy. At the beginning of each section, a summary and an overview
are compiled based on the working group’s comments.

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1.5 The Unique Position of Iceland andMatters of Dispute

In many respects, Iceland is in a unique position in matters of energy efficiency
and energy transition. As an island far from mainland Europe and North Ameri-ca, Iceland has an isolated electricity system. The country has powerful energy

resources in its diverse, and in many ways unique, natural environment with richconservation value. The government has set an Energy Policy until 2050 with sustainability as a guiding principle and a Climate Policy that takes into account theParis Agreement 2030, carbon neutrality by 2040 and the goal of a fossil fuel free

Iceland in 2050, which has now been accelerated to 2040. Opinions are divided on
public actions, actions of others and on Action Plans that should lead to energy

transition. The matters of dispute concern, i.a. the different assessments of how
much electricity is needed for energy transition for transportation and for a fullenergy transition, in which regions this electricity should be generated and how

it should be distributed and finally, with what production methods the electricity

should be generated. Furthermore, opinions are divided on increasing energy production for a variety of new business and export activities that are being worked
on around the country. Energy-intensive industry generates about a quarter of

Iceland’s export revenue and has played a major role in building Iceland’s electricity system and living standards in Iceland.

Iceland is ahead of other nations in the field of energy transition. The clean energy
transition of electricity and heat is almost complete in Iceland, which is unique inthe world, in addition to which Iceland is in a good position to become one of thefirst countries, or even the first, to completely stop using fossil fuels. This pro-vides Iceland the opportunity to serve as an example in the international climate
context. 2 Climate goals call for action in energy issues, and energy affairs callfor increased energy acquisition. Climate goals have not been accompanied bya sufficiently comprehensive and continuous assessment of energy demand andmeasures regarding energy acquisition and the strengthening of the transmission
system. There is a growing demand for renewable energy and a call to action forincreased electricity supply in all parts of the country due to energy transitionand various opportunities in new business and export activities. A new Ministryof the Environment, Energy and Climate was established recently. Energy issues

now fall under the auspices of that Ministry, while planning has been transferredto the Ministry of Infrastructure. This change is intended to integrate and seek abalance between the perspectives of environmental and climate protection on

the one hand and energy acquisition and the energy industry on the other, both ofwhich are fundamental preconditions for future prosperity and economic growth inIceland and around the world. 3

23

https://www.althingi.is/altext/152/s/0169.html

https://www.althingi.is/altext/152/s/0169.html

21

The State and Challenges of Energy Issues

March 2022

The Masterplan (for Nature Protection and Energy Utilization) seeks to harmonise
the perspectives of energy acquisition and nature conservation under its auspic-

es. It therefore assumes the involvement of many external experts, the executive

branch and, ultimately, Parliament. A Masterplan (for Nature Protection and Energy
Utilization) has not been approved by Parliament since 2015. The goals for energy

transition and a fossil-fuel-free Iceland in relation to climate goals and the guiding
principles of the Energy Policy for a sustainable energy future call for an increasein energy supply and a strengthening of the electricity transmission system, as
there have been a number of obstacles on the road.

This report seeks to present a variety of facts, presenting the relationship between
energy acquisition and energy transmission with society and nature, as well as

institutions’ and stakeholders’ assessments of energy demand, energy supply andenergy consumption, i.e. forecasts and scenarios. Matters of dispute have also

been raised, which calls for further analysis and decision-making. All of this could
explain the evolution of energy issues and the rapid development of energy transition as it appears in the multifaceted dissemination of information in society,discussions and in further policy-making and decisions.

22

The State and Challenges of Energy Issues

March 2022

23

The State and Challenges of Energy Issues

March 2022

2. Energy Policy and Goals
for Climate and Energy Affairs
2.1 Summary•

The government has adopted an Energy Policy that aims to protect theinterests of current and future generations. The Energy Policy includes a visionof a country of clean energy.

•

The Energy Policy is accompanied by an Action Plan with defined actions and•At the beginning of the recent electoral term, the government set itself thetasks that are intended to implement the policy and support it.

goal of eliminating the use of fossil fuel in Iceland by 2050. With the agreementof the current government, that goal was accelerated to 2040.

•

Iceland and Norway are participating in a common goal with the European•

According to the government agreement, an independent national target of aUnion to reduce emissions by 40% by 2030 compared to 1990.

55% reduction in emissions from Iceland’s direct responsibility will be set forthe same period.

•

Rules on energy trade are part of the Agreement on the European Economic•

EEA legislation covers i.a. the internal energy market, requirements for

Area (EEA Agreement).

energy efficiency, eco-design and energy labelling and relates in particular
to consumer perspectives, environmental protection, efficiency in theoperation of energy companies, corporate separation of exclusive licensing

and competitive factors, equal access and market economy in electricity andnatural gas trade.
•

A comprehensive review of EU energy legislation entitled “Clean Energy for
All Europeans” is now available and is intended to better promote energy
transition and fulfill the obligations of the Paris Agreement to reducegreenhouse gas emissions.

24

The State and Challenges of Energy Issues

March 2022

2.2 A Sustainable Energy Future
2.2.1 The Energy Policy for 2050 Submitted to Parliament

An Energy Policy titled “A Sustainable Energy Future” was submitted to Parliament
at the 151st Legislative Assembly 2020–2021, in February 2021. The Energy Policy

was prepared by a cross-party parliamentary committee in extensive co-opera-tion with the government, institutions and stakeholders. The policy attains to theperiod up to and including 2050 and is the first long-term Energy Policy for Icelandthat is prepared in this manner.

The Energy Policy aims to protect the interests of current and future generations.
Sustainable development is a guiding principle that reflects the balance between
economic, social and environmental factors.

The Energy Policy includes a vision for a country of clean energy.

Iceland is a land of clean energy where all energy production is of a renewable

origin. Renewable energy production plays a fundamental role in the fight against
climate change. The energy is used in a sustainable way for the benefit of society

and the public. All energy demands are met safely in the long and short term. The
country is a leader in sustainable energy production, energy transition, energy

efficiency and efficient multi-use of energy sources. There is commitment to theprotection of nature and the utilisation of energy resources, as the environmental
impact is minimal.

The societal benefits of energy resources are maximised and the nation benefits.
Energy is the driving force behind a variety of economic activities where there isequal access nationwide to energy at competitive prices. The nation possesses

excellent knowledge and progressive thinking in relation to energy issues, which
results in thriving value creation and innovation.

Figure 3. A Vision of a Sustainable Energy Future from the Energy Policy.

25

The State and Challenges of Energy Issues

March 2022

Future vision

A Sustainable Energy Future

EnergySociety/economy

Environment/nature

Energy Efficiency
and Savings

Society/
EconomyEnvironment• Energy efficiency
improved and waste
minimised• The nation reaps thebenefits of its energy
resources• Nature conservation
taken into account inenergy use• Equal access to energy countrywide• Sustainable useof energy resources

Energy Security• Public energy needs
met at all times• Infrastructure soundand resilient• Energy system
diversified

EnergyTransition• Measures taken forenergy transition
to make Iceland
independent of fossil
fuel for transport onland, on the sea andin the air• Multi-useof resources• Efficient and competitive energy market

Energy carrier

The nation reaps the benefits of the energy
resources and there is consensus on nature
conservation and utilisation

Heat

Energy is the driving force
of a diverse economy

Electricity

Iceland is a land of clean and secure energy• Minimisation of environmental impact

Fuels

Harmonisation

ValuesPillars

Knowledge

Figure 4. The Energy Policy Platform.4

The Energy Policy has five guiding principles, and this report follows the same structure.
Energy Security
Energy Transition
Energy Efficiency and Savings
Society and Economy
Environment and Nature4

www.orkustefna.is

26

The State and Challenges of Energy Issues

March 2022

2.2.2 Key Targets of Iceland’s Energy Policy
The key targets of the energy policy are:Public energy needs met at all times

Infrastructure sound and resilient

Energy system diversified
Iceland unreliant on fossil fuel
Energy transition on land, on the sea and in the air
Energy efficiency improved and waste minimised

Multi-use of resources

Nature conservation taken into account in energy use

Minimisation of environmental impact

Sustainable use of energy resources

The nation reaps the benefits of its energy resources

Efficient and competitive energy market

Equal access to energy countrywide

Figure 5. Objectives of the Energy Policy.

27

The State and Challenges of Energy Issues

March 2022

The Energy Policy is accompanied by an Action Plan with defined actions and tasks
that are intended to implement the policy and support it. 5

2.3 Energy and Climate Targets
2.3.1 Three Principal Goals

Three main climate goals have been set. At the beginning of the recent electoral
term, the government set out the main targets below, aiming for the end of use

of fossil fuels by 2050. During the current electoral term, the timeframe has been

accelerated to 2040. In addition to the main targets, objectives are also set for theshare of renewable energy in transport and marine-related activities.

2030

The Paris Agreement

5

2040

Iceland’s

Carbon Neutrality

2040

Iceland Independentof Fossil Fuels

https://www.stjornarradid.is/library/01--Frettatengt---myndir-og-skrar/ANR/Orkustefna/200327%20Atvinnuvegaraduneytid%20Orkustefna%20lodrett%20185x248mm%20Vidauki%20II%20V6.pdf

28

The State and Challenges of Energy Issues•

March 2022

The Paris Agreement:•

Joint target with the EU and Norway of a 55% total reduction in emissions•

What the target on Iceland’s direct responsibility will be within theby 2030 compared to 1990 (to implement the goals of the Paris Agreement).
common goal is not clear, but it will increase significantly from theprevious target of a 29% reduction.

•

An independent national target of a 55% reduction in emissions by 2030
compared to 2005 on Iceland’s direct responsibility.

•

40% share of renewable energy in transport by 2030.

•

10% share of renewable energy in marine-related activities by 2030.

•

Iceland will be carbon-neutral by 2040•

Iceland will achieve full energy transition and will be independent of fossil
fuels by 2040–2050.6

2.4 Energy Commitmentson the Basis of the EEA Agreement

Rules on energy trade have been part of the Agreement on the European Eco-nomic Area (EEA Agreement) since its entry into force in 1994. Energy is defined

as a product and therefore falls under the free movement of goods, which is partof the four freedoms, on which both the European Union’s (EU) internal market

and the European Economic Area are based. The rules of the EEA Agreement onenergy issues fall under IV. Annex to the EEA Agreement. The Annex covers e.g. theinternal energy market, requirements for energy efficiency, eco-design and energy
labelling. The Annex thus covers trade in both electricity and natural gas, fueland electrical appliances. The European Union’s acts on energy, which have been
incorporated into the EEA Agreement, concern in particular consumer perspec-tives, environmental protection, efficiency in the operation of energy companies,business separation of exclusive licence and competition factors, equal access anda market economy in electricity and natural gas trade.7

6

7Energy policy and scenarios in the latest forecast of the National Energy Forecast Committee (NEFC), DNV
report and Hydrogen Roadmap are based on the year 2050 for independence from fossil fuels. The government agreement is based on the year 2040.
https://www.althingi.is/altext/149/s/1315.html

29

The State and Challenges of Energy Issues

March 2022

A comprehensive review of EU energy legislation titled “Clean Energy for All Euro-peans” is now available. The review began with proposals from the European Com-mission at the end of 2016 and the approval of the Council of Europe of four acts in
May and December 2018 and the last four on 22 May 2019. The acts in question are

directives and regulations on the energy efficiency of buildings, renewable energy,
energy efficiency, monitoring and governance systems and four acts on electricity
market issues. The EU launched the review of the legislation to better promote

the energy transition and fulfill the obligations of the Paris Agreement to reducegreenhouse gas emissions. Among its main items are provisions for increased production of green energy and improved energy efficiency. Faster energy transition

through innovation, improved energy efficiency and a more efficient transmission

system are encouraged. Emphasis is placed on favouring green energy producers,

both existing producers and general consumers, e.g. with wind or solar energy, ei-

ther for own use or into the electricity system. Consumers’ equal access to efficientenergy for space heating and cooling and house electricity should also be ensured.
As before, the guiding principle of the regulatory framework is to improve theinterests of consumers and the environment as well as to strengthen the economy.
The Ministry of the Environment, Energy and Climate has already begun working inaccordance with the provisions of the new regulation on monitoring and governance systems concerning climate obligations.

Implementation in Iceland is subject to reservations and exceptions that may

arise after the work of the consultation group. The government discusses the acts
through the agency of the Minister of the affairs. Finally, the government’s parliamentary resolution is submitted to Parliament.

2.5 Iceland’s Climate Commitments
2.5.1 The Paris Agreement

In 2015, the Paris Agreement on Climate Change was adopted. Iceland ratified

the agreement in September 2016, and it entered into force on 4 November 2016.

According to the Paris Agreement, the member states themselves must set targets
for reducing greenhouse gas emissions, the so-called nationally determined contributions (NDCs), and Iceland submitted its first NDC in September 2016, statingthat Iceland intends to participate in the EU’s joint target of reducing emissions by
40% by 2030, compared to 1990. In February 2021, Iceland submitted an updated

NDC stating that Iceland will participate in the EU’s new target of a 55% reductionin emissions (in co-operation with the EU member states and Norway) instead of
the previous 40%.8

8https://himinnoghaf.is/loftslagsmal/article/skuldbindingar-islands/

30

The State and Challenges of Energy Issues

March 2022

2.5.2 The Agreement with the EU and Norway to Enforce the Paris
Agreement

According to an agreement with the European Union, Iceland and Norway are participating in a joint target of a 40% reduction in greenhouse gas emissions in the

period 2021–2030. Within the 40% target, the share of Iceland’s direct responsibility was 29%, i.e. emissions falling outside the European Union’s Emissions Trading
System (ETS). Targets of the direct responsibility of states are set according to

pre-determined criteria and algorithms where, e.g. the national income per capita
and the cost-effectiveness of operations are considered.

The joint overall target has been tightened from 40% to 55%, but it has not been

confirmed what the target of Iceland’s direct responsibility will be within the new

55% overall target, but it is expected that it will increase considerably. The government has also set an independent national target of a 55% reduction in emissions
falling outside the ETS system by 2030 compared to 2005.

With this arrangement, Iceland, Norway and the EU Member States have one joint

contribution to the Paris Agreement, but the internal rules of the states determine
the share and obligations of each state. The common goal is implemented in sucha way that part of the reduction that is to take place in emissions is divided among
the states and forms their direct obligations. This emission is therefore the direct

responsibility of the states (ESR – Effort Sharing Regulation). Part of the reduction

falls on an emissions trading system, the ETS system. Numerical targets for both of31

The State and Challenges of Energy Issues

March 2022

these factors are based on 2005. Third, there are special rules regarding land use(LULUCF – Land Use, Land-Use Change, and Forestry).

Iceland’s ESR obligations cover emissions from energy (including transportand fisheries), industrial processes and chemical/product use, agriculture andwaste, but not emissions falling under the EU ETS or emissions and greenhousegas sequestration from LULUCF.

Member States shall ensure that the annual greenhouse gas emissions covered by
ESR in the years 2021–2029 do not exceed defined limits that are linear from 2020,

based on average emissions in the years 2016–2018, and end in 2030 on the targetof each member state. The EU Regulation on Effort Sharing (ESR – No. 2018/842)

specifies the minimum percentage by which each Member State shall reduce its

greenhouse gas emissions falling within its scope in the period 2021–2030, compared to 2005 emissions. According to an agreement from 2019, that percentage
was 29%. In accordance with the obligation, the annual emission allocation has

been calculated and the Iceland emission allocation can be seen in the decision of
the EFTA Surveillance Authority (ESA) published in July 2021.9

In addition to having a defined annual emission allocation, it provides for various
possibilities for flexibility in states’ efforts to meet their obligations. States canborrow up to 10% of the allocated emission allowance for the coming year in the
period 2021–2025 and up to 5% in the years 2026–2029. In instances where thestate’s emissions for a given year are less than the amount of allocated emission
allowances, the excess allowances may therefore be used to meet later obliga-

tions, until the year 2030. States may transfer up to 5% of their annual emissions
allocation for the period of 2021–2025 to other Member States that can use theallowances and up to 10% for the period of 2026–2030. States that are not on theright track, based on their obligations, can use this allocation to negotiate transfers from states that are better off than their obligations require.

States are authorised to use forestry and land-use allowances to a certain extent,
and certain states are authorised to transfer emission allowances from the ETS

system in order to meet their obligations under the Regulation. The level of thatallowance for individual states varies. As far as Iceland is concerned, the aforementioned allowance amounts to 200.000 tonnes of CO2 equivalents during theperiod and corresponds to 4% of Iceland’s ETS emissions in 2005.

In 2027 and 2032, a detailed assessment will be carried out as to whether states have
met their obligations in terms of annual emissions for each year within each five-

year period (2021–2025 and 2026–2030), including utilising the flexibility provisions.

9

https://www.eftasurv.int/cms/sites/default/files/documents/gopro/College%20Decision%20204%2021%20
COL%20-%20Determination%20of%20the%20Annual%20Emissions%20Allocations.pdf

32

The State and Challenges of Energy Issues

March 2022

If a state does not meet its obligations, the excess of that year’s emissions in CO2
equivalents will be multiplied by a coefficient of 1.08 and added to next year’s

emissions, and the state will not be allowed to use flexibility provisions regardingtransfers of allowances to other states until it meets its obligations.

2.5.3 Joint Overall Target Updated from 40% to 55%

In drafting this report (February/March 2022), the European Commission (EC) has

submitted a proposal for the reduction of emissions under direct responsibility of
the Member States and has published in part the allocation and calculation rules
behind it. The proposal is still under review in both the European Parliament andthe European Council, and therefore, the allocation and calculation rules behind

it cannot be considered final. The proposals assume a maximum reduction target

for individual states of 50% and a minimum of 10%. The basis for that calculation isa defined criteria designed to ensure fairness, economy and that adjustments are
made in respect of the particular circumstances of the states concerned, e.g. theproportion of emissions in industries which are technically difficult to reduce, suchas agriculture and the fisheries sector.

As a proposal for a target for the Member States has not been approved, thetargets of Iceland and Norway have not been assessed and will not be formallyavailable until a decision has been made on the targets of the EU Member States.
Based on the presented assumptions and taking into account the compositionof emissions from Iceland in comparison with other states and the cost analy-

sis of reduction measures and taking into account the specific adaptation of theregulatory framework, due to the circumstances in Iceland, including the highproportion of renewable energy, it is firmly assumed that the reduction target for
direct responsibility of Iceland will increase significantly within the new target. In
this context, it is worth reiterating that there is no formal decision regarding theassumptions, calculation rules or possible adjustments due to the specific circumstances of individual states, and therefore this figure may change.

According to the government agreement, an independent national target of a 55%

reduction in emissions from Iceland’s direct responsibility will be set for the same
period.

The government agreement states that in consultation with municipalities andthe business community, the intention is to set phased emission targets for eachindustry.

33

It is clear that Iceland’s target of a 55% reduction in greenhouse gas emissions on
Iceland’s direct responsibility by 2030, carbon neutrality no later than 2040 andthat Iceland will be the first nation to be independent of fossil fuels by 2040 is oneof the more ambitious national targets. However, the 2050 target is consideredmore realistic for independence from fossil fuels if technological developments
are taken into account.

The Environment Agency of Iceland submits reports and information to the Eu-

ropean Union on policies and measures aimed at reducing greenhouse gas emissions. It is worth mentioning that the assessment of the reduction in the action
plan and the assessment of the reduction according to the calculations of theEnvironment Agency are not entirely based on the same assumptions or methodologies and are therefore not fully comparable.

The Environment Agency’s projections take into account measures that have al-

ready been implemented or are at least timed and financed. According to them, thereduction in greenhouse gas emissions under Iceland’s direct responsibility willamount to:

28% in 2030 compared to 2005
46% in 2040 compared to 2005

According to the Action Plan as it was presented when these calculations were

made, Iceland is unlikely to achieve the Paris targets of 2030, despite some flexibility with the use of the ETS, because the EU has raised its total emissions targets to55%, which affects Iceland’s share.

It is also unlikely to achieve the independent target of a 55% reduction in emis-

sions by 2030 as set out in the 2021 government agreement without significantly
adding to measures.

The Environment Agency estimates that emissions from the energy sector (which

includes geothermal power plants and fuel consumption) will decrease by 31% in
2030 compared to 2005. The Environment Agency’s calculations are based on i.a.

the fuel forecast issued in September 2021, which does not assess all the actionsof the Climate Action Plan.

34

The State and Challenges of Energy Issues

March 2022

35

The State and Challenges of Energy Issues

March 2022

3. Energy Security
3.1 Summary•

Six scenarios are set out in the report, of which four take Iceland’s climate

goals into account, ranging from little to no addition to Iceland’s electricity
output, up to more than doubling it up to a 125% increase by 2040.

•

There has been limited construction of hydroelectric and geothermal plants

in later years, considering the demand. Preparations have been underway forsome construction which is permitted with the current utilisation category.
No new plants over 10 MW have received a utilisation permit for the past 5

years, but there have been utilisation permits for increasing the utilisation ofhydroelectric and geothermal plants, as well as a permit for few smaller plants.

The third phase of The Masterplan (for Nature Protection and Energy Utilization)is awaiting processing by parliament. The fourth phase is underway and has notbeen delivered to the minister.
•

The year 2021 had poor water supply which, along with energy demand

outstripping supply, has lead to Landsvirkjun utilising permits to curtailelectricity delivery to those parties with curtailable electricity contracts, thoseparties being fish meal plants, large-scale users and district heating plants.
•

Transmission limitations are currently in place between regions.

•

Several construction projects focused on the transmission systems have been•

A multi-factor initiative will be implemented to strengthen the distribution•

The strengthening of three-phase electricity has been supported in the

delayed considerably.

and transmission system following the storm of December 2019.

distribution system and work is underway on increased proportion ofunderground cables to improve the population’s access to electricity and amore powerful distribution system.
•

Several wind energy projects are being reviewed, but no work has begun on•

There is an increased energy need if the country is to be able to meet thethose projects. Opinions on zoning issues and permits have been divided.

demands of the energy transition in the decades to come, if the intention is to36

The State and Challenges of Energy Issues

March 2022

utilise domestic energy resources according to the Energy Policy. E-fuel canbe produced domestically or imported. The energy transition is thought torequire between 4–24 TWh, depending on how much domestic E-fuel can beproduced. The highest end of the range assumes that a full energy transition
will take place.
•

There is an energy demand from dozens of companies of varying sizes,•

The first criteria with the year 2050 as a reference point for a fossil fuel freeincluding possible large-scale consum domestically and abroad.

Iceland is more realistic than the year 2040 given the current state of energy
and technological development.

•

Seller of last resort in a wholesale marketplace is not defined according to•

The energy forecast of the NEA does not factor in future development in industry,electricity legislation.10

i.e. plans for growth and the investments of large-scale electricity consum.

3.2 Energy Supply and Development
The Energy Policy: The Energy System is More Diverse

3.2.1 Supply of Electricity and Geothermal Energy

Energy security is dependent on a few key factors: the supply of electricity, thedemand for electricity and geothermal energy, the transmission and distribution
network and the legal framework for energy issues. At present, primary energyuse, which is obtained from four energy categories, is essentially the same asshown in a graph from the NEA.

10

See page 34 in the report of the working group. https://www.stjornarradid.is/library/01--Frettatengt---myndirog-skrar/ANR/ThKRG/Sk%C3%BDrsla%20starfsh%C3%B3ps%20um%20orku%C3%B6ryggi_LOKAEINTAK.pdf

37

The State and Challenges of Energy Issues

March 2022

Primary Energy Consumption in Iceland 1940–2020
Total: 246.1 PJ

300

Primary Energy Consumption [PJ]

250

200
Geothermal
heat

150

100
Coal
Oil

50

Hydropower

0
1940
100%

1945

1950

1955

1940

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Peat

90%

2015

2020

Oil

Coal

80%
70%
60%

Geothermal
heat

50%
40%
30%
20%
10%

Hydropower

0%
1940

1945

1950

1955

1940

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

From the National Energy Authority: OS-2021-T008-01

Figure 6. Primary Energy Consumption.		



Source: Orkustofnun (National Energy Authority).

Hydropower and geothermal energy are the main primary energy categories be-hind electricity production in 2021. In the year 2022, the burning of oil needs to be
increased due to electricity curtailment to fishmeal factories, heavy industry andelectric district heating. Data centres will in some cases have backup power (diesel
stations), but smelters or silicon processing plants will not. In 2021, most of theinstalled electric power was in the hands of several electricity producers, cf. thefollowing table.11

11This table is missing Bru, HS Orku’s plant in the column “Installed Electrical Capacity – Hydropower:
9,900kW”. Small wind power plants, 600kW, are wind turbines in Þykkvabaer that have been demolished.
Installed power – fuel is in part as a reserve power source.

38

The State and Challenges of Energy Issues

March 2022

Scenario

Producer
Producer

Installed Electrical
Capacity – Hydropower [KW]
Installed electrical
capacity – Hydro [kW]Landsvirkjun

Installed Electrical
Capacity – Geothermal
Installed ElectricalHeat [KW]
Capacity – Wind Power [KW]
Installed electrical
Installed electrical
capacity – Geothermal [kW]capacity – Wind [kW]Installed Electrical
Capacity – Fuel [KW]
Installed electrical
capacity – Fuel [kW]Total [kW]Total[kW]1,991,300

153,200

1,800-

2,146,300

8,200

423,000--

431,200

HS Orka-

176,400--

176,400

Orkusalan

37,780---37,780

Orkubu Vestfjarda

17,322--

17,32834,650---33,88933,88934,575

600

600

-

35,775Landsnet---

10,80010,800HS Veitur

-

-

-

7,194

7,194

Nordurorka

-

-

-

2,760

2,760

Fallorka

6,407

-

-

-

6,407

Rafveita Reydarfjardar*

240

-

-

-

240

Orkuveita Husavikur

-

-

-

-

-

2,095,824

753,200

2,400

71,971

2,923,395

Orka Natturunnar

RARIK
Small-scale plants

Total* In 2020, RARIK acquired the substations and distribution system of Rafveita Reydarfjardar

Figure 7. Electricity Producers. 				

Source: Orkustofnun (National Energy Authority).

39

The State and Challenges of Energy Issues

March 2022

Installed power by origin 2019

Wind
0.1%

Fuel
2.5%

Geothermal
25.8%

Hydro
71.7%

Total Installed Power Capacity: 2,923 MW

Statistical material from the National Energy Authority (Orkustofnun): OS-2021-T012-01

Figure 8. Installed Power.

Source: Orkustofnun (The National Energy Authority) 12

3.2.2 Masterplan and Power Production Capabilities Within Its
Utilisation Category

The government’s Masterplan (for Nature Protection and Energy Utilization) pre-pares the Parliament’s decision on the ranking of power development options into
the protection, utilisation or standby categories according to a statutory process.
Various power development options are in the utilisation category of the Master-plan (for Nature Protection and Energy Utilization), both in the current utilisation

category and in phase three, which is currently being processed by the Parliament.
In addition, many power development options are being discussed by the project
management (phases four and five), both new power development options andoptions from the standby category.

The Parliament has twice approved parliamentary resolutions on the ranking of

power development options on the basis of the Masterplan (for Nature Protection
and Energy Utilization), in 2013 and 2015. In the utilisation category for the cur-rent Masterplan (for Nature Protection and Energy Utilization), the energy options
found in Table 1 were approved. In total they amounted to approximately 1,151 MW
of installed power. The annual energy capacity is approximately 9.2 TWh. Hydropower is approximately 156 MW, and geothermal heat is approximately 995 MW.

12

If we look at production figures for the year 2020, the production of petrol stations was 6.66 GWh, or about
0.035% of the country’s electricity generation, see Appendix 1 in the Electricity Forecast 2021–2060. This
figure gives a completely different overview, as it shows installed power.

40

The State and Challenges of Energy Issues

March 2022

Table 1. Power generating options in the utilisation category of the current Masterplan (for Nature
Protection and Energy Utilization) approved by the Parliament in 2013 and 2015.
Type of Energy

Water Catchment Area
High-Temperature Geothermal Area

Power Development
OptionsMW

GWh/yearEconom. Cat.

Hydropower

Ofeigsfjordur

The Hvalarvirkjun Power Plant

35

259

5

Hydropower

BlandaThe Blonduveita Power Plant

28

180

4

HydropowerÞjorsaThe Hvammsvirkjun Power Plant*

93

720

4

Geothermal power

The Reykjanes Area

Reykjanes

80

568

2.5

Geothermal power

The Reykjanes Area

Stora-Sandvik

50

410

2.5

Geothermal power

The Svartsengi Area

Eldvorp

50

410

3

Geothermal power

The Krysuvik Area

Sandfell

50

410

3

Geothermal power

The Krysuvik Area

Sveifluhals

50

410

2

Geothermal power

The Hengill Area

Meitillinn

45

369

3

Geothermal power

The Hengill Area

Grauhnukar**

45

369

3

Geothermal power

The Hengill Area

Hverahlid**

90

738

3

Geothermal power

The Namafjall Area

Bjarnarflag

90

738

2

Geothermal power

The Krafla Area

Krafla I, Expansion

40

320

2

Geothermal power

The Krafla Area

Krafla II, Phase I

45

369

2

Geothermal power

The Krafla Area

Krafla II, Phase II

90

738

2

Geothermal power

The Þeistareykir AreaÞeistareykir**

180

1476

2

Geothermal power

The Þeistareykir AreaÞeistareykir**, western region

90

738

2

* Approved by the Parliament in 2015** NEA has issued a utilisation permit

A proposal for the classification of power development options on the basis ofPhase 3 of the Masterplan (for Nature Protection and Energy Utilization) is now
before the Parliament. There are proposals for eight new power development

options in the development category, which are added to those that already exist.
These eight power development options have a total of about 657 MW of installedcapacity. The annual energy capacity is approximately 4.6 TWh. Hydropower isapproximately 227 MW, geothermal heat is approximately 288 MW and wind power
approximately 100 MW.

41

The State and Challenges of Energy Issues

March 2022

Table 2. Power generating options in the utilisation category of a proposal for the third
phase of the Masterplan (for Nature Protection and Energy Utilization) currently pending
before Althingi. If approved, they will be added to the current Masterplan.
Power
Development Options

Type of Energy
Production

MW

GWh/yearEconom. Cat.

Skrokkolduvirkjun

Hydropower

45

345

3

Holtavirkjun

Hydropower

57

450

4

Urridafossvirkjun

Hydropower

140

1037

2

Austurgilsvirkjun

Hydropower

35

175

5

Austurengjar

Geothermal Power

100

820

3

Hverahlid II

Geothermal Power

90

738

4

Þverardalur

Geothermal Power

90

738

4

BlondulundurWind power

100

350

X

In addition to the aforementioned power development options, which the proj-

ect management and its teams of experts have completed an assessment of, in

accordance with statutory procedures, an assessment is now underway for various
power development options that the National Energy Authority has defined andrequested to be considered. The project management of the fourth phase received
46 power development options for evaluation and drafted a classification of 13 ofthem. In addition, there are about 40 options in the standby categories of the firstphase. The appointment period of the fourth phase project management expiredin 2021, when the fifth phase project management took over the work.

To understand the context in these variables, it should be noted that in 2020, theelectricity production was 19,127 GWh and the highest energy peak of the system
was 2,408 MW.

If we look at the power development options that are in the approved utilisation
category of the Masterplan (for Nature Protection and Energy Utilization) andexcluding the power development options for which the National Energy Authority
has already issued a utilisation permit, there are a total of 764 MW of estimatedpower in ten power development options, both geothermal and hydropower.

42

The State and Challenges of Energy Issues

March 2022

In addition, there are about 657 MW in eight power development options in the

proposal in the utilisation category of the third phase, which is now before theParliament for consideration, both geothermal, hydropower and wind power.

Parliament’s approval of the third phase, as submitted, would mean a total of 1,421
MW in utilisation category in 18 potential power development options.

It is also worth noting that an additional 80 power development options are in theprocess of the project management of the Masterplan (for Nature Protection and Energy Utilization) that need to be evaluated and proposals prepared for classification
into utilisation, standby or protection. It is clear that an addition to the utilisation
category can be expected there.

According to information from Landsvirkjun, the status of its power development
options is as follows: In the second phase of the Masterplan (for Nature Protec-

tion and Energy Utilization), there are two hydropower development options, one

in project design and the other in an invitation to tender. The phase also includes
three geothermal development options, one of which is in a project design phaseand the project design phase of another has just begun. Landsvirkjun has sub-mitted to the Masterplan (for Nature Protection and Energy Utilization) anotherfive power development options, of which two have wind power and three havehydropower at different design stages. According to information from HS Orka, it

has four geothermal development plant options in the utilisation category of thesecond phase of the Masterplan (for Nature Protection and Energy Utilization) and
one in the standby category. In addition, one hydropower option where the initialdesign and environmental impact assessment is completed. The company alsoplans to expand its power plants and improve efficiency. The plans are at different
stages, from initial design to construction.

3.2.3 Overview of Wind Power Projects at Various Stages

For several years, projects in wind power have been submitted to municipal au-

thorities or reported on in various media. Those that are currently at some stageof development from idea to processing by municipal authorities and/or institutions are as follows:

43

The State and Challenges of Energy Issues

March 2022

Table 3. Overview of wind power options according to current planning, announced organisational plans and environmental assessment of works, 23.02.2022.

Municipality

Power plant / location / developer(specified maximum size according toplanning and environmental impact
assessment)

Planning

Environmental impact
assessment of construction

Hvalfjardarsveit

Brekka, Zephyr Iceland

Not provided for in the current planning. A proposal

Pre-consultation meeting ac-states that no position will be taken on individual

Environmental Assessment of

50 MW.

for a new Municpal Plan that is being preparedwind power plants unless there is a definition of anarea in the utilisation category of the Master Plan.
Borgarbyggd

Grjothals, Owners of Hafthorsand Sigmundarstadir

400 ha area (in Municpal Plan).

Municipal authorities presented a prospectus forcording to Article 8 of the Act on
Projects and Plans January 2022.

Decision of the National Plan-

amendments to the Municpal Plan in 2021.

ning Agency on the assessment

Not provided for in planning.

Qair Iceland assessment plan

30 MW (in environmental impact

plan 17.9.2020.

assessment).
Borgarbyggd

Muli in Hvammur, Qair Iceland
95 MW.

presented in January 2022. The
Planning Agency’s opinion on
the assessment plan is notavailable.

Snaefellsbaer

By Gufuskalar

Provided for in Municpal Plan.

Not conducted.

Snaefellsbaer

Northeast of Gufuskalar

Provided for in Municipal Plan

Not conducted.

Dalabyggd

Hrodnyjarstadir, Storm orka

Provided for in the Municipal Plan amendment

Decision of the National Plan-of Infrastructure is included for approval. Alsoplan 28.7.2020.

8.1 MW, 75-metre-high wind turbines.

3 MW, 75-metre-high wind turbines.

130 MW.

approved by the municipal authorities; the Minister
included in proposal for a new Municipal Plan that isning Agency on the assessment

being prepared.
Dalabyggd

Solheimar, Qair Iceland

Provided for in the Municipal Plan amendment

Decision of the National Plan-

115 MW (in environmental impact

of Infrastructure is included for approval. Alsoplan 17.9.2020.

150 MW (in Municipal Plan).
assessment).

Reykholahreppur

approved by the municipal authorities; the Minister
included in proposal for a new Municipal Plan that isning Agency on the assessment

being prepared.

Garpsdalur, EM Orka

Provided for in the Municipal Plan amendment ap-

Decision of the National Plan-

130 MW (in environmental impact

Infrastructure is included for approval. Also includ-plan 28.7.2020.

89 MW (in Municipal Plan).
assessment).

proved by the municipal authorities; the Minister of
ed in proposal for a new Municipal Plan, approved

ning Agency on the assessmentby the municipal authorities for advertising.

44

The State and Challenges of Energy Issues

March 2022

Municipality

Power plant / location / developer(specified maximum size according toplanning and environmental impact
assessment)

Planning

Environmental impact
assessment of construction

Nordurthing

Hnotasteinn, Qair Iceland

Municipal authorities presented a prospectus for

Decision of the National Plan-

35 windmills, 200 m high(in Municipal Plan).

amendments to the Municipal Plan in 2020.

ning Agency on the assessment
plan 2.7.2021.

200 MW (in environmental
impact assessment).

Mulathing

Lagarfoss

Municipal authorities presented a prospectus for the

Not conducted.

MulathingKlaustursel, Zephyr Iceland

Not provided for in planning.

Pre-consultation meeting ac-

10 MW, 2 wind turbines.

250 MW.

preparation of the Municipal Plan in 2019.

cording to Article 8 of the Act on
Environmental Assessment of

Projects and Plans January 2022.
Skaftarhreppur

Grimsstadir, Qair Iceland

171 MW.

Not provided for in the current planning. The proposal
for a new Municipal Plan that is being prepared con-tains general provisions on wind energy but not local
provisions on wind power plants.

Rangarthing ytra

Rangarthing ytra

Rangarthing ytra and

Skeida- and Gnupverjahr.

Habaer, Þykkvabaer

Provided for in Municipal and Local Plan.

Vindaborg in Þykkvabaer, Biokraft

Not provided for in planning.

1,9 MW, 2 wind turbines.

45 MW.

Burfellslundur, Landsvirkjun
200 MW.

Decision of the National Plan-ning Agency on the assessment
plan 29.9.2021.

Not subject to the then-appli-

cable law.

Decision of the National Plan-ning Agency on the assessment
plan 17.4.2017.

National Planning Agency’s

Not provided for in planning.

opinion on Environmental Impact Assessment 21.12.2016.

Skeida- andHafid, Landsvirkjun

Provided for in Municipal and Local plan.

Skeida- and Gnupverjahr.

Hrutmulavirkjun (Skaldabudir)

Municipal authorities presented a prospectus for

Not conducted.

Grimsnes- and Grafn.hr.

Mosfellsheidi, Zephyr Iceland

The municipal authorities of Grimsnes and Grafnings-

Decision of the National Plan-

200 MW (in environmental impact

for advertising, which provides for the wind powerplan 9.3.2021.

Gnupverjahreppur& Ölfus Municipality

1.8 MW, 2 wind turbines.

85 MW.

100 MW (in GoG Municipal Plan).
assessment).

Not subject to the then-applica-

ble law and is a pilot project.

amendments to the Municipal Plan in 2020.

hreppur approved a proposal for a new Municipal Plan
plant, in February 2022.

ning Agency on the assessment

Not provided for in the Municipal Plan of the Munici-

pality of Ölfus or in a proposal for a new Municipal Planapproved by the town council in November 2021.

Source: The Icelandic National Planning Agency

45

The State and Challenges of Energy Issues

March 2022

In addition, the Municipal Plans of several municipalities provide scope for thedevelopment of small, single wind turbines outside urban areas. Often based on
10–30-metre-high wind turbines, 0.5–1 MW. Akureyri municipality has also pre-sented a prospectus for making amendments to the Municipal Plan for six 12-metre-high wind turbines, each 6 kW, in Grimsey.

3.2.4 Expansion of Current Power Production Facilities

Increased flow of glacial lakes due to glacial shrinkage and other watercourses due
to changes in precipitation can improve the production capacity of hydropower
plants. This then takes into consideration, i.a. technical modifications to powerengines or additions to power plant power engines. Additional power from geothermal power plants can be obtained through better utilisation of wastewater
heat and the generation of other, so-called industrial waste.

The NEA has processed four utilisation permits, which can be considered as booster actions for existing power plants from 2017 to 2021, and all of these measures
have already been put into operation. The booster totals 12.85 MW in installedcapacity. No application for such an action is awaiting processing by the NEA in
January 2022, according to its information.

3.2.5 Factory Waste Heat

Furthermore, it is possible to utilise heat emanating from high-energy industries(often referred to as waste heat), e.g. metallurgical plants to produce electricity
and geothermal heat. These are options that have not been fully evaluated.

3.2.6 Small Power Plants (<10 MW)

Most of the utilisation permits that have been issued in the last 5 years have beenfor small power plants, i.e. power plants under 10 MW of installed capacity, or a

total of 21.8 MW in hydropower in 9 small power plants and 4.5 MW in geothermalenergy (3 small power plants). These power plants are all operational. The NEA
now has two applications for hydropower utilisation permits and one applica-tion for wind power utilisation permits, a total of 16.85 MW. Varmaorka produces
electricity from geothermal areas in low-temperature areas in Fludir/Kopsvatn,
Reykholt and at Krauma by Deildartunga, a total of almost 1 MW.

It should be noted that the NEA’s analysis of small power plant options reveals thatthey are numerous and with a combined capacity of around and over 2,500 MW,
with the reservations stated in the reports.

46

The State and Challenges of Energy Issues

March 2022

3.2.7 Tidal Power Plants

The National Energy Authority has issued an exploration permit for plans for up to
a 30 MW tidal power plant in Gilsfjordur in Reykholahreppur. An older power plantis being examined in Hvammsfjordur, Dalabyggd. The exploration permit authorises
research and measurements in a specified area.

3.2.8 Digital Infrastructure Security

Delivery security and management security depend on secure digital systems forboth power plants and the transmission and distribution system. Landvirkjun andLandsnet own and operate their own telecommunications company, Orkufjarskipti
hf., which was established in December 2011. The company operates a power-

ful telecommunications system that is intended to meet the electricity system’s
requirements for a stable and reliable telecommunications network. This is a fi-

ber-optic network that maintains communication routes to the power stations andsubstations of the electricity system (information from Landsvirkjun).

Landsnet has implemented a management system for information security, and

it is certified according to ISO/IEC 27001:2013. It includes documented operational
procedures, technical cybersecurity safeguards of various kinds, and awarenesstraining for staff. Regular security tests of information systems are carried out by
external parties. Efforts are being made to examine and assess the risks involvedin the operation of digital substations, as well as to implement appropriate mitigation measures (information from Landsnet).

47

The State and Challenges of Energy Issues

March 2022

3.3 Community Development, Energy
Forecasts and Energy Transition
The Energy Policy: Public energy need met at all times

3.3.1 Criteria for Evaluating Energy Requirements and Energy Demand
Since 1996, the National Energy Forecasting Committee (NEFC) of the NEA has

prepared an energy forecast, most recently updated for 2021–2060, together withan annual document on the criteria of the energy forecast.13 Special forecasts are

made for electricity, fuel and heat.

The main criteria are: Economic growth, population and housing development,

number of foreign tourists, homes and leisure centres, agriculture, fisheries, aquaculture, various industries and development of production there, services, utili-

ties, goods and people transport within and outside the country, manpower andaccommodation. Electricity forecasts include energy-intensive consum, but do notassume growth in use beyond what is stipulated in agreements. This is because
predictability is not considered sufficient and energy sales to those parties are

subject to special agreements. Recently, predictable energy transition has beenassessed and included in the forecast. The energy forecast provides a basis for energy demand and its development for decades. It must be borne in mind, however,that there are a number of uncertainties, and updates such as the one prepared forthe 2020 forecast must be considered. The actual energy consumption of each year
is summarised in the next calendar year, at which time it’s revealed how successful
the assessments and the forecast were.

The criteria of other energy forecasts are in addition to this, e.g. either energy

transition in land transport and in the fishing fleet or full energy transition. Thisrefers to the energy transition of all vessels and ships, in international flights andall kinds of machinery and equipment that use fossil fuels.

3.3.2 Electricity Consumption for 2020 and Predicted Consumption
for 2021 and 2022 acc. to the National Energy Authority
A comparison from the NEA on electricity consumption in 2020, together withelectricity forecasts for 2021 and 2022 by user category, indicates the direction ofgeneral electricity consumption in the country’s electricity system. Priority load
and load curtailable in the general system are also reported.

13

https://orkustofnun.is/orkustofnun/rad-og-nefndir/orkusparnefnd/nefndin/almennar-forsendur/

48

The State and Challenges of Energy Issues

March 2022

Table 4. Electricity consumption for 2020 and electricity forecast. 			


Large-scale use

Source: Orkustofnun (The National Energy Authority) 14

ActualFigures 2020
Energy GWh

Proportion %Electricity
Forecast 2021
Energy GWh

Electricity
Forecast 2022
Energy GWh

Large-scale-use metal-

14,00373%

14,583

14,972Large-scale-use

828

4%

956

1,127

Large-scale total

14,83178%

15,54016,099Households

879

5%

887

907

Agriculture

230

1%

246

240

Industry

735

4%

797

804

Services

1,040

5%

1,215

1,288

Utilities

317

2%

286

284

Fisheries

85

0%

88

90

General use total

3,287

17%

3,519

3,612

Transmission losses

359

2%

398

416

Distribution losses

181

1%

169

174

Withdrawals from processing

470

2%

480

490

1,010

5%

1,047

1,080

19,127100%

20,105

20,792

lurgic operations

data centres

General use

Othercompanies

Losses and withdrawals fromprocessing companies total
Energy consumption andlosses total

14

Losses in the distribution system in the year 2020 were 187 GWh, and according to the table, that is 1% of allelectricity production in the year 2020. Distribution losses in the distributers’ system as a proportion of theenergy acquisition of DSOs were 5.4% in 2020.

49

The State and Challenges of Energy Issues

March 2022

Table 5. Priority load and curtailable load by consum in the general category.


Source: Orkustofnun (National Energy Authority).

General use 2020

Priority load
GWh

Curtailable load
GWhHouseholds

879-

Agriculture

230-

Industry

480

255

Services

1,036

4

Utilities

144

174

Fisheries

85

-

2,854

433

General use total

According to the electricity forecast, the load of general consum and energy-

intensive consum 2022–2026 will increase by 105 MW. The increase of new electricity production during the same period is estimated at a total of 37 MW. It amounts
to about 35% of the load increase. What is lacking can be obtained within operat-

ingpower plants, but then with the result that the maximum load in the electricity

system approaches the installed total power of the power plants. This is unacceptable i.a. because part of the usable electricity is lost in the transmission systemand part of it must always be available for temporary problems in the energy

production of some power plants, in addition to which there must be scope to

respond to different annual run-offs (prepared from the report Power and Energy

Balance 2022–2026. Efla for Landsnet, 2021). It should be noted that since the watersupply at hydropower plants varies and regular maintenance must be assumed, itcannot be assumed that installed power is a measure of energy supply.

3.3.3 Scenarios for Energy Requirements and Energy Demand

The following information is from the National Energy Authority’s electricity

forecast (National Energy Forecasting Committee). It should be noted that theelectricity forecast primarily assesses the general public’s use in Iceland. Thereis no forecast of a change in the use of electricity-intensive industries by ener-

gy-intensive consum (consumption over 80 GWh per year; power demand 8–10 MW),and therefore, a new energy-intensive consum can have a considerable effect on

the forecast presented below. Examples of energy-intensive consum include data

centres, onshore aquaculture, greenhouse operations and the metallurgy or siliconindustry.

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The State and Challenges of Energy Issues

March 2022

Economic Growth

Increasedlarge-scale use

GreenfutureElectricity
Forecast

Slowprogress

Focus on Environmental Issues
Figure 9. From the Energy Forecast

Source: Orkustofnun (National Energy Authority).

Base Scenario of the 2021 Electricity Forecast
2020: Energy consumption was a total of 19,127 GWh and power requirements 2,408 MW
2025: Estimated use 21,371 GWh and power requirements 2,696 MW
2030: Estimated use 21,903 GWh and power requirements 2,783 MW
2040: Estimated use 22,824 GWh and power requirements 2,930 MW
2050: Estimated use 23,677 GWh and power requirements 3,063 MW

51

The State and Challenges of Energy Issues

March 2022

Ority electricity forecast – additional energy consumption in the general market
In the latest version of the NEA’s electricity forecast, the additional electricity

demand of the general market (households and companies other than energy-intensive consum of electricity) are assessed thusly compared to 2021:
374 GWh by 2025

844 GWh by 2030

1,717 GWh by 2040

2,519 GWh by 2050

The ority forecast does not take into account Iceland’s climate goals and does nottake or insignificantly takes into account the electricity that will be needed to produce E-fuel for hydrogen engines in vehicles and machinery, in fishing vessels andfor international flights.

The “Green Future” Scenario

The revised electricity forecast 2021 states: The Green Future scenario assumes
more economic growth than the electricity forecast. The criteria are changed insuch a way that the main goals of the government when it comes to climate issues
are achieved. These include an action plan on energy transition, an action plan on

climate change until 2030, a legislative bill on carbon neutrality in 2040 and an En-

ergy Policy for Iceland until 2050. The most important goal is for Iceland to become
independent of fossil fuels by 2050. Energy transition takes place much faster in

the Green Future scenario than in the electricity forecast, and the annual growth ingeneral electricity consumption in this scenario is around 2.4%. General consumption will increase by 160% and will be around 8,900 GWh in 2060. According to this
scenario, the additional energy demand of the general market (households andcompanies other than energy-intensive consum of electricity) are estimated thusly
compared to 2021:•

534 GWh by 2025•

1,355 GWh by 2030•

2,688 GWh by 2040•

3,980 GWh by 2050•

8,900 Gwh by 2060

52

The State and Challenges of Energy Issues

March 2022

It must be addressed here that this scenario does not take or insignificantly takes
into account the electricity that will be needed for the production of E-fuel forhydrogen engines in vehicles and machinery, in fishing vessels and for internation-

al flights. The scenario also assumes a relative contraction in high-energy industry
and thus Iceland’s export earnings. Nevertheless, the scenario assumes increased
economic growth.
Other Scenarios

Energy transition in heavy vehicles and machinery on land and due to engines in ships
and new aircrafts will require E-fuel. Its production requires significant electricity.

In 2021, the consulting company Roland Berger prepared a draft to a hydrogen andfuel roadmap for what was the Ministry of Industry and Innovation. The company’s
analysis takes into account the government’s climate goals and proposes e.g. an

estimate of how much electricity may be needed for the production of E-fuel for the
aforementioned energy transition on land, sea and air. The company estimates thatthe electricity demand, which is in addition to other energy demand, could amount to:•

1–2 TWh by 2030 (1,000–2,000 GWhs)•

6–10 TWh by 2040 (1,000–2,000 GWhs)•

13–24 TWh by 2050 (1,000–2,000 GWhs)

The largest increase amounts to just over the total production of electricity today,
which is close to 20,000 GWh or 20 TWh – a power efficiency of about 2,500 MW.

The company’s analysis is marked by the government’s previous goal, a fossil fuelindependent Iceland by 2050, i.e. full energy transition. That goal was accelerated

to 2040 in the current government agreement. Amended criteria from 2040 to 2050
call for an analysis of what the change will entail in terms of electricity acquisition
and its timeline. Furthermore, in terms of decisions about the high-energy E-fuelindustry or the import of E-fuel. As the state of energy issues stands now, as wellas the technical status of electric fuels and machinery – given a full energy transition – the 2040 targets are unlikely to be achieved by 2050.

For example, a 9,000 GWh addition to the current electricity consumption until theyear 2030 due to energy transition in Samorka’s forecast and up to 23,000 GWh until 2040 (according to Roland Berger), i.e. the doubling of electricity production; it

is clear that the steps are big. This applies even if much lower electricity consump-tion is forecast. An increase of around or over 2,500 MW over 18 years instead of 28

53

The State and Challenges of Energy Issues

March 2022

years shows that the new criteria of the government need further examination. To
shed light on the difference, each year’s energy increase would be 138 MW basedon the strongest estimate of the energy demands of a full energy transition in 2040,
but 89 MW/year compared to 2050. For comparison, the Sigalda plant is 150 MW.
Samorka – an Updated Scenario for New Climate Goals

Samorka has assessed energy demand until 2040 due to society’s basic energy demand as well as domestic energy transition and energy transition in internationaltransport based on the government’s climate goals. Samorka’s analysis is basedon the electricity forecast 2021–2060 as well as analyses that Samorka has carriedout on energy demands due to energy transition in accordance with the govern-ment’s new goals for full energy transition by 2040. This is not a forecast, according to Samorka, but a calculation. In collaboration with Efla Engineering, looking

at what lies ahead based on official forecasts and the government’s targets. The

accompanying figure presents society’s total energy demand according to Samorka’s analysis and the National Energy Authority’s electricity forecast for society’s
basic energy demand. The reason why energy-intensive consum of electricity areincluded in society’s basic energy demand is that they have supported a large partof Iceland’s export earnings and are expected to continue to grow in export industries that use green energy.

Calculation of society’s total energy demand in 2040 based on government targets
25,000GWh

20,00015,00010,000International flights
Land transport

Domestic flights

Ships

2040

2039

2037

2038

2036

2035

2033

2034

2032

2031

2029

2030

2028

2027

2025

2026

2024

2023

2021

2022

2020

5,000

Machinery, devices and other

Energy-intensive consum / green industry
for export (according to the electricity forecast)

General use (according
to the electricity forecast)

Figure 10. Samorka’s Scenario. 					Source: Samorka.

54

The State and Challenges of Energy Issues•

7,255 GWh by 2030•

15,557 GWh by 2035•

23,694 GWh by 2040

March 2022

Landvernd / Nature Conservation Association – Common Vision15•

Energy transition without a considerable increase in electricity production.

•

Population growth based on Statistics Iceland’s population forecast•

GDP per person will remain unchanged.

•

The 4 biggest users to use 50% of waste energy to produce electricity or•

The increase in commercial vehicles (and equipment) will be in line with(central forecast) (like the National Energy Authority’s electricity forecast).

for the aluminium smelter in Straumsvik to close before 2035.

population growth, but the frequency of travel in private cars will notincrease.

•

All private cars to run on electricity by 2035. Imports of cars with internal•Commercial vehicles will evolve into electric cars from 2025 to 2040.

•

In the years 2025–2040, the fishing fleet will evolve to use direct hydrogen•

In the years 2025–2035, electricity will be used in domestic flights.

combustion engines to be banned in 2025 or 2030.

or electric fuel. Small boats on electricity.

Landvernd and the Iceland Nature Conservation Association note that the Climate
Council reiterates the following:"... it has been reiterated that the criteria for the forecasts due to the energy transition will need to be updated and those must be in accordance with the government’s goals. The Climate Council has e.g. repeatedly emphasised the following:"… Forecasts, i.e. fuel forecast, need to be updated regularly and Iceland’s climate

accounting needs to be updated faster. The Council considers it timely to present, in

15

Based on joint responses by Landvernd and the Icelandic Nature Conservation Association to the committee’s report in January 2022.

55

The State and Challenges of Energy Issues

March 2022

parallel with the energy forecast, a realistic plan for how the phasing out of fossil

fuels will be achieved. Uncertainties regarding the assessment of expected results
need to be explained.”16

3.3.4 Power and Energy BalanceLandsnet regularly compiles a report for the purpose of assessing the expectedbalance between energy production capacity and energy consumption over the

next five years, as well as calculating the loss of load (LOLP) probability. The report
was published in 2019 and launched a great discussion about the state of energy
issues in Iceland, possible energy shortfall and who is responsible for the energy
security of household in the country. A new report was issued in January 2022.

A report on power and energy balance was published in 2022 and was valid for theperiod 2022-2026. The 2019 report that the loss of load probability (LOLP) would

increase over the forecast period. In 2022 LOLP would be over two hours and thus
exceed the acceptable threshold. The probability would be even higher in 2023,

or over 5 hours per year, more than five times higher than Landsnet‘s benchmark.

The results of repeated calculations with new criteria published in the report from2022, on the other hand, assume that the loss of load probability is below Lands-

net‘s benchmark this year but will exceed the benchmark next year, 2023. In 2024,
it will fall slightly below the benchmark, but after that, the probability will growrapidly above the benchmark by one hour a year and end at about three hours ayear at the end of the 2026 forecast period.

The loss of load probability is the interplay between the power demand of elec-

tricity users, installed power in power plants and the failure of production units orother equipment in a power station. The power demand varies within the year andis to some extent unpredictable. Landsnet has had the guideline that loss of load in
the electricity system should be less than one hour a year. This corresponds to theloss of load probability being less than approx. 1 in 10,000.

When looking at the loss of load probability during the period, the results are as
follows:

16

https://www.stjornarradid.is/library/02-Rit--skyrslur-og-skrar/Loftslagsr%c3%a1%c3%b0%20-%20R%c3%bdni%20%c3%a1%20a%c3%b0ger%c3%b0a%c3%a1%c3%a6tlun%20%c3%ad%20loftslagsm%c3%a1lum%202020.pdf

56

The State and Challenges of Energy Issues

March 2022

Loss of Load Probability
4.00

3.50

In 10 thousandths (LOLP)

3.50
3.00

2.63

2.50
2.00

1.75

1.50
1.00

0.68

0.50
0.00

0.00
2021

2022

2023

2024

2025

Landsnet’s criteria

Figure 11. Loss of Load Probability (LOLP).



Source: Landsnet.

As the figure shows, the probability is relatively low in 2022 but will increase sharply in 2023; by 2024, it is estimated that there will be a 30 MW expansion in operations at Reykjanesvirkjun, and therefore the probability falls back below Lands-

net’s benchmark. The loss of load probability increases greatly when withdrawals

from the transmission system approach the installed power, as shown in Figure 11,
and then not much can go wrong that would cause customers to experience lossof load or that reserve power has to be run to meet demand. If the loss of load

probability is to be kept below Landsnet’s benchmark, more production units will

have to be put into operation during the period than is assumed here, or the loadcurtailed.

3.3.5 Curtailable Load 2021 and 2022

Shortly before the writing of this report, Landsvirkjun announced foreseeable

electricity curtailment for energy-intensive consumers with curtailable electricity
contracts, applicable to metal works, data centres, district heating utilities andfishmeal factories. Curtailment of electricity from January or February to April

2022, amounts to e.g. 2.5% for major industry and 100% for district heating utilities
and fishmeal factories, a total of about 160 MW (3% of Landsvirkjun’s electrici-

ty production). Curtailable load is up to 250 GWh for energy-intensive users anddistrict heating utilities in addition to 200 GWh reduced for fishmeal factories. In
total, upwards of 450 GWh. It is considered very likely that similar curtailments

57

The State and Challenges of Energy Issues

March 2022

may occur in the coming years. There has been no curtailment in electricity for the
past six years.

Three main reasons are given. Landsvirkjun mentions curtailed water reservesin the reservoirs of the main hydropower plants, especially Þorisvatn, and thatelectricity utilisation is now approaching the installed capacity of power plants,

which makes it difficult to smooth out fluctuations in electricity production. Landsnet agrees with the latter and also mentions that the Regional Transmission Linebetween the northeastern part of the country and the power plant cluster in theSouth does not meet the growing need for transmission. It should also be notedthat with the enactment of the Electricity Act, Landsvirkjun’s obligation to ensure
the supply of electricity to the public was abolished.

Finally, it should be noted that restrictions on the transmission system mean that
it is not possible to transfer sufficient electricity between regions when the water
budget varies from region to region. The European Union’s benchmark is to havea 15% transfer capacity of installed capacity between countries. In Iceland, thetransmission capacity between regions is less than 5%.

Curtailable load in Landsvirkjun’s agreements was as follows:

Landsvirkjun’s electricity sales of curtailed load in GWh
Contract types

Industry

2017

2018

2019

2020

2021

Total

Percentage of total
sales to industry

Curtailable load

Aluminum smelters

901

850

466

462

398

3,077

3.2%

Smelting and fish drying plants

195
219

240

239

150

180
170

149

178

942

100%

Total

1,388

1,415

826

868

818

5,315

in long-term contracts
Other curtailable
load

Silicon smelters and otherDistrict heating utilities

Table 6. Curtailable load 2017–2021.

73

86

36

174

56

93



344

952

4.1%

100%

Source: Landsvirkjun.

The table below gives an overview of electricity that has been sold as curtailable
load over the past five years. The information is based on data obtained from58

The State and Challenges of Energy Issues

March 2022

energy companies. Figures on energy sales of district heating utilities and fishmeal
factories appear both at Landsvirkjun as a wholesaler of electricity and at otherenergy companies as a seller of electricity. All figures are in GWh.17

Table 7. Sales of curtailable load by energy company. Source: Parliament.

2017

2018

2019

2020

2021

Total

Aluminium smelters

901

850

466

462

398

3,077

Silicon smelters and other

73

86

36

56

93

344

Smelting and fish drying plants (wholesale)

195

239

150

180

178

942

District heating utilities (wholesale)

219

240

174

170

149

952

Total

1,388

1,415

826

868

818

5,315

Fishmeal factories

108

128

54

54

53

397

Aluminium industry

198

172

157

142

145

814

Liver melting

9

1.5

-

-

-

10.5

Chemical industry

25

25

29

29

31

139

Total

340

326.5

240

225

229

1360.5

Fish freezing

0.4

0.5

0.2

5

6

12

District heating utilities

43

45

46

47

19

200

Saltfish and stockfish processing

15

15

16

16

13

75

Schools

1

0.9

0.9

0.8

0.6

4

Swimming pools and sports centres

2

2

2

2

3

11

Total

61.4

63.4

65.1

70.8

41.6

302

Landsvirkjun

Orka Natturunnar

Orkusalan

17

https://www.althingi.is/altext/152/s/0518.html

59

The State and Challenges of Energy Issues

March 2022

2017

2018

2019

2020

2021

Total

District heating utilities

83

84

84

85

83

419

Swimming pools and sports centres

4

3

3

3

3

16

Total

86

87

87

88

86

435

Fishmeal factories

80

80

16

12

22

210

District heating utilities

62

78

29

53

52

274

Aluminium smelters

63

63

66

66

62

320

Total

205

221

111

131

136

804

Fishmeal factories

0

10

78

75

67

230

Total

0

10

78

75

67

230

1667.41643.91083.11107.81050.66551.5

Orkubu Vestfjarda

HS Orka

IOM/N1 rafmagn

Total (excl. wholesale)

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The State and Challenges of Energy Issues

March 2022

Electricity sales to data centres 2017–2021 amounted to 3,915 GWh.18 According to

the new electricity forecast of the NEA, the power demand of data centres in 2022

will be around 150 MW and the energy demand around 1,260 GWh. Short-term contracts cover about a quarter of energy sales to data centres.

Concession companies that have chosen to negotiate for curtailable electricity are
RARIK, Orkubu Vestfjarda, HS Veitur and Hitaveita Fjardabyggdar. On average, thisis a total of 15 GWh of curtailable electricity in February and March, 12 GWh in April
and 10 GWh in May, for the years 2020, 2021 and 2022 (from Orkubu Vestfjarda).

3.3.6 The Response of Landsvirkjun and Landsnet 2022

In light of this situation, Landsvirkjun has presented a vision for possible additions
to the company’s electricity production based on the next five to eight years, andtaking into account the three published scenarios on electricity demand. There, thelowest total number of additions is 480 MW, based on 2030, the median is 600 MW(full energy transition of transport) and the highest 1,200 MW based on full energy
transition by 2040 (Mbl. 28.01.22).

Landsvirkjun proposes six power development options that its board could decide
on in 2022 to start further work on (arrangement is without priority). The first twoenergy options are in the utilisation category of the approved phase of the Masterplan (for Nature Protection and Energy Utilization). The other four options are ei-ther dependent on the Parliament’s approval of the third phase of the Masterplan
or an amendment to the law that allows an increase in the generation of power ofexisting power plants over 10 MW outside the Masterplan:•

Hvammsvirkjun in Þjorsa (95 MW).

•

Expansion of the geothermal power plant at Þeistareykir (at least 45 MW).

•Three hydropower plants in Blonduveita (total 30 MW).

•Wind farm west of Hofsjokull (Blondulundur 100 MW).

•Wind farm above Burfell (Burfellslundur 120 MW).

•

Increase in the power generation of the Tungnaar power plants (100 MW).

For reference, it should be mentioned that the installed capacity of the power

plants is a total of 495 MW, which is similar to the scenario of energy demand withthe lowest power figure of 480 MW above.

18

https://www.althingi.is/altext/152/s/0518.html

61

The State and Challenges of Energy Issues

March 2022

According to information from Landsvirkjun, long-term work is ongoing on 5–15 MW

additions (top pressure power plants) at Þeistareykir, 50 MW Bjarnarflagsvirkjun by
Lake Myvatn (in the utilisation category of the Masterplan (for Nature Protection

and Energy Utilization)) and the expansion of the Krafla power plant (50–150 MW)

which is in the utilisation category of the Masterplan. Finally, the Skrokkalda power

plant and two power plants in Nedri-Þjorsa could be considered if they are in the approved utilisation category after the Parliament’s approval of its third phase during
the electoral term.

Landsnet’s responses are set out in the report Power and Energy Balance 2022–
2026 (Jan. 2022). It states that the calculated load lof loss probability is below

Landsnet’s 2022 benchmark, but will be above it in 2023. In 2024, the probability

decreases slightly below the benchmark, but after that the probability grows rapidly above the benchmark until 2026.

In response to this situation, Landsnet considers it necessary to add power en-gines or power plants to electricity production, increase energy savings, improvethe utilisation of existing power plants by developing the transmission system orsystematically reduce electricity consumption in the system.

According to information from Landsnet, it is estimated that the aforementioned
system development will take place by enlarging the area within the bottlenecks
in the transmission system between Blondu lina 1 (Blanda Power Station) andFljotsdalslina 2 (Fljotsdalur Power Station). These include Blanda Power Station,

Krafla Power Station, Þeistareykir Power Station, Laxa Power Station and Fljotsdalur Power Station, as well as smaller power plants in the area. By connecting the
Hryggstekkur transformer station in Skriddalur to 220 kV smelter lines, fishmeal

factories and other general uses between Vopnafjordur and Faskrudsfjordur will

fall within the area. The project is on schedule in 2025. The laying of an overheadline between Blanda and Holtavorduheidi (Hrutatunga) is planned for 2027 but will
be accelerated. Northwest Iceland and the Westfjords will thus be added to thisarea. The utilisation of power plants within the area will increase and there will beless need for energy transmission out of it.

3.3.7 The State of Electric Heating Utilities

Electric heating utilities with alternative oil heating (E/O utilities) are managed by
Orkubu Vestfjarda. The heating utilities are in Patreksfjordur, Flateyri, Sudureyri,Ísafjordur and Bolungarvik. In order to ensure their operation and stop oil heat-ing when needed, there are two ways available: Utilising hydropower (20–30 MW)
to have enough electricity and providing geothermal water where possible (fromOrkubu Vestfjarda).

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The State and Challenges of Energy Issues

March 2022

RARIK operates an E/O utility in Seydisfjordur. In Seydisfjordur, the E/O utility iscoming to an end and if the result is direct electric heating, the local system willneed to be repaired. At Hofn, geothermal water has been found and utilised fora large part of Hofn and Nes, and it is probably possible to obtain more water tocomplete heat implementation.

HS Orka operates both E/O utilities and district heating utilities, which use sea

temperature with a heat pump, in the Westman Islands. As geothermal water is

not available in the Islands, there are two ways available: To strengthen electricity
transmission to the Westman Islands and increase the power of the heat pumpsystem (from HS Orka).

Knowledge of geothermal energy must be increased in low-temperature areas, in
so-called cold areas, in high-temperature areas and in areas within the eruption

zone that are not obvious high-temperature areas. This requires e.g. reviewing theorganisation and funding of geothermal research as a whole and re-evaluating thesupervisory role of the National Energy Authority and the role of ISOR as an independent researcher and independent reviewer (from ISOR).

3.3.8 The State of Geothermal Heat Utilities

It is clear that the demand for district heating water is increasing in line with in-creased economic activity and population growth. In low-temperature areas, newproduction areas will be sought, and in cold areas. Increased processing of alreadyutilised areas will be explored and heat pumps will be relied on to an increasing

extent. In high-temperature areas, new areas will be visited within already utilised
high-temperature areas, and it will be ensured that the approved utilisation areain the Masterplan (for Nature Protection and Energy Utilization) will be used forboth electricity and geothermal heat production, where possible due to the dis-

tance from settlements. If the utilisation of deep boreholes (cf. the IDDP project)
the processing capacity of high-temperature areas can change greatly.

Demand for geothermal heat is expected to grow most in the southwestern partof the country. According to Orkuveita Reykjavikur’s estimate, the thermal power

demand of district heating utilities in the capital area could increase from 1050 MW(t) to 1520 MW (t) in 2040. Six other smaller district heating companies in the towns
between Borgarnes and Hvolsvollur are not included as well as a few even smaller
district heating utilities. It can be assumed that the energy capacity of most op-

erating district heating utilities in other regions needs to be increased in a similar
proportion based on population growth and increased economic activity.

In the capital area, Veitur expects some increase from the Hengill area (Hellisheidi
and Nesjavellir power plant) and possibly with the construction of new heating

63

The State and Challenges of Energy Issues

March 2022

stations in Hengill. Geothermal exploration is also being carried out in possible

low-temperature areas in the vicinity of the capital area, and finally the Krysuvik

area is being considered as a key resource for meeting future demand for heat in
the capital area as well as in the Southern Peninsula.

It has been discussed whether it should not be investigated to what extent elec-

tricity can be used to sharpen the temperature of borehole water in low-tempera-ture areas. The importance of reserving geothermal areas near population centres

for district heating utilities in plans and programmes has been pointed out. Sooner

or later, it may turn out that geothermal energy does not meet the needs of district
heating utilities in some places. Among the solutions, consideration has been

given to using electric heating of outlet water in a dual heating system, e.g. by
Nordurorka.

3.3.9 Public Electricity Security

With the Electricity Act, No. 65/2003, Landsvirkjun’s obligation to provide users in
the country with an adequate supply of electricity was abolished and the supplyof electricity was to be determined by market laws instead. The current legislation
thus does not prescribe the responsibility or obligation of any party to handle theopen market, but it is clear that the demand for electricity in the open market has
grown in recent years. In this connection, it may be pointed out that a working

group on energy security in the wholesale market19 for electricity pointed out thepossibility of prescribing universal service in law in accordance with the EU Electricity Directive No. 2009/72, which states that households shall have the right to receive
electricity of a certain quality. The Minister has instructed a working group to follow
up on the proposals of the above-mentioned working group with proposals forchanges to the regulations with the aim of ensuring the energy security of the public.

19

https://www.stjornarradid.is/library/01--Frettatengt---myndir-og-skrar/ANR/ThKRG/Sk%C3%BDrsla%20starfsh%C3%B3ps%20um%20orku%C3%B6ryggi_LOKAEINTAK.pdf

64The State and Challenges of Energy Issues

March 2022

3.4 Transmission System
The Energy Policy: Infrastructure is sound and resilient

3.4.1 Electricity Transmission System

The provisions of the Electricity Act on a Grid Development Plan that pertains to its
structure and is presented to stakeholders, the general public, municipalities,

etc., apply to the electricity transmission system. The Grid Development Plan isreviewed regularly by the National Energy Authority, which also seeks commentson it. The implementation of the Grid Development Plan involves thorough preparation, e.g. with the presentation of transmission options. The Grid Development
Plan has a strong position in relation to the planning of municipalities, as they

are intended to adapt their planning to the approved plan. Landsnet operates thetransmission system. The numerical information that follows is processed fromcontent from Landsnet.

Transmission restrictions in the system are defined on the basis of so-called for-mats, which are determined by two or more transmission lines that together forma bottleneck into or out of a specific area or region. The main purpose of defining

the formats is to ensure that the power transmission through the format is not sogreat that a simple disturbance causes instability in the system or a system crash.
Transmission within these so-called stability limits of the formats ensures thatthe system operation remains stable in the event of a simple interruption and that
there is no need to reduce electricity to users. Transmission restrictions throughformats are usually based on the transmission capacity of the line that has theleast transmission capacity of the lines that the format intersects. These bottle-

necks or formats affect how the installed capacity of the power plants can be fully
utilised, and fluctuations in the water budget of reservoirs between years canaffect the supply of electricity, as transmission formats can limit the possibility oftransferring electricity between regions. For years, transmission restrictions andinstability have been problems in the operation of the regional transmission line

and reductions in energy supply have increased year by year and it is foreseeable
that these reductions will continue to increase (From Power and Energy Balance
2022–2026. Efla for Landsnet, 2022).

Transmission loss is the electricity lost due to resistance in power lines and voltages in the transmission system. About 2% of the electricity received by the systemdoes not reach users. This corresponds to about 400 GWh per year or all of Krafla
Power Plant’s production.

65

The State and Challenges of Energy Issues

March 2022

2021

Power plant

Main transmission system
220 kV132 kV

Figure 12. The Transmission System. 		

66 kV

Regional transmission system
33 kV



Source: Landsnet.

3.4.2 Frequency, Voltage Quality and Transmission Security

Landsnet monitors frequency and voltage quality in the entire transmission systemthroughout the year in the company’s energy management system where frequency
values are​​recorded automatically every ten seconds. In 2020 and 2021, theaverage system frequency met the quality requirements of the current regulation.

Monthly internal frequency targets were also met. In 2020, voltage quality was met
at all sampling sites. Furthermore, Landsnet’s goals of interrupted loads met the
average length of curtailable load and the duration of serious individual disruptions according to the company’s information.

3.4.3 Age of the Transmission System

The average age of substations/switchgear equipment at Landsnet is 24 years, while
the average age of transmission lines (per km) is 44 years. However, the definedservice life of a line is 50 years and 40 years for substations. After three years, morethan 25% of the power line system will be over 50 years old. The regional transmis-

sion line that runs from Sigalda and around the country to Hvalfjordur (about 900km) was built in the years 1972–1984 and the oldest part of it is 48 years old.

66

The State and Challenges of Energy Issues

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Age distribution of transmission lines (km)50%

In 10 thousandths (LOLP)

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
0–10

11–20

21–30

31–40

41–50

51–60

61–70

Age range

Figure 13. The Age Distribution of Transmission Lines.

Source: Landsnet.

The age distribution of substations is more even than the age distribution of transmission lines as shown in the attached figure. About a quarter of substations havebeen built or renovated in the last 10 years. 17% of substations, on the other hand,
have exceeded the defined service life.

67

The State and Challenges of Energy Issues

March 2022

Age distribution of substations/switchgear equipment

In 10 thousandths (LOLP)

30%
20%
15%
10%
5%
0%
0–10

11–20

21–30

31–40

41–50

51–60

Age range

Figure 14. The Age Distribution of Substations.

		

Source: Landsnet.

3.4.4 Infrastructure Development Over the Past 5 Years

Over the past five years, Landsnet has invested around ISK 40 billion, or ISK 8

billion a year. Of this, just over ISK 17 billion is due to investments in transmission
structures. Landsnet’s estimates assume that the company’s investments in 2022

will amount to just over ISK 6 billion. Of this, ISK 1.3 billion in the regional systems
and ISK 3.9 billion in the main transmission system. Portable backup power sta-tions, a total of 12 MW, were purchased in 10 units. Five units are already in use andthe others are expected to be operational in the first quarter of 2022.

A smart network is an electricity network that combines in a smart, equal, digital
way the functions and capabilities of everyone who is connected to it so there issustainable, economical and secure energy supply. Landsnet has already taken
smart networks into its service in at least six places or areas.

Over the next five years, ISK 56 billion is expected to be invested in the implementation plan, of which 42 in the main transmission system. Of these, 13 projects will

be completed during these years and two projects are on a long-term schedule. Almost ISK 10 billion goes to the regional transmission systems (at least 9 projects).

Investments in other structures and improvements are expected to be in the rangeof ISK 600–800 million per year. For example, Landsnet has increased transmis-

sion capacity with the new Krafla Line 3 line, between Fljotsdalsvirkjun and Krafla

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The State and Challenges of Energy Issues

March 2022

Power Plant, the construction of Holasandslina 3 between Holasandur (Krafla) and
Akureyri is well advanced and the fully designed Blondulina 3, between Blonduvirkjun and Akureyri, is in the process of environmental assessment.

3.4.5 Strengthening of Transmission System Between Regions

Emphasis has long been placed on improving the interconnection of the coun-

try’s main power development areas, i.e. power plants in Middle East Iceland (750MW), Northeast Iceland and at Blanda (400 MW), in the Hengill area and Southern

Peninsula (450 MW) and finally in the river basin areas of Tungnaa, Koldukvislar andÞjorsa (1200 MW, see map).

400 MW

750 MW

1,200 MW

Satisfactory connection

Limited transmission capacity

Figure 15. The Transmission Capacity Between Regions.



Source: Landsnet.

The government focuses on improving the connection of key areas and three areas
are mentioned as priority areas: The Westfjords, Eyjafjordur area and Southern
Peninsula. According to Landsnet, a strong connection has been establishedwith the industrial area at Bakki by Husavik. Voltage has been increased in East
Iceland’s transmission system, which improves interconnections. An improved

connection to the main transmission system is achieved with the connection of

the East Iceland system to 220 kV lines at Hryggstekkur in Skriddalur, which is on

the 2025 action plan. The Southern Peninsula’s double connection is on the action

69

The State and Challenges of Energy Issues

March 2022

plan but has been delayed due to licensing issues. Improvements in North Iceland
are twofold. The first connection, between Holasandur and the Eyjafjordur area,
will be ready in the summer of 2022. Construction on the connection from there

to the Blanda Power Plant is expected to begin in 2023. The strengthening of themain transmission system in the Westfjords is on the long-term plan of the Grid

Development Plan. The option of strengthening takes into account the development of
power plants within the Westfjords. A new connection to the eastern part of the transmission system in South Iceland is in the final stages of construction (via Laekjartun).

Improvements to the western part of the South Iceland system are currently being
prepared and will be part of Landsnet’s next action plan.

3.4.6 Double Connections (N-1)

It is important that users do not experience electricity disturbances even if theconnection to the power plant at one end of the transmission line is lost. Energy

then arrives uninterrupted from another direction, i.e. from the transmission system.
Such a double connection (N-1) is active in many places, but not everywhere. 20

According to Landsnet, double connections have been completed at the following
locations: Saudarkrokur, Neskaupstadur, Þorlakshofn, Ólafsvik, Grundarfjordur,
Bolungarvik.

The following double connections are in the action plan: The Southern Peninsula,
Dalvik, Talknafjordur, Bildudalur, Rimakot. Double connections in the next 4 to 8

years: Mjolka, Snaefellsnes, Vestmannaeyjar, Faskrudsfjordur, Husavik, Breididalur(Ísafjordur and Bolungarvik).

Double connections after that will be implemented in the following places: Seydisfjordur, Vopnafjordur and Kopasker (no deadline must be completed before 2040
according to government policy).

It should be borne in mind, however, that all areas rely on a strong main transmis-

sion system, a regional transmission line, and it is therefore necessary to consider
strengthening it first.

3.4.7 Landsnet Emergency Committee

Landsnet operates an active Emergency Committee that meets in the event of aserious disaster or when there is a risk of a disaster in the electricity system.

20

N-1 is a kind of criteria or objective in the operation of the system, so that the system should withstand interference even if they cause the line to fail, they do not cause a system breakdown or reduction. Within 15
minutes, the system should be able to withstand other interference, even though this line is not necessarily
operational. By announcing N-1 in this way, it sounds like it only applies to dual connections, but transmission networks are very non-linear systems, which means that interference in one place can cause failure in acompletely different place. Therefore, N-1 is relevant in this context but also in a broader context.

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The State and Challenges of Energy Issues

March 2022

The Emergency Committee consists of Landsnet’s senior management as well as

key employees in the operation of the electricity system. The Emergency Committee is in constant communication about everything related to security and operational security in a common electronic project area. In addition, the Emergency
Committee regularly meets formally and, if necessary, both for training and for

discussions and planning on operational safety issues. The Emergency Committee
sets the standards that the company takes into account to prevent accidents andmishaps and to reduce the consequences of incidents. In addition, two training
exercises are held by the Emergency Committee each year, varying in size andmore often than not the members of the Emergency Co-operation of the Elec-tricity System NSR, are invited to participate. Landsnet’s Emergency Committee

and the Emergency Committees of other electricity companies are to respond to
more serious disasters in the electricity system and strengthen communicationand co-operation between responders in the electricity sector. The priority of theEmergency Committee is to prevent loss of life, property damage to structures andthe environment and a reduction in energy supply.

3.4.8 Emergency Co-operation of the Electricity System (NSR)21

Electricity is a natural and important part of modern society. Neither households,
businesses nor society can be without electricity. In the event of a serious shortage of electricity or power outages to users for hours or days, there is a great

danger ahead. Society can be paralysed and the impact on the national economy
can be significant. It is therefore necessary to clearly define the entire response
process as well as to ensure the continuous operation of the electricity system,

both for the producers of electricity and for those who transport or distribute it,

as well as for energy intensive electricity consum. If such a definition is available,
it is easier to respond to serious crises.

3.4.9 Cybersecurity

Delivery security and management security depend on secure digital systems forboth power plants and the transmission and distribution system. Landvirkjun andLandsnet own and operate their own telecommunications company, Orkufjarskipti
hf. which was established in December 2011. The company operates a powerfultelecommunications system that is intended to meet the electricity system’s

requirements for a stable and reliable telecommunications network. This is a fi-

ber-optic network that maintains communication routes to the power stations andsubstations of the electricity system (information from Landsvirkjun).

21

Emergency Co-operation of the Electricity System: “A co-operation forum for processing plants, transmission companies, distribution utilities, energy-intensive users and public entities in Iceland due to a disasterthat threatens the production, transmission or distribution of electricity and/or energy-intensive users.”
Definition from the Electricity Act No. 65/2003.

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The State and Challenges of Energy Issues

March 2022

Landsnet has implemented a management system for information security and it
is certified according to ISO/IEC 27001:2013. It includes documented operational

procedures, technical cybersecurity safeguards of various kinds, and awarenesstraining for staff. Regular security tests of information systems are carried out by
external parties. Efforts are being made to examine and assess the risks involvedin the operation of digital substations, as well as to implement appropriate mitigation measures (information from Landsnet).

With the Security, Networks and Information Systems of Important Infrastructure
Act, No. 78/2019, different administrative institutions were entrusted with thesupervisory role of the security organisation of network and information systemsof important infrastructure, each in its own field. It will be in the hands of The

Electronic Communications Office of Iceland, the National Energy Authority, theFinancial Supervisory Authority, the Directorate of Health, the Environment Agency
and the Icelandic Transport Authority. Their role will be to ensure compliance withthe provisions on minimum requirements for risk management and preparedness
and the obligation to report incidents.

3.4.10 Development of Infrastructure

In December 2019, the government agreed to appoint a working group of fiveministries tasked with evaluating measures to strengthen the infrastructure in

the transmission and distribution network of electricity and telecommunications,transport, regional affairs and the RÚV distribution network to ensure that suchbasic infrastructure is as well equipped as possible to handle storms or othernatural disasters. An action plan was approved by the government at the end of
February 2020. It contains 287 measures for infrastructure development.

Work on over 60% of short-term measures was fully completed by the end of 2021.
Work also began on 95% of long-term measures. It is well underway on 30% of

measures. Repairs to the electricity system in North Iceland by speeding up the

installation of underground cables were completed with ten operations. Work on

more than 100 measures has been delayed, i.a. due to the pandemic. The measures
include, i.a. improving backup power, increasing the reliability of electricity andtelecommunications systems, defining the role and staffing of companies and in-stitutions, coordinating infrastructure planning, strengthening the civil protection
system, education and information dissemination to the public and strengthening
research and monitoring of natural disasters.

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3.5 Distribution Network
Energy Policy: Infrastructure for electricity and district
heating utilities needs to be developed and grow in linewith the needs of society
3.5.1 The Distribution Network

The electricity distribution network is connected to the transmission network

through distribution system operators and the vast majority of it is operated at alower voltage than the transmission network. Through overhead lines and underground cables, electricity is distributed to sales companies that serve the public,
institutions and businesses other than energy-intensive consum.

3.5.2 Distribution System Operatos (DSOs)

DSO's have exclusive license for the distribution of electricity in a defined area.
Their role is to manage the distribution of electricity and system management intheir DSOs area. DSOs utilities are subject to the supervision of the NEA. Five DSOs
operate in Iceland.

HS Veitur distributes electricity on the Reykjanes peninsula, in Hafnarfjordur, inÁlftanes and the southern part of Gardabaer, in Árborg and in the Westman Islands.
Nordurorka distributes electricity in Akureyri.
Orkubu Vestfjarda distributes electricity in the Westfjords.
Veitur distributes electricity in Reykjavik, Seltjarnarnes, Kopavogur, Gardabaer tothe north, Mosfellsbaer, Kjalarnes and Akranes.

RARIK distributes electricity throughout the country, with the exception of theWestfjords, the southwestern corner, parts of Árborg, the Westman Islands andAkureyri.

The main tasks in the national distribution network are its continued undergroundcable installation and three-phasing, safer power supply and improvements tosubstations and conveying stations. Not all regions of the country can be coveredat this time, but examples are taken from the work of RARIK and Orkubu Vestfjarda.

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3.5.3 Underground Cable Installation, Three-phase Distribution andRARIK Smart Metre Installation
Renewal with underground cables with RARIK has been ongoing since 1995. In thelast five years, RARIK has, according to the company’s information, laid 1,766 km of
11–33 kV cables in the ground instead of the older lines. At the same time, 1082 kmof overhead lines have been taken down. Regular renewal of switchgear equipment
has taken place and work is underway to move the outdoor switchgear equipmentof conveying stations to houses and transformers are being expanded. RARIK aims
to ensure that all farms in the RARIK energy supply area have access to three-phase electricity within eight years, and that by 2035 all RARIK customers will havesuch access. Two initiatives are currently being carried out by the government withthe payment of an accelerated contribution: The acceleration of the three-phase
implementation in Myrar, which will end next year, and the acceleration of thethree-phase implementation to larger consum who operate farms before the endof 2025. RARIK currently operates the largest electricity distribution network in

Iceland as well as operating heating and district heating utilities in five locationsin the country. The distribution network is constantly being renewed and overthe next 5 years, energy meters in RARIK’s distribution network throughout thecountry, both electricity meters and heat energy meters, will be replaced by smart
meters. 84% of thermometers and 22% of electricity meters have already been
replaced by smart meters.

3.5.4 The Distribution Network Operated by Orkubu Vestfjarda (OV)

OV’s largest project according to the company’s information was a collaboration on
the circular connection of fiber optics in the Westfjords and the renewal of distri-bution lines as three-phase lines with a continuous project from Hrutafjardarbotn
and into Ísafjardardjup. The length of the underground cable that is plowed anddug annually is determined by other projects in the distribution network, but has

been in the range of 30–50 km per year in recent years. About 300 km await renewal and three-phasing, and it is expected to take up to ten years of work. In recent

years, emphasis has been placed on the renovation of substations and also Landsnet’s conveying stations, where the superstructure of the stations is a priority.

The available reserve power in the OV distribution area is just over 18 MW, of which
11 MW is in Landsnet’s reserve power station in Bolungarvik, which is sufficient forpriority electricity consum in most of the distribution area. The smart network

automatically starts reserve power at the reserve power station in Bolungarvik,

which is sufficient for the northern Westfjords, but it is assumed that Mjolkarvirk-

jun will be run in island operations and maintain power in the southern Westfjords.
In recent years, OV has emphasised the renewal of reserve power in Patreksfjordurwith a new 2 MW reserve power engine. 1.5 MW reserve power in Sudavik has been

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The State and Challenges of Energy Issues

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renewed with automatic start-up. 1.2 MW of reserve power was added in Flateyri,
which can be started automatically. Work continues on improvements in reserve
power development in the Westfjords and with the most powerful distribution

network connected in a secure way to an improved transmission network. Smart

meter implementation has already begun, as well as adaptation to energy transition. All OV sales meters are smart meters.

3.6 Matters of Opinion and Decisionmaking Issues
Energy policy is in place. "Society’s Energy Demand" is a broad concept that can beunderstood in several ways. The energy market should be open according to theEnergy Policy and then presumably for new supply and new demand. It is neces-sary to create a common vision of what this means for decision-making regarding
energy development.

A new proposal for a parliamentary resolution on the development of the electrici-

ty transmission system must be submitted in 2022. It needs to address a number ofrequests for increased transmission capacity, interconnection and better controls.
The status of wind farms must be set out in the Masterplan (for Nature Protection
and Energy Utilization). The issue concerns, among other things, that the envi-

ronmental impact of wind farms is of a different nature than that of hydropowerand geothermal power plants. Also whether or how they are subject to the overall

organisation of energy production and land use and thus the role of municipalities
in the construction of wind farms. Should a Masterplan as such act as a control

instrument in the overall structure of energy production in Iceland, which is pri-marily about where society wants to head in economic and employment matters,

as well as environmental issues? In Article 1 of the Act on Conservation and Energy
Utilisation Plan, No. 48/2011, it is assumed that each power development option

is assessed on the basis of conservation value, efficiency, profitability and othervalues, different interests and sustainability.

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The State and Challenges of Energy Issues

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District heating utilities and the development of utilisation of geothermal heat

have not received as much attention as the production of electricity. Attention isdrawn to the fact that it is not yet clear how the need for geothermal heat will be
met in the foreseeable future. It is important to clarify the picture regarding thedevelopment of district heating utilities. It is also necessary to take a position on

proposals for increased general research on geothermal energy in Iceland by ÍSOR.
Energy efficiency and energy saving play a role in a successful energy transition.

Consideration needs to be given to allowing companies’ authorisations to utilise
resource flows, e.g. waste heat, for the production of electricity that can be soldinto the electricity market or utilised in other ways, e.g. due to district heating.

The short-term market for electricity increases energy security and is high on theagenda of other European countries when it comes to energy policy and energy
security. The short-term market plays a dual role in energy security: 1) Provides

short-term security regarding balance in production and use. 2) Provides trans-parent price formation, as rising energy prices give clear indications of investment
needs in the system. Such marketing activities in Iceland need to be examined.

The development of a new export business that uses significant energy is uncer-

tain. Many projects are in preparation, e.g. in biotechnology, food production andthe metal industry and have been part of the success of the education, research,innovation and employment policies that have been pursued in recent years. It isnecessary that there is coherence between Industrial Policy and Energy Policy,
and it must be assessed whether there is a natural context between them.

Different scenarios reflect different emphases in the development of society andthe economy in the future. However, there are scenarios available based on achieving full energy transition in accordance with Iceland’s climate goals. Based on thestrictest assumptions, it is estimated that the current electricity production willneed to be more than doubled, and new electricity generated on average 90–140

MW per year will be used annually for the next 18–28 years, depending on how fast

the work is carried out. 22 The question remains whether various plans will be madefor the development of new export activities that would significantly increase thedemand for electricity. Furthermore, there have been grand plans put forward forelectricity generation for the production of hydrogen and derivative products. It isnecessary to make a decision in policy-making in these matters and send a clear
message to the many parties who are each working in their field. Public Energy
Policy cannot be based on an open market if it is effectively closed.

22

It is important to keep in mind that power and energy are not the same. The energy production of hydropower plants and wind farms are completely different for the same installed capacity. Therefore, a larger
increase in installed capacity would be needed if wind farms alone were to support increased electricity
production due to energy transition than if hydropower plants were built instead.

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The NEA has expressed its concern that there is no guarantee that an increased

supply of electricity would be used in the energy transition.23 The probability of thishappening depends primarily on whether the supply of electricity can be increased
in line with increased demand. The National Energy Authority has a role to play inthis. The main issue is the question of whether the energy market is in fact open to
sufficient supply or whether barriers to entry (formal or informal) call for a special
dispensing system to decide who should receive electricity and who should not.

International co-operation on climate change suggests that one country does not
solve the matter of achieving carbon neutrality by transferring its own tasks toother countries. This is apparent in e.g. the Climate Policy of our neighbours inDenmark, where one of their four main policies is that measures to reduce emissions should lead to a real reduction in domestic prices, but at the same time it

must be ensured that Danish measures do not push emissions beyond the borders.
There is reason to review whether the Icelandic government’s actions on climate

and energy issues do not meet this condition of a real domestic reduction and thatemissions are not transferred to others.

The development of Landsnet’s transmission network has become a step behind
the transmission need. There are plans for improvements based on the current

situation and the question is whether they should not be accelerated as much as

possible. It is also important to assess whether Landsnet’s transmission network

plans can handle the energy transition in stages, and thus up to more than double
the estimated electricity production over the next 18–28 years and even more
electricity production if demand for additional energy transition is met.

The electricity distribution network has been under constant development, butnevertheless many projects are on the horizon and it would be necessary to assess
whether implementation can be accelerated. Requests for increased transmis-

sion capacity and more secure interconnection as well as interaction with backup
power in individual areas or locations need to be discussed. It must be ensured

that the distribution companies have the investment capacity needed to carry out
all normal tasks.

In the government agreement that took over in 2021, the goal of a fossil fuel-free

Iceland was accelerated to 2040 from 2050. It is necessary to elaborate on the rea-sons for this acceleration and make it clear to all parties involved what it entails. If

the goal is to be met, all electricity producers, public institutions and stakeholders
involved in the licensing process must coordinate criteria and actions.

23

The NEA has also pointed out the different negotiating positions of the general market and industry in thiscontext.

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4. Energy Transition
Energy Policy: Energy Transition on Land, Sea and in Air

4.1 Summary•

Iceland is in the unique position that almost no fossil fuels areused for electricity production and space heating. This means that a reduction
must occur in road transport, fisheries and air transport. Thus, the country’s

energy transition options are fewer and narrower than in other countries, andenergy transition in road transport needs to be rapid. Energy transition basedon domestic energy sources are accompanied by increased energy security,less currency outflows and less harmful pollution.
•

The target of a 10% share in energy transition in transport was achievedby 2020. Important milestones in land-based energy transition have beenachieved through the addition of biofuels to conventional fossil fuels and theintroduction of electric cars.
•

Iceland is in second place globally after Norway in new registrations of electric•

Domestic production of electricity or biofuels is still small. Many parties

and plug-in hybrid cars.

are interested in the production of hydrogen and electric fuels but have notstarted production. Methanol production has stopped.

•

Energy transition in ships and aircrafts is still barely noticeable. An approved•

Through the Icelandic Energy Fund, the government has supported

parliamentary resolution proposal on energy transition in aviation is available.
infrastructure development for electric cars and in the country’s ports.

There are plans to further support energy transition, e.g. in heavy transport,
industry and E-fuel production.
•

Iceland has a lower proportion blending mandate in fossil fuels than•E-fuels and hydrogen have not become competitive in price with fossil fuels.

neighboring countries.

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The State and Challenges of Energy Issues

March 2022•

Manufacturers compete with other consum for electricity, e.g. various•

The supply of vehicles for E-fuel and hydrogen, whether in heavy transport or•

About 80% of electric cars are charged in homes and workplaces.

•

The 2021 government agreement set stricter climate goals. The Environment

industries, data centres and more.

aviation and ships, is still limited or in the development stage.

Agency believes that these goals will not be achieved based on current

assumptions. Therefore, additional measures need to be considered, e.g.

whether to accelerate the introduction of electric cars and, e.g. implement adomestic emission quota and trading system.
•

It could also be borne in mind how funds through the international ETS system
are spent in Iceland, e.g. in investing in climate-related projects.

4.2 Energy Transition on Land
Energy transition in land transport is well underway. The government’s goal of a

10% share in energy transition on land, primarily through the introduction of electric cars, by the year 2020 was achieved and exceeded, cf. the graph.

Renewables in land transport
12

11.4

10

8.4

%

8

6.8

6
4

2.6.

2
0

0.2

0.3

0.4

2008

2009

2010

0.9

2011

6.4.

7.1

3.4

1.4

2012

9.5

Target: 10% in 2020.
2013

2014

2015

2016

2017

2018

2019

2020

Figure 16. The Proportion of Energy from Renewable Sources.


Source: Orkustofnun (National Energy Authority).

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The State and Challenges of Energy Issues

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For several years, Iceland has been in second place globally in terms of the speed ofenergy transition measured in new registrations of electric and plug-in hybrid cars
(PHEV). The Nordic countries occupy the top three places, cf. figure below.

NorwayIcelandSwedenNetherlands
Switzerland
FinlandDenmark
Germany
Portugal,
Luxembourg.
Belgium
United Kingdom
FranceAustria
Malta
Ireland
Hungary
Spain
Italy
Slovenia
Romania
LatviaBulgaria
GreeceCzechia
Slovakia
Croatia
Estonia
PolandLithuania
CyprusFigure 17. New Registrations of Electric and Plug-in Hybrid Vehicles (PHEV).24



Source: EAFO.

24

https://www.eea.europa.eu/ims/new-registrations-of-electric-vehicles#:~:text=In%202020%2C%20the%20
share%20of,and%20the%20Netherlands%20(28%25)

81The State and Challenges of Energy Issues

March 2022

Growth of alternative fuels
18
16
14

ktoe

12
10
8
6
4
2
0
2008

2009

2010

2011

Methane

2012

2013

2014

Electricity

2015

2016

Ethanol

2017

2018

2019

2020

Biodiesel oil

Statistical Material from the National Energy Authority: OS-2021-T007-01

Figure 18. Trends in alternative fuel use by type.



Source: National Energy Authority.

4.2.1 Government Actions

The introduction of concessions to facilitate the introduction of electric cars in
the passenger car fleet has been crucial, most notably the abolition of VAT on

environmentally friendly cars. In 2019, the period of validity of the VAT concessions

according to Temporary Provision XXIV in the Value Added Tax Act for emission-freecars was extended until 31 December 2023. In addition, various other temporary
measures were introduced to accelerate the energy transition, such as support

for the purchase of bicycles, electric bicycles, eco-friendly motorcycles and lightmotorcycles, as well as coaches in public transport. Authorisation was also granted to reimburse the builders and owners of residential housing for VAT they have
paid for work on the installation of charging stations in or near residential housing. Likewise, VAT on the purchase of home charging stations for electric cars is

reimbursed. Exemption from VAT for renting environmentally friendly cars from car
rentals and property or finance rental companies has been no less important be-cause car rentals are the buyers of about 40% of newly registered cars each year. 25

In addition to the concessions set out in the action plan, there are now increased
temporary concessions for car rentals to invest in environmentally friendly ve-

hicles with the aim of accelerating energy transition. In the years 2021 and 2022,
the emission (CO2) of vehicles on which excise duty is calculated will be reduced
by 30% before the imposition of excise duty in the case of vehicles intended for25

https://www.stjornarradid.is/library/01--Frettatengt---myndir-og-skrar/ANR/Orkustefna/LOK%20INE%20
2021%20Fl%c3%b6skuh%c3%a1lsar%20%c3%ad%20hle%c3%b0slukerfi%20landsins_Ni%c3%b0urst%
c3%b6%c3%b0ur%20k%c3%b6nnunar%20%c3%a1%20me%c3%b0al%20rafb%c3%adlaeigenda.pdf

82

The State and Challenges of Energy Issues

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rental. However, the reduction can never amount to more than ISK 400,000 per

vehicle. On the other hand, Ökutaekjaleigan undertakes to arrange its purchases

so that environmentally friendly vehicles, which are covered by Temporary Provision XXIV in the Value Added Tax Act, will be 15% in 2021 and 25% in 2022 of total

car purchases. It is worth mentioning that car rentals as well as other commercial
companies were authorised during the period 1 January 2020 to 31 December 2023

to fully depreciate vehicles subject to registration in the year of purchase down to
the scrap value of the property, provided that the vehicle is powered by methane,methanol, electricity or hydrogen and is wholly utilised in the taxable activities ofa legal entity or self-employed person.

According to the Act on Renewable Fuels in Land Transport, No. 40/2013, a sales

obligation is imposed for renewable fuels, incl. electricity. Fuel sellers must ensurethat 5% of their fuel sales are from renewable sources. Sellers have met this byimporting fuels with biofuel mixtures, but have not utilised methanol produced in
Iceland. In neighbouring countries, this obligation has been increased and is e.g.
7.6% in Denmark, 20% in Finland, 10% in the UK and 17% in the Netherlands. 26

Iceland is in the unique position that almost no fossil fuels are used for electricity
production and space heating. There will therefore be a reduction in the use offossil fuels in land transport, ocean-related activities and air transport. As a re-sult, the country’s energy transition options are fewer than in other countries. En-

ergy transition in these sectors is more demanding as technological solutions andfuel supply are still evolving. Governments in neighbouring countries have focusedless on energy transition elsewhere than on land. Actions under development at

EU level target larger cargo ships but exclude the fishing fleets of the countries. 27

International requirements or harmonised actions are more suitable for sectorsthat are in international competition.

4.2.2 Transport

Transportation is classified as road transport, ferry/coastal transport, international
shipping and domestic and international flights.

Of the 402 thousand vehicles that were in the country in 2021, about 27 thousand
are electric or so-called plug-in hybrid cars (PHEV) (over 14.8%) and 25 hydrogencars. The share of hydrogen cars and other E-fuel cars will also increase, espe-

cially large vehicles. According to figures from the Automotive Trades Association(25.12.2021), new registrations of passenger cars were these proportions of thewhole: Electric cars 27.8% and PHEVs 26.0%.

26

https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Biofuel%20Mandates%20in%20the%20EU%20by%20Member%20State%20and%20United%20Kingdom%20-%202021_Berlin_European%20Union_06-06-2021.pdf

27

https://ec.europa.eu/info/sites/default/files/fueleu_maritime_-_green_european_maritime_space.pdf

83The State and Challenges of Energy Issues

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Proportion of Eco-friendly Vehicles in New Registrations
28
24

24.1%

22.2%

%

20
16

14.4%

12
8.0%

8
4

0.4%

0
PHEV (petrol/diesel)

Electricity

2019

0.3%

Other eco-friendly energy sources

2020

Figure 19. The Rate of Eco-friendly Vehicles in New Registrations.  Source: Samgongustofa.

Proportion of New Registrations of Eco-Friendly Vehicles
60
55

50

45

40
%

35

30

25

20
15

10
5

0

2014

2015

2016

2017

Passenger cars

Figure 20. The Rate of New Registrations.

Coaches



2018

2019

2020

Vans

Source: Samgongustofa.

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The State and Challenges of Energy Issues

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Proportional distribution of energy sources in land transport
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%

PetrolDieselRenewable fuelFigure 21. Proportional Distribution of Energy Sources. 

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1998

1986

1984

1982

0%

Statistical Material from the National
Energy Authority: OS-2021-T007-01

Source: National Energy Authority.

4.2.3 Agriculture

The majority of clean energy cars in agriculture are electric and PHEVs. Workequipment and large cars will potentially utilise hydrogen in the future, other electric or biodiesel, but such biofuels from rapeseed are already used domesticallyon agricultural machinery to a small extent. Farms are generally fully electrified.
Energy transition is primarily related to all kinds of machinery and vehicles.

4.2.4 Tourism and Other Services

The main component of energy transition in tourism and most other service sec-

tors is transport (see 3.1.1). Energy transition in service sectors takes place primarily there. Next in line is energy transition in recreation where internal combustion
engines are now used.

4.2.5 Industry Outside the ETS system

Industry outside the ETS system: Companies already carry out energy transition inaccordance with their industry policies. A big factor is transport and the use of machinery. The Energy Fund supported projects in connection with energy transition
in industry with an allocation in 2021.

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The State and Challenges of Energy Issues

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4.3 Domestic Fuel
Energy Policy: Iceland unreliant on fossil fuels

4.3.1 Electricity and E-fuelGood results in energy transition in transport are primarily achieved with electriccars that run on electricity from batteries and with PHEVs that can be charged withelectricity with an outlet. Of these cars, the vast majority are passenger cars andrather small commercial vehicles. Such direct use of electricity in energy transition
falls under general use, as is currently the case with the general use of electricity
and district heating by the public and companies. E-fuels and hydrogen are stillused to a lesser extent in transport. Biofuels are used in transport as an additive
with conventional fuels in the form of biodiesel and ethanol, but methane is also
used in cars.

A proportion of passenger cars, larger cars, e.g. for the transport of goods, vari-

ous vehicles, and machinery will be powered by E-fuels that require hydrogen in

production. The use of E-fuel in vehicles is, in terms of technological development,
less advanced than the use of batteries. A number of vehicle and machine manufacturers are working on the development of E-fuel engines in cars, from pas-

senger cars to large passenger cars and commercial vehicles. Machinery for mostships and medium-sized and large passenger and cargo aircrafts will requirea large amount of E-fuel.

Currently there are many matters of dispute about the price of E-fuels in comparison with fossil fuels, its efficiency and different types of fossil fuels, i.e. what isbest suited as a power supply. It is unclear whether, and how much, of the fuel will
be produced in Iceland and how much of it will be imported. The energy demand
for this is evaluative and difficult to predict. Furthermore, it is not known how

much fuel will be sold to ships and aircrafts calling at Iceland. Finally, it remains

to be seen whether or not the E-fuel produced in Iceland will be exported for use

abroad. It can be expected that, if E-fuel is produced here for a foreign market, theproduction will be for energy-intensive consum and not part of energy sales togeneral consum. Overall, however, it is clear that environmentally friendly, renewable electricity must be used to produce all E-fuels. No matter in which sectorof transport or business the product is used, within the ETS system, within otherrelated systems or outside the ETS system.

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The State and Challenges of Energy Issues

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4.3.2 Hydrogen Produced at Filling Station

One hydrogen pumping station is in Reykjavik operated by Orkan by Vesturlandsvegur and another by Fitjar in Reykjanesbaer. The hydrogen is produced by Orkanatturunnar at the Hellisheidi power plant and driven in a tanker to sales outlets.

More hydrogen or electric filling stations will become part of the infrastructure as
the number of electric vehicles increases.

4.3.3 Hydrogen Produced by Electrolysis in a Hydrogen Plant

In addition to ON’s hydrogen production at the Hellisheidi power plant, two related
projects have been in the pipeline. Landsvirkjun is examining hydrogen produc-tion at Ljosafossstod. The power requirement is 10 MW. Finnafjardarhofn’s projectenvisages the production of hydrogen by electrolysis of water and possibly the

production of more types of E-fuel. Ideas for hydrogen production also take into

account activities by e.g. Þorlakshofn and in Husavik. There, Green Energy/Atome

Energy intends to produce hydrogen and ammonia with a phased 30–100 MW power
requirement.

4.3.4 Production of Biodiesel

Already, two companies produce biodiesel, as well as several farmers. The companies are Orkey (from waste cooking oil and animal fat) and Íslenska gamafelagid(from cooking oil). Sorpa and the company Ymir Technologies are working on a survey

87

The State and Challenges of Energy Issues

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and preparation for the production of biodiesel from slaughter and fish waste. In
addition, there is a business plan for 5,000 tonnes of biodiesel production from2017. 28 The base material is rapeseed and it is considered promising to utilise itmuch better and in more parts of the country. 29

4.3.5 Production of Methanol

Carbon Recycling has operated methanol production in Svartsengi. Hydrogen is

produced by electrolysis of water and reacted with carbon dioxide from volcanic

gas that accompanies the energy production of HS Orka’s geothermal power plant.
The power requirement of the electrolysis is 6 MW. The annual production has

been 4,000 tonnes and has been sold out of the country. CR works with Landsvirk-

jun, Elkem and Þrounarfelag Grundartanga to study the production of methanol in

Jarnblendiverksmidjan with hydrogen from electrolysis and carbon dioxide from theproduction process. Projects for the production of E-fuel are listed in the table.

4.3.6 Production of Methane

Methane is produced in two places in the country. Sorpa’s gas production plant

produces 3 million Nm3 of methane annually. The methane is sufficient to supply
4–6,000 passenger cars or approximately 100 city buses. Nordurorka produces

about 250 thousand Nm3 annually from the old landfill in Glerardalur, which powers about 8 city buses and a number of passenger cars. The production capacityof methane is about four times greater than that used by the country’s methane-powered vehicles.

4.3.7 Overview of Several Companies in the Field of Hydrogen andE-fuel Production and Related Services
Vetnis
The company has focused on the energy transition of large vehicles from carbon

fuel to green hydrogen. The company is also working on the development of infrastructure for the production and distribution of green hydrogen and the development of Iceland’s first green transport fleet.
Qair Iceland
Qair Iceland is an independent producer of renewable energy with over 30 years ofexperience in the development, installation and operation of its own wind, solar,hydropower plants, as well as green hydrogen production. Qair operates in 16

28
29

https://www.samgongustofa.is/media/siglingar/skyrslur/Lifdisill-vidskiptaaetlun-lokaeintak-2017-002-.pdf

https://fiskifrettir.is/frettir/kanna-forsendur-lifdisils-fiskiskip/160826/
https://www.stjornarradid.is/library/02-Rit--skyrslur-og-skrar/Repjuol%C3%ADa_sk%C3%BDrsla_sept2021.pdf

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countries and operates the subsidiary Qair Iceland. The company produces energy

with hydropower through the subsidiary Arctic Hydro and aims to install about 900
MW of wind energy in the country.
Clara Artic Energy
The company was founded around the development of hydrogen and energy infrastructure solutions and has been active in consulting and business developmentin the fields of hydrogen storage, energy infrastructure, future energy markets andenergy trading. The company’s goal is to develop and invest in projects across thegreen hydrogen value chain.
Carbon Iceland
The company plans to reduce the amount of carbon dioxide in the atmosphere by
several million tonnes per year. The company will purify the substance from theatmosphere in a special air purification plant and greenhouse gases from the pollution streams of large companies. It is planned to produce green carbon dioxide

for food production and clean, green fuel for ships and other means of transport.
The operations will be at Bakki by Husavik.
Green Fuel
The company Green Fuel plans to build an ammonia factory at Bakki in Husavik.
Green Fuel is majority owned by Atome. The company aims for both export
and serving the domestic market.
Atmonia
Atmonia’s main goal is to significantly reduce greenhouse gas emissions with newtechnologies in the field of ammonia and nitrate production. Atmonia is an inno-

vative company that is developing new technology for the production of ammonia
from air, water and electricity without greenhouse gas emissions.
IdunnH2
IdunnH2 is an innovative company that works on the development of hydrogen production in Iceland. The company’s goal is to produce competitive and environmen-

tally certified green hydrogen with the aim of reducing greenhouse gas emissions
both in Iceland and abroad.

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4.4 Marine-Related Energy Transition
4.4.1 International Voyages

It is planned that the international vessels will mainly use E-fuel or biodiesel orbiogas and the demand will increase gradually. Iceland’s international voyages aredealt with at the International Maritime Organisation. Since 2018, however, large
vessels moored in EU ports have been part of the ETS system in terms of emis-

sions monitoring. As things stand today, there are no vessels on the Icelandic ship
register that fall under the system.

4.4.2 Fishing Industry

Small fishing vessels: It is planned that coastal fishing boats and various fishingvessels on the mainland use electrical connections on land and are either electricboats and ships or plug-in hybrid vessels. There are still no such vessels in the
country’s fishing industry.

Medium and large fishing vessels: It is planned that such vessels use E-fuel orbiodiesel of various kinds for fishing and processing on board. There are no such
vessels in Iceland yet. See the discussion in DNV’s report on energy transition offishing vessels. 30

Fish processing and landing: Various work equipment on land in the fisheries sector is powered by charging electricity, but the main factor in energy transition onland has been the implementation of electricity in fishmeal factories. All but two
take advantage of it. In the 2016 VSÓ report for Landsnet, "Possible Energy Tran-sition in Iceland", it is estimated that the total energy demand will be 62 GWh andthe power demand 68 MW. It was actually 102 MW for factories in the east of thecountry in 2021.

4.4.3 Aquaculture

It has been decided that aquaculture barges in aquaculture will be electrified in

Reydarfjordur and work is underway on the development of an electric wellboat
at Blami, a collaborative project between Landsvirkjun, Orkubu Vestfjarda andVestfjardastofa, in Bolungarvik. Such a development can be expected elsewhere inaquaculture areas in the sea and an increased electricity demand in the sector.

4.4.4 Electric Ships and Electric Boats

There is still very little energy transition in any kind of service sailing. Apart from
Herjolfur IV and one of Nordursigling’s boats (sailing ships that charge batteries
under sails), there are no electric ships in operation.

30

https://samorka.is/wp-content/uploads/2021/12/Decarbonization-IMS_Final-Rev2.pdf

90The State and Challenges of Energy Issues

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Among the reports that have been prepared are "The Energy Transition of Vessels"(Efla for the Ministry of the Environment and Natural Resources 2019) and DNV’sreport for Samorka, the Ministry of Environment, Energy and Climate, Faxafloa-

hafnir and SFS. Samorka’s disclosure of information now states that according toSamorka’s estimate, the electricity demand for vessels could total 2,600 GWh in

2035 and up to 4,050 GWh in 2040, or the equivalent of close to 400 MW of power.
The average increase in installed capacity per year could be 30–40 MW.

4.5 Energy Transition in Aviation
4.5.1 Electric and E-fuel Aircrafts

No energy transition has yet taken place in aviation in this country. The focus ismainly on electric aircrafts or aircrafts powered by E-fuels or a combination ofrenewable energy sources. An approved parliamentary resolution from 2021 onenergy transition in aviation is available. 31

It is planned that aircrafts in international flights run mainly on hydrogen, otherE-fuels or a mix of renewable energy sources. No passenger aircrafts of this typeare in use in Iceland. Icelandic airlines’ flights between countries will be part of the
CORSIA trading system, which is similar to the ETS system.

4.5.2 The Use of Electric Aircrafts

One single-engine, two-seater electric aircraft has been imported to Iceland. Moresuch aircrafts can be expected for private and training flights. Icelandair Group hassigned a letter of intent to explore the possibility of energy transition in domestic
flights. On one hand, with Universal Hydrogen, which has designed energy transi-tion equipment that could convert Dash-8s engines to hydrogen-powered engines.
On the other, with Heart Aerospace, which is working on the development of electric passenger aircrafts. Play airline does not seem to have decided on the next
steps in energy transition.

31

https://www.althingi.is/thingstorf/thingmalalistar-eftir-thingum/ferill//?ltg=151&mnr=330

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According to Samorka’s assessment, the total energy requirement in aviation,

mostly for international flights, could be around 4,316 GWh in 2035 and 8,196 GWh
in 2040, or the equivalent of 1,040 MW in that case.

4.6 Infrastructure for Energy Transition
4.6.1 Development of Charging Stations

Public funding has also played an important role in energy transition, as it has

provided funding for the development of infrastructure for electric cars throughthe Energy Fund since 2016.

Figure 22. Fast Charging Stations for Electric Cars. 

Source: National Energy Authority.

The number of vehicles at each fast charging station is a certain standard for infrastructure supply. Despite the rapid increase in the number of electric cars, there has

been a strong emphasis on supporting infrastructure development, which has led to

the number of electric and plug-in hybrid cars at each charging station going from82 cars in 2018 to 39 cars in 2020.

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Number of Charging Stations.
386

400

300

185

200

0

106

88

100
0
2013

11
2014

22

30

2015

2016

2017

2018

Figure 23. The Number of Charging Stations.

2019



2020

Source: EAFO.

Number of Electric and Plug-in Hybrid Vehicles (PHEV) Per Charging Station.
82

80
69

70

64

58

60
50
42

40
30

39

33
2014

2015

2016

2017

2018

2019

2020

Figure 24. The Number of Electric and Plug-in Hybrid Vehicles Per Charging Station.
Source: EAFO.

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The Energy Fund has developed into having the main goal of supporting energy

transition. Grants for infrastructure for electric cars throughout the country havebeen an important part of promoting the energy transition on land. In recent

years, the fund has also increasingly supported energy transition at sea, in in-

dustry and for the production of renewable fuels. The fund has been significantly
bolstered with increased contributions from the Treasury.

Table 8. Energy Fund Grants for Charging Stations 2016–2021.



Source: The Energy Fund.

2016

66,750,000

Infrastructure for electric cars all over the country, part 1.

2017

65,985,000

Infrastructure for electric cars all over the country, part 2.

2018

68,424,060

Infrastructure for electric cars all over the country, part 3.

2019

226,825,000

Fast charging stations for electric cars.

2019

30,319,869

Fast charging stations for electric cars – hotels and accommodation.

2020

108,964,500

Infrastructure grants for eco-friendly vehicles in public places.

2020

71,005,000

Infrastructure grants for eco-friendly vehicles.

2021

81,925,000

Purchase of eco-friendly work machines.

2021

106,409,000

Purchase of eco-friendly trucks or improved infrastructure.

2021

42,559,000

Charging stations at accommodation and popular tourist destinations.

Total

869,166,429

According to a recent survey, most people charge their electric cars at home orover 80%. 32 This result is not surprising and confirms other studies on the charging

behavior of electric car owners, both in Iceland and abroad, for example (Fleetcar-

ma, 2020) and (Smart, 2015). Just over 9% said they mostly charge at the workplace,and only 1% of respondents mostly charged in a parking garage. It is perhaps sur-prising that nearly one in ten said they mostly charge the electric car at a charging
station open to the public.

32

https://www.stjornarradid.is/library/01--Frettatengt---myndir-og-skrar/ANR/Orkustefna/LOK%20
INE%202021%20Fl%c3%b6skuh%c3%a1lsar%20%c3%ad%20hle%c3%b0slukerfi%20landsins_
Ni%c3%b0urst%c3%b6%c3%b0ur%20k%c3%b6nnunar%20%c3%a1%20me%c3%b0al%20rafb%c3%adlaeigenda.
pdf

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The State and Challenges of Energy Issues

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At home80.66%

Workplace

9.19%

Parking garage

1.10%

At a charging station
open to...

9.05%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 25. From Icelandic New Energy's 2021 Survey.

4.6.2 Ports

In many ports it is possible to connect ships to electricity sources and systematic
work is being done to further modernise ports. 33 34

Ports that participated in the 2021 survey used 20 GWh of electricity. According
to the VSÓ 2016 report, "Possible Energy Transition in Iceland", the total power

requirement of ports could be around 16 MW and energy consumption around 58
GWh. That number has probably risen.

4.6.3 Batteries and E-fuelObstacles in energy transition can generally be divided into three: Technical challenges, cost challenges and infrastructure and energy challenges. It is estimatedthat direct electricity consumption with batteries could technically be utilised in

up to 80% of road transport. However, battery technology is still evolving rapidly

and will improve e.g. with new materials in batteries. The operating cost of battery
vehicles is lower than that of conventional vehicles and the initial cost of each car
decreases rapidly. The basic infrastructure is available but they need to respondto the demand in accordance with the rapid growth of the car fleet throughout thecountry. The electrical energy requirement of each vehicle is not high.

A large part of the fishing fleet, international flights and sea transport, as well aspart of road freight transport, will probably depend on E-fuel. Technological devel-33

https://www.stjornarradid.is/verkefni/umhverfi-og-natturuvernd/loftslagsmal/adgerdaaaetlun-i-loftslagsmalum/adgerdirnar/loftslagsskyrsla-stok/?itemid=449f3305-b18c-11ea-8117-005056bc8c60

34

https://www.stjornarradid.is/library/01--Frettatengt---myndir-og-skrar/ANR/Orkustefna/
Rafv%c3%a6%c3%b0ing%20hafna%20%c3%a1%20%c3%8dslandi.pdf

95The State and Challenges of Energy Issues

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opment in that field is rapid but many solutions are uncertain. The operating costsof vehicles, work machines, vessels and aircrafts with E-fuel are very high and theirinitial costs are high. Little to no infrastructure exists. The energy requirement forthe production of E-fuel is evaluative, as it is uncertain what proportion of do-

mestic fuel will be available. The production of E-fuel requires electricity and theenergy efficiency of production and use is much lower than in the case of direct
use with a battery.

4.7 Matters of Opinion and DecisionMaking Issues
Along with the introduction of electric cars and general energy transition in landtransport, fee collection/taxation of traffic need to be reconsidered. Fee collection is either based on investment in vehicles, maintenance or their use. We are

faced with the need to expand the fee collection for usage as the number of electriccars increases. A position needs to be taken on increased incentives for electric car

implementation, both with lower fee collection for investments and/or increased fee
collection for investments and the use of vehicles with internal combustion engines.
A policy needs to be set on whether to increase the production of fuel in Iceland

at least to the extent that corresponds to the demand for such fuel in the country
when energy transition takes place. It is not yet clear enough what technology

will prevail in individual aspects of transport and transportation, but in all cases
hydrogen production is a key factor. Its feasibility needs to be examined and aposition formulated on whether it is nationally economically viable to produce fuelfor export from Iceland.

The future role of the Energy Fund needs to be decided and its scope examined incomparison with comparable funds in neighbouring countries. Iceland’s goal of energy transition is based on Iceland being at the forefront of the energy transition

wave in fishing and sea and air transport. This can be done through strong partic-

ipation and investment in all kinds of development projects and leadership in theimplementation of new technology. A strong Energy Fund can play a major role infinancing projects in this field.

The ETS system is a relatively efficient system for achieving targets for reducing

greenhouse gas emissions. There is reason to examine how it is ensured that thefees of Icelandic parties into the ETS go to innovation and development projects inindustry in the field of energy and climate projects. There is also reason to examine
whether it is realistic to implement a domestic quota and trading system in Iceland
in order to achieve the goal of reducing emissions from general economic activity.

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5. Energy Efficiency and Savings
Energy Policy: Technological innovations inherent in smart
technology need to be utilised

5.1 Summary•

Increased energy efficiency in electricity production and consumption andincreased savings in electricity in households as well as in the economy isimportant for future energy demand. Increased energy efficiency and greatersavings facilitate energy transition.
•

The Energy Fund, The Technology Development Fund and other funds support
improved energy efficiency along with companies and organisations, e.g. in
offshore and harbour activities.

•

Smart meters are replacing older meters in the electricity system and in•

There is increased public support for heat pump installation and emphasis iscontrolling it.

being placed on more environmentally friendly buildings that contribute toimproved energy efficiency. Further concessions for the public and businesses
are encouraged.
•

Households have saved 10% on electricity with more energy-efficient•

Stranded but usable energy, e.g. waste heat from heavy industry companies, is•

The capacity increase of existing power plants is already underway.

•

Better connections in the transmission network between regions improve the•

There are a variety of circular economy projects in power development areas

household appliances.

worth pursuing. Multi-use of energy flows, e.g. with resource parks is desirable.

utilisation of the electricity network.

where full utilisation of resources takes place.

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5.2 Utilisation of Energy Resources
Over the Years
It does not matter whether you look at apartments and other buildings or meansof transport when assessing energy efficiency. Over the past century, there has
been a revolution in these matters. This also applies to commercial activities.
Concepts such as electrification, LED adoption, digital smart technology andeco-design tell that story in part. Utilisation of energy sources such as minerals,

geothermal and nuclear energy, waterfalls, solar heat and wind has gradually beencharacterised by more and more methods of utilising each energy unit better thanpreviously achieved. The reasons for this are evident.

Increased energy efficiency and maximum energy savings are of great importancefor the future of mankind. Numerous parties rate it as ranging from 10% of carbon
neutral actions to 25% (IRENA, International Renewable Energy Agency) or even
40% with multifaceted high technology. 35

5.3 Technological development
5.3.1 Smart Energy System and Load Control

Digital technology, Internet adoption and the fourth Industrial Revolution relate toenergy producers, energy carriers, the general public and business. Smart solu-

tions strengthen the synergy of power stations and the transmission and distribution networks. They facilitate power control of the entire electricity system,

i.e. bringing electricity with equality to all parts of the country, utilise all usable

electricity and be able to respond to load fluctuations and increased load e.g. due
to energy transition, innovation and industrial development.

Power control is thus carried out in order to optimise the annual production ofelectricity per installed power unit of each power plant.

5.3.2 Smart Network

A smart network is an electricity network that combines in a smart, equal, digital
way the functions and capabilities of everyone who is connected to it, electricity
producers, distributors and consumers, so there is sustainable, economical andsecure energy/energy supply. Further information on smart networks can be foundin Landsnet’s presentation. 36

35
36

https://www.iea.org/reports/energy-efficiency-2018https://www.landsnet.is/library/Skrar/Landsnet/Upplysingatorg/Kynningarmal/Vorfundur-Samorku/07%20

Snjallnet%20-%20Vorfundur%20Samorku%20-%20Iris%20Baldursdottir.pdf

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Nearly 13 items are listed that can be included in the concept smart network, fromreal-time monitoring of electrical equipment and electricity control in buildings
to smart meters of energy consumption and automatic protection equipment in
power plants or substations. 37

5.3.3 Results of Smart Network Adaptation

Smart networks in East Iceland increase the utilisation of the transmission net-

work and operational security in East Iceland, especially for power control to fish-meal factories. In Reykjanes, it increases operational security by facilitating power
curtailments where possible, in the event of electricity disruptions. Smart andrapid reduction of power in the Þeistareykir power plant can increase the trans-mission capacity of the Byggdalina line between the Blanda and Fljotsdalur power
plants. Smart networks in the Westfjords increase operational security and mini-mise power outages with the rapid entry of backup power and the automatic entry
of priority users. The smart network of smelters minimises load on the Byggdalinaline with fast load control and improves electricity quality during disruptions.

5.3.4 New Technology for Energy Savings

Energy savings is one of the key concepts in energy transition processes. Dis-

semination of information about its necessity and methods is i.a. handled by the
Energy Agency within National Energy Authority. Energy efficiency/energy saving

also concerns district heating and all space heating. Imporant to this are e.g. heatpumps, improved building insulation, improved indoor heat management andgeneral consumer consideration. The development of technology and equipment isincreasingly facilitating energy savings. Examples include LED lighting, more powerful and environmentally friendly vehicle batteries, more fuel-efficient electron-

ics, as well as smart networks. Veitur ohf. is currently undergoing an overhaul with
the introduction of smart meters. This is an example of the trends.

5.4 Support Environment
5.4.1 The Energy Fund

The Energy Fund under the auspices of the NEA supports a variety of projects

within the energy sector, including for energy transition. From 2006 to 2010, thefund supported in total e.g. 63 projects, but from 2016 onwards the number ofgrants increased greatly, especially grants for energy transition. In 2016–2021, a

total of 252 grants were allocated for energy transition and the total amount is ISK
1,258,362,000. Of these, 151 are grants for charging stations or infrastructure forelectric cars.

37

http://www.iec.ch/smartgrid/100

The State and Challenges of Energy Issues

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5.4.2 Technology Development Fund

The Technology Development Fund under the auspices of RANNÍS supports tech-

nology development and innovation projects of various kinds every year. In 2021, 12
energy-related innovation projects were funded. Two are directly related to energy
transition: Design of an electric catamaran (Icelandic New Energy ltd. and others)
and energy transition of large vehicles into hydrogen (Vetnis). 12 educational andinformation projects also received grants, of which e.g. a presentation for 10- to

12-year-old primary school children on the use and importance of public transport(Straetoskalinn on behalf of Energy Agency) and dissemination of information toyoung people about climate issues and reduction of greenhouse gas emissions(information package on climate issues organised by The Icelandic Youth Environmentalist Association).

5.4.3 Icelandic New Energy (Islensk Nyorka)

Icelandic New Energy (founded in 1999) emphasises the acquisition and dissemination of knowledge on environmentally friendly energy carriers and currently

carries out mainly research and consultancy projects in that field. The company

participates in collaborative projects as a project manager, contractor and consultant with many domestic and foreign parties, e.g. in hydrogen projects. 38

5.5 Economy in Energy Consumption
Energy Policy: Energy efficiency is improved andwaste minimised

5.5.1 Household Savings

The average electricity consumption of households has been declining for several

years. This is due to increased LED lighting, more fuel-efficient electrical appliances, warming weather in areas of buildings heated with electricity and presumably
with smarter use of electricity. 39 The need for recharging electricity in the opera-tion of cars offsets and affects the overall picture in light of Samorka’s analysis of

the estimated energy demand for the passenger car fleet in 2040. It is estimated to
be around 1,300 GWh or just over 6% of current electricity production. The estimated energy requirement of one electric car is about 2,800 kWh per year. Thatis about 70% of the energy consumption of the average household. Improved and38
39

https://newenergy.is/rannsoknir-og-throun

https://www.stjornarradid.is/efst-a-baugi/frettir/stok-frett/?NewsId=28cb79af-e044-11e6-9c21-e4a47104df25

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environmentally friendly public transport is taken into account in the plans forincreased energy savings. Increased data and usage information can be used to

tailor flexible tariffs to create incentives for energy savings and load distribution.
This is partly in place today, but could be done much better with smart metering.

This development is also reflected in electricity savings in the operations of many
companies. It can be assumed that with cost-effective savings for the public andcompanies, a 5–10% reduction in electricity consumption by households andcompanies can be expected, i.e. up to 350 GWh in two to three decades based on
current electricity consumption. Equalisation of electricity prices was increasedby an amendment in 2021 to Act No. 146/2020 amending the Act on Equalisation of
Costs for the Distribution of Electricity, No. 98/2004. It can be considered that thechanges affect the use of electricity for increased economy, but a comprehensive

review is needed, cf. Deloitte’s report, "Analysis of Regulations and Arrangements
for the Transmission and Distribution of Electricity", to the Ministry of Industries
and Innovation 2 February 2021.

5.5.2 Incentives for Companies and the General Public

Energy transition is encouraged through incentives for the public and companies,
especially with regard to the purchase of eco-friendly cars. The VAT has been

temporarily abolished on electric cars and PHEVs, but excise duties on vehicles will
decrease in line with registered, declining CO2 emissions. Automobile tax depends
on the weight of the car and CO2 emissions. The operation of an electric car saves

fuel excise tax, which is included in the price of a litre of petrol and diesel and hase.g. been used for road construction. Therefore, i.a. discussed the introduction ofdriving charges on eco-friendly cars in order to ensure equality. Car rentals get a102

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special discount on public fees. These and other energy transition incentives are

expected to change now and in the near future. Incentives for companies, institutions and innovation are first and foremost public grants or contributions to thebudget and then agreements on investments by investors or companies. This cane.g. include charging stations for cars, district heating utilities where there arenone, or where geothermal heat is found (single payments) and further electrification of ports. Horticulturalists have received a subsidy for electricity but now
receive direct payments.

5.5.3 Energy Efficiency of Buildings

Progress has been made in the construction and operation of environmentallyfriendly buildings, as there are ample opportunities for improved energy efficiency

and energy savings. It is based primarily on smart control of electrical and heating
systems and technically improved insulation of buildings.

5.5.4 Grants for Heat Pumps

With amendments to the Act on Subsidies for Central Heating Costs, the state wasallowed to participate with a one-off payment in the initial costs of environmentally friendly energy procurement, which reduces electric heating or oil heating.
The state pays for part of the projected savings resulting from the project. They

are based on usage of e.g. heat pumps, wood heating and other things that requireless electricity consumption. VAT is also refunded on the purchase of heat pumps.

5.6 Improved Energy Efficiency
Energy Policy: Multi-use of resource streams

5.6.1 Usable Energy Available

The term stranded energy could be used for the electrical and heat energy that is
produced or can be produced but does not show up in usage for various reasons.

The term underutilised energy could be used for energy released during industrial processes, unused heat in strata outside geothermal areas or in warm seas by
Iceland. It is difficult to predict how much energy/power is there, but in total thepower output runs at least a few hundred megawatts, largely heat energy.

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5.6.2 Waste Heat From Industrial and Energy Processes

Some consideration has already been given to previously unused waste heat,

which is now being utilised. These include runoff and steam from geothermal power plants and low-temperature utilities. Additions are possible here. Utilisation ofheat from energy-intensive industrial processes, especially metalworks, is muchless prominent. Treatment facilities and aeration systems are considered there.

Such heat flows are better suited for direct use of water heating than for electricity
production. It is estimated e.g. that 90,000 tonnes of alloy production could support
5 MW of electricity.

5.6.3 Utilisation of Natural Heat Reservoirs

Much progress has been made in harnessing geothermal power and in the search

for low temperature geothermal reservois in areas that were previously considered
cold or where no good drilling areas could be found. In the vicinity of geothermalareas or even far from them, there are known areas with hot but dry bedrock. It

may be economical to extract heat from closed, shallow water systems by re-injecting adventive water. Thick sediments can store heat below a depth that theannual air temperature fluctuation does not reach and sea at 5–10 °C can sufficefor heat pumps, cf. the district heating utility in the Westman Islands, which has
reduced the town’s power demand by more than half.

5.6.4 Better Utilisation of Older Power Plants and Multi-use

Electric power for electricity consumption in 2020 was 2,408 MW. Assuming that the
new annual power demand is now in the range of 2,400–2,500 MW, the underutilised power is 300–400 MW. From this it can be considered that a large part canbe utilised e.g. with an improved transmission system and smart power control,

but a portion goes to transmission loss. Further utilisation of existing hydropower
plants is about adding power engines and utilising unused water flow, or utilising

increased but temporary runoff of glaciers, either with new power engines or technical changes to existing power engines. Existing geothermal power plants can be

expanded by utilising heat energy flows (waste heat or so-called waste flows) withtechnical solutions or new power engines. Concurrently, it is possible to consider
the 23 use categories of geothermal water and steam by temperature covered by
the so-called Lindal processes.40

Landsvirkjun is considering the power increase of existing power plants over the

next 5 years. Recent projects were completed in Bjarnarflag and Burfell and work
was done on increased utilisation at Sultartangi power station, yielding 8 MW ofincreased power. The next projects that are being considered are the renewalof machinery in the Hrauneyjafoss power plant, which should yield 20 MW. Further-40

https://www.stjornarradid.is/media/atvinnuvegaraduneyti-media/media/acrobat/vidaukaskyrsla.pdf

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more, the Sigalda power plant is being expanded by one machine with a capacityof 50 MW. It is worth mentioning that limited increased energy production ca-

pacity accompanies these projects. It is possible to expand hydropower plants

in the Þjorsa area by one machine in Vatnsfellsvirkjun, Hrauneyjafossvirkjun and
Burfellsvirkjun. All expansions over 10 MW must be processed in the Masterplan(for Nature Protection and Energy Utilization) according to current legislation (fromLandsvirkjun).

HS Orka plans to expand Reykjanesvirkjun by 30 MW without new drilling, which

will increase the power plant’s efficiency by 30%. Renewal of machinery in Svartsengi will improve efficiency by 30–50%.

A proposal has been submitted to the consultation portal for an amendment to thelaw that allows the expansion of power plants with technical changes without thisfalling under the Masterplan. As before, the changes are subject to an environmental
impact assessment of the project.

5.6.5 Energy Storage – Batteries and Heat Storage

It is necessary to be able to store electricity, e.g. to compensate for fluctuations in
its use, to meet power outages and to take advantage of fluctuations in electricity
production using different methods. Furthermore, powerful, large batteries are

suitable for storing backup power. A rapid technological development of large bat-teries has taken place in recent years, but the development of heat storage is new-er. Energy storage is feasible in Iceland. It should also be mentioned in this context
that the reservoirs of the hydro-power plants are also energy storage facilities.

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5.7 Current Projects 2022
5.7.1 ON Power Projects

The ON Resource Park is operated next to Orka natturunnar’s geothermal power

plant in Hellisheidi. In addition to carbon capture (Carbfix and Climeworks), there is a
growing utilisation of the energy flows from the Hellisheidi Plant. VAXA is operating

algea farming which generate protein and fatty acids and GeoSilica is processing silica rich water for nutritional supplements. ON is also exploring energy storage (theGeoSMART project) to improve the efficiency of geothermal energy utilisation.

5.7.2 HS Orka Projects

HS Orka Resource Park is next to the Svartsengi Plant and the Reykjanes Plant. In
Reykjanes, Stolt Sea Farm does land-based fish farming and Samherji Fiskeldi

foresees that this will yield up to 40 thousand tonnes of salmon each year. These
two companies utilise and/or have agreed on the utilisation of up to 3,500 GWh
of heat from warm waste water generated by the cooling of the HS Orka’s gen-erators. Two companies, Haustak and Laugafiskur, are working on fish drying in

the Resource Park in Reykjanes and Haustak is also overseeing biotech solutions
by utilising fish offal. These companies can process approximately 400 GWh ofgeothermal energy from the Reykjanes Power Plant. HS Orka’s Resource Park by

Svartengi houses: The Blue Lagoon (bathing resort) and the Blue Lagoon skincare
and biotechnology company and the Carbon Recycling International (CRI) industrial plant which utilised, in addition to electric energy, carbon dioxide released

from HS Orka’s energy production to produce the E-fuel methanol (4,000 tonnes/
year). The greenhouse and production facility ORF Liftaekni is located closer toGrindavik. The company produces cell growth factors (epidermal growth factors)
from protein produced in genetically-modified barley. Several companies intend

to produce E-fuel which would be located near the HS Orka plants. An example isHydrogen Ventures (H2V), an international energy company that plans to produce

large amounts of hydrogen and methanol in a similar way to CRI. In the first phase,
it is estimated that H2V’s capacity will amount to 30 MW of geothermal energy andthat in the second phase, the company’s production capacity will be increased.

5.7.3 Blami

Blami is a joint venture between Landsvirkjun, Orkubu Vestfjarda and Vestfjarda-

stofa. The main objective is to support and promote innovation and developmentof energy transition projects by increasing the share of environmentally friendly
fuels, hydrogen and E-fuels in transport and industry. The collaboration aims topromote energy- and climate-related innovation, bolster entrepreneurial efforts
and create a robust environment for innovation in the Westfjords.

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5.7.4 Eimur

Eimur is a joint venture of Landsvirkjun, Nordurorka, Orkuveita Husavikur andthe Association of Municipalities and Business Development in the North-East

to improve the utilisation of energy resources and promote innovation in energy

matters in the North-East. The aim of this collaboration is for example to support

the local economy and increase value generation with an emphasis on sustainability, green solutions, innovation and advanced technology. One of Blami’s projects
involves moving the wellboats in fish farming into electric vessels which will bebased in Bolungarvik once the Artic Fish processing plant is operational.

5.7.5 Orkidea

Orkidea is a collaborative project on innovation in the South under the auspices ofLandsvirkjun, the Association of Southern Municipalities, the Agricultural University of Iceland and the office of the Minister of Food, Agriculture and Fisheries.

The primary goal of this collaboration is to increase the generated value and clear
the way for advanced food processing and biotechnology. The collaboration aims

to strengthen innovation and research into the utilisation of green energy throughcollaboration with the academic community and the business community.

5.7.6 Grundartangi

The company Qair Iceland ltd. has signed a letter of intent at Faxafloahafnir to be
granted land for the operation of a 280 MW hydrogen plant at Grundartangi. The

company has also signed a letter of intent with three domestic electricity producers for the purchase of 85 MW of secure energy. It is estimated that the required

electricity, 195 MW, will be generated by wind farms that Qair Iceland is developing.
The production should help domestic energy transition and in light of that it has,for example, been working on an agreement with parties that focus on the devel-

opment of aircraft E-fuel. It is estimated that waste heat will be used, e.g. for aquaculture or to pump into the district heating system of the capital area. A memorandum has also been signed with Nordural on co-operation on the capture of CO2 forE-fuel production. Once domestic demand has been met, the remaining hydrogen
will be converted into ammonia and exported to Europe. In light of that, a letterof intent has been signed with the carrier, in addition to which a letter of intent

has been signed with the Port of Cuxhaven on the development of transhipment,

storage and transport of the company’s products. In connection with these agreements, Qair Iceland has become a founding member of the H2Cux project, which isa collaboration between companies, universities and institutions in the Cuxhavenarea that focuses on the utilisation of hydrogen in various sectors of the economy.
Production on Grundartangi is expected to begin in 2025, but the main uncertainty
factor is whether a permit will be obtained to build a wind farm.

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5.8 Matters of Opinion and DecisionMaking Issues
Abroad, a large part of better energy efficiency in the future is linked to lower

energy consumption in residential and commercial buildings. Decisions need tobe made on the continuation of the support that has been given to heat pumps
and the further spread of district heating utilities. There is a need to searchmore closely for geothermal energy in so-called cold regions and in the vicinity of

low-temperature areas, and ensure that sufficient electricity is available for electric
district heating when necessary. Furthermore, there is reason to review building

standards with regard to energy efficiency such as with better insulation of houses.
Utilisation of waste heat in various types of industrial production is also an important factor in better energy efficiency. In Iceland, these issues are beginningto be considered in the large metalworks plants and the work is being accelerated
successfully.

Great excess heat energy is released in thermal power plants. Various develop-

ment projects are active in making better use of it than is already being done withgood results. There is reason to be vigilant about how the progress of projects ofthis kind can be directly supported.

Hydropower plants are already working on harnessing more energy through technical changes and other power capacity increases. Energy increase projects andother planned changes to the hydropower plants largely revolve around increasing

the flexibility of the electricity network. There is reason to encourage the acceleration of the work.

Many projects are on the agenda that will reduce electricity losses in production,

distribution and transmission. These projects need to be given priority in the coming years, not least because it seems to be one of the fastest ways to increase thesupply of electricity.

Further concessions for the public and businesses for energy transition areencouraged. There is every reason to reconsider existing concessions and otherbenefits in this regard.

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6. Community and Economy
Energy Policy: Energy is the driving force behind diverse
Economic activities

6.1 Summary•

It is clear that there will be a continuing increase in demand for electricity

from energy-intensive consum and an high-energy industry will be more diversein the future. There are various plans and projects in development and many

projects have been rejected due to the state of energy issues and the lack ofelectricity and obstacles in the electricity transmission and distribution system.
•

Many current energy-intensive consum are interested in increased investments and•Various government policies are linked to the promotion of green industries

plans for growth, e.g. in smelters, data centres and in the biotechnology industry.

that use renewable energy, e.g. the Green Carpet, green industrial parks andIceland’s Export Policy.

•

There is a call for an increased supply of electricity in all parts of the country,•

Competition in the electricity retail market has increased with theincluding new industrial projects and energy transition in transport.

introduction of new entrants to the market. The lowest electricity priceavailable to households has fallen by almost 20% at constant prices from theend of 2018 to 2021.
•

Direct dividends from companies in energy production go to the owners ofenergy companies, e.g. the public through a holding in Landsvirkjun. Various
values are​​ created in society due to energy production and high-energy

industry, among the public, institutions and the business community that buy
and use energy.
•

The electricity market is divided in two. Energy-intensive consum withlong-term contracts and 78% of use and general consum (home and small
businesses and industry) with the rest.

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A spot market does not exist.

•

Iceland’s economic benefit from the utilisation of geothermal energy instead

March 2022

of oil for space heating in 2020 was ISK 109.4 billion or 4.3% of GDP, according
to figures from the National Energy Authority.

•

There are indications of lost job opportunities in various parts of the country

due to the state of energy supply or transmission. Reports have suggested that
limited access to electricity slows down wage development, e.g. in the Westfjords.

•

According to Statistics Iceland, export earnings from energy-related production

are on average around 20–25% of Iceland’s total export earnings. This does notinclude value creation due to the sale of electricity and services.

6.2 Organisation of Energy Issues in the
Energy Market
6.2.1 Management System

According to presidential ruling no. 6/2022 on the division of political issues between ministries in the Government of Iceland, the Ministry of the Environment,
Energy and Climate is in charge of energy affairs. This means that the Ministryhandles issues concerning the security of the electricity network, the electricity
market, equalisation of costs for central heating and distribution of electricity,

energy savings, energy utilisation and energy transition, eco-design of productsthat use energy and energy labelling. The Ministry also handles various other tasks
defined in the Electricity Act, No. 65/2003.

In accordance with the Act on the National Energy Authority, No. 87/2003, as well as
the Electricity Act, the National Energy Authority works on electricity issues under
the supervision of the Minister of the Environment, Energy and Climate. The NEA

shall monitor that companies operating in accordance with the Electricity Act meetthe conditions that apply to the operations. Furthermore, the NEA sets revenue

limits for the transmission system operator (TSO) and distribution utilities in order toachieve efficiency in their operations. The Electricity Act also provides for the Competition Authority’s supervision of the economic activities covered by the Electricity Act.
The Electricity Act also stipulates that the NEA grants licenses for electricity

production (Chapter II), licenses for the operation of the (TSO) (Landsnet) (Arti-cle 8), licenses for the construction of transmission infrastructure (Articles 9 and

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March 202211), licenses for to construct and operate a distribution network (Article 13) anda license to conduct electricity trade (Article 18). The NEA’s decisions regarding

licenses to build transmission infrastructure that have not been discussed in the
Systems Plan, licenses to grant power plant permits as well as licenses to build
independent transmission infrastructure and transfer electricity directly frompower plant to users can be appealed to the Environmental and Natural Resources
Board of Appeal. Decisions to grant licenses under the Electricity Act concerning

the approval of the Systems Plan, licenses for the operation of the (DSO) and theTSO, as well as licenses to conduct electricity trading, can all be appealed to theElectricity Judical Committee. Licenses under the Natural Resources Act, the Act

on the Icelandic State’s ownership of the seabed and the Hydrocarbon Act can beappealed to the Environmental and Natural Resources Board of Appeal.

Activities Subject to Exclusive Licenseand Monitoring by the National Energy Authority
Producers of Electricity
Landsvirkjun, Fallorka,
ON, Orkusalan, Orkubu
Vestfjarda, HS Orka andvarious smaller entities.

Energy Transmission
Landsnet

Electricity Distribution

Veitur (capital area andvicinity), HS Veitur (Reykjanes,
Hafnarfjordur and Gardabaer
in part), Orkubu Vestfjarda(Westfjords), Nordurorka(urban areas in Eyjafjordur),and RARIK (rural areas).

Electricity sales,
retail and wholesale
Fallorka, HS Orka, Orka
heimilanna, ON, Orkubu
Vestfjarda, Orkusalan,Straumlind, N1 rafmagn
and Landsvirkjun.

Competition

Free and Open Market for
the Production and Sale ofElectricity.

Figure 26. The Energy Market.

			

Source: Landsvirkjun.

6.3 Energy Market
With the enactment of the Electricity Act, a distinction was made between compe-

tition and exclusive license aspects, which meant that companies involved in these
activities had to be split up. Landsvirkjun, HS Orka and Orka natturunnar sell electricity to energy-intensive consum, with direct agreements between processors

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and consum. In the wholesale electricity market there is little direct competition.

As Landsvirkjun is the most active company in it. Many other electricity producers
also engage in retail but almost all of their electricity goes to serve their customers and therefore they have little left for the wholesale market unless they buy

it from Landsvirkjun. Thus, it can be considered that indirect competition exists

in the wholesale market, where new power plants of other electricity generationcompanies, HS Orka and Orka natturunnar, can meet part of the demand that waspreviously met with acquisitions from Landsvirkjun. Increased demand for electricity in recent years has, however, put a lot of pressure and increased consum

competition for electricity. The market is growing and the demand of larger con-sum for renewable electricity has increased so much that it could affect the energy
security of the public and smaller companies for a secure supply of energy. The

situation now is that there is a lot of competition between general consum in themarket and energy-intensive consum.41

Overview of the Electricity Market in Iceland

The National Energy Authority has a supervisory role in the electricity market in accordance with law

Production
Competition

Transmission
Exclusive License

Wholesale
Domestic Competition

Distribution

RetailExclusive License

Competition

EnergyIntensive
Consumers
International
Competition

Figure 27. The Energy Market.



Source: The NEA and Landsvirkjun 2021.

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6.3.1 Transmission System

Electricity transmission is a concession operation and according to the Electricity

Act, one company shall handle the transmission of electricity and system manage-

ment. That company is Landsnet hf. which was established by the Act on the Establishment of Landsnet hf., No. 75/2004, but the company formally began operations
on 1 January 2005.

The electricity transmission system is now entirely in the hands of the DSO Landsnet hf. Landsnet’s owners are Landsvirkjun, RARIK, Orkuveita Reykjavikur andOrkubu Vestfjarda. By far the largest electricity producer, Landsvirkjun, has han-dled wholesale to sales companies and sales to energy-intensive consum. In recent
years, Orka natturunnar and HS Orka have also started electricity production for
power-intensive industry consum, and even more electricity production can be
expected in the coming years.

2021

Power plant

Main transmission system
220 kV132 kV

Figure 28. The Transmission System. 	

66 kV

Regional transmission system
33 kV

Source: Landsnet.

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6.3.2 Distribution System Operators (DSOs)

The distribution of electricity through the distribution system to buyers is a concession activity according to the Electricity Act. A license is required to build andoperate a distribution system in a specific distribution area as well as to ceasesuch operations. The DSO handles the distribution of electricity and system man-agement in its distribution area and is intended to maintain, improve and build the
distribution network in an efficient manner, taking into account the safety, efficiency, reliability of delivery and quality of electricity.

The following concession companies are electricity distributors:
RARIK ohf.: electricity distribution and district heating in the countryside.
Veitur ohf.: energy distribution, district heating, water supply and wastewater inthe capital area.

Orkubu Vestfjarda ohf.: electricity distribution and district heating in the
Westfjords.

HS veitur hf.: electricity distribution, district heating and water supply in Southern
Peninsula and the Westman Islands.

Nordurorka ohf.: energy distribution, district heating, water supply andwastewater in North Iceland.

Figure 29. DSOs. 		42

Rafveita Reydarfjardar is now Rarik.

Source: Orkustofnun (The National Energy Authority) 42

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6.3.3 Electricity Sales

The sale of electricity is a competitive operation according to the Electricity Act.
Users can choose the retailer of their choice, but must do business with the dis-tributor in the relevant area regarding the distribution of electricity and at a priceaccording to the tariff of the distributor in question.

Competition in the electricity market has been legalised in stages according to theElectricity Act. From 1 January 2006, all electricity users had the right to choose anelectricity seller.

New retailers have started operations in recent years, N1 rafmagn, Straumlind andOrka heimilanna, thereby joining the group of retailers in the Icelandic electricity
market. There are therefore eight retailers in Iceland. The other companies are
Orkusalan, Orka natturunnar, HS Orka, Fallorka and Orkubu Vestfjarda.

6.4 Benefits of Competition – Price Trends
In an audit by the Ministry of Industry43 from 2010, it was stated that in the earlyyears of competition there was a real reduction in prices to the public. The priceof electricity to the general public and companies is still lower than the adjusted
price (with the consumer price index) since before the opening of the market in2005. Efla also analysed electricity prices and the development of competitionin the electricity market for the Ministry of Industries and Innovation in 2015. It

stated, among other things, that changes made to the system in 2003 had resulted in fairly stable electricity prices in the general market and that competitionin electricity sales had given companies in the production and sale of electricity
restraints.

Many larger companies and public institutions have in recent years tendered forthe purchase of electricity, and competition between retailers has increased withsuch tenders. Thus, the retailers have offered larger companies discount terms andtherefore the benefits for electricity consum from such tenders have increased.

Such competition has been achieved despite the fact that almost only one entity

is engaged in wholesale in the electricity market. In recent years, new companies
have started operating in the electricity retail market. With the introduction ofthese parties to the market, competition for consumers has increased significantly. At the same time, it can be asserted that with the introduction of the choice ofretailer for last resort and the enactment of the Regulation on Electricity Tradingand Measurments, the battle for consumers really began. At the enactment of theRegulation on Electricity Trading and Measurements, No. 1150/2019, the NEA was43

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given the role of nominating a specific company as a retailer for last resort on thebasis of, among other things, the lowest price. Despite the fact that the main goal ofthis last resort trade is for consumers to receive electricity despite not having chosen an electricity seller, such an arrangement has created incentives for increased

price competition in this market. In 2017, 370 households changed sellers, according

to Efla’s report on electricity prices and the development of competition, which was

published in 2019. According to information from Netorka, seller changes for the year
2021 were much more frequent.

6.5 Gain from Energy Resources
Iceland’s Energy Policy aims for the nation to enjoy, directly or indirectly, thebenefits of the country’s energy resources. The value creation of society is, among
other things, in the form of export revenues from high-energy industries, electric-

ity sales and dividends from publicly owned energy companies. In the case of wind
power, the vast majority of cases are privately owned companies that are inter-

ested in establishing long-term energy production in Iceland. Many of the power
development options submitted for the hydropower and geothermal Masterplan(for Nature Protection and Energy Utilization) are also from privately owned companies. Both public and private parties seek to get a return on their investment

in energy production. When there is equality between parties in the market, it islikely that the return on total capital and return on equity is similar between public

and private parties, provided that the capital structure in general and interest terms

are also similar between parties. The nation’s benefit from energy resources, however,is only to a small extent measured by the return on equity in energy production.

It must be noted that the basis of commercial companies is to create value for
their customers, and the same applies to energy companies. Households andgeneral consum in Iceland have e.g. been fortunate in terms of living with relatively
low energy prices for both geothermal heat and electricity, which has been one of
the key aspects of living standards in Iceland. Energy used in economic activities

in all kinds of production processes of goods and services plays a part in the value
creation of the economy, which is spread throughout society through employees’

wages, dividends, interest payments and tax payments in addition to the benefits
created by buyers of the goods and services in question. Thus, the benefits of energy production and energy resources are distributed to the entire nation.

If the energy market is open and new producers can enter it and the existing ones

can increase their production, there is less reason to expect a profit to be generated in the operation that exceeds what is generally customary in economic activi-

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ties, given the nature and risk of the operation. Excess profits in the energy sector
that are not distributed normally to the nation occur first and foremost when

limiting factors arise and the path to increased supply into the market is not easy
enough.

In the case of wind power in particular, there is no excess profit generated due

to lack of wind because it is not depletable, no matter how much is taken. Excess

profits could potentially be generated if land use for wind farms is so limited thatthe value of land under wind farms increases significantly (which is rather unlikely as e.g. 100 square kilometers under a wind farm is 0.1% of the area of Iceland).
​​Further more, if licenses for wind farms become so limited that they create special
opportunities for excess profits. It will also be tested whether the reluctance toissue power development licenses due to public policy or other reasons createssuch a situation.

In other respects, there is no need to worry about the benefits of energy production outweighing other economic activities. It must also be borne in mind that

Icelandic energy producers are in competition with foreign producers, despite thefact that the electricity networks as such are not interconnected.

6.6 Heating Utilities and Their Value
Geothermal district heating utilities replace district heating utilities with electricity or fossil fuels. Iceland’s economic benefit from the utilisation of geothermalenergy instead of oil for space heating in 2020 was ISK 109.4 billion or 4.3% of GDP,according to figures from the National Energy Authority.

6.7 Transmission Losses
Transmission loss is the electricity lost due to natural resistance in power lines

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March 2022

system is lost on the way to consum. This electricity corresponds to about 400

GWh/year, which is equivalent to the production of Krafla Power Station or electricity consumption of about 150,000 electric cars in one year. According to theElectricity Act, No. 65/2003, Landsnet is required to provide electricity to replace

what is lost in the system. As a result, Landsnet requests two types of products on
a quarterly basis.44 One of these is base transmission loss with maximum utilisation time and the other is additional transmission loss with variable utilisation
time and flexibility.

Average Prices of Transmission Losses by Quarter
8,000
Average electricity price (ISK/MWh)

7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Q1

2014

2015

Q2

2016

2017

Q3

2018

2019

Q4

2020

2021

Figure 30. Average Energy Prices. 	

2022

Source: Landsnet.

In order to be able to participate in electronic tenders for electricity due to transmission losses, electricity retailers must enter into a framework agreement with

Landsnet. However, a framework agreement does not oblige companies to partic-

ipate in the tenders, as it is the choice of each retailer each time. Today, there are
6 electricity retailers who have a framework agreement with Landsnet: HS Orka,Íslensk orkumidlun (N1), Landsvirkjun, Orka natturunnar, Orkusalan and Straumlind.
For the first quarter of this year, about 98 GWh of electricity was tendered, whichis the electricity that is expected to be lost in the transmission system during thequarter.

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Landsnet’s tender market for electricity due to transmission losses is now in many

respects the most open and competitive market for electricity in Iceland. Although
there are hints of oligopoly. Electricity is now scarce, which meant that only one

party participated in Landsnet’s last tender. Figure 30 shows the development ofelectricity prices in Landsnet’s tenders by quarters from 2014.

In a recent tender for electricity due to transmission losses for the second quarterof this year, Landsnet requested a bid for over 89 GWh, but only received a bid forabout 3% of the electricity.

As previously stated, Landsnet is obliged to purchase electricity due to trans-mission losses, but the market does not meet that need, i.e. there is not enoughquantity available.

On this occasion, it is worth recalling that since its establishment, Landsnet has

drawn attention to the fact that it is not clear who is responsible for the availability of sufficient power and energy in the country. That uncertainty is still present
and it is important to get it resolved.

6.8 Industry and Economy
Three main currents affect the demand side of electricity. Energy transition (1),industry and export activities (2) and community and general use (3).
Driving forces of energy demand1

Engergy transition

1.

2

3

Industry and economy

Community/general use

Energy transition is a prerequisite for achieving Iceland’s climate goals.

Successful energy transition drives demand for renewable energy and acontraction in fuel imports in turn.

2.

High-energy industry now generates about a quarter of export revenue and is
one of Iceland’s most important export pillars. According to Iceland’s Energy

Policy until the year 2050, energy should be the driving force behind a variety

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of economic activities. High-energy industry has developed in Iceland inrecent years and diversity has increased, among other things with the adventof data centres in this country. It is anticipated that more energy-intensive

consum of electricity will be added in the coming years, examples include theboom in food production, the biotechnology industry, salmon farming on land
and the data processing industry.
3.

Community/general use. The development of general use will depend on otherdevelopments, cf. population growth, economic growth and plans in otherareas. Reference is made here to energy forecasts, e.g. Orkustofnun’s basic

energy forecast, which sets out in detail the assumptions for the developmentof the general market.

6.9 Export Revenue and Value Creation
Export revenue from high-energy industries, aluminum, aluminum products andferrosilicon amounted to ISK 308.4 billion in 2021. Revenue increased significantly

from 2020, partly due to higher product prices and increased production. According
to an analysis by the Federation of Icelandic Industries in 2019, the aluminum

industry’s contribution to the economy amounted to ISK 1,150 billion over a 50-

year period, of which the indirect contribution of aluminum production in Icelandamounted to ISK 880 billion during the period. The export revenue of the data

centre industry, direct income from services to data centre customers, is estimatedat ISK 15–20 billion per year. This does not include indirect export revenues due tothe operation of data centres, due to increased trade in information technology
and telecommunications.

The electricity network has been developed in parallel with the developmentof aluminum production in Iceland. There has also been a great deal of asset

formation by energy companies in recent decades, which are for the most part
publicly owned. Landsvirkjun’s Financial Statements for 2021 state that thecompany’s operating income increased by over 23% from the previous year and has
never been higher. Landsvirkjun’s announcement stated, among other things, thatthe improved profit can be entirely attributed to an increase in revenue from sales
to energy-intensive users.

Various policies and projects on behalf of the government, in collaboration withstakeholders and the business community, are related to energy utilisation andenergy-related activities.

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Export Policy (2019).

•

Declaration of intent by the government, power-intensive industry and OR on•

Green Industrial Parks (2021).

•

The Green Carpet (2021).

•

Regional Development Plan 2018–2024.

March 2022

carbon purification and sequestration (2019).

Long-Term Policy for Icelandic Export Industries

In the autumn of 2019, a new future policy of the government and the business

community for Icelandic exports was presented, which was prepared by Business
Iceland.45 The policy is based on six strategic emphases. One of them is Energy

and Green Solutions. It states that energy from renewable resources is a growing
value that has, among other things, attracted new foreign investment to Iceland.
Knowledge and experience in the field of renewable energy also create export
value for Iceland. Emphases in this area includes Graenvangur, a collaborative

platform on climate issues and green solutions. Emphasis is also placed on data
centres and other high-energy operations, energy transition, utilisation of windenergy/tides and multi-use of chemical and energy flows of geothermal plants andthe waste heat industry. The government’s Tourism Policy is in place and there arepolicies that cover energy and energy efficiency.

Letter of Intent by the Government and Power-Intensive Industry

On 18 June 2019, the government, representatives of power-intensive industry
and Orkuveita Reykjavikur signed a letter of intent on carbon purification andsequestration. According to the letter of intent, it should be thoroughly investigatedwhether a method called "CarbFix" can be a viable option, both technically andfinancially, to reduce carbon dioxide (CO2) emissions from power-intensive industry

in Iceland. Furthermore, each company will seek ways to become carbon neutral by

2040. Emissions from aluminum production are the lowest in Iceland, and emissions
per tonne in Icelandic smelters have fallen by 75% since 1990.
Green Carpet and Industrial Parks

In 2021, the government launched two ambitious projects, the Green Industrial

Park and the Green Carpet. Their goal is to promote green new investment in theeconomy.46

45
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The Green Carpet is a collaborative project between the then Ministry of Industry
and Innovation (MII) and Business Iceland, formulated in extensive consultation
with business development associations in all parts of the country, where thegoal is to improve services and the environment for new investment projects andmake processes more continuous, simpler and more efficient. to operation. Thisis a follow-up of the government’s detailed policy-making in the field of exports,
innovation and energy, as well as increasing value creation and increasing thenumber of jobs in a sustainable manner. The project also involves the Associationof Local Authorities in Iceland and representatives of ministries and key
institutions involved in the process of investment projects.

Green Industrial Parks are a joint project of the then Ministry of Industry

and Innovation, Business Iceland, Landsvirkjun and Nordurthing on Iceland’s
opportunities in the field of green industrial parks and as previously stated,

Landsvirkjun and Nordurthing are already examining the construction of a green

industrial park at Bakki by Husavik. In order to maximise this synergy and highlight
opportunities for the development of green industrial parks and cycle solutions inmany parts of the country, it was decided to carry out a joint project in which the
Ministry and Business Iceland take an active part.47

The Regional Development Plan, a parliamentary resolution on a strategic Regional
Development Plan for 2018–2024, was submitted to the Parliament and approvedon 11 June 2018. Various emphases in the field of regional affairs are stated in the
Regional Development Plan, including:•That electricity transmission and distribution systems meet the needs ofthe economy and the general public throughout the country in terms oftransmission capacity and security of supply, and the benefits of small power
plants will be examined.
•

The use of enovironmentally friendly energy instead of fossil fuels will be
encouraged.

Among the measures in the action plan is the development of infrastructure forrenewable energy on land and in ports, but the goal is to reduce greenhouse gas

emissions and increase the proportion of environmentally friendly energy sources.

47

https://www.islandsstofa.is/frettir/graenir-idngardar-a-islandi-1

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6.9.1 Future Growth

Scenarios of society’s additional energy demand until 2050 do not provide forincreased electricity consumption or future plans for energy-intensive electricity
consum in Iceland.

There are currently ten energy-intensive consum in Iceland:•

3 aluminium smelters•

2 silicon smelters•

1 capacitor plant•

4 data centres

According to Landsvirkjun, the company’s customers generally intend to continue
operating in Iceland and have secured electricity for their operations for the

next few years and decades in some cases. Landsnet agrees with this and statesinterest and plans for growth among current customers such as data centres andaluminium smelters.

Landsnet also points out that a variety of industries have approached thecompany regarding connections to the transmission system in recent months.

There are plans and interest in food production, algae cultivation, biotechnology,
aquaculture and green cement production. There are also plans for hydrogenproduction and interest in building new data centres.

Based on the plans for development, inquiries and demand that energy producers
and transmission companies have on their hands and the plans of municipalities
all over the country, all indications are that the diversity of energy-intensive
electricity users will increase significantly in the future. Main industries:
Current energy-intensive consum:

•

Metal

•

Silicon•

Data centres

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Potential energy-intensive consum:•

Hydrogen production/E-fuel•Food production and high-tech foodstuffs•

Biotechnology•

Algae cultivation•

Aquaculture on land•

Cement production

According to Landsnet, around 14 companies are actively developing and preparing
for connection to the transmission system and their total power demand is in therange of 600–1300 MW. For comparison, energy-intensive consum today have a

total power consumption of around 1900 MW. There are six companies that are wellunderway in development and their power demand is in the range of 60–90 MWwith projects that are planned for operation in 2022–2025.

Projects related to aquaculture and hydrogen production aim for operation in
2026–2030 and their total power demand is in the range of 450–1100 MW.
Among the projects in preparation:•

Landsvirkjun’s and Rotterdam Port Authority’s project on hydrogen production•

Landsvirkjun’s, CRI’s, Elkem’s and Þrounarfelag Grundartanga’s project on•Samherji’s and HS Orka’s project on 40 thousand tonnes of aquaculture on

by electrolysis. Power demand in the range of 200–400 MW (before 2030).

inspections of green methanol production. Power demand is not available.
land in Audlindagardur in Reykjanes.

Lost Opportunities

Both Landsvirkjun and Landsnet, along with a number of municipalities, stated intheir responses to the working group that a number of projects had to be rejected
in recent months due to the state of the transmission system and/or the lack ofsupply of electricity. News of lost job opportunities due to the limitations of the125

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energy network has reached the government from many sources. The working
group has received resolutions and statements that report on this, e.g. fromthe board of Vestfjardastofa and the town council of Reykjanesbaer. This has

also been reported in North Iceland (from Eyjafjordur). Landsnet has assessedthe value of lost opportunities due to inquiries received by them in the years

2018–2021. Based on more moderate scenario, Landsnet’s assessment is that sixof the aforementioned projects would most likely have been realised if Landsnet’stransmission system had not run them aground. Their power demand is in therange of 150–200 MW. To put this in context, it equates to the total activity of data
centres and the annual energy sales alone of such activities would most likely

be in the range of ISK 4–6 billion.48 Not to mention other value creation, jobs andexport earnings. Numerous examples could be added. According to Landsnet’s

statistics, a total of 108 inquiries have been received during this period regarding
connections from producers, electricity brokers and energy-intensive consum.

More than half of them were from energy-intensive consum, or around 60. Of these,it could be assumed, according to Landsnet, that 27 would have been realistic,

with a total power in the range of 500–900 MW, if bottlenecks in the transmission
system had not caused applications to be rejected.
Metal Production

Revenue from exports of aluminum, aluminum products and ferrosilicon was ISK

308.4 billion in 2021. This amounts to just over 39% of Iceland’s total revenue fromexports of goods that year. This underlines the importance of the industry for thenational economy. Revenue increased significantly from 2020, when they were ISK
224.3 billion, both due to higher product prices and increased production.

In 2021, the expansion of Nordural’s factory in Grundartangi was announced, a

new cast house that is planned to be put into use by the end of 2023/2024, which

includes increased electricity consumption in the coming years by 10 MW annually,
according to information from Nordural.

Data Centres and Information Technology

The fourth industrial revolution is powered by electricity, the amount of data isconstantly increasing globally, and in parallel with the increase in the amount of
data, the demand for data processing and hosting, and consequently the energy
and services of data centres, is increasing. The data centre industry in Iceland
generates around ISK 15 billion in direct export revenue. Not to mention theunintended effects of data centre operations, including increased demand forthe services of telecommunications companies and companies in software andinformation technology.

48

https://www.landsnet.is/um-okkur/utgafa-og-samskipti/frettir/stok-frett/2021/09/16/Saga-um-glotud-taekifaeri/

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The data centre industry gained ground in Iceland over a decade ago. Today, there
are 5 data centres in Iceland and other companies operate smaller data centres.
Four of these data centres fall under the definition of energy-intensive consumof electricity with a consumption of more than 10 MW. Numerous IT companies in

Iceland, along with telecommunications companies, provide data-related services
and advice to customers of Icelandic data centres.

Recently, a marketing project was launched where the Icelandic data industry

and stakeholders have joined forces for the first time and marketed Iceland as an

ideal place for hosting and processing data. Participants in the project include the
Association of Data Centres, IT companies, Orka natturunnar, Farice and Landsvirkjun.
Business Iceland handles the implementation and operation of the project.

A new telecommunications submarine cable is also being prepared as the

Icelandic state decided to finance the construction of a new telecommunications

submarine cable in September 2020. The cable, which will be owned and operated
by Farice ehf., a company wholly owned by the Icelandic state, will be called IRIS
and will lie between the southwestern part of Iceland and Galway in Ireland

and will be the third telecommunications cable connecting Iceland to Europe.
It is planned to take the cable into use before the end of 2022. The new cable
opens up many opportunities for the data centre industry in Iceland, and anincrease in demand for electricity can be expected in the coming years due to

new business and opportunities that it entails. It is clear that there is a strong will
for continued development in the data centre industry in Iceland with the laying
of a new telecommunications submarine cable and a marketing project between

stakeholders and Business Iceland to attract more and more diverse customers to
Icelandic data centres.

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FARICE-1

Reykjavík

DANICE

IRIS

Ballerup
DublinHamborg
Amsterdam
Frankfurt

LondonBrusselFigure 31. Telecommunication Submarine Cables.

Biotechnology

The biotechnology industry is a recent industry in Iceland, but many companies inthat field have been growing in recent years. The biotechnology company Algalif
uses, e.g. electricity for the cultivation of microalgae at Ásbru in Reykjanesbaer.
In 2021, it was announced that the company intends to more than triple its

production in the next few years, and the energy demand after expansion is

expected to be around 15–18 MW. It is therefore anticipated that the company will

be added to the group of energy-intensive consum of electricity within a few years.
Food Production

Increased domestic food production, including the development and productionof high-tech foodstuffs, will require increased electricity in the coming years.
An example of projects that have been launched in this field is Orkidea, acollaborative project on innovation in South Iceland. Participants are Landsvirkjun,
the Association of Southern Municipalities, the Agricultural University of Icelandand the Minister of Fisheries and Agriculture (now the Minister of Food, Agriculture
and Fisheries). Orkidea is about building energy-related opportunities in South
Iceland in food production and biotechnology.

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Batteries

The number of electric cars is increasing rapidly, which calls for increased

production of batteries. International battery companies look for suitableproduction sites in Europe, and in Landsvirkjun’s opinion, Iceland has a lot to offer
companies that produce batteries. Battery production uses a lot of energy, islabour intensive and requires a large area, so in Landsvirkjun’s opinion there are
optimal conditions for such production in Iceland.
Aquaculture/Salmon Farming on Land

Fiskeldi Ölfuss is preparing the operation of a fish farm that will be able to produce
about 20,000 tonnes of farmed salmon per year on a 200,000 square meter plotnear Þorlakshofn. The company Landeldi is also well on its way to preparing forsalmon farming with an annual production capacity of up to 20,000 tonnes at laterstages.

Hydrogen and E-fuel – Also Related to Energy Transition

Numerous projects related to the production of hydrogen and electric fuels are

currently being prepared. An example of this is a 300 MW hydrogen project in the

Northwest. Refer to section 4.3.7. regarding an overview of development projects
in this field.

6.10 State of Energy Affairs in Regionsof Iceland
Electricity is one of the basic infrastructures of the country and one of the mainprerequisites for rural development and economic development. The following

is a brief summary of the state of energy issues in individual regions, but the list
is not exhaustive. At a meeting of representatives of the local area associationsof municipalities with the work group and in submissions, a clear call was made forincreased electricity supply and strengthening of the transmission system due toenergy transition and various opportunities for job creation throughout the country.

6.10.1 South Iceland

There is limited transmission capacity in South Iceland, especially in the easternpart of the South. The local area association has made suggestions regarding

Landsnet’s plan for strengthening that area in particular. Job opportunities inSouth Iceland include horticulture, grain processing, new protein sources, sea andaquaculture, aquaculture and freeze-drying of food. Numerous projects are underdevelopment that require over 10 MW of energy. South Iceland calls for a holistic
strategy for wind farms.

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6.10.2 Westfjords

The NEA’s electricity forecast is not thought to capture positive changes in

the Westfjords. According to the Westfjords’ expansion plan, there are growthindustries in the area, e.g. aquaculture, tourism, fisheries and energy-related

activities. Energy-related activities will grow in line with this development. In the

coming years, energy demand will have to be met for the calcareous marine algae
factory in Sudavik, packaging production for aquaculture and energy transition.

Hvalarvirkjun is the furthest along in preparations in the area. A wind power plant
in Garpsdalur in Reykholasveit is also being prepared. The National Association

has made detailed proposals for improvements to the area’s transmission system,
which has been a barrier to development.

6.10.3 Northeast Iceland

A feasibility study for bioenergy plants in the area is being carried out, and the
Association of Local Authorities and Business Development in the North East

(SSNE) believes that support for the development of such power plants should beseriously considered. The electricity transmission system is the area’s concern,as the transmission system in the North is the oldest part of the regionaltransmission line and not in line with modern requirements. SSNE believes thatby renewing the transmission network from Hvalfjordur to Fljotsdalur, it would
be possible to ensure electricity security in the main transmission networkand reduce losses. It is also stated that work and preparations for the laying of

Blondulina 3 have been going on for a long time and little progress has been made.

The decision-making process of such projects is cumbersome and there is reason to
examine the possibility of simplifying the process and facilitating decision-making.

6.10.4 Northwest Iceland

Electricity shortage hinders development in the region. Energy transition in thearea’s base industries, agriculture and fisheries, is not far along. Efforts are being
made to attract larger investment projects to the area with the aim of increasing
jobs and increasing economic growth, but electricity for these projects is not

currently available. The expansion of the Blanda power plant has stalled on thetransmission system, but municipalities in the north-west have emphasised thatthe expansion of the power plant will be undertaken and that energy will be

used in the area. It is emphasised that the options for electricity production thathave been examined will be implemented and that the electricity will be used for
economic development in the region. According to SSNV, it can be estimated thatin the next 5–10 years the area’s additional power demand will be around 400–600
MW. There are also ambitious plans for industrial parks in the region that require

more electricity as well as an increase in car charging stations and electrification

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of ports, in addition to general energy transition. Efforts are being made toincrease the number of energy-intensive electricity consum in the area and tostrengthen industry. The Northwest has missed out on a number of opportunities
that can be directly attributed to weaknesses in the electricity transmission anddistribution networks.

6.10.5 East Iceland

Fjardaal is the largest electricity user in East Iceland with over 90% of the area’s
electricity consumption. Electricity sales of renewable energy have grown inrecent years with the electrification of fishmeal factories. There are opportunities
in heat production in East Iceland, but it is considered both technically possible

and financially viable to recycle heat from Fjardaal’s potroom. The thermal energythat can be captured is estimated to be around 20 MW. Representatives of local

authorities in East Iceland also report on opportunities for biofuel production in
the area.

6.10.6 Greater Reykjavik Area

The Association of Municipalities in the Capital Area is working on a climate policy
for the capital area. In parallel with the policy, a summary was presented of themain measures taken by the state and institutions in the capital area that could

lead to a reduction in greenhouse gas emissions. The project is part of the capitalarea’s expansion plan. The capital area’s land-use plan sets out a clear policy on
the competitiveness of the area on the basis of efficient land use and efficienttransport. The lynchpin is the development of a high-quality public transportsystem that supports changed travel habits and improved land use.

6.10.7 West Iceland

In Dalabyggd, it has been considered to build wind farms under the auspices ofprivate parties and this project is in the planning process. There has also been

talk of building a wind farm in Borgarbyggd. It has also been considered to use

waste heat at Grundartangi to produce electricity and E-fuel. It is pointed out thatdelivery security needs to be improved and reserve power built up in the West, andthat trunk line and distribution networks need to be strengthened.

6.10.8 The Southern Peninsula

In the Southern Peninsula, two large data centres are operated and great emphasis
has been placed on Sudurnesjalina 2 for development in the area. A feasibility

study has been carried out on a green industrial park in the Southern Peninsula.
There are also biotechnology companies operating in the Southern Peninsula,

including Algalif, which will be added to the group of energy-intensive electricity
consum in the coming years.

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6.11 Matters of Opinion
and Decision-Making Issues
There is a lack of a clear political vision for the future of high-energy industry in

Iceland. Various policy-making at the government level calls for increased energy,
for example the Green Carpet. High-energy industry generates about a quarterof Iceland’s export revenue and there are many future opportunities for diverse
development across the country. Uncertainty about the electricity supply andthe status of the transmission network is already limiting development and it isimportant to increase predictably in the future.

The state of the electricity market has long been that there has not been muchconcern about the supply of electricity for general use by households andcompanies. Developments in recent years, however, show that the situation may
arise that the supply of electricity will not be able to meet demand and that thismay particularly affect consum in the general market. Demand for electricity inthe general market has grown in recent years without the market reacting in asignificant way, i.e. changes in the energy balance have had a limited effect onchanges in pricing. From this it can be deduced that messages from the market

have not found their way into society. The work group’s report on energy security
in the wholesale market points out that various ways can be taken to ensure abalance between supply and demand. On one hand, ways to increase the efficiencyof the wholesale market with electricity. On the other hand, a regulation thatprimarily deals with clarifying the responsibilities and roles of the government

and market participants and giving the government the authority to respond isnecessary to ensure that the supply of electricity can meet demand. According to

EEA rules, such authorisations will generally not be applied unless it is clear that themarket cannot guarantee adequate security. However, special considerations apply
to households and small businesses that may be subject to universal service rules.
All over the country, municipalities and companies are investing money andeffort in the development of the economy, which calls for increased electricity. It

is necessary for all these entities to receive a clear message from the government,
electricity producers, Landsnet and distribution utilities about what future

expectations for electricity supply and transmission can be based on. It must be

ensured that the municipalities, companies or associations concerned are consulted.
Institutions that handle the administration and licensing of energy projects musthave the capacity to process applications efficiently and with professional ability.

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7. Environment and Nature
Energy Policy: Nature conservation is taken into accountin energy use

7.1 Summary•

Opinions are divided on how wind energy should be included in the current
regulatory framework, i.e. whether it belongs in the Masterplan (for Nature

Protection and Energy Utilization) or should be processed by another type of
implementation.
•

Opinions are divided on whether hydropower and wind power plants with apower range of approx. 1–2 MW to almost 10 MW shall be classified according to
the Masterplan as small power plants due to environmental impact.

•

Opinions are divided on how to achieve energy transition, e.g. how muchelectricity is needed for it and on where and how additional energy should be
procured.

•

There are indications that the licensing process is time consuming. Various•

The preparation of larger power plants usually takes 10–15 years. In electricity

improvements await processing by the Parliament.

distribution networks, underground cables are usually used. The transmission
network has other and in some cases more technical, environmental andfinancial challenges related to underground cables.

•

There is a call for a review of communication processes for preparation andlicensing on the basis that the public is guaranteed access in accordancewith the obligations of the Aarhus Convention without leading to excessive

delays in construction. It needs to be examined whether it is possible to build
on a realistic model of the timeframe for the progress of public processes

where the legal status of the public is guaranteed. It is also stated that public

institutions will be strengthened so that the handling of predictable tasks will
be more efficient and a precaution rule in environmental law will be ensured.

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The Parliament has not approved a Masterplan (for Nature Protection andEnergy Utilization) since 2015. It is necessary to cut the knots that have formedin the handling of the Masterplan or to find another arrangement that resultsin improved processing of energy projects.

•

An updated energy transition plan needs to be presented in the light of the•

A proposal for a parliamentary resolution on a revised National Planning•

The sooner a bill on wind energy is submitted for consultation and

2021 government agreement.

Strategy needs to be passed.

consideration by the Parliament, the more likely it is that the bill will be fully
approved during the current electoral term.

7.2 Energy Policy and Environmental Issues
7.2.1 Uniqueness of Iceland

Energy acquisition is an important factor in the utilisation of Iceland’s natural
resources, which has diverse energy resources in large areas of the country.

Furthermore, Iceland is characterised by a unique nature and landscape that has ahigh conservation value. Utilisation of regional energy resources therefore weighsheavily in the important strategy of seeking a balance between utilisation and

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nature conservation. The urban structure, largely coastal and sparsely populated

inland, means that the diverse and in many ways unique nature is brought forward in
the wilderness. The wilderness currently has a clear economic value as such, but isalso the site of many of the main hydropower and geothermal areas in the country.
In recent years, there have also been plans for wind energy and tidal options. The
demand for electricity is high and growing, mainly due to energy transition andsocietal growth, and there are many indications that the demand for electricity
in Iceland has never been higher. Climate action is directly related to energy

transition and, in turn, to electricity generation in the coming years and decades.

This development is causing a wider debate and a significant difference in opinion insociety about the extent to which electricity should be generated, where, how andin what kind of pace with societal development, both economically and socially, in
addition to the state of technology and nature conservation.

7.2.2 Main Targets

The current Energy Policy has three main environmental targets: That consideration
is given to nature conservation in energy utilisation, the environmental impact

of projects at power plants and transmission networks, as well as operations, isminimised and the utilisation of energy resources is sustainable. The content of thetargets includes compliance with laws, international agreements and law-related

regulations on energy utilisation, as well as seeking a balance between the utilisationof natural resources and nature conservation with the least possible environmental
impact. The results of the environmental impact assessment of the plans andprojects that emerge from that work shall also be followed, taking into account andassessing the sustainability of energy utilisation, all three aspects of sustainability.
Furthermore, the precaution rule in environmental law should be respected.

7.2.3 The Masterplan (for Nature Protection and Energy Utilization)
The Act on the Plan for the Protection and Energy Utilisation of Land Areas(Masterplan (for Nature Protection and Energy Utilization)) from 2011 (48/2011)

aims to ensure that the utilisation of land where power development options areavailable is based on long-term perspectives and a comprehensive assessment ofinterests. It will take into account the conservation value of nature and cultural

heritage, the efficiency and profitability of different utilisation options and othervalues that​​
affect the national interest, as well as the interests of those who
use these same qualities with sustainable development in mind. The project

management submits phase proposals to the Minister and the government, thento the Parliament for discussion and processing. Emphasis on nature conservationis reflected in e.g. a special conservation category that around 170 power

development options are ranked in at this point. In the current conservation

category of Phase 2, there are now 20 power development options (11 hydropower

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options and 9 geothermal options). A total of 10 areas with power development

options in the conservation category have been protected, from the Geysir area

and Kerlingarfjoll to part of the catchment areas of Jokulfall/Hvita and Jokulsa a
Fjollum.

The parliamentary resolution proposal for the approval of the third phase of the

Masterplan (for Nature Protection and Energy Utilization), which is being discussed
and processed by Althingi from 10 February 2022, includes 16 power development
options in the conservation category (14 hydropower options and 2 geothermal
options). They decreased by eight compared to the parliamentary resolution
proposed in 2016 due to their protections.

7.2.4 Role of the Environment Agency of Iceland

The Environment Agency oversees protected areas, prepares declarations ofprotection and works on the action plan for the Registry of Sites of Natural

Interest, which the Minister then submits to the Parliament as a parliamentary

resolution on protected areas for the next 5 years. The Environment Agency is thus
involved in the protection of areas that are approved in the conservation categoryof the Masterplan. The Environment Agency also handles water management. The

first River Basin Management Plan for Iceland is expected to take effect this year.49
On the basis of the Water Management Act, the agency assesses the strain on theecosystem and landscape due to power plants. This is done by examining whethera lake, a reservoir, a pond and the like, i.e. water bodies, need protection or not, cf.
Article 13 of this Act from 2011. 50

The Environment Agency is responsible for preparing a national report on

greenhouse gas emissions and projections of emissions submitted to the EU

and the UN Climate Council, on the basis of which it is assessed whether Iceland
will meet its obligations under the Kyoto Protocol and the Paris Agreement. The
Environment Agency oversees the European Emissions Trading Scheme (ETS) on
behalf of Iceland. The Environment and Food Agency implements the numberof emission reduction measures mentioned in the Climate Action Plan. The

Environment Agency is an opinion maker in assessing the environmental impactof plans and projects.

49
50

http//vatn.ishttps://www.althingi.is/lagas/nuna/2011036.html

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7.3 Environmental impact and Organisation
Energy Policy: Environmental impact is minimised

7.3.1 The Icelandic National Planning Strategy

The Icelandic National Planning Agency is responsible for policy formulation,

administration and guidelines for planning and construction, with the sustainableutilisation of resources and high-quality settlements as a guiding principle.

Planning issues, laws and their regulations, are intertwined with environmental
issues and nature conservation as one of the foundations of planning issues.

The National Planning Agency prepared a proposal for the National Planning Strategy 2015–2026, which was approved by the Parliament in 2016. 51 The subjects of the
National Planning Strategy are:1.

Planning in Iceland’s central highlands

2.

Planning in rural areas

3.

Residency trends and distribution of settlements

4.

Planning of ocean and coastal areas

The National Planning Strategy is first and foremost enforced in the zoning plansof municipalities and is reviewed regularly. It is related to the Regional Develop-

ment Plan, the Masterplan, Transport Programmes and other plans. A parliamen-

tary resolution on a revised National Planning Strategy was submitted in 2021 but

did not reach the Parliament. Section 5 of the proposal discusses climate-oriented
planning, including climate-friendly transport, planning that supports energy

transition and climate-friendly construction. 52 The parliamentary issue is not in thegovernment agreement.

51
52

https://www.landsskipulag.is/media/pdf-skjol/Landsskipulagsstefna_2015-2026_asamt_greinargerd.pdf
https://www.althingi.is/altext/151/s/1184.html

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Parliament and Government

National Planning
Strategy

Regional Development Plan

Transport Programme

Plans in individual

Other Plans

concern land use

Masterplan (for Nature
Protection and Energy Utilization)

fields that

Municipalities
Regional Planconcerns two or more municipalities

Master Planconcerns one municipality

Land-use Planconcerns individual plots

Development permit

The relationship between the National Planning Strategy and other national planning and municipal planning

Plans in Individual Fields
Regional Development Plan

Parliament and Government

Transport Programme

National Planning Strategy
i.a. policy on the planning of sea and coastal fishing

Other Plans

Municipalities
Expansion Plan

Regional Councils of State
and Municipalities
Coastal Regional Planconcerns fjords and bays
outside net-laying areas

Municipalities
Zoning plans(Regional, Master andLand-Use Plans)

Government Agencies
Development Permits

Figure 32. National Planning Strategy.		

Source: The Icelandic National Planning Agency.

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7.3.2 Process of Licensing for Transmission Lines and Power Plants

The National Energy Authority discusses the licenses for energy acquisition granted by the NEA. The licensing process for power plants differs depending on the

resource in question. Thus, for geothermal power plants, a utilisation permit must

be obtained from the NEA for the utilisation of the resource, in addition to a power
development permit. Hydropower and wind power development only requires a
power development plant license from the NEA.

Licenses for the transmission network are part of the process of Landsnet’s net-

work plan and are handed over to the NEA for review at least every two years. The
average waiting period for licensing applications from the NEA varies due to theirdifferent nature, legal requirements and level of complexity. The processing period
for applications is caused not only by the processing of the case by the NEA but

also by the applicant’s data submission, whether the application is satisfactory,

the collection of comments from statutory consultation bodies, the nature of thecomments submitted and much more.

According to information from the NEA, the procedural period is generally between
8–12 weeks, including deadlines for other parties, provided that the parties submit
satisfactory data and the consultation bodies meet the deadlines. There are dif-ferent requirements for reviews, advertising and other such things. Depending on
what kind of license applies, i.e. prospecting license, utilisation license or power development license. The NEA points out that the licensing process could be

more automated and it should be possible to simplify the submission of data for

applicants and integrate them with the government for one and the same project.
Developers usually obtain a prospecting permit in the run-up to power development plans, although this is not required by law. However, with regard to wind,

the law does not provide for the granting of prospecting permits for wind power
generation. This must be improved.

According to HS Orka, it is possible to improve the licensing process. The company
points out that larger projects usually have to go through all the authorisationand licensing processes, i.e. changes to the Municipal Plan, new Land-Use Plan,

environmental impact assessment, power development permit and construction
permit. Here is an opportunity to harmonise in such a way that at the beginningof the process the project is defined and broken down into project components,

they are connected into one continuous processing process with the involvementof professional bodies, stakeholders and the public. At the end of this harmonised
process, the zoning plans for the construction, the assessment report and theopinion of the National Planning Agency are presented with proposals for improvements and with conditions, power development permits and construction permits
that are harmonised with the results of the environmental impact assessment.

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7.3.3 Changes to Licensing Process

There have recently been changes in the legal framework that applies to thelicensing process for power plants and the transmission network. With the Act

on Environmental Assessment of Projects and Plans, No. 111/2021, the process ofenvironmental assessments of projects was simplified from what had been valid

according to the previous Act on Environmental Impact Assessment, No. 106/2000.
The process of environmental assessments of projects is described in Article 17 of
the Act:

The environmental assessment of a project is a process that consists of thefollowing factors:a.

preparation, presentation and processing of an assessment plan,b.

preparation of the developer’s environmental assessment report,c.

presentation and consultation on the environmental assessment

report with consulting bodies and the public and, as appropriate,
across borders,d.

the National Planning Agency’s examination of the developer’s

environmental assessment report, as the case may be, additional

information, cf. Paragraph 2, Article 21, together with the commentsof the consulting bodies and the public, and the Agency’s opinion on
the environmental assessment of the project,e.

that the National Planning Agency’s opinion on the project’s
environmental assessment is used as a basis for processing
applications for construction permits.

The Act includes a somewhat clearer and more efficient procedure than previ-

ous Acts. It is still permissible to appeal a decision on the obligation to make anassessment. Decisions of the licensor on the granting of a construction permit

are still subject to appeal to the Environmental and Natural Resources Board of

Appeal. Among the things emphasised in the current Act is that when deciding on apermit for a project, the licensor, usually municipalities, must read the developer’s

environmental assessment report on the project and take into account the National Planning Agency’s opinion on the environmental assessment.

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7.3.4 Data and Planning Portal

According to the Act on Environmental Impact Assessment of Projects (Article 7),

the National Planning Agency operates a geographical data and planning portal onplanning, environmental assessment and licensing. It shall publish data, deci-

sions and comments on the environmental assessment of projects and plans andconstruction permits. All comments should be received there and access should be
open to all and free of charge. There have been proposals and ideas submitted tostrengthen and expand this portal, such as in a bill on amendments to the Plan-ning Act that did not succeed in 2021 and in discussions about them. 53 Among otherthings, it was stated that the portal will keep track of all data related to environmental impact assessment in one place and that it will be able to facilitate andexplain all processes and improve public access to data, in accordance with theobjectives of the Aarhus Convention.

7.3.5 Wind Power, Planning and Nature Conservation

It is clear that many companies and private entities, both domestic and foreign,

are interested in building wind power plants on land, that would in total generate

more electricity than is currently produced in the country, i.e. well over 2,800 MW.
Large-scale ideas at different levels are presented for floating but fixed-bottom
wind farms on the high seas off Iceland, e.g. from the East and the Southeast of
Iceland. They would be directly linked to the United Kingdom.

The NEA has sent the project management of the Masterplan (for Nature Protection and Energy Utilization) 34 wind energy options to process. In the govern-ment’s bill on amendments to the Act on the Masterplan (for Nature Protection

and Energy Utilization) for the Classification of Land for Wind Energy Acquisition

and the accompanying draft parliamentary resolution from the spring of 2021, thewhole country was divided into three regional categories. 54 First in the classifica-tion order were areas where wind farms are not allowed, i.e. all protected areasand places in Part A of the Registry of Sites of Natural Interest (around 120). Within
Class 2, were areas that could be considered sensitive to wind farms, but could

however be considered in the light of the Masterplan. The third classification area
was land that does not fall into Classes 1 and 2 and was under the jurisdiction ofmunicipalities, i.e. would undergo a traditional process there and with other parties according to general law.

The comments of consulting bodies before the parliamentary committee were
either positive or negative. The proceedings did not end before the closing of

Parliament. Among other things, the views were expressed or have recently been

expressed that wind energy acquisition should be subject to the National Planning
Strategy, with reference to foreign models, e.g. Scotland. Other parties have empha-

5354

https://www.althingi.is/altext/151/s/1809.html
https://www.althingi.is/altext/151/s/1186.html

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sised the overall organisation of the government, as with other electricity acquisition,and the specific wind energy licensing processes. Environmental factors such as

visual and sound pollution, effects on bird life and the fact that recycling of windturbines is still in its infancy have also been pointed out, i.a. due to how fast windenergy technology has advanced.

The Minister for the Environment and Natural Resources presented the bill on

the division of areas into wind farms at the spring session of 2021 (151st session).
It only reached the first steps of processing with the Environment and Transport
Committee. The current government agreement of the government announces

comprehensive legislation on wind energy in Iceland. It will probably discuss, i.a.

the licensing process of wind power plants and the overall organisation and statusof such plants in the electricity network.

7.4 Sustainable Energy Transition
Energy Policy: Sustainable use of energy resources

7.4.1 Nature and Energy Transition

Sustainability and sustainable development, concern society and the economy inaddition to the environmental impact, according to the three pillars of sustain-

ability. The United Nations defines them as economic growth, social welfare andequality, and environmental protection. The government has shaped the policy ofa sustainable society in the light of these definitions. Energy transition changes
the concurrence of society and nature. Energy transition is accompanied by e.g.

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reduced emissions of various gases and greenhouse gases and less mining andprocessing of fossil fuels. On the other hand, they put more strain on the mining ofvarious other minerals, which are the basis of energy transition, such as the production of batteries. Concurrence like this, in both ways, must always be as clear
as possible. There is also a concurrence between social welfare, nature and theeconomy, and the same applies to its clarity.

7.4.2 Involvement of the Public and Public Organisations

The social aspect of sustainability is multifaceted. It is agreed that the public

has easy access to the process of energy transition and sustainability issues, on

different grounds. This applies to individuals as well as organisations. To this end,

an official government consultation portal has been set up where government proposals to the Parliament are presented, along with regulations, policy documents,
reports and more. 55

Environmental issues are accessible in other ways. Parliamentary committees sendout requests for comment on parliamentary matters to so-called stakeholders, buteveryone is allowed to send unsolicited comments to the Parliament. The public,

associations and companies can be involved in local councils, whether e.g. due toplanning or environmental issues. It is common for the government to appoint consultation groups for parliamentary issues or policy formulation. Action Plans andprojects that are subject to special legislation on planning, various laws on otherprojects or environmental issues have provisions on public participation as well as
independent interest groups that are independent of the government.

7.4.3 Economy, Standard of Living, Healthy Environment and Energy
Transition

Energy transition affects the economy both for growth and contraction and is thus
a large part of sustainable development. They incur costs and they create value.
Standards of living are partly dependent on energy transition. Energy transition
counteracts harmful climate change, improves the atmosphere, and can have apositive effect on the public economy with energy savings and lower energy costs.

Energy transition is in line with Public Policy and the Circular Economy Act adopted
in the spring of 2021.

Pollution in the earth, fresh water and sea caused by the production and use of oil,gas and coal decreases in line with reduced use as increased energy efficiency andenvironmentally friendly energy sources become more widespread. Developments inall these areas are subject to increased ecological energy, produced in Iceland andelsewhere, as appropriate, resulting in the necessary energy transition agreed upon.

55

https://samradsgatt.island.is/um-samradsgatt/

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7.5 Underground Cables in Distribution andTransmission Networks
The underground cable installation of the electricity distribution network is underway. A large part of it, with up to 33 kV voltage, is already underground. The samegoes for the lines with higher voltages. The transmission network, almost exclu-

sively with 66 kV, 132 kV and 220 kV overhead lines (some of which can be upgradedto 400 kV), is about 3,400 km long. Of this, underground and submarine cables

account for just over 7%, mainly in urban areas. Laying underground cables in the
distribution network is relatively easy and ground disturbance is rather limited

in most cases. Changes from overhead lines, mainly on wooden poles, to underground cables are economical in the long run and improve electricity security
everywhere.

Laying underground cables in the transmission network is technically more com-plex and expensive than laying cables in the distribution network. Challenges re-lated to the operation of underground cables are greater the higher the operating
voltage is, so that the cables are a limited solution in higher voltage ranges. The

challenges are much greater in the transmission network than in the distribution
networks, as the voltage in the transmission network is 66–220 kV and 11–33 kV

in the distribution networks. Among the things that need to be assessed in termsof cost and technical issues at any given time are the following: Structures andinstallation of each unit length, operation and disposal. Other assessment issues

concern in particular energy security and the environment, e.g. disruption causedby the laying and benefits of lower visibility of underground cables than overheadlines and finally what is involved in the disposal of underground cables. It is mainly

the price of piping materials and the laying of underground cables that differs fromthe laying of overhead lines. Each unit of length of a high-voltage undergroundcable is much more expensive than an overhead line. However, prices have fallen.

The protective zone of the​​underground cable is less than a comparable overheadline’s. One three-string set corresponding to an overhead line with three conductors (132–400 kV) utilises 10–20 m wide strip for a path, work area and ditch thatis dug in loose strata but blasted into rock or cleared/ripped in jagged lava. It

requires special heat-conducting sand. In order to equalise the non-active power
generated in alternating current underground cables, special coil actuators are
required. They are usually at either end of the underground cable (or both) andeven at several tens of km intervals on the cable route if necessary and not useful.
There are special and much larger terminals at high-voltage direct current cables,
but they do not generate non-active power. Their purpose is to convert alternating current to direct current and vice versa. Underground cables are laid in thestraightest line possible, like overhead lines, and usually through uneven heights.

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7.6 Matters of Opinion and Decisionmaking Issues
There is no general consensus on the main emphases in nature conservation andother environmental issues when it comes to energy projects. It is important tocreate the greatest possible social harmony about the electricity system andsociety’s energy demand. This is where the tasks and decisions of the government,

companies, associations and individuals lie, as is the case when it comes to energy
transition.

The main criticism is of the organisation of the public licensing process, where theprocedural period is considered too long and the Masterplan (for Nature Protection and Energy Utilization) method does not work due to the long processiong

period of the Parliament. Efforts have been made to address criticism by amending

the Environmental Impact Assessment and the Planning Act. However, further ways
for improvement are still pointed out, e.g. by defining tasks at the beginning of theprocess, breaking them down into work components and linking them together

into one processing process with the involvement of all parties involved. At theend of the harmonised process, zoning plans, an assessment report, the National

Planning Agency’s opinion, a power development permit and a construction permit
are all available with the appropriate conditions. A decision needs to be made onwhether to continue working to improve the process in consultation with stakeholders, as appropriate.

It is important that the handling of wind farms is clear, including the Masterplan(for Nature Protection and Energy Utilization), planning issues, environmental

aspects, licensing and other items as appropriate. The processing and submissionof the announced bill in the government agreement needs to be accelerated. It is

generally assumed that energy transition will take place over the next two to three
decades. There are various opportunities therein for Iceland as the nation no longer needs to be an importer of energy. It is important for the government to takethe lead in creating the greatest possible social harmony on the changes that theenergy transition and other future energy demand entail.

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8. Foreign Currents and Trends
8.1 Summary•

It seems that carbon emissions will have to be halved by 2030 if the climate

goals of keeping global average temperatures below 1.5°C are to be achieved
and that man-made warming could be reduced thereafter.

•

The problem grows faster than the implementation of solutions. But there

are solutions. Decisions by public authorities and the economy are needed to
implement them.

•

Reducing the cost of producing wind and solar energy, batteries andvarious other production processes strongly supports the development ofsustainability. Realistic results are beginning to be achieved. Wind and solar

energy is now the cheapest energy option in two thirds of the world, but willprobably be the cheapest option everywhere in 5 years.
•

There is now a lot of innovation worldwide. Traffic, food production, agriculture
and all kinds of production processes for goods, transport and distribution
and services are being examined. Investments are increasingly limited toactivities that meet the requirements of sustainability and are a contribution
to the climate goals.
•

Although solutions are still not being implemented quickly enough, themomentum is great. There is reason to expect that this momentum willcontinue to increase and that the economy and public authorities will work
together to make the road to carbon neutrality a success.
•The latest industrial revolution is the "sustainability revolution", which is theequivalent of previous industrial revolutions combined.

8.2 Carbon Neutrality
It is generally considered possible to achieve carbon neutrality by 2050 in thediscussion of those entities discussing measures to curb global warming. The world
economy is beginning to expect all developments to go in this direction. There has

been a great deal of momentum in investments and all kinds of innovation in order

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to transform the economy in order to meet the changing needs and demands ofsocieties. This is especially true of the developed part of the world. It can be said

that a green industrial revolution has begun. Now the competition is who will be thefirst to come up with the solutions to serve the demand for emission-free goods andservices and other things that accompany man’s life on earth. The main question iswhether the governments of the countries of the world that have launched this wave
in the economy will be able to follow it through and ensure that the goal of carbon
neutrality by 2050 is achieved.

Many government, professional and conservation actors have created scenarios andsought to create a clearer view of this journey of humanity. These include:•

IPCC (Intergovernmental Panel on Climate Change)•

IEA (International Energy Agency)•

IRENA (International Renewable Energy Agency)•

Bloomberg NAF•

Environmental organisations, i.e. Friends of the Earth and 350.org•

National government agencies that submit national reports based on IPCC reports•

The European Union

8.3 A Few Main Scenarios
8.3.1 Intergovernmental Panel on Climate Change (IPCC)

The IPCC operates under the auspices of the United Nations. The Agency issued acomprehensive report in 2018, which has been the basis for public and economic
policy-making.

In the report, the IPCC presents calculations of the probability that global warming
will be limited to 1.5°C in 2100 (compared to 1850–1900) if carbon neutrality isachieved in 2055.

The report presents four main scenarios for achieving carbon neutrality:

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1.

Technological advances that reduce the demand for energy at the same time2.

Emphasis on sustainability, better energy efficiency, healthier consumption

3.

A combination of many actions but special emphasis on alterations to how

4.

No less energy demand is expected, but the main emphasis is on carbon disposal.

March 2022

as living standards improve.

habits, technological advances and improved land use.
energy is produced.

The report also assesses the impact of carbon neutrality actions on the United
Nations Global Goals, which in most cases is such that the evolution of carbon
neutrality supports the Global Goals.

8.3.2 International Energy Agency (IEA)

The IEA is an organisation of 30 countries, in addition to which several countries
have additional membership or are seeking full membership. Iceland is not amember.

The Agency’s main report is World Energy Outlook. The latest report discusses theaim of the Paris Agreement 2015, which is to keep global warming at 1.5 °C higher
than before the Industrial Revolution.
The IEA presents four scenarios:
5.

In the STEPS (Stated Policies Scenario) the temperature rises by 2.6°C in 2100

and keeps rising. This scenario is calculated on the basis of the current policyof the countries of the world.

6.

In the APS (Announced Pledges Scenario), the temperature rises by 2.1°C in

2100 and keeps rising. This scenario is calculated on the basis of the promises(commitments) of the countries of the world.

7.

In the SDS (Sustainable Development Scenario) the temperature will be up to8.

In NZE (Net Zero Emissions) the temperature will be 1.5°C higher in 2100 but

1.7°C higher but then decreases. This scenario is calculated by the IPCC.

decreasing. This scenario is calculated by the International Energy Agency (IEA).

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The report outlines what needs to happen in the next 10 years to get back on track
after 2030 and then embark on a path to achieve carbon neutrality by 2050.

•

Significantly increased efforts in clean electrification. Doubling of current

plans for wind and solar energy. More low-emission energy production incl.

nuclear energy, the development of flexible infrastructure, incl. hydroelectric
power plants (+80% based on 2020).
•

Endless emphasis on better energy efficiency as well as better chemical use•

Efforts to reduce methane emissions when using carbon fuels (-77% based on•

Faster innovation in clean energy production. Increased investments (+180%

and changed consumption habits (-33% based on 2020).
2020).

based on 2020).

The IEA highlights that investment capital in developing countries is a major

obstacle to success for humanity as a whole, as they have much less confidence anda higher risk rating than the developed part of the world.

The IEA believes that the years up to 2030 will be crucial for the success of carbon

neutrality in 2050 and believes that stronger action is needed. The Agency provides

a roadmap for carbon energy, which aims to adapt more quickly by further reducing
emissions. It underlines the importance of:•

Shutting down dirty power plants earlier.

•

Reducing emissions from dirty power plants.

•

Investing in less dirty technology.

•

Reducing the demand for dirty energy.

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According to the IEA, fossil fuels will decline significantly. The NEZ scenario for 2050
states:•Oil consumption falls below 30 million barrels per day, but was close to 90

million barrels per day in 2020. The rest will be used primarily in low-emission
operations and transportation.

•

Gas consumption will fall from 4,000 billion cubic meters in 2020 to well below•

Coal consumption will fall from the equivalent of over 5,000 million tonnes in

2,000 billion cubic meters. Gas will mainly be used in low-emission operations.
2020 and will be in the range of 700–800 million tonnes. Coal will then mainly
be used for low emission operations.

The IEA calls on the public to change their consumption habits regarding
•

Cars

•

Housing•

Flights

All of these are lifestyle-related factors that have varying degrees of significance.

The four most important factors are that business flights and long-haul flights due

to holidays do not increase compared to 2019, that housing will not be heated above
19–20°C and that geothermal heat will enter houses at 10°C lower than currently.
The IEA emphasises that these changes will be implemented before 2030 andbelieves that their significance and corresponding changes in the economy can
reduce emissions by 1700–1800 Mt.

(In fact, the IEA is not alone in this, as many parties are calling for better utilisationof general products, less food waste and increased emphasis on a circular economy.)

8.3.3 International Renewable Energy Agency (IRENA)

IRENA is an international agency of states that supports them in the transformation ofsociety into the utilisation of renewable energy. Iceland is a member of this agency.

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The agency has published a scenario in the publication World Energy Transitions

Outlook 2021 on the key things needed in order to achieve carbon neutrality in 2050:•

The energy consumption coefficient decreases by 3% per year instead of 1.2%.

•

The share of renewable energy needs to grow eightfold compared to current•

Renewable energy production needs to increase from 2,800 GW now to 27,500•

Electric cars must achieve a 100% market share which is now 4%.

•

Demand for pure hydrogen (green or blue) needs to increase to 614 GW by 2050•

The supply of sustainable biomass needs to triple by 2050.

•

Carbon capture and storage (CCS) needs to increase from 0.04 Gt now to 7–8 Gt

developments.
GW by 2050.

from 120 GW now.

by 2050.

The IRENA scenario (1.5-S) discusses in more detail how to achieve carbon neutrality
by 2050 and maintain the temperature at a 1.5°C rise above what it was before theIndustrial Revolution.

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In this scenario, it is estimated that the PES (Planned Energy Scenario), which
is based on current energy policies of countries, results in 36.5 Gt of CO2

emissions. To achieve this, the reduction in transport emissions needs toamount to 8.4 Gt, in buildings 2.3 Gt, in energy and heat production by 13 Gt
and in industry by 11 Gt.
•

IRENA estimates that 25% of the reduction in carbon emissions will be dueto the production and direct use of renewable energy. Another 25% is due tobetter energy efficiency, 20% due to increased electricity use and 10% due tohydrogen.
•

IRENA estimates that more than half of energy consumption by 2050 will beelectricity, 18% modern biomass and 12% hydrogen and E-fuel.

IRENA has compiled scenarios from various sources on the share of renewableenergy in TEPS (Total Primary Energy Sources).

The scenarios assume different total energy consumption and a different share of
renewable energy. It clearly shows that the scenarios IEA-NZ and IRENA-1.5-S are
similar and not far from the IPCC scenarios.

8.3.4 Other Parties

Numerous other parties are drawing up scenarios, such as environmentalorganisations, consulting companies and other companies, e.g. BP. All of thesescenarios have similar emphases to those that have come from the public bodies
described here.

It is interesting to see, e.g. the strategy that BP has set itself to achieve carbon

neutrality by 2050, but the company sets investment targets for new energy sourcesin 2025, which corresponds to 50–70% of total investments in Iceland now and in

2050 is expected to invest annually for up to a similar amount as in total investments
in Iceland, which is between 5 and 6 billion dollars. In fact, it is also interesting in thecontext of the discussion on clean energy investments that the price tag on the new
SOFI stadium in Los Angeles was exactly 5 billion dollars.

Furthermore, it is interesting to see how BloombergNEF defines scenarios forachieving carbon neutrality by 2050. All of these scenarios are based on theincreased use of electricity, clean electricity, batteries, clean technology, carbon
capture, disposal and storage, hydrogen, nuclear energy, biofuels, recycling andbetter energy efficiency.

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The State and Challenges of Energy Issues•

The Green Way: Wind energy, solar energy and hydrogenation in the main role.

•

The Grey Way: Clean electricity and carbon capture and storage (CCS) are

March 2022very important, i.a. in electricity generation. Blue hydrogen and biofuels areimportant.

•

The Red Way: Similar to the green way except that nuclear energy also plays asignificant role with smaller nuclear power plants. Red hydrogen produced by
nuclear energy.

8.4 Important Factors
8.4.1 Renewable Energy has Become the Most Economical According
to IRENA Assessment56•

Wind energy produced on land is the cheapest energy option in new•

Hydropower is the second cheapest and costs 4.4 cents (5.51 ISK) as a reference.

•

Solar energy costs 5.7 cents (7.14 ISK) as a reference, which is one of the•

The reference cost for investments in energy production with offshore wind

investments where kWh costs 3.9 cents (4.89 ISK) as a reference.

cheapest investment options for energy production with fossil fuels.

turbines, geothermal energy and fossil fuels is similar, or 0.71–0.84 cents(8.89–10.52 ISK).

8.4.2 Price of Car Batteries Decreasing Quickly According toBloombergNEF Assessment57•

BloombergNEF’s annual survey in 2021 shows that the price of car batteries•

Since 2010, prices have fallen by 89% in real value.

•

Prices vary by market, lowest in China.

•

LFP (Lithium, Iron, Phosphate) batteries have gained market share.

56
57

has fallen by 6% between years.

https://irena.org/publications/2021/Jun/World-Energy-Transitions-Outlook

https://about.bnef.com/

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The State and Challenges of Energy Issues•

The average price was 132 dollars per kWh in 2021. At the $100 mark, electric•

Large car manufacturers (Ford, Renault) aim for 80 dollars per kWh by 2030•

Electric cars commonly use 15 kWh per 100 km. The current reference price forMarch 2022

cars will be at a price comparable to cars with an internal combustion engine.
(nearly a 40% reduction from 2021).

a battery for 60 kWh is therefore 7,920 dollars or almost 1 million ISK which
would be ISK 600 thousand in 2030.

•

Comparable price developments are on the utility scale of the battery.

8.4.3 Increased Investments Necessary

The IEA considers that climate-related investments need to quadruple from theperiod 2016–2020 to the period 2026–2030. This is 75% more investment compared to
the APS scenario (Announced Pledges Scenario).

More than two-thirds of the investment needs to come from the economy, but total
investment needs to be almost 4,000 billion dollars.

IRENA sends a similar message. In 2019, more than $2,100 billion
was invested in climate-related projects.

According to the PES (Planned Energy Scenario), annual investments in the current
decade will be over 3,500 billion dollars and then over 3,100 billion dollars in the
period 2031–2050.

The big issue is that a much more vigorous investment effort needs to be made in

the period 2021–2030, or almost 6,700 billion dollars annually, but that amount canthen decrease to almost 3,700 billion dollars annually after that.

This investment needs to be put in the context that the combined GDP of all

countries in the world is about 85,000 billion dollars, so the need for investment inclimate-related projects is between 4% and 8% of world production.

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The problem is that it is difficult to finance investment in developing countries.

Public investors are not prepared to risk their capital for investment in countries
where governance is considered insecure (IEA).

There are significant differences in interest terms between countries, as shown in
Figure 33. It is such an important task for international financial institutions, e.g.

The World Bank to figure out how to stimulate investment in this field in developing
countries.

Indicative cost of capital by economy (nominal base rates plus market risk premium), 2020
Financing Clean Energy Transitions in Emerging and Developing Economies

15%International Energy Agency

20%

7x

10%

5%

0
Advanced economies

BrazilFigure 33. Interest Terms. 		

Indonesia

South Africa

Nigeria		

Source: IEA.

8.5 Climate Issues in the Fieldof Economic Organisations
8.5.1 World Economic Forum (WEF)

The World Economic Forum has recently released the Global Risk Report 2022, which
addresses how corporate executives around the world view key risk factors for the
economy over the next 10 years.

Environmental risk factors are in 5 out of the top 10 places and in first place is therisk of Climate Action Failure.

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Within the economic sector around the world, there is a high level of awareness andconsensus on the need for action to achieve carbon neutrality by 2050.
The top 10 main risk factors are:•Climate Action Failure•

Weather extremes•

Biodiversity is impaired•Societal solidarity disappears•

Economic crisis•

Infectious diseases•

Man-made damage to nature•

Resource crisis•

Debt crisis•

International business disputes

8.5.2 International Chamber of Commerce (ICC)

From the International Chamber of Commerce’s Declaration on the Next Century inInternational Trade (2019):•

We believe that climate change is approaching a state of emergency, andwe wholeheartedly support the conclusions of the Intergovernmental Panelon Climate Change (IPCC) on the urgent need to keep global warming below
1.5°C. Through our operation network, we will pursue policies that support
the adaptation of the economy to this goal, which will help us achieve theadditional goal of carbon neutrality in many countries by 2050.

•

We readily acknowledge that this calls for wide-reaching economictransformation and significant changes in the financial markets in order tocreate satisfactory conditions for long-term sustainability and environmental

protection. We also support the growth of new industries brought about by thistransformation and the millions of new jobs being created around the world.

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8.5.3 BusinessEurope

The report Greening of the Economy states among other things: The functions andcompetences of the green economy are common to all major transformations.

Such transformations create a need to monitor, anticipate, raise awareness, adapt
professional training, facilitate transformations, and take action on the ground.

But the ecological transformation, even more so than the technology-driven digitaltransformation, takes on a systemic form, disrupts production methods, consumption,
travel and work organisation, and is also strongly influenced by regulation.
From advice to companies:•

Define policies that support the adaptation of the company’s employees tothe realities of green production and, where appropriate, the use of public

support measures and/or funding from the private sector, e.g. opportunities
for sustainable financing, to support progress.
•

Invest together in the necessary professional training to support thecompany’s goals and nurture the responsibility of each and every employee toadapt to changing production conditions.

•

Engage in regular discussions with trade unions or employee representatives
to monitor progress and, as necessary, set policies to achieve better results
for the company and its employees.

8.6 Environmental Organisations
8.6.1 World Wildlife Fund (WWF)At the WWF forum, climate change is widely discussed, but the organisation

points out that 13% of CO2 emissions come from deforestation. The organisation

uses various methods e.g. by operating funds to support activities in developing

countries. WWF works towards an alliance of parties to work on the advancementof the Paris Agreement and work with companies to reduce emissions. Special
emphasis is placed on reducing climate pollution from aviation operations.

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8.6.2 350.org•

Store the carbon underground.

•Support the development of a low-carbon economy with greater balance.

•

Pressure governments to limit emissions.

All over the world we demand that you:•

Pay your fair share: increase and live up to your promise of funding.

•

Do not invest in fossil fuels: stop supporting all kinds of coal, oil and gas•

Fund a righteous transformation: do not let any country or worker suffer,industries around the world.

but invest in proven solutions and clean renewable energy for all.

8.6.3 Address from Friends of the Earth•

System change, power to the people.

•

Energy as a public good.

•

Sufficient energy for everyone.

•

Funds for an energy revolution.

•

100% renewable energy for everyone.

•

Renewable technology that is climate resistant.

•

Energy sovereignty and energy democracy.

•

A righteous transformation that protects the rights of people in the current•

Public renewable energy is allowed to flourish.

•

A climate-just world free from power and all systems of oppression,energy industry.

domination and inequality.

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8.7 Denmark’s Climate Policy
It is interesting to observe how Denmark approaches climate issues, as Denmark
does not have the same abundance of energy resources as Iceland. Their 2019
legislation on climate issues sets out four main policy indicators.

Firstly, it is pointed out that the climate problem is global and therefore Denmark

needs to be at the forefront of nations that encourage and influence other nations.
Furthermore, Denmark’s leadership role is for both historical and moral reasons.
Second, Denmark’s journey to achieve its climate goals must be based on costeffectiveness as far as possible, taking into account long-term transformations,sustainable and competitive economic development, sound public financesand employment, and the Danish economy must be able to progress instead ofcontracting.

Third, Denmark needs to show that green transformation is possible alongside astrong welfare state that ensures social cohesion and balance.

Fourth, measures to reduce emissions should lead to a real reduction in domestic

prices, but at the same time it must be ensured that Danish measures do not push
emissions beyond the borders.

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9. Appendix
9.1 Definitions
Transmission System Operator (TSO)
A company that operates structures, e.g. transformer stations, overhead lines andunderground cables and transports electricity from the production site, in thevoltage range from 66 kV to 220 kV, for sale on the general wholesale market or
directly to energy-intensive consum.
Distribution System Operator (DSO)
A company that has an exclusive license for the distribution of electricity in adefined area.

Distribution Network
Power lines not included in the transmission network, including structures andequipment connected to and including local loops. Furthermore, meters and measuring equipment for users.
Retailer
Retailers handle the final sale of electricity to the consum and are optional, unlike
DSOs and they operate under an exclusive license.
Electricity Security
Consumers should have access to electricity when it is needed and where it isneeded, taking into account the general government policy and of minimum standard reliability and quality.

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Energy Security
Consumers should have access to all kinds of energy, electricity, district heating,other heat energy, fuel, etc., where it is needed, taking into account the general
government policy and of minimum standard reliability and quality.
Security of Supply
Regulations, measures, technology and conditions aimed at minimising power

outages, voltage fluctuations and any operational disruptions to electricity transmission.

Curtailable Electricity
Electricity sold with terms of the producer’s/retailer’s authorisation to curtail electricity supply due to more specific events that affect production capacity.
Priority Electricity
Priority electricity has priority in delivery in the event of electricity curtailment.

All customers who do not have curtailable electricity contracts have priority electricity.

District Heating Utilities
Power stations where water is heated for heating structures and consumption withoil, electricity or heat pump and lead through pipes to the consum.
Transmission Losses
Power lost during transmission of electricity due to electrical resistance in the

conductor material. The longer the overhead line or underground cable, and themore electricity transmitted, the greater the transmission loss.

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Energy-Intensive Consum
A party that utilises at least 80 GWh of electricity in one place for at least three
years at a time.

Installed Capacity
Energy figure (in kW or MW) obtained by determining how much electricity a power
plant’s equipment can deliver at full load based on its design.
Production Capacity
Annual energy figures (in kWh, MWh, GWh or TWh) calculated on the basis of thepotential capacity of a power plant or measured on an annual basis.
Control Systems
A digital, centralised high-tech system that coordinates the operation of a power

plant and its transmission network in an interconnected electricity system, oftenwith more than one type of power plant.
Electric fuel (E-fuel)
Fuel produced with renewable energy, either gas or liquid, and does not cause

additional carbon dioxide emissions during use. The basic ingredient in E-fuel ishydrogen.

Heat Pump
A device that uses energy, such as renewable electricity to absorb heat from e.g.

warm groundwater or seawater at relatively low temperatures and deliver heat at
higher temperatures, i.e. more energy than the heat pump uses. A heat pump uti-

lises processing fluid that is suitable for maximising heat exchange, e.g. ammonia
or organic matter, in a closed system. Refrigerators are also heat pumps but withthe opposite purpose.

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Hydrogen-Powered Machinery
Machinery powered by internal combustion engines or fuel cells with hydrogenfuel or hydrogen fuel derivatives like ammonia or methanol.
BiofuelFuel made from biomass. Renewable biofuel reduces greenhouse gas emissions
compared to fossil fuels.
Carbon Sequestration
A process where carbon in the atmosphere binds in the long term to vegetation,soil, ocean or bedrock. Carbon sequestration takes place constantly in nature, but
is also man-made, e.g. with forestry, and can thus contribute to carbon neutrality,
i.e. a balance between carbon emissions and their storage in nature.
Blending
Blending renewable fuels or renewable biofuels with fossil fuels to reduce carbon
emissions from their use.
Obligation to Sell
According to Act No. 40/2013 on renewable fuels in land transport, the seller offuel must ensure that a certain percentage of their annual sales of fuel for use intransport is renewable fuel.
Energy Efficency
The ratio between the performance of electrical appliances, services, product orenergy production and the energy required. Good energy efficiency reduces theenvironmental impact of energy consumption.
Energy Savings
Various measures that lead to efficient energy consumption.

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Multi-Use
Processes that mean that as many natural resources as possible are utilised efficiently during each period of utilisation.
Waste Heat
Thermal energy generated by production processes that disappears unutilised tothe environment.
Resource Park
Local co-operation between institutions, electricity producers and business enterprises, which includes multifaceted co-operation with multi-use of resources as a
guiding principle, i.e. utilisation of all or as many resource streams for electricity
production and/or other resource utilisation.

9.2 Reports and Plans
9.2.1 Government Policies and Plans

Here is a brief overview of public policies or plans directly or indirectly related toenergy issues.

Report of the Minister of Tourism, Industry and Innovation on long-term energy policy
and action plan (Minister of Tourism, Industry and Innovation, 2021). Sustainableenergy future – Energy policy until the year 2050 (Minister of Tourism, Industry andInnovation, 2020).

An Energy Policy titled "A Sustainable Energy Future" was submitted to Parliament
at the 151st Legislative Assembly 2020–2021, in February 2021. The Energy Policy

was prepared by a cross-party parliamentary committee in extensive co-operation

with the government, institutions and stakeholders. The policy covers the year 2050
and is the first long-term Energy Policy for Iceland that is prepared in this way. The

Energy Policy includes a future vision of a country of clean energy. The Energy Policy
is accompanied by an Action Plan with defined actions and tasks that are intended
to implement the policy and support it.

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The government’s policy on the development of the electricity transmission system(Parliament, 2018).

According to Art. 39 of the Electricity Act, the Minister submits a proposal to theParliament every four years for a parliamentary resolution on the government’s
policy on the development of the electricity transmission network. The current

parliamentary resolution was passed by Parliament on 11 June 2018. Its content isdivided into three parts. The importance of the transmission network for the longterm is emphasised from a macroeconomic viewpoints. The economic, social andenvironmental impacts of the development of the electricity transmission network,
i.e. the three dimensions of sustainable development must be considered equally.
Such a balance is one of the basic preconditions for a broader consensus on theimportance of the infrastructure contained in the electricity transmission network.
The first part, item A, deals with issues that generally relate to the electricity

transmission network and how it should be developed in the long term. These

include points of emphasis in fifteen sections that should be taken into account in
the development of the electricity transmission network.

Item B of the parliamentary resolution concerns increased independent research andanalysis of the effects of different technical solutions on the laying of power lines.

Item C contains general information concerning the structure of the transmission
network in 16 sections. These include:•

No power lines will be laid across the highlands.

•

The goal is set for N-1 safety in the main transmission network by 2030 and in•

Provisions are made for line routes and the use of electric cables to protect•

Areas that have experienced reduced security of supply are given priority, but

the regional network by 2040.
nature.

they are the Eyjafjordur area, the Westfjords and the Southern Peninsula.

On 2 September 2019, the Parliament approved an amendment to the parliamentary
resolution to the effect that the connection of the country’s electricity network toanother country’s electricity network via a submarine cable will not be undertaken
without the approval of the Parliament.

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Action Plan for Climate Issues

Iceland’s Climate Action Plan is a collection of actions to achieve climate

goals. There are a total of 50 actions. The Action Plan was published in 2020 and thefirst status report was published in September 2021.
Action Plan for the Aarhus Convention 2018–2021

The Aarhus Convention is an international treaty linking environmental law andhuman rights. The treaty is based on the premise that the public has the rightto participate in decision-making concerning its immediate environment. The

Convention forms three main pillars that impose obligations on the parties to:•

Ensure public access to information on environmental issues.

•

Ensure public participation in environmental decision-making.

•

Ensure public access to due process and resources
under the Convention.

The member states to the Aarhus Convention shall submit a report to Convention

Office at regular intervals, reviewing the state of implementation of the provisionsof the Convention. On that occasion, the Ministry of the Environment and Natural

Resources prepared an Action Plan to follow up on Iceland’s national reports on the

Aarhus Convention as well as the government agreement. The Action Plan contains a
total of fourteen proposals for action, most of which have been completed, some ofwhich include ongoing projects. The most recent member state report of Iceland was
submitted in October 2021.

The requirement for a consultation process due to the various public policies andplans concerning energy issues is the result i.a. of the Icelandic state’s obligations
under the Aarhus Convention.

Masterplan (for Nature Protection and Energy Utilization)

The Masterplan (for Nature Protection and Energy Utilization) assesses theprotection and energy utilisation value of land areas and the economic,
environmental and social impact of land use, incl. protection.

In the Masterplan (for Nature Protection and Energy Utilization), power development
options in the relevant area are classified into an energy efficiency category,protection category or standby category. The Masterplan has a binding effect on the169The State and Challenges of Energy Issues

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government in granting permits related to energy research and energy production,

but such permits may only be granted for projects that fall into its energy efficiency
category.

The standby category includes power development options that are considered toneed further information in order to assess whether they should fall into the energy
efficiency category or the protection category. Permits related to energy production
may not be granted for power development options in the standby category.
The protection category includes power development options that are notconsidered appropriate to be launched and areas that are considered worthy ofprotection against electricity production.

According to the Masterplan (for Nature Protection and Energy Utilization) Act, theMinister must submit a proposal for a parliamentary resolution on the classificationof power development options at least every four years. The Minister is advised by
the project management of the Masterplan. The project management seeks advice
from so-called professional groups composed of experts in various fields. The

professional groups provide the project management with the advice it needs to beable to prepare proposals for the Minister.

The first parliamentary resolution on the Masterplan (for Nature Protection andEnergy Utilization) was adopted on 14 January 2013, ending the second phase of the
Masterplan. It was amended by a parliamentary resolution passed on 1 July 2015, in
which Hvammsvirkjun in Þjorsa was placed in the energy efficiency category.

The current Masterplan (for Nature Protection and Energy Utilization) includes:•

3 hydroelectric power development options and 14 geothermal power•

21 hydropower development options and 9 geothermal development options in•

11 hydropower development options and 9 geothermal development options indevelopment options in the energy efficiency category,the standby category,the protection category.

Water Management Plan

In the Water Plan, the water bodies of the country are analysed and classified

according to their condition. Part of the Water Plan is an action plan specifying

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how environmental goals will be achieved. Public plans by the government, suchas for planning, nature conservation, energy efficiency and transport, shall be inaccordance with the policy on water conservation set out in the Water Plan.
Action Plan for Energy Transition

A parliamentary resolution was passed in Parliament in 2018 on energy transition
in all fields. It sets targets for a 40% share of renewable energy sources in landtransport by 2030 and a 10% share of ocean-related activities in the same year.

An older target of 10% energy transition by 2020 was achieved. According to thegovernment agreement, an updated Action Plan for Energy Transition shall be
submitted.

Systems Plan 2021–2030

According to the Electricity Act, No. 65/2003, TSO, Landsnet, must submit a Systems

Plan to the National Energy Authority for approval every other year. A Systems Plan

includes a long-term plan that shows the aspects of the main transmission networkthat are planned to be developed or updated over the next ten years and theirtimetable. The Systems Plan includes an Action Plan showing the investments inthe transmission network that have already been made and the investments thatneed to be undertaken over the next three years and their timetable. In the Action
Plan, the analysis of options shall be explained and the option chosen shall be
substantiated.

National Planning Strategy

The National Planning Strategy entails a coordinated state policy on planningissues for twelve years. The National Planning Strategy integrates public plans fortransport, regional development, nature conservation, energy efficiency and otherissues related to land use and the utilisation and protection of marine and coastal
resources. Municipalities take the National Planning Strategy into account whendrawing up zoning plans or making changes to them.

The National Planning Agency prepares proposals to the Minister for the National
Planning Strategy. National Planning Strategy is subject to the approval of

Parliament in the form of a parliamentary resolution. A parliamentary resolution on
the National Planning Strategy 2015–2025 was passed by Parliament in March 2016.
The following points of emphasis are laid down in the National Planning Strategy:•

That the planning of settlements and land-use contributes to sustainable
development.

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That the planning of settlements and land-use is flexible and contributes to•That the planning of settlements and land-use contributes to people’s quality•

That the planning of settlements and land-use supports the competitivenessMarch 2022

resilience with regard to social and environmental changes.
of life.

of the country as a whole as well as individual regions.

A proposal for a parliamentary resolution on a revised National Planning Strategy
has been submitted to Parliament but has not been approved.
United Nations Sustainable Development Goals

Government plans and policies take into account the United Nations’ Sustainable
Development Goals. The Goals, which are valid for the period 2016–2030, are 17

in number with 169 sub-goals and cover both domestic affairs and international

collaboration during the period of validity. Goal 7 is about sustainable energy and

Goal 13 is about climate action. The United Nations Sustainable Development Goals
were approved by representatives of all UN member states in September 2015,
including Iceland.

9.2.2 Reports With Involvement from Government Offices•

Energy Policy and Action Plan (Parliament, 2021).

•

DNV’s report on energy demand for energy transition at sea. Ministry of•

Verkis – Electrification of ports in Iceland. Prepared for the Ministry of•Cultivation and production from energy plants. Prepared for the Ministry of•

Report on the examination of charging infrastructure.

•

Report on the feasibility of producing electric fuel in Iceland.

•

The macroeconomic impact of electric cars (2018). University of Iceland, RU,

Industry and Innovation, Samorka, Faxafloahafnir and SFS. December 2021.
Industry and Innovation.

Transport and Local Government.

the Ministry of Industry and Innovation, Orkusetur, Samorka, Íslensk Nyorka
and Graena orkan.

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Energy security in the wholesale market (Ministry of Industry and Innovation,•

Report on Competitiveness (Ministry of Industry and Innovation, 2020).

•

Report on underground cables in the electricity transmission network•

Security of electricity supply in the Westfjords (2020).

•

Electricity prices and the development of competition in the electricity market•

Climate action plan (Ministry of the Environment and Natural Resources, 2020).

•

MIT Report on Energy Security (2017).

•

Report on charging infrastructure (2021).

•

Power and energy balance 2022–2026.

•

Development of infrastructure. Measures due to bad weather and other

March 20222020).

(Ministry of Industry and Innovation, 2019).

(Efla, 2019).

infrastructure development (2020).

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10. Letter of Commission

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The Government Offices of Iceland
Ministry of the Environment, Energy and Climate