Energy Security First and Foremost

03.01.2024Orka

A New Year Message By Hörður Arnarson, CEO of Landsvirkjun

Iceland's Energy Security First and Foremost

Landsvirkjun sells all the electricity it generates, and demand is constantly rising. Iceland’s most significant energy source is the electricity generated by Landsvirkjun, the national energy company, which pays substantial annual dividends to the country. Landsvirkjun has near-zero debt; hence, it is well prepared for the inevitable investment ahead. There, the central focus must be on households and smaller companies, as they do not compete with larger companies in the electricity market but must continue to have access to energy security.

For years, Landsvirkjun’s most prominent customers have been part of the solid foundation of the economy. The energy transition will result in most branches of the economy relying as much on electricity as energy-intensive industries. Tourism will be electrified, and the fishing industry will be fuelled by green energy, just as in other areas of the economy.

Energy generation must be increased so that neither households nor smaller companies suffer.

Prioritisation Necessary

A fully utilised electricity system must prioritise sales. The Icelandic electricity system is unique as it is unconnected with other electricity systems and solely uses renewable energy sources. The isolated Icelandic electricity system prevents pure market trading, where the highest bidder buys all the energy needed at a given time, perhaps resulting in a shortage compensated by purchasing electricity from other systems.

If local households and smaller companies are to have ensured access to energy security, the retail market must be kept separate from the large user market. Furthermore, care must be taken not to enter into power purchasing agreements with new large users unless we are ready to increase electricity supply or, e.g., replace pre-existing large users. The energy generation is not unlimited; hence, it must be divided realistically, not wishfully.

Although the Icelandic electricity system is isolated, market trade has certainly been introduced, and we should strive to continue it. Market trade provides transparent price formation, access to buyers for new energy generators, and diverse energy generation development. However, while developing the electricity market trade, it is essential not to disturb households’ access to energy security. Furthermore, costly business solutions should not be introduced, price variation should be kept at a minimum, and electricity tariffs should be as similar as possible between regions in the country.

Keep the Markets Separate

Iceland's dual market structure for electricity has been in effect for years. Price variation between different parts of the market was significant some years ago. Large users want to make long-term agreements in dollars, protected from short-term market fluctuations. Households and smaller companies make agreements for the short-term in the Icelandic Krona, enjoying fair and stable energy prices, with almost no real value increase for the last decade—such stability matters.

Now and then, it has been alleged that large users do not pay enough for long-term power purchasing agreements. Still, Landsvirkjun has renegotiated terms with large users, resulting in a considerable price increase comparable to tariffs for households and smaller companies. Nevertheless, Iceland is still highly competitive with other countries.

However, no single large user should be able to enter the retail market, buying up electricity from households. As before, the two markets must be kept separate so the public has continued access to energy security while ensuring that large users are guaranteed predictable prices comparable to those they pay in other countries we want to compare ourselves with

Increased Energy Generation Necessary

The discourse on public access to energy security and the energy transition is meaningless if energy supply is not secured. The large users are not the ones who are pressing the most, as demand is increasing in all sectors of electricity consumption. Landsvirkjun cannot meet increased general energy consumption in the country and the energy transition without generating more energy. Landsvirkjun cannot support digital progress and innovation without generating more energy.

Furthermore, Landsvirkjun cannot support the evolution of current large users – our solid foundation of the economy – without generating more energy.

With district heating and electrification in Iceland, giant leaps toward the energy transition have already been taken. The complete energy transition can be reached by increasing energy generation from renewable sources available in the country.

Together, we can reach this goal responsibly, with a vision of a sustainable world powered by renewable energy.

This article was first published on 28 December 2023 in the annual Áramót Magazine.