Successful Adjustment to Icelandic Conditions


An article by Hörður Arnarson, CEO of Landsvirkjun

Hörður Arnarson, CEO of Landsvirkjun
Hörður Arnarson, CEO of Landsvirkjun

Successful Adjustment to Icelandic Conditions

European countries consider the unique electricity system- and markets developed in Iceland quite enviable. The isolated Icelandic grid, with 100% renewable energy, is one of its kind worldwide. Indeed, such a system poses various challenges; however, when the main properties of energy systems are observed, it is clear that Iceland is probably in a better position than all other countries when it comes to:

  • Utilising renewable energy
  • Low and stable energy prices to the public and secure delivery
  • Excellent capacity utilisation
  • Competitive operations environment for large end users
  • Satisfactory rate of return from energy generation

All this has been made possible by adjusting an active business environment to Icelandic conditions. By dividing the market into two parts, households and smaller companies have enjoyed delivery security for fair and stable prices. Meanwhile, a competitive business environment has been created for large end users by offering long-term power purchasing agreements, leading to predictability in operations and flexibility.

Demand predictability for the coming years and expertise in natural resources are essential to operate a system commanded by nature. One example is the extraordinary Icelandic approach, where utilisation is maximised by selling curtailable power to customers who can use less energy when needed.

No Market Barriers

Lately, concerns regarding possible energy shortages have been a topic of discussion. However, during 2019-2021 some slack was in the energy system due to inefficient demand, mainly because large end users utilised curtailment clauses. This slack in the electricity system developed only at Landsvirkjun, while other electricity generators managed to run their power stations at full capacity, free from market conditions. This also applies to all smaller power stations; hence, there are no apparent market barriers to entry.

Thus, Landsvirkjun has kept the system in equilibrium and sold less when supply increases or demand is lower. Furthermore, the Company has increased supply to meet a foreseeable rise in demand domestically by commissioning three new power stations in the last ten years.

Overall, Landsvirkjun has enjoyed successful operations. The energy system is efficient and renewable and operates close to full capacity. Large end users' operations are foreseeable and based on long-term agreements. Electricity prices are competitive, and energy security is the number one priority. The country reaps the benefits through taxes and dividend payments. We can be proud of this achievement, considering that no system is perfect and various challenges are always ahead.

This and more will be discussed at the Landsvirkjun annual general meeting at Harpa, the concert hall in Reykjavík, on Tuesday, March 5, at 14.00.