Vital to Increase Energy Generation

At Landsvirkjun’s General Annual Meeting 2023, speakers agreed on the necessity to increase the generation of green energy, both for general domestic use and the forthcoming energy transition.

The authorities must set a clear and concise policy and licencing processes must be made efficient without lowering environmental standards.

Ways to increase the benefits from power stations’ operations to the local communities must also be considered, as well as households’ energy security, which must be ensured during the current high energy demand.

The owners’ representative, Minister of Finance and Economics Bjarni Benediktsson, touched upon the extensive impact of the Russian invasion of Ukraine on energy issues last year. Many countries’ economies were disrupted and energy security became a primary concern for the general public.

According to Bjarni, Iceland is greatly indebted to the pioneers that laid the foundation of the country’s energy system. The Minister specifically mentionedthe contribution of Landsvirkjun’s first Chairman, Jóhannes Nordal.

Furthermore, the Minister said that now was the opportunity to create an even better future for coming generations, a greener society, and work towards Iceland's ambitious goals in the energy transition. In his opinion, more energy generation was needed, as it was not acceptable that Landsvirkjun must refuse many promising projects that would have supported a greener society. In that regard, wind power would be one option. Many countries were now advanced in utilising wind power, and Iceland could learn from their experience.

The Minister emphasised that the government has an essential role in policymaking in energy matters, where the focus should be on the future.

The Minister concluded his speech by pointing out Landsvirkjun’s excellent financial results for 2022, the electricity price increase to power intensive customers, the rate at which debt had been reduced for the last years, and the substantial dividend payment, which was of great importance for the country. The Minister congratulated Landsvirkjun’s executives and employees for splendid results.

Landsvirkjun’s Chairman, Jónas Þór Guðmundsson, discussed the Company’s excellent financial outcome, which he said was not coincidental. Partly, it was the result of past investments in power stations and partly the result of renegotiations with most of the Company’s largest customers over the last twelve years.

Jónas Þór also highlighted the fact that energy generation was an industry for the future, where patience and long-term thinking were essential. Generally, a new power station does not generate revenues until 15 or 20 years after construction begins.

Jónas Þór specifically mentioned how greatly Landsvirkjun, and thus the whole nation, was indebted to the late Jóhannes Nordal, one of Iceland’s leading pioneers in energy matters.

Furthermore, Jónas Þór said that storm clouds were hanging over energy matters in Iceland. Demand for renewable energy has never been higher, and Landsvirkjun has had to turn down many environmentally friendly projects, as potential customers were inquiring about power purchasing agreements. The energy needed is not available.

If Iceland meets the government’s goals in climate issues, energy generation must be increased by much more than planned, compared to the status of the Framework Programme and licencing issues.

Politicians must rise to the occasion. Pan political solidarity is needed for the sake of the future, the country’s interests must be put at the forefront, and political bickering, which has long tainted progress in these matters, must be set aside.

Landsvirkjun’s CEO, Hörður Arnarson, said that in 2010 the Company had set the objective to increase prices to power intensive customers, ensure more diverse revenue sources, and reduce debt.

Today, Landsvirkjun has met these objectives. However, the electric power system is operating at full capacity, and there is reason to have serious concerns for energy security for households and smaller companies. An immediate reaction is needed.

Hörður said that Landsvirkjun’s next projects were the Hvammsvirkjun power station, a wind farm at Búrfell, an expansion of the Þeistareykir power station, and a power increase at the Sigalda power station. Preparations and construction of a power station are long term projects, spanning approximately 10 to 15 years.

The new power stations will start their operations in about three to four years, and the time is now to start planning new projects.

The electricity system is at full capacity, which in and of itself is an envious position to be in. Nevertheless, it does call for triage. Households and smaller companies must be a priority.

Landsvirkjun’s CFO and EVP of Finance and Information Technology, Rafnar Lárusson, discussed Landsvirkjun’s improved financial situation, which has never been better. Rafnar discussed the fast rate of debt reduction since 2010. Meanwhile, the Company renegotiated with its power intensive customers and financed the construction of new power stations. According to Rafnar, during this period, revenues had doubled, mainly due to renegotiations. The benefit from new agreements is approximately ISK 150 billion over what the older agreements would have generated.

Rafnar said that profit had increased with increased revenues, and 2022 was the second consecutive record year. No new loans with a government guarantee have been taken, and older loans of that type are quickly being paid up.

While debt was reduced, the construction of new power stations commenced: Búðarhálsstöð, Búrfell II, and Þeistareykjastöð, as well as two experimental windmills at Hafið, started operations.

Landsvirkjun will pay ISK 20 billion to the Treasury this year in dividends. In addition, the Company will pay ISK 30 billion in income tax and tax from profit from the sale of Landsnet, the Icelandic transmission operator. Landsvirkjun will pay the Treasury a total of ISK 50 billion, equal to more than half of the construction cost of the new State Hospital. Furthermore, this amounts to 5% of the Treasury’s total revenue in 2023.

Since 2010, Landsvirkjun’s credit rating has improved from non-investment grade to BBB+. The Company now has equal footing to Sweden’s and Denmark’s most prominent energy generators, just above Finland. Only Norway has a higher rating.

Landsvirkjun’s Deputy CEO, Kristín Linda Árnadóttir, discussed how Landsvirkjun had been a good neighbour to its local communities and what plans are in place. Kristín Linda said that the Company always aimed for its operations to benefit the local community where it has its operations, with emphasis on supporting issues and projects that positively affected the community and developing positive communication and cooperation. In addition, Landsvirkjun wanted to support innovation in connection with the energy transition and be a leading force in the community.

Landsvirkjun often is the largest taxpayer in municipalities where it has its operations and is a collaborating partner when it comes to, e.g., fire prevention, as well as supporting many exciting projects such as Eimir in the North, Orkídea in the South, Blámi in the Westfjords, and Eygló in the East.

Kristín Linda said that Landsvirkjun had lent a helping hand in developing the infrastructure in many places in Iceland and took road construction as an example. Over the last 60 years, Landsvirkjun has built approximately 650 km of roads and trails. This distance equals one-half of the Icelandic ring road or the drive from Reykjavík to Egilsstaðir when taking the northern route.

Furthermore, Kristín Linda discussed the findings of surveys that Landsvirkjun commissioned Gallup, the Icelandic branch of the analytics company, to conduct. The surveys find that more than 76% of domestic participants consider Landsvirkjun’s power stations to affect the Icelandic community positively, and 63% support further construction. Kristín Linda said this was critical information for an energy generator owned by the nation.

The acceptance rate is even higher among people close to the power stations. Approximately 78-85% said the power stations had positively affected their local community.

International tourists are delighted with the green energy generation in Iceland. In that group, 96% had noticed the energy generation on their travel around the country and are happy with it. Three out of four said that the energy generation had positively affected their experience of Icelandic nature. Kristín Linda noted that these findings show clearly that tourism and energy generation go very well together.

Finally, the Deputy CEO emphasised that the local communities must increasingly reap benefits from local energy generation.

Landsvirkjun’s EVP of Sales and Services, Tinna Traustadóttir, said there was a reason to celebrate that the energy security issue was finally on the agenda, as work on changing laws and regulations had commenced. For the longest time, Landsvirkjun had championed the importance of providing energy security for households and smaller companies. Large-end users had already ensured their interests in long-term agreements.

Tinna pointed out that Landsvirkjun alone cannot ensure energy security. Energy generators and the government must join hands to ensure that the state of these matters is satisfactory. Competent institutions and the government must have an overview.

As is, no one party has an overview or can inform us to what extent households are ensured energy security. However, predictability is vital in a growing market.

Tinna stated that Landsvirkjun’s wholesale market share is 50%. There, agreements with a duration of several years were made with electricity retailers that sell energy to households and smaller companies. This ensures predictability.

The other 50% of the wholesale market originates from retailers that generate energy. These companies are not legally bound to continue selling their energy to households and smaller companies. Instead, these companies might start selling their energy to data centres, land-based aquaculture, electric fuel generators, or microalgae production, which would generally be fine. However, there should be a reservation rule, as selling energy to the retail market for households and smaller companies carries obligations.

Furthermore, Tinna emphasised the necessity of separating the market for households and smaller companies from the market for power intensive customers. The energy must be delivered to the right places, but currently, there is a danger of leakages between the two markets. It could be tempting for energy intensive customers to knock on doors in the wholesale market, but that market is intended for the general public.

Therefore, it is imperative to ensure that households will never have to compete with power intensive customers for energy security.