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Iceland | Power |

30 August 2017

The UK is up against it when it comes to electricity supplies and Iceland may be able to help

Written by Peter Kelly-Detwiler (Guest)

Peter is co-founder of NorthBridge Energy Partners and has more than 25 years experience in the international energy industry. (All blogs by Guest bloggers are their own)

For several years now, the United Kingdom has been facing a tough situation when it comes to the availability of electric power. The recent closure of a number of ageing coal and gas plants has worsened the situation, to the point where British Gas recently called upon institutions such as data centers and hospitals to connect their emergency generation to the power grid.

Fortunately, the nation made it through 2016 without major interruptions, but the forecast for electricity supplies in 2017/18 is extremely tight. Electricity supplier National Grid warned that the coming winter is the first time since the current planning system began in 2001 that it is not forecasting a surplus of supply. That does not automatically spell blackout, as some more expensive additional power can be brought in from the continent on undersea cables, but it does suggest higher power prices, at a minimum.

Relief in the form of a new nuclear power plant is a long way off

Longer-term, relief may be on the way in the form of the controversial £18bn 3,200 MW Hinkley Point C nuclear power plant, financed by French utility EDF as well as Chinese investors. The project started construction this spring (after seven years of delays) and is slated to begin generating power in 2025. Construction may proceed as planned, however, the recent history of nuclear plant construction has been relatively bleak, with massive cost overruns and delays at facilities in Finland and France, and recent debacles in construction of two plants in the United States that bankrupted engineering giant Westinghouse while threatening parent company Toshiba. So relief here will not come soon, and it is far from certain.

Cables and interconnections with other markets

Despite the looming Brexit issue, there are numerous plans to connect other markets to the UK, with Bloomberg reporting at least 12 projects for undersea cables worth over 10 billion Euros on the books. With U.K. electricity prices a third higher than France and 80% higher than the Nordic countries, there is plenty of economic incentive to do so.

While most of these projects will involve significant lead times, the 1,000 MW Eleclink from France – via the Channel Tunnel - is already under construction, and Statnett – the Norwegian grid operator – is also moving forward with a 1,400 MW cable to connect the U.K. to Norwegian hydropower.

With IceLink, Iceland is also entering the game

Meanwhile, Iceland and the U.K. continue discussions concerning the potential export of electrons to the United Kingdom through a proposed 800-1,200 megawatt (MW) transmission line (by way of context, the Iceland’s current generating capacity is approximately 2,800 MW).

The concept of a submarine cable from Iceland to the U.K. is over 60 years old, with regular reviews that until recently suggested the economics would not be feasible. However, recent research suggests that the project might indeed be economically viable, as power prices in the U.K. and Europe have climbed in recent years and the focus on carbon reduction has intensified.

The proposed project – called IceLink – is estimated to cost between 3.0 and 3.5 billion Euros. An intergovernmental task force has been established to further evaluate the project, which would involve laying a 1,000 kilometre cable between the two countries, in an undertaking that would last approximately five to six years.

Brexit may complicate the IceLink picture

Post-Brexit, the IceLink project may be delayed. In fact, the head of Landsvirkjun indicated to Reuters last October that a change in focus would likely delay the project. In truth, this project will likely only happen if the economic benefits are abundantly clear to investors. To that end, Landsvirkjun’s CEO has indicated that some type of long-term fixed price guarantee would be necessary, similar to that offer to the Hinkley Point C price arrangement.

At present, then, it would be fair to say that the U.K. power situation is currently somewhat precarious, with a number of long-term options floating out there at the moment. None of these will be of much help to residents and businesses in the near-term if the coming winters are very cold. One other option that may help: moving discretionary electricity loads - such as data centers – to more economical locations

The opposite of building new generation is reducing existing consumption, either through efficiency or simply moving it elsewhere. Aside from making generators available to the grid, large operators – particularly data centers – may want to consider what discretionary load they could permanently move to other locations. That would relieve stress on the U.K. power grid while offering affordable solutions to computer processing load that does not have to be located within the greater London area. For that reason, Earlham Institute decided early this year to move its high performance computing workload to Iceland, receiving carbon-free data center services with minimal latency issues at a reported 70% reduction in costs. Other large data users would do well to at least investigate this option.

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