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Iceland | Power |

24 June 2017

When It Comes To Clean, Affordable, Abundant, Reliable Power, and Long-Term Power Contracts...Iceland Stands Alone

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)

Sitting out there by itself in the Atlantic Ocean, Iceland – with a population of not quite 331,000 inhabitants - is not a big country. To put that in context, Aurora, Colorado, Honolulu, Hawaii, and Leicester, England have similar populations. However, in addition to amazing northern lights, stunning landscapes, an incredible soccer team, and its infamous Kæstur hákarl (fermented shark), Iceland possesses a critical distinction that makes it the envy of the world: the country enjoys an enormous abundance of clean and cost-effective electricity.

Blessed with Natural Resources

Iceland sits astride a tectonically active region, while at the same time experiencing high levels of annual precipitation and consistent water supplies from glaciers. In fact, with its 665 megawatts (MW) of geothermal and 1,985 MW hydroelectric plants (generating about 17 thousand megawatt-hours annually), Iceland generates more electricity per capita than any other country in the world (about nine times as much per inhabitant of the European Union, for example):

Source: ASKJA ENERGY

Additional Potential

The existing developed resource is considerable, but it’s still just scratching the surface. If Iceland’s additional hydro and geothermal resources were developed (taking into account environmental concerns) they would add at least another 11 thousand annual megawatt-hours.

The geothermal resource holds particular promise. Geothermal is being developed at multiple levels – including an ambitious deep drilling project that will go to a depth of about three miles (five km – twice the distance of a typical development).

Wind energy is also on the table, given the country’s windy environment. Two small (900 kW) turbines were recently erected, and a wind atlas for the country was recently developed. However, given the low costs of hydro and geothermal energy, there has been little impetus to further explore the wind resource. Nonetheless, it is fair to say that the wind development potential may be significant, especially as global costs for wind technologies continue to fall rapidly. In the U.S., for example, wind costs have declined from about 7 cents per kilowatt-hour to the mid 4 cents range (absent any subsidies), and may fall to as low as 2 to 3 cents within the visible future. So it’s fair to say it that wind may soon be cost-effective in Iceland.

Power One Can Count On

Once electrons are generated, they have to go somewhere. Supply must always equal demand, and power quality (voltage) is critical as well. With about 2,000 miles of transmission lines, Iceland’s power grid, is consistently rated as one of the most reliable on the planet, with very few disturbances. That fact is important for industries that have come to rely on Iceland’s energy economy for a steady and reliable flow of electricity.

Where Do All Those Kilowatt-Hours Go?

So who uses all that power? Today, over 80% of the electricity produced is devoted to industry, with over 70% of the power dedicated to aluminium smelting – the island literally exports the lion’s share of its electrons to the rest of the world in the form of aluminium ingots. Drawn by affordable power, the data center industry is increasing as well, though it still remains a small portion of industrial demand.

What Do Those Electrons Cost?

Given steadily growing electricity demand, some observers expect electricity prices to slowly rise. This is because most of the country’s lowest-cost power resources have already been developed, with slightly more expensive resources on the margin. It is estimated that heavy industry may soon see prices in the 3.5 to 4.0 cents range (including delivery), while large data centers may be in the 4.5 cents range. Landsvirkun (Iceland’s national power company) currently offers a 12-year fixed price contract at 4.3 cents. While industrial prices are slightly higher than they used to be, they are still less than half the price of power in most developed countries.

How Does That Compare To Other Energy Economies?

Most countries in the world spend more than twice as much for electricity based on the simple fact that their power is largely sourced from hydrocarbons. The only energy economies that can rival Iceland with respect to low prices and low carbon are some of the other Nordic countries – principally Sweden and Norway - and the province of Quebec. However, Iceland has the distinction of offering long-term fixed contracts to data centers of 12 years.

Iceland’s Electricity: Clean, Affordable, Abundant, and Reliable – A Great Place for Data Center Colocation

When it comes to electricity, Iceland pretty much has it all: a dependable grid supplied by low-carbon and cost-effective power, with enormous potential resources that remain to be developed. The country also sits right between the world’s largest data markets. It’s no wonder that many companies with energy intensive operations are looking north. In that regard, Iceland is the place to be. For those companies considering outsourcing their data center operations, colocating operations to Iceland is unquestionably worth a look. It might merit a trip north to check it out. But if you decide to try the Kæstur hákarl, don’t say you weren’t forewarned.

Note: You can read Peter's popular whitepaper on energy availability verses growing data demand, titled 'Mind the Gap' here.

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