Iceland’s unique energy system

October 10, 2016 / Energy Policy /

Last week I attended a study tour of Iceland with the ELEEP group. Basing ourselves in Reykjavik – along with 60% of Iceland’s whole population – we met with several large organisations including a major fishing corperation HB Grandi, Iceland’s largest bank Landsbankinn and national power company Landsvirkjun. From each of these we heard how their corporate social responsibility (CSR) strategies were developing since the financial crisis which had hit Iceland so hard, and which made the meaning of sustainable development very real for Icelandic business. We also visited a state of the art geothermal power plant owned by Reykjavik Energy and a hydropower plant which has been producing emissions free electricity since the 1950s.

Unique human and physical geography

Iceland has a small population of only 330,000 people – the equivalent of Coventry, UK – but is blessed with a wealth of natural resources and a unique culture. Being at the intersection of major tectonic plates, Iceland is well known for its natural geothermal pools, and explosive geysers.

It is only in recent decades however that Iceland has begun to harness its natural energy resources. Until the start of the 20th century, Icelanders used imported coal and oil for heating and electricity generation, until the first small scale hydro power station was constructed in 1904.  It’s transition to renewable energy began early though, with 12% of its energy being provided by hydro electricity even  in 1940.



Demand for electricity is growing rapidly in Iceland, and in response it has been building new hydropower and geothermal power stations.

The result of all this hydro and geothermal power is that electricity in Iceland is amongst the cheapest in the world, at only 5.5 US cents per KWhEncouraged by the national government, energy intensive industries have been attracted to the island, and we learned that 80% of the electricity supplied by Landsvirkjun is to industrial users such as ALCOA and Rio Tinto in the Aluminium industry. The result is that Iceland is now the highest consumer of electricity per capita in the world.

Iceland’s natural energy resources are helping it to recover from its devastating financial crisis in 2008. An argument could certainly be made that its volcanoes, geothermal pools and wild rivers underpin the rapid growth of the island’s tourism industry, which is now Iceland’s biggest export and growing by 20% per year. After all, the hot water in the famous Blue Lagoon is actually provided by a nearby geothermal power plant.

Looking to the future, there is significant potential for the energy industry to drive further growth, as only a fraction of the sources of renewable energy are currently being harnessed. A fellow alumni of ELEEP Ásbjörg Kristinsdóttir is currently leading a project to extend the Búrfell hydro power station by 100MW to a total of 396MW, and her company Landsvirkjun are also in the process of constructing a 90Mw geothermal power plant in Þeistareykir in the north of the country. Both will increase capacity and improve the reliability of supply to domestic and industrial users. Landsvirkjun also have plans to build Iceland’s first utility scale onshore wind farm to harness the country’s extraordinary wind resource. Something that we experienced first hand:

Landsvirkjun predict that wind power will complement its existing portfolio of hydro generation further increasing security of supply, as illustrated by this chart from it’s report on wind power:


I recently wrote a briefing note on underwater interconnectors planned to connect the UK electricity grid to its European neighbours, including the 1000km long 1MW ‘Icelink’. It was fascinating to hear the Icelandic perspective on this project from Asbjorg, who had been the Icelink project manager before working on the new extension at Búrfell. Having completed a feasibility study and economic assessment, the decision whether to go ahead with the major project now sits with members of Iceland’s parliament (pictured right).

According to Ásbjörg, the decision is as much about the costs and benefits for the electricity market as it is about the symbolic connection of the isolated island to its neighbours.

Efficiency and emissions

With abundant supply of cheap, low carbon electricity, a number of participants on the study tour observed that many of the basics signs of energy efficiency were not being practiced in Reykjavik. Our apartment and the various industrial premises we visited were all lit by halogen or incandescent bulbs, and frequently overheated. For those of us working on efficiency as the first priority for tackling climate change, it was a strange cognitive adjustment to think that energy conservation was not as high a priority in Iceland where energy is cheap, clean and abundant.

However, we learned on the trip that while geothermal electricity is renewable, it is not free of greenhouse gas emissions. While 99.5% of the gas released from geothermal bore holes is water vapour, 0.4% is carbon dioxide, meaning that for every kWh of electricity produced, around 50 grams of CO2 is released into the atmosphere. This compares very favourably to coal fired power stations which produce over 1kg/kWh, but presents a challenge for Reykjavik’s ambition to achieve carbon neutrality by 2040. According to Reykjavik Energy however, there is some potential for capturing and re-injecting carbon dioxide into deep geothermal bore holes, and at the Hellisheidi geothermal power plant we visited on the trip the company has already started to sequester 10% of its annual CO2 emissions.


It is not surprising that Iceland is becoming an increasingly attractive place for tourists from all over the world, with its outstanding natural beauty, tectonic activity and unique brand of Scandinavian culture. Having already completed its transition to renewable electricity, it is now seeking to further exploit its natural resources to support its sustainable development. For a group of young energy professionals it was a fascinating and awe inspiring place to visit. As a UK citizen, I hope that the Icelandic parliament do decide to go ahead with Icelink, and that we become increasingly connected – by more than just electricity.

Thanks go to the ELEEP members who organised the tour, and to the Atlantic Council for subsidising the trip.