HydroKraft Invest

Iceland has come a long way in 70 years, from being one of the poorest countries in Europe before the Second World War, to being one of the developed economies in current times. The story of the energy industry in the country is much the same. Before 1940, Iceland was dependent on imported oil and coal for its energy needs. There were a number of small hydro power stations for electricity production and the use of geothermal energy for house heating had started, but only on a small scale. The situation now is that Iceland has a thriving energy sector which has made a major contribution to the economic growth of the country. Renewable electricity produced from both hydro and geothermal sources is powering both local households and industries as well a number of power intensive industries that have seen Iceland as an ideal location.

Geothermal energy is almost the sole source for the heating of houses. A concerted effort was made to increase the market share of geothermal for house heating after the oil shock in the 1970s, with great success. All of the electricity in Iceland is now produced by either hydro or geothermal and the only fossil fuel usage is for transportation and the fishing fleet.

In fact, around 80% of the total primary energy production of the country is met by the use of renewable power which compares very positively with the European Union‘s objective of 20% in the year 2020. Iceland is currently taking steps that aim to improve this ratio further.

Foundations of success

There are primarily four factors that have contributed to the success of the energy industry in Iceland. First, Iceland is rich in natural energy resources. Currently the country has utilised only around 35% of the hydro and geo-thermal energy estimated to be technically, financially and environmentally feasible. The government in the 1960s did establish companies that at the time had to rely on foreign expertise to undertake the first large-scale power projects in the country. These companies have since then developed and now have the technical know-how, experience and financial strength to undertake the utilisation of Iceland’s energy resources in the best possible way, based on the principles of sustainable development.

Second, international companies realised that, in Iceland, they could get competitively priced renewable electricity in long-term power contracts. The country offered further positive aspects, such as location in the middle of the Atlantic Ocean, political and economic stability, skilled and well educated labour force, toll-free access to the European markets, excellent logistics and other positive criteria for power intensive industries. The demand for such power in Iceland now greatly exceeds supply.

Third, government policy in Iceland was very supportive for the utilisation of local power sources. This policy was decided upon in the mid-20th century and has been an integral part of the policy of any government ever since. Customer behaviour has been directed by the policy in some cases. A good example is the change from oil in house heating to geo-thermal in was mandatory by law in areas that had access to such energy. This required investment which was perhaps not always economical for individual house owners in the very short term but paid off longer term.

Fourth, Iceland was fortunate enough to have access to funds from the World Bank and other similar sources that provided funding for the two first larger-scale hydro power projects in the late 1960s. This was a necessary initial injection but since then the larger Icelandic energy companies have developed excellent credit ratings and are well-known participants in the international financial markets.

New direction

A new milestone has been reached in the development of the energy sector in Iceland which is the export of know-how and capital to countries where this can be put to good use. A number of engineering companies are now widening their focus and have established branches, primarily in countries in the former Eastern Europe. The energy companies have established subsidiaries, HydroKraft Invest and Landsvirkjun Power, to name two thereof, that focus on project development and investments in the international power sector.

These companies focus on renewable projects or operational facilities, with a clear emphasis on hydro and geo-thermal energy. The Icelandic contribution consists of more than capital only because it is coupled with both technical and operational expertise. The collective objective by these efforts is threefold, a win for the country and area in which these companies operate or invest, hopefully a profit and enhanced value for the respective companies and last but not least a better global environment which is of primary concern for us all.

W: www.hydrokraft.is