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Energy-intensive industry electricity prices are competitive

November 16, 2020

The aluminium and data center industries in Iceland enjoy competitive electricity prices that do not negatively impact the energy-intensive industries’ competitiveness in general. These were the main conclusions of the report compiled by the Fraunhofer Institute for Systems and Innovation Research ISI at the request of the Ministry of Industries and Innovation in Iceland. Landsvirkjun’s CEO, Hörður Arnarson said “this confirms what we already firmly believe, that we offer green energy at competitive prices. We are pleased that this has now been confirmed by an independent expert.”   

The report shows that electricity prices in Iceland vary across industries and contracts but do not negatively impact the energy-intensive industries’ competitiveness in general. Hörður Arnarson said “we have always remained committed to maintaining a close relationship with our customers and to identifying feasible solutions to achieve mutually successful results. Landsvirkjun’s role is to maximise the potential yield and value of the renewable energy resources it has been entrusted with. We have concentrated our efforts on renegotiating higher prices with long-standing customers in the last few years, to reflect market prices elsewhere. The Fraunhofer Report confirms that these prices remain competitive. However, we must also consider the difficult market conditions currently being experienced by our customers, which include both the short-term effects of the pandemic and the long-term effects of increased competition with China. We have shown our support by remaining flexible during these challenging times. I am convinced that the growing global demand for renewable energy solutions will give us a competitive edge in the future.” 

Energy-intensive industries in Iceland are less energy-efficient whereas Iceland’s cold climate increases data center energy efficiency 

The report shows that Norway has significantly reduced energy consumption per tonne of primary aluminium by investing in the latest equipment and technology, whereas aluminium production in Iceland has not introduced comparable technology and therefore has a higher energy intensity, which Hörður believes could be cause for concern. The report also states  

that while some aluminium companies in Iceland are close to the global average, on average, the energy-intensive aluminium industry displays an energy intensity above the global average.  

The opposite is true of the data center industry in Iceland, where the Power Usage Effectiveness (PUE) of Icelandic data centers is above the European average and even in the range of the most efficient data centers in Europe. This can be attributed to Iceland’s cold climate which reduces the need for cooling in data centers.  

The first independent assessment 

The Ministry of Industry and Innovation approached Fraunhofer to study the impact of electricity prices on the competitiveness of Iceland‘s energy-intensive industries, with a specific focus on electricity costs. Fraunhofer has conducted comparable analyses in Germany and Norway but this type of analysis had never been previously conducted in Iceland and a review of the situation was necessary. The discussion on the competitiveness of the energy-intensive industry in Iceland has taken on new intensity in recent years, particularly regarding energy costs pertaining to production and transmission. The Ministry of Industries and Innovation made the following announcement regarding its decision to approach Fraunhover “various figures and information have been presented that differ somewhat regarding the actual competitiveness of the energy-intensive industry in Iceland when compared with neighbouring countries. Given the importance of energy-intensive industry and electricity sales within the Icelandic economy, there is an urgency to thoroughly review these issues and seek an independent analysis of the situation, with a particular emphasis on electricity costs." The report compared Iceland with Norway, Canada, and Germany. 

Landsvirkjun wanted to publish the information 

The Ministry of Industry and Innovation stated that publishing the results with the intent of offering new insight on the matter would require a level of transparency that could violate the confidentiality provisions of current power contracts. All parties were consulted before the results were published and reservations regarding the disclosure of aluminium industry energy costs were taken into consideration. However, it should be noted that Landsvirkjun was willing to disclose this information. 

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