A Sustainable Energy Future

Tinna Traustadóttir, VP Sales and Services Landsvirkjun and Pétur Blöndal, Managing Director Samál.
Tinna Traustadóttir, VP Sales and Services Landsvirkjun and Pétur Blöndal, Managing Director Samál.

“A Sustainable Energy Future” is the caption for Iceland’s Energy Policy, introduced last year. It was initiated by the Minister of Industries and Innovation and formed by a working group with appointed members from all parliamentary groups. The objective was to create an agreement for Iceland’s future vision on energy policy. The conclusion was that value creation from renewable energy resources is one of the pillars for quality of life in Iceland. As a point in case, domestic production has increased by more than 50% per capita compared to other countries in OECD, since the development of energy intensive industries began more than half a century ago, according to a study made by the Federation of Icelandic Industries (SI).

Softening Economic Cycles

Not only have the pillars of the economy been reinforced, but now the pillars have multiplied in line with the robust energy industry, thus softening the effect of economic cycles, once governed by fluctuating catch in the fishing industry. This has been clearly manifested during the economic downturn due to the pandemic. Rising aluminium prices have brought dozens of ISK billions in increased export revenues, as well as significantly improved performance of the energy companies, as power contracts are partly pegged to aluminium prices.

Prospects Excellent in the Aluminium Industry

After difficult times in the past few years in operations of aluminium companies, which can be traced, e.g., to overproduction of aluminium in China, the prospects now are excellent. The reason is healthy growth in demand for aluminium, largely because it is part of the solution to the climate change. Hence, the ratio of aluminium in car manufacturing has increased, as the metal is light and strong. Thus, cars become more energy efficient and have a larger range on each charge. Aluminium is used for insulation for buildings, resulting in up to 50% less required energy, as well as being used to prolong shelf life of medicines and food. Also, aluminium is an excellent electricity conductor and as such is used in the construction of electricity generating plants, including here in Iceland.

Key Component of the Circular Economy

Would it suffice to recycle the existing aluminium in the world to meet demand? This question is asked every now and then since aluminium can be recycled again and again without losing its original properties. Thus, in the circular economy, aluminium is a key component. And to answer the question, the demand for aluminium increases annually, and aluminium is a very durable metal and is typically used in constructions built with durability in mind. Approximately 75% of all aluminium ever produced in the world is still in use.

Fighting the Climate Crisis

The newly formed Energy Policy places importance on the energy transition, where fossil fuels are replaced with renewable energy, as it is necessary to fight the climate crisis, which is one of the greatest challenges that humanity faces. It is important that all countries in the world share the collective responsibility of this global threat, and the people in Iceland have a lot to offer with the energy intensive industries that are seeking sustainable and renewable energy.

Emissions Decrease by Tenfold

An interesting fact is that aluminium produced in Iceland with renewable energy has ten times less GHG emissions compared to that produced in coal generated aluminium smelters in China. Furthermore, carbon emissions per produced tonne from aluminium smelters in Iceland have been reduced by 75% since 1990, and now carbon emissions from aluminium production are lowest in Iceland compared to other countries. Hence, it is important that the global aluminium market demand is in part met with environmentally friendly aluminium produced in Iceland. Avoided carbon emissions just from Landsvirkjun’s production alone in 2020 was estimated at 2.7 million tonnes of CO2-eq, as a cautious estimate by KPMG, which is equivalent to three times the annual carbon emissions from road transport in Iceland. When the energy production is compared with coal generated energy production, which is the case for aluminium production in China, the total annual savings is closer to 12 million tonnes of CO2-eq. Icelandic aluminium production does not in itself solve the climate crisis on a global scale, but our contribution makes a difference.

Vigorous Aluminium Industry

The aluminium industry in Iceland is in a strong position, creating opportunities for further investment and maintenance, as can be seen in Norðuráls ISK 15 billion investment in a new casthouse. This is in line with plans for further processing of aluminium in Iceland. The aluminium companies Ísal and Fjarðaál have already taken big steps towards further processing their aluminium, thus moving up the value chain. These endeavours will support the growing cluster of companies that have already formed in the energy sector in Iceland, but the aluminium smelters buy products and services for ISK 25 to 40 billion from hundreds of domestic companies annually, excluding the energy, but the aluminium smelters’ total domestic expenditures were approximately ISK 100 billion in 2020, and foreign earnings are expected to increase significantly in 2021, due to increasing aluminium prices.

Robust Electricity Producers

For more than half a century, Iceland has had the good fortune to have the operations of robust electricity producers with large international wholesale customers. The result is a powerful electricity system that has been developed in this remote and sparsely populated country. This is a solid foundation for the future, regarding green jobs and the energy transition. Iceland is in the enviable position to form a realistic future vision of becoming: “… land of clean energy, where all energy is derived from renewable sources.”, just as stated in the new Energy Policy.