Otis Singleton
Iceland's electricity sector is almost entirely powered by renewable energy sources, with hydro, geothermal, and wind energy accounting for 99.98% of the country's electricity generation. The country's electricity market is geographically isolated, and until 2003, it was closed to competition, with Landsvirkjun holding a monopoly on electricity generation. Today, Landsvirkjun remains the largest electricity producer in Iceland, and the majority of electricity is sold to industrial users, particularly aluminium smelters and producers of ferroalloy. With plans to connect Iceland's grid to the UK via a subsea HVDC interconnector, understanding the industrial electric rates in Iceland becomes crucial for assessing the country's energy strategy and its potential impact on domestic and international electricity markets.
| Characteristics | Values |
|---|---|
| Business electricity rates compared to the world average | 52.71% |
| Business electricity rates compared to Europe's average | 41.36% |
| Household electricity rates compared to business rates | 208.98% |
| Electricity rates for small businesses compared to big businesses | 153.93% |
| Electricity rates for households with low consumption compared to high-consumption households | 154.79% |
| Iceland's electricity consumption per capita compared to the EU 15 average in 2008 | 7 times higher |
| Share of electricity generated from fossil fuels | 0.00% to 0.02% |
| Share of electricity generated from wind energy | 0.05% |
| Share of electricity generated from hydro power | 70.16% |
| Share of electricity generated from geothermal energy | 29.79% |
| Iceland's largest electricity producer | Landsvirkjun |
| Iceland's largest local distribution companies | RARIK, Orkuveita Reykjavíkur, and Hitaveita Suðurnesja |
| Iceland's national electrical grid owner and operator | Landsnet |
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What You'll Learn
Iceland's electricity market
The Icelandic electricity sector is almost entirely renewable, relying on hydropower, geothermal energy, and, to a lesser extent, wind energy. In 2013, Landsvirkjun initiated a pilot wind power project with two 77-metre-high turbines, with plans to increase wind power further. The sector has seen significant growth, with a notable increase in production between 2005 and 2008 due to the Kárahnjúkar Hydropower Plant.
The retail market is served by companies like RARIK, Orkuveita Reykjavíkur, and Hitaveita Suðurnesja, with new resellers like N1 Rafmagn, Straumlind, and Orka Heimilanna entering in 2022. Landsvirkjun's dominance was challenged when Orkusalan, a joint venture, was established. However, the merger was allowed on the condition that Landsvirkjun withdrew.
Iceland's electricity prices vary depending on usage and consumer type. In 2024, residential prices were higher than the EU average, while business rates were lower. Small businesses pay more for electricity than large businesses, and households with low consumption pay higher rates than those with high consumption.
The transmission and distribution of electricity are regulated by the National Energy Authority (NEA), which oversees pricing, quality, and security. The Icelandic Transmission System Operator (TSO) is Landsnet, jointly owned by RARIK, Landsvirkjun, and Orkubú Vestfjarða, with a key role in promoting an efficient market and developing an electronic trading platform (ISBAS).
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Industrial users
The Icelandic electricity market is geographically isolated and was closed to competition before 1 July 2003. The majority of electricity is sold to industrial users, particularly aluminium smelters and ferroalloy producers. In 2013, the aluminium industry in Iceland consumed up to 70% of the electricity produced. Landsvirkjun, the country's largest electricity producer, held a monopoly on investment in generation prior to market opening in 2006.
Electricity prices for industrial users in Iceland are influenced by various factors, including the country's energy mix and the cost of primary fuels. Iceland's electricity sector is almost entirely reliant on renewable energy sources such as hydropower, geothermal energy, and wind energy. In 2022, the United States Energy Information Administration reported that Iceland's energy mix consisted of 70.16% hydro, 29.79% geothermal, 0.05% wind, and 0.02% fossil fuels.
The price of electricity is a key consideration for industrial businesses, as it often represents a significant proportion of their total energy costs. In Iceland, electricity prices for businesses are lower than the world average, with business electricity rates at 52.71% of the global average and 41.36% of the European average. This makes Iceland an attractive location for energy-intensive industries.
To meet the demands of industrial users, Iceland has invested in its electricity infrastructure. The country's national electrical grid, owned and operated by Landsnet, consists of 3,000 km of transmission lines and approximately 70 substations. The completion of the Kárahnjúkar Hydropower Plant in 2008 significantly increased electricity production, with a capacity of 690 MW.
There are also plans to connect the Icelandic grid to the UK through the proposed Icelink project, which would be the world's longest submarine HVDC cable. This interconnector would allow Iceland to export excess energy and integrate into a wider European supergrid. However, the project has sparked controversy due to concerns about potential increases in domestic electricity prices and environmental impacts.
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Energy sources
Iceland is a world leader in renewable energy. In fact, 100% of the electricity in Iceland's grid is produced from renewable resources. In 2016, 85% of the total primary energy supply in Iceland was derived from domestically produced renewable energy sources. Geothermal energy provided about 65% of primary energy, hydropower 20%, and fossil fuels 15% (mainly oil products for the transport sector).
Iceland's unique geology allows it to produce renewable energy relatively cheaply, from a variety of sources. It is located on the Mid-Atlantic Ridge, making it one of the most tectonically active places globally. There are over 200 volcanoes and 600 hot springs in Iceland, as well as over 20 high-temperature steam fields that reach at least 150 °C, with many reaching 250 °C. This allows Iceland to harness geothermal energy, and these steam fields are used for heating everything from houses to swimming pools. Geothermal power heats 89% of houses in Iceland, and over 54% of the primary energy used in Iceland comes from geothermal sources. The move from oil-based heating to geothermal heating saved Iceland an estimated total of $8.2 billion between 1970 and 2000 and lowered carbon dioxide emissions by 37%.
Hydropower is also a significant energy source for Iceland. In 2015, 75% of renewable energy production came from hydropower, with 24% from geothermal power. The Icelandic government believes another 30 TWh of hydropower could be produced each year, while still preserving sources that must remain untapped for environmental reasons. There is also still a large amount of untapped hydroelectric energy in Iceland, with the government estimating that a further 50 TWh of energy per year could be produced from renewable sources.
The National Energy Authority is responsible for monitoring and regulating the compliance of companies operating power plants. In 2007, the Icelandic government released a Climate Change Strategy, setting forth a long-term goal of reducing net greenhouse gas emissions by 50 to 75% of 1990 levels by 2050. The government also aspires for the nation to be carbon neutral by 2040, with the largest obstacles to this being road transport and the fishing industry.
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Transmission costs
The Icelandic electricity market is geographically isolated, with almost all electricity supplied by Landsvirkjun and sold through regional distribution companies before market opening began in 2006. Landsvirkjun, the largest electricity producer, did not participate directly in the retail market for households and smaller businesses. Instead, the retail market was dominated by RARIK, Orkuveita Reykjavíkur, and Hitaveita Suðurnesja.
The Icelandic national electrical grid is owned and operated by Landsnet, a company jointly owned by three state-owned power companies: RARIK, Landsvirkjun, and Orkubú Vestfjarða. Landsnet's transmission network operates at voltages of 220kV, 132kV, and a few 66kV lines, serving the entire country with 3,000 km of transmission lines and around 70 substations. The Icelandic grid is powered almost entirely by renewable energy sources, with hydroelectric power contributing 70% and geothermal energy contributing 29.79%.
Icelandic companies have developed innovative transmission systems that can withstand the country's challenging geology, icing, and extreme winds. These systems have been successfully implemented in projects worldwide, showcasing the extensive knowledge and experience of Icelandic experts in planning and designing transmission networks.
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Electricity prices compared to the EU
The electricity sector in Iceland is almost entirely reliant on renewable energy sources, with hydro power, geothermal energy, and wind energy accounting for 99.98% of the country's electricity generation. Iceland's electricity market was closed to competition before July 1, 2003, with Landsvirkjun, the country's largest electricity producer, holding a monopoly on investment in generation. The market opened up in 2006, allowing consumers to switch suppliers.
Electricity prices in Iceland are significantly lower than the EU average. For instance, the average price for EU households with an annual consumption of 2,500 to 5,000 kilowatt-hours was 28.9 euro cents in the first half of 2022, around 13 cents more than in Iceland. Business electricity rates in Iceland are 41.36% of the European average.
The price of electricity in the EU is influenced by a range of factors, including the geopolitical situation, the national energy mix, import diversification, network costs, and environmental protection costs. The price of primary fuels and the cost of carbon dioxide (CO2) emission certificates also play a role in determining electricity prices.
The variation in electricity prices among EU member states is notable, and the EU has been working to liberalize electricity markets since the 1990s. The EU-27 includes a diverse range of countries, each with its own unique energy landscape and pricing structure for electricity.
Iceland's electricity consumption per capita was seven times higher than the EU 15 average in 2008, and the majority of the electricity is sold to industrial users, particularly aluminium smelters and producers of ferroalloy. There are plans to connect Iceland's grid to the UK through a subsea HVDC interconnector, which could allow Iceland to export excess energy and link to a wider European supergrid. However, this project is controversial in Iceland due to concerns about increased domestic electricity prices and environmental impact.
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Frequently asked questions
Iceland's electricity rates for businesses are 52.71% of the world average price and 41.36% of the average in Europe.
Iceland's electricity sector is 99.98% reliant on renewable energy, with 70.16% coming from hydropower, 29.79% from geothermal energy, and 0.05% from wind energy.
The majority of electricity in Iceland is sold to industrial users, mainly aluminium smelters and producers of ferroalloy.
Landsvirkjun is the country's largest electricity producer, with 76% annual production in 2007.
There are plans to connect the Icelandic grid with the UK using a subsea High-Voltage DC (HVDC) interconnector, allowing Iceland to export excess energy and join a wider European super grid.
