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SUSTAINABLE GENERATION AND UTILISATION OF ENERGY THE CASE OF ICELAND. PRODUCTION ET UTILISATION DE L ÉNERGIE SOUTENABLE: LE CAS DE L ISLANDE VALFELLS, AGUST 1 ; FRIDLEIFSSON, INGVAR 1 ; HELGASON, THORKELL 2 ; INGIMARSSON, JON 3 ; THORODDSSON, GUDMUNDUR 4 ; SOPHUSSON, FRIDRIK 5 1. Introduction Iceland is a country of somewhat less than 300,000 people located astride the North Atlantic Ridge. It is mountainous and volcanic, with much precipitation. These geographical peculiarities lead to a situation where geothermal and hydropower are abundant, while the small population lends itself to a large measure of renewable energy per capita. During the course of the 20th century a remarkable transition has taken place in Iceland. From being among Europe s poorest countries dependent upon peat and imported coal for its energy, Iceland now has practically all of its stationary energy and over 72 percent A of its primary energy from indigenous renewable sources, and has one of the highest standards of living in the world. In this paper we will examine how and why this change came about. We will demonstrate the importance of economics on the success of renewables, and how public policy may be set to encourage their successful development. We will also address some of the technical and environmental issues encountered on the way, as well as looking at technology transfer and efforts to increase the share of renewables in the primary energy. The lessons learned from Iceland s evolution towards a renewables based energy system may be particularly interesting to developing nations with untapped renewable energy sources. 2. Energy Resources Les sources de l Énergie We begin our study by looking at the magnitude of the two most important sources of renewable energy in Iceland hydro and geothermal energy. It has been estimated that the total potential energy of all precipitation that falls on Iceland is approximately 300 TWh/annum. Figure I shows the fate of this precipitation. Of the 64 TWh/annum that are technically harnessable, it is estimated that 37 TWh/annum would be economically viable, and some 25 TWh/annum once environmental concerns have been taken into consideration. B 1 National Energy Authority 1 Director, United Nations University Geothermal Training Programme 2 Director General, National Energy Authority 3 Islandsbanki 4 Managing Director, Reykjavik Energy 5 Managing Director, National Power Company 1 Evaporation Stored energy in glaciers 7600 TWh Glacier flow Precipitation 285 TWh/a Groundwater?? Twh Flowing water 187 TWh/a Harnessable energy 64 TWh/a Dispersed and not harnessable energy 123 TWh/a 22 ORKUSTOFNUN 1997 / VS Groundwater Figure 2: Hydro Energy Derived from Precipitation in Iceland. L énergie hydraulique dérivée de la précipitation en Islande. It is more difficult to estimate the amount of energy that may be obtained from geothermal sources, but the most recent estimates for sustainable use of high temperature fields suggest that they could yield 26 TWh/annum for electrical generation once economic and environmental factors have been taken into account. Resources for heating are much higher. Thus we may assume that approximately 50 TWh/annum of hydro and geothermal energy may be used for generation of electricity in a sustainable manner. Electrical production in 2003 amounted to 8.5 TWh. 3. Economic background Antécédents économiques Towards the end of the 19th century, Iceland had begun its transition from a traditional agrarian economy with minimal foreign trade to a modern economy integrated with foreign markets. This was driven by education, technical advances and the introduction of more economic freedom and flexibility than had hitherto been available. Access to capital and labor led to substantial investments in the most lucrative economic sector the fishing industry. The fishing industry became dominant in the economy, generating percent of the export revenue a fact that becomes even more compelling when one considers how much Iceland relied on foreign markets (export value was roughly 40 percent of the GDP in the interval ). C,D After getting home rule in 1918, the Icelandic government limited possibilities for foreign investment in Icelandic industries. This trend, which became ever stronger with the onset of the Great Depression and worldwide curtailing of free trade, was to have dire and longstanding consequences. Lack of capital was a constant obstacle towards diversification of an economy that was almost solely reliant on exporting fish. 2 The onset of the Second World War proved to be an economic boon for Iceland. Foreign (mainly British) fishing operations in Icelandic waters (which had been substantial) came to a halt and fish prices shot up. In addition the British, and later American, forces that occupied Iceland from early 1940, injected much needed capital into the country and many jobs were created building up the infrastructure needed for the foreign troops. The upshot of all this was that at the war s end, the per capita income in Iceland was one of the highest in the world in sharp contrast to what it had been just 10 years earlier. Unfortunately, a period of prodigal consumption and over-investment in the fishing industry, and lack of investment in a more diverse and stable economy, led to Iceland depleting its cash reserves in the space of a few years. The government s response to this situation was to introduce ever more stringent regulations concerning economic activity which further hampered enterprise in the country. After 1960, there was a change of tack in economic policy, leading to more liberalisation and opportunities for economic diversification. The economic climate had a strong effect on the development of renewable energy resources and, in turn the use of those resources affected the society to a large degree. 4. Overview of energy production Regard sur la production de l Énergie 4.1 Early use of renewables Premières utilisations des énergies renouvelables At the beginning of the 20th century imported coal, and later oil, were the dominant sources of energy in Iceland. The first hydropower installation (amounting to 9 kw) was built in 1904 by a local entrepreneur, but the first large municipal hydropower plant was built in Reykjavík in This 1 MW plant quadrupled the national electrical power capacity and brought electrical lighting to homes in Reykjavík. For the next 30 years, increases in hydropower were gradual and geared towards satisfying the needs of general consumption. The other development in the use of renewables was the introduction of district heating by geothermal energy. This development was begun in 1930 and became a large scale project in Nonetheless, oil still remained the primary source of energy for heating something that would not change until the 1970s. Let us now turn our attention to developments taking place after the beginning of the Second World War. Figure 2 shows the historical development of sources of primary energy in Iceland during the interval From this figure one can sense the general tenor of development, but let us look at the use of hydropower and geothermal energy separately in some detail. 3 Relative Use % 80% 60% Oil % 20% 0% Geo Hydro ktoe 1500 Peat Coal YEAR Figure 2: Sources of primary energy. Les sources de l énergie primaire. 4.2 Hydropower after 1940 Énergie hydraulique après 1940 In the 1950 s, funds from the Marshall Plan were used to build two hydropower plants in the Sog river; a 31 MW plant in 1953, and a 26.4 MW plant in These were the first power plants built with the view of supplying industrial needs (fertilizer and cement production for domestic use). These were also the first plants to be co-owned by the municipality of Reykjavík and the Icelandic government a result of government guarantees for the loans needed, and a portent of things to come. In 1965, the National Power Company, Landsvirkjun, was founded with the purpose of supplying southwest Iceland with electricity. The company was jointly owned by the Icelelandic government and the municpality of Reykjavík. In a departure from prior policy, the company would be a for-profit concern. Previously, electricity had been looked upon as a public good with investments paid for, directly or indirectly, out of the state treasury. The first big project of Landsvirkjun was the building of a 210 MW hydropower plant at Búrfell on the Þjórsá river (comissioned in 1969). This plant was built in conjunction with a 33,000 ton/year aluminum smelter owned by the company Alusuisse and the power was sold by a take-or-pay long-term contract guaranteed by the parent company. The new powerplant could supply both the smelter and increased general demand. The founding of Landsvirkjun, and the introduction of power intensive industry for export, proved to be an important point in the development of Icelandic renewable energy sources. First of all, the size of Landsvirkjun, and its policy of operating on a for-profit basis, ensured that it could receive favourable interest rates on loans not least due to the fact that the World Bank now considered that Iceland fulfilled 4 requirements for a loan, a status that would help with access to private capital later on. Second, the presence of a large-scale buyer in the form of an aluminium smelter made the building of a large hydropower plant feasible, thus allowing for associated economies of scale. The start of large-scale energy projects also provided an impetus for the development of domestic technological know-how a point to be discussed later in this paper. 4.3 The role of power-intensive industry Le rôle de l industrie à haute consommation d énergie Since larger hydropower plants are generally more economical (and with less relative environmental impact) E than smaller ones, the emphasis has naturally been to build higher capacity installations. Due to the small size of the Icelandic energy market, introduction of a large hydropower plant manifests itself as a sizeable jump in the total energy output, and would be hard to make feasible if it were only to satisfy steady increases in general consumption. The general strategy in power production has therefore been to build large hydropower plants in tandem with stepwise increases in power-intensive industry. Figure 3 shows electrical power production along with a timeline of industrial developments INSTALLED POWER [MW] YEAR Figure 3: Electrical power production and industrial milestones ( ). Capacité de production électrique et pics industriels. It has been estimated that power intensive industries have contributed, beyond opportunity costs, 0.5 percent of the annual GDP, on average, over the period 1969 to 4.4 Geothermal energy Énergie géothermale Although the use of geothermal energy for district heating in Reykjavík had already begun on a small scale in 1930, it did not take off until in From that period there was a gradual increase in the use of geothermal energy for heating until the the first oil crisis in In response to the increased price of oil there was a spurt of activity in geothermal district heating. The contribution of geothermal energy to space heating rose from 43 percent in 1970 to 87 percent in 2002, most of the remainder being heated with electricity from hydro or geothermal. In fact, only 1.5 percent of energy used for space heating in 2001 came from non-renewable sources. Figure 4 illustrates this development and the effects of the oil crisis on energy soure selection for heating quite well. 100% 90% 80% 70% 60% 50% 40% 30% Geothermal 87% 20% 10% 0% Oil Electricity Figure 4: Energy sources for space heating. Des sources d énergie pour réchauffement des résidences et bureaux. 11,5% 1,5% Geothermal energy has several advantages for generating electricity. First of all, the source is not affected by seasonal variations. Second, powerplants can be built economically in smaller steps than is the case for hydropower plants. Nevertheless, use of geothermal energy for production of electricity came about relatively late in Iceland. The first geothermal powerplant was installed in 1969 but, as can be seen from Figure 4, generation of electricity with geothermal really took off during the mid- 1990s. The reasons for this delay are probably twofold. Greater familiarity with hydropower was probably a deciding factor, as well as the fact that hydropower was less expensive for the mini-powerplants that characterised early development (this is only true for very small capacity hydropower plants). During the 1970s, when Icelanders had become more knowledgeable about geothermal energy through long experience, a decision was made to build a large geothermal powerplant at Krafla in northeast Iceland. Unfortunately, due to political reasons, the construction effort suffered from a lack of professional decision-making and became overly expensive. Also, volcanic activity nearby had extremely detrimental effects on the longevity of the boreholes. These factors resulted in a wariness concerning geothermal powerplants among the public. Combined with stagnation in the growth of power-intensive 6 industries, this led to a lull in the expansion of geothermal power capacity. However, the Krafla powerplant continued operation and, with the experience from a successful cogeneration plant in Svartsengi, the stage was set for dramatic growth in electrical power generation in the 1990s under the guidance of the power companies. The main factor for the success of district heating in Iceland has been its profitability, both for the utilities and for the consumers. It has been estimated that in the period from 1970 to 2000, consumers saved an estimated 3.5 billion dollars in heating costs. 7 This should be qualified by noting that oil heating might not have been the most economical approach if geothermal energy had not been used, and that consumers would probably have been more efficient in their energy use had they not had access to such inexpensive heating. Nonetheless, savings from using geothermal heating have been substantial. Geothermal space heating has not only brought savings, but also improved the quality of life. Besides improved air quality due to reduced emissions there are other benefits such as a plethora of geothermally heated swimming pools and the use of runoff heating water for melting of snow and ice (roughly 740,000 square metres of snow melting grids were in place by 2002). Figure 5 shows the breakdown of uses of geothermal energy in Industry 5,5% Snow melting 4,0% Swimming pools 4,1% Electricity generation 18,0% Greenhouses 3,2% Fish farming 5,8% Space heating 59,4% Figure 5: Uses of geothermal energy in L utilisation de l énergie géothermale en The role of government Le rôle du gouvernement Although some of the effects of government economic policy and public ownership of powerplants has been discussed, it should be noted that government involvement was much broader than that. For decades, harnessing of the domestic energy resources has been a cornerstone in the Icelandic energy policy. The government and its agencies have played a big role in implementing this policy. The government put emphasis on the exploration studies for the use of hydro and geothermal energy which resulted in extensive technological knowledge of the resources, creating grounds for sucessful development of the energy resources. Governmental funds 7 were also established to enhance the use of these resources and, in the case of geothermal, to share the risk with developers in the relatively expensive drilling for geothermal water. F This policy has been an important factor in creating fruitful grounds for successful utilisation of the energy resources. 5. Environmental concerns Issues environnementales 5.1 Localised environmental problems Problèmes environnementaux locaux The environmental problems posed by geothermal and hydropower projects are local in general, although international considerations may come into play concerning water rights. The main objections concerning hydropower plants are the following: large-scale flooding of land due to reservoirs, altered flow and effects on aquatic biology, and aesthetic concerns such as disappearance of waterfalls and presence of dams and other structures. Objections concerning geothermal power are associated with changes in geothermal water levels (e.g. disappearance of hot springs, and possible land subsidence) in the development area, contamination of freshwater, noise from and unsightliness of powerplants, as well as some problems with air quality (e.g., H 2 S emission) and mineral deposits. There is also some limited CO 2 emission associated with geothermal electric power plants (minimal compared to fossil fuel plants). The gas content of low-temperature water used for space heating in Iceland is, however, in many cases minute, as in Reykjavik, where the CO 2 content is lower than that of the cold groundwater. The Icelandic experience with renewables has not been exempt from these objections. As early as 1907 the possible use of hydropower for fertiliser production was objected to on the grounds of the destruction of waterfalls among other reasons. Recent objections have mainly been due to the loss of land to reservoirs. Since the reservoirs are almost exclusively in glacial rivers in uninhabitable areas, these protests are not based on human activity but mostly on aesthetic objections to altering the landscape and because of worries of limiting the habitat of several animal species. Another aspect is protests the end use of the electrical energy for power intensive industry. Public acceptance of geothermal energy has, thus far, been much more widespread than that of hydropower. Responses to environmental concerns have ranged from site-specific to widereaching programs. Systematic studies on the environmental impact of the use of hydro started already in the early 1970 s. As of 1993, individual hydro and geothermal projects have had to undergo environmental impact assessments and must meet certain standards. Recently, a systematic survey of all known potential sites for powerplants was undertaken to evaluate their economic and environmental viability. G The results were used to construct a framework to be used as an overall guide for the setting of policy, taking into account environmental and economic considerations, as well as concerns of the travel industry, and use of land for recreation, and farming and other economic activities. As a result of modern communications, it is not only necessary to address the concerns of the local population to local problems, but it now happens that outside parties that do not benefit directly from power projects protest them, and may potentially try to inflict some sort of economic punishment upon those who carry out the projects. This novel problem has been encountered during the building of the hydropower plant, Kárahnjúkavirkjun, where environmental activists abroad have painted an unflattering picture of the enterprise. It is therefore possibly important to inform a much wider audience than the local populace of the benefits and drawbacks of various types of renewable energy generation. 8 5.2 Climate change Changement climatique Although the effects of anthropogenic greenhouse gas on the global climate are not fully understood, there is a general consensus for limiting their emission worldwide as a precautionary measure. How this is to be done in an economically sound and equitable manner is a matter of some contention. One approach is that set forth by the Kyoto Protocol which commits the so-called Annex I participating nations (the OECD countries and countries in Central and Eastern Europe) to legally binding targets to limit their greenhouse gas emissions in the years Those commitments add up to a cut of at least five percent from 1990 emissions. In 2001 Icelandic greenhou
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