Iceland (2013)

Degree of reliance on imported energy: 

As there are no oil refineries in Iceland there are no crude oil imports. All secondary oil products are imported and in 2008 the total annual consumption of oil derivatives was 759,000 tonnes, whereof 196.000 tonnes were sold for international transportation.

Approximately 95% of the consumption is for transportation and fisheries. In the year 2008, imported fossil fuels were 18% of primary energy consumption mainly used for fishing and transportation. There was 90% oil and 10% coal that are mainly used for ferrosilicon factories.

Main sources of Energy: 

In Iceland the electricity generation mix is 100% renewable (hydropower and geothermal power). In addition most of the heating also comes from renewable sources (geothermal). This is very different from most other European countries, where electricity from renewable sources only accounts for approximately 20% of each nation’s total energy, on average. In total, close to 85% of Iceland’s consumption of primary energy is renewable energy, while renewable energy sources now account for only 12% of the final consumption of energy within the EU (this refers to energy used as electricity, heating, cooling, and transportation).

Oil amounts to 20% of Iceland’s primary energy supply and merely an estimated 20% of the Icelandic economy (GDP) is oil dependent. It is expected that Iceland’s energy stemming from imported fossil fuels will decrease considerably from the current 20% in the coming years. The project is already underway and systematic steps have been taken to this effect, i.e. with various incentives programmes. There are no oil refineries in Iceland. Iceland currently produces biofuels for use in the transportation sector and there are plans in place to increase such local production. Iceland furthermore has plans for oil exploration and production in its territorial waters, namely the Dreki area.

The Icelandic electricity system is an isolated system without any connection to other countries. There were 314,000 residents in December of 2010, living mostly along the coastline of 103 thousand square kilometres of land. Per capita electricity consumption is however among the highest levels in Europe, as energy-intensive industry consumes 80% of generated electricity. 99.99% of electricity produced in 2010 was from renewable sources.



Extent of the network: 

The Icelandic electrical system is an isolated system without any connection to other countries. Virtually all inhabitants of Iceland except those living on small islands off the coast and on remote farms, are connected to a single transmission system through six distribution networks. In 2010 the transmission system consisted of approx. 3,169 km of high voltages lines (33, 66, 132 and 220 kV) and around 70 substations and transformer stations.

Capacity concerns: 

During the last 15 years, due to the expansion of existing power intensive industries and the commissioning of a new one, the Icelandic electricity system has expanded considerably and the production capacity has increased from 1,049 MW to 2,579 MW and the generation from 4,976 GWh to 16,835 GWh. This has involved considerable investments in the transmission system.

Potential for Renewable Energy: 

So far only a portion of Iceland’s renewable hydro- and geothermal energy resources have been harnessed (approx. 20–25% of the total and probably around 40-50% when environmental concerns have been taken into account). In addition, Iceland may offer interesting possibilities for large-scale wind power generation.


Iceland has relatively low insolation, due to the latitude, about 20% less than Paris, and half as much as Madrid, with very little in the winter. Unlike geothermal, solar power is a non-dispatchable renewable energy source - the sun follows a predictable path but the weather is not controllable. This makes both wind power and solar power variable renewable energy (VRE) sources.

Wind Energy

According to the categories established in the European Wind Atlas (Troenand Petersen, 1989), the wind energy potential of Iceland is in the highest class. Although wind energy cannot be expected to replace hydro-and geothermal energy, it can be a valuable addition. For example, a modest wind farm of 15 EnerconE44 turbines installed on Hellisheiðiwould produce more energy than the smallest currently operational hydro-and geothermal power plants in Iceland together.


To date there has not been a heavy emphasis on biodiesel in Iceland. However, a new biodiesel plant was constructed recently in the northern town of Akureyri, Iceland’s second-largest urban area. It will use waste vegetable oil and animal fat as feedstock. The plant was designed by the Icelandic engineering firm, Mannvit.

Biodiesel is produced from waste fat derived from food production or energy crops. The biodiesel can be blended with normal diesel oil and thus easily be distributed through the current infrastructure. The advantages of Icelandic biodiesel production and use are twofold: lower carbon emissions and domestic production, both of which result in increased energy independence and less dependence on imported fossil fuels. The biodiesel from the plant in Akureyri is blended with normal diesel fuel. It will mostly be used to power Akureyri’s public transport system. However, the local fisheries sector has also started using this green fuel for trawlers.

There are a few other ongoing startup projects in the Icelandic biodiesel industry. Making biodiesel from rapeseed is one option. Rapeseed oil is a well-known biofuel and can be substituted for diesel fuel.


Due to geophysical conditions, Icelandic geothermal power is a reliable base load and a low cost option for electricity generation. Geothermal plants now account for approximately one-quarter of all electricity generated and consumed in Iceland. As new geothermal power stations are being built and with many more in the pipelines, the share of geothermal electricity in Iceland’s overall energy production is expected to grow substantially. Today, geothermal power plants in Iceland have a total capacity of 575 MW and generate approximately 4,500 GWh annually.


It is the main source of electricity production in Iceland. Today, hydroelectric plants account for approximately three-quarters of all electricity generated and consumed in Iceland. The remaining quarter comes from geothermal power stations. The largest hydroelectric stations utilize the flow of Iceland’s glacial rivers, while numerous smaller hydropower plants are located in clear-water streams and rivers all around the country. All the major hydroelectric stations get their water from reservoirs, ensuring that these stations offer stable production year-round. In total, all the hydropower stations in Iceland have a capacity of just under 1,900 MW and generate around 12,600 GWh annually. Due to new hydropower projects the capacity and generation will increase substantially in the next few years.

Potential for Energy Efficiency: 

As of 2011, the industry sector consumed the greatest proportion of final energy consumption in Iceland (1,326 ktoe, 44.7%), indicating the potential for efficiency savings in this sector. In 2005, forecasts indicated that Icelandic industry could save between 126 ktoe/year and 148 ktoe/year as of 2030, with between 224 ktoe/year and 354 ktoe/year savings available in the whole economy.


There are five major producers of electricity in Iceland; the national power company Landsvirkjun, Reykjavik Energy, HS Orka, Fallorka and Orkusalan. All of these companies are publicly owned except for HS Orka, which was owned by Canadian firm Magma Energy Corp. in 2010, which became Alterra Power in 2011 after merging with another firm.


The three largest companies generate 97% of total electricity produced and are active in the wholesale market. The dominant producer, Landsvirkjun, produces 74% of total electricity, an increase of 1% from the year prior. Smaller producers either sell directly to their own retail division or enter 7-10 year contracts with retail sales companies. 80% of electricity consumption is by energy intensive industry. Energy intensive industry is supplied with electricity through long-term power purchase agreements (i.e. contracts valid for over 10 years) and therefore never directly enters the wholesale market to retailers.


The TSO has been developing a power exchange which will allow retailers to purchase electricity directly from producers. The opening was delayed in 2010 due to the 2008 financial crises in Iceland, and is now scheduled to be operating by mid-2012. No specific measures were taken in 2010 to foster wholesale competition.

Structure / extent of competition: 

Although liberalisation was introduced through the Electricity Act in 2003, retailers still purchase their supply through long term contracts, as no actual electricity trading hub yet exists in Iceland, However, the transmission system operator is currently developing such an exchange, scheduled to be operational in 2012. Most retailers are either also producers themselves, or closely connected through ownership or history to a corresponding producer.

Competition occurs in three distinct ways in the Icelandic market; wholesale competition, retail competition and competition for energy intensive industry. There is one dominant producer, with 74% of electricity generated, who does not participate in the retail market and sells largely directly to energy-intensive industry through long-term power purchase agreements. There are very low rates of customer switching in the retail market and the majority of customers buy from the same retailer which was once the vertically-integrated utility in the area, prior to liberalisation. Despite what remains to be a relatively stagnant market, electricity prices to Icelandic end-users are among the lowest in Europe.

There is a single transmission company and six distribution companies which are licensed by the NEA to distribute electricity in their designated areas. These aspects of the market are subject to revenue caps and tariff regulation by the NEA. One of the seven DSOs sold its assets and distribution rights to the neighbouring DSO in 2009, making 2010 the first year where only 6 DSOs were operating. The trend of mergers continues for Icelandic DSOs which have decreased from 8 to 6 since 2003 when the Electricity Act was passed.

There are a total of seven retailers, all of which were part of a DSO at one time. One sales company, Húsavík Energy, operates a small Kalina cycle geothermal plant which was offline for 2010-2011. The electricity market is open for all users to select a sales company. The largest sales company supplies 37% of electricity to the general market, the second largest 33% and the third largest 17%.

Landsnet, Iceland’s TSO, is owned by a number of power companies. Landsnet’s board of directors is nevertheless independent of other companies engaged in the distribution, generation or supply of electrical power. As regards unbundling, all vertically integrated companies serving distribution areas with 10.000 or more inhabitants are required to separate distribution from other activities according to the Electricity Act No 65/2003, as amended by Act No 58/2008 on amendments to a few acts in the area of resources and energy. All the DSOs, except one, Orkuveita Reykjavíkur, have carried out the unbundling of their operations.

Existence of an energy framework and programmes to promote sustainable energy: 

It is the policy of the Government of Iceland to increase the utilization of the renewable energy resources further for the power intensive industry, direct use and transport sector in harmony with the environment. A broad consensus on conservation of valuable natural areas has been influenced by social opposition, increasing over the last decade, against large hydropower and some geothermal projects. There has as well been a governmental effort to search for geothermal resources in areas where geothermal energy has not yet been found. The Icelandic National Renewable Energy Action Plan (NREAP) was published in year 2012 in accordance with Directive 2009/28/EC which outlines the strategy for 2020 especially in terms of increasing the share of renewable energy in transport.  Two major amendments were made in year 2012 to the energy legal framework in Iceland that effect geothermal exploration and utilization:

  • Grants to new geothermal heat utilities were increased from being the equivalent of the accumulation of space heating subsidization with oil or electricity of 8 years to 12 years. In addition if the project receives other grants it will not effect in any way this lump sum payment (Act No. 78/2002).
  • Promotion of the use of energy from renewable sources was further stipulated by changing law no. 30/2008 taking into consideration Directive 2009/28/EC.

There is no need for special methods to ensure that renewable energy sources are used as the national production is 99% renewable both in electricity and space heating. Users have full access to all the renewable energy they need through the national grid or a local geothermal district heating plant. However there are renewable energy technologies such as heat pumps, increased insulation and energy efficiency methods promoted, mainly in areas which do not have access to geothermal heat and use renewable electricity for heating at a higher cost.

Current energy debates or legislation: 

There is currently a lively political debate on energy and related issues. To summarise the main elements of the debate is not easy.  The discussions centre on a few key issues, mainly with regards to the environmental impact of power projects and their effect on society and overall economic development. Other significant issues include ownership and usage rights of the country’s natural resources and their acquisition by foreigners. There is also the question of what to do with the electricity generated and the industries buying that electricity.

Major energy studies: 

Nordic Energy Research

Nordic Energy Research is the platform for joint Nordic Energy Research and policy development under the auspices of Nordic Council of Ministers. It promotes cooperation in research and policy between Denmark, Finland, Iceland, Norway and Sweden.

Deep Roots of Geothermal Systems (DRG-project)

The geothermal research cluster GEORG initiated the project Deep Roots of Geothermal Systems (DRG-project) which aims at understand the relationship of water and magma in the roots of volcanoes and how heat is transferred into geothermal systems to maintain their energy. Furthermore, the design of wells and well heads for high temperatures will be a focus of the project, as will methods for utilizing superheated steam from greater depths. The $1M project is financially supported by GEORG, Orkustofnun, Reykjavik Energy, HS Orka, Landsvirkjun and the Iceland Deep Drilling Project (IDDP). The research will be performed by three groups made up of representatives from universities, research institutes, engineering companies and energy companies. The latest technology will be applied in surveying, resistance measurements and seismic measurements, petrology and geochemistry. In addition, new simulation models will be developed. These models will be used to simulate heat transfer and operation of geothermal boreholes for high temperature steam. Training young scientists to work in this field will be an area of heavy focus for this project. This project is to strengthen the ongoing preparation of IDDP-2 in Reykjanes.

Role of government: 

On the 1st of September 2012, the Minister of Industries and Innovation took over the duties of the Minister of Industry and Commerce as a result of the government’s decision to merge the Ministry of Fisheries and Agriculture, the Ministry of Industry, Energy and Tourism and part of the Ministry of Economic Affairs. Therefore, the Minister of Industry and Innovation took over responsibility for energy matters in the country.

Government agencies in sustainable energy: 

The Energy Agency (Orkusetur)

The first energy agency in Iceland was formally opened in the end of 2006 and is located in the town of Akureyri in North-Iceland. The main role of the agency is to increase awareness about energy efficiency in households and industry. Creation and introduction of education material about different energy issues does also fall under the main agenda of the agency. The agency is fully autonomous and works as a link between the public, private companies, institutions and the authorities.

During a start period of 3 years the activity was partially financed by the IEE. Intelligent Energy – Europe’ (IEE) is a main means of converting EU policy for smart energy use and more renewables into action on the ground, addressing today’s energy challenges and promoting business opportunities and new technologies. The agency is managed by the management board and politically supervised by the Icelandic Government.  The five representatives of the management board are appointed by the Minister of Industry and Commerce, the Association of Local Authorities in Iceland and The Federation of Icelandic Energy and Water Works.

The main objectives of the agency:

  • To provide consumers and public authorities with information in the fields of energy.
  • To promote rational use of energy for space heating and place emphasis on areas where geothermal energy is limited.
  • To create and introduce an education material for schools and consumers.
  • To help small and medium sized companies and each municipality to plan strategies for facilitating energy efficiency.
  • To promote a reduction in the intensive use of fossil fuel in the transport section.

National Energy Authority (NEA)

The main organisation in Iceland responsible for energy matters is the National Energy Authority (NEA), which since 2012 has been part of the Ministry of Industries and Innovation. Since 2003 steps have been taken to outsource exploration and monitoring services to ensure the financial independence and integrity of the NEA. In 2003, as a result of changes in Iceland’s energy legislation, the NEA’s former Geoscience Division was split off to form a new government-owned institution named Iceland GeoSurvey (ÍSOR).

In August 2008 the responsibility for administering licences for surveying and the use of energy resources, plus some other earth-based resources, was transferred to the NEA from the Ministry of Industry, Energy and Tourism (now, the Ministry of Industries and Innovation).

NEA is the main body responsible for supporting energy research in Iceland. Some activities are also supported by the Icelandic Centre for Research (RANNIS) which administrates most of the general R&D support schemes.

Energy planning procedures: 

Further development of new major energy projects in Iceland is under way. Plans for the construction of new power stations take into account not only energy issues, but also the impact on nature, regional development, tourism and outdoor activities, employment, and on society at large. Currently, a long-term Master Plan for Hydro and Geothermal Energy Resources is being prepared by the Icelandic government.

It is expected that the final Master Plan for Hydro and Geothermal Energy Resources has been adopted by the Icelandic parliament (Alþingi) in January 2013.

In addition, the national power company Landsvirkjun has started research on harnessing the wind power in Iceland. Iceland is not only the largest electricity producer in the world per capita, but also has excellent potential for becoming a substantially large wind power generator. This may be especially productive in conjunction with a submarine electric cable connecting Iceland and Europe.

Due to the unique position that the Icelandic electricity network holds, being isolated completely from other European networks and 100% renewable-based, the major focus in energy planning from 2012 onwards is in changes to the transport sector, which is predominantly reliant on imported fossil fuels, as well as formulating an energy strategy for continuing the sustainable development of Iceland’s renewable energy sources. A more detailed action plan for the transport sector is currently being drawn up, but economic incentives and active programs to promote alternative fuel use in transport are already underway.

Current development plans for the electricity transmission network envisage, with regard to the general market, the strengthening of the 132 kV transmission systems to Vestfirðir (Northwest Iceland), as well as the strengthening/renewing of the network. With regard to the energy intensive industries, strengthening of the 132 kV transmission systems from Blanda (near Blönduós) to Akureyri for a new factory in Akureyri is foreseen, and as regards power plants, a new 220 kV transmission system in the Southwest to strengthen the connection from existing and expanding geothermal power plants in Svartsengi and Reykjanes to the main transmission grid. Investment intentions are not monitored or forecasted on a medium and long term basis by the Government. The Transmission System Operator (TSO) and the Distribution System Operators (DSOs) make investment plans for the general market. The TSO makes a 5 year development plan, which is updated annually.

The National Energy Authority (NEA) is the competent authority for granting licences to install power lines of 66kV or higher, and also for distribution concessions. The State Planning Agency provides an advisory opinion and environmental impact assessment for all new licenses, and on the basis of this opnion, the local municipality to host the distribution concession grants the final license.

Energy regulator Date of creation: 

The Electricity Act stipulates two regulatory authorities for monitoring compliance with the act; the NEA, which is under the Ministry of Industry and Innovation, and the Competition Authority, which is under the auspices of the Ministry of Economic Affairs. NEA’s main responsibilities have been to advise the Government of Iceland on energy issues and related topics, promote energy research and administrate development and exploitation of the energy resources.  NEA also ensures that the regulatory framework of the Electricity Act and is the national regulatory authority for energy.

Degree of independence: 

NEA is the national independent regulatory authority for the electricity market in Iceland. NEA has no ownership interests in the electricity industry and is independent from the economic interests in the electricity industry. NEA is an independent legal entity with its own budget adopted by Parliament and power to act in the scope of its competences. NEA shall consult with the Competition Authority on the regulation of the operation and tariffs of transmission system operators and distribution system operators, as applicable.

Regulatory framework for sustainable energy: 

Legislation applying to the energy market in Iceland covers natural resources, the distribution of heat and electricity generation.  The following is a list of legislation and other regulations that directly or indirectly apply to the energy market.

  • Act on Landsvirkjun, No 42/1983
  • Act on the creation of the Hitaveita Sudurnesja, No 106/2000
  • Act on the guarantee of origin of electricity produced from renewable energy sources, etc., No 30/2008
  • Electricity Act, No. 65/2003
  • Act on the establishment of Landsnet hf., No 75/2004
  • Act on the survey and utilization of ground resources, No 57/1998
  • Act amending various acts of law relating to natural resources and energy, No 58/2008
  • Act on water, No 20/2006
  • Act on the evaluation of environmental impact, No 106/2000

Regulatory roles: 

The NEA supervises and regulates the transmission and distribution enterprises, which includes the regulation of revenue caps, tariffs and the quality of electricity and security of supply. In cases where integrated companies operate in generation, sales and distribution, separate accounts must be kept for each area of activity. The generation and sale of electricity are under the surveillance of the Icelandic Competition Authority, although the NEA issues and monitors operating licenses to the competing firms.

Role of government department in energy regulation: 

The Ministry of Industries and Innovation is the responsible agency for the NEA, but does not take an active role in energy regulation itself.

Regulatory barriers: 

Iceland can be divided in two zones: hot and cold. Hot zones have access to cheap geothermal water (approx. 90% of the population) but the rest (cold zones) has to rely on oil or electricity. The cold zones get subsidy from the national government. The subsidy is good for the cold-zones but it also sets a barrier for those who want to try or invest in other energy forms. For the investors/entrepreneurs it is difficult to compete with subsidized energy. There is a grant system in Iceland, which helps researchers but it seems that not enough is done. The government should put more money in the grant-system that would enable those who want to put up renewable energy sources to have better solutions.


ASKJA Energy website: Upcoming Power Projects. Available at: [Accessed 7th November]

ASKJA Energy website: Biodiesel. Available at: [Accessed 7th November]

ASJKA Energy website: Renewable Sources. Available at: [Accessed 12th November]

Chapter 15 – Energy Iceland. Available at: [Accessed 12th November]

Energy Research Knowledge Centre website: Iceland. Available at: [Accessed 12th November]

IEA Geothermal (2012): Iceland Country Report 2012. Available at: [Accessed 7th November]

Islandsbanki Geothermal Research (2010): Iceland Geothermal Energy Market Report. Available at:

[Accessed 7th November 2012]

Intergovernmental Conference on the Accession of Iceland to the European Union (2012): Negotiating Position of Iceland Chapter 15 Energy. Available at: [Accessed 7th November]

Icelandic Meteorological Office (2009): An Icelandic Wind Atlas. Available at: [Accessed 7th November]

Ministry of Industry and Innovation (2011): The Icelandic National Renewable Energy Action Plan. Available at: [Accessed 7th November]

Minister of Industries and Innovation (2013): Sub-sea Electrical Cable Connections to Europe. Available at: [Accessed 7th November]

Nordic Energy Research website: About us: Bridging sustainable solutions.  Available at: [Accessed 8th November]

Trans-European networks (2011): Screening Report Iceland. Available at: [Accessed 12th November]

The National Energy Authority in Iceland (2011): Report on regulation and the electricity market 2010 Iceland. Available at [Accessed 12th November]

The National Energy Authority in Iceland (2011): Report on regulation and the electricity market – Iceland. Available at: [Accessed 12th November]

Orkusetur website: Energy Agency. Available at [Accessed 12th November]

Puhakka, Helena & Renval, Jarmo (eds.) (2012: Community Renewable Energy in the Northern Periphery – An Argument for Policy Change. Available at: [Accessed 15th November]

Wikipedia website: Renewable Energy in Iceland. Available at: [Accessed 6th November]

National Energy Authority website. Available at: [Accessed 23rd January]

Ministry of Industries and innovation website. Available at: [Accessed 23rd January]

EU Energy Commission (2011): Screening Report - Iceland. Trans-European Networks. Available at: [Accessed 23rd January]

Ministry of Industries and Innovation (2009): Icelandic National Renewable Energy Action Plan. Available at: [Accessed 23rd January]

IEA (2011): Country Energy Statistics - Iceland. Available at: [Accessed 23rd January]

EU Database on Energy Saving Potentials website. Iceland Energy Saving Statistics. Available at: [Accessed 23rd January]