An interview of Hörður Arnarson, CEO of Landsvirkjun.
Mr. Arnarson, Iceland is almost completely powered by renewables but still has a few milestones left in its energy transition. Can you please tell us about the current situation from your perspective and the path forward with regards to Iceland’s energy use?
We are fortunate in Iceland to have abundant renewable energy resources which we have harnessed responsibly throughout the years. We have completely decarbonised our power and heating sector, resulting in 85% of our energy being sourced from renewables. The remainder comes from imported fossil fuels used primarily for land freight, shipping, and aviation. Complete electrification in these sectors is not feasible and that is why we are turning our focus to green fuels, such as green hydrogen or other green electrofuels (e-fuels) in the form of ammonia, methanol, or methane.
E-fuels are likely to be key to completing the energy transition in Iceland. What challenges do you see concerning next steps?
The biggest challenge is the novelty of hydrogen and e-fuels. This is a brand-new value chain, all the way from producer to end-user. Which comes first, demand or supply? It is a chicken-and-egg problem. This is the case in Iceland and indeed around the globe. In Iceland, Landsvirkjun is trying to mobilise stakeholders from the entire value chain to make sure the final shift from fossil fuels is achieved. We need to get that first ship and that first truck running on e-fuels.
The government is doing its part in aligning stakeholders in Iceland and intends to publish a hydrogen roadmap which will be a key document for realising the government’s goal of Iceland becoming fossil fuel free by 2050.
What about cost competitiveness? Will it make economic sense for companies in Iceland to switch to green e-fuels?
It will. In general, green hydrogen and green e-fuels are more expensive than traditional fuels right now, across the world. However, a combination of government incentives and technological advancements will improve the competitiveness of green e-fuels. That has been the story of renewable power such as wind and solar power and will probably be the story of green e-fuels.
In Iceland we also must consider the cost competitiveness of green e-fuels produced locally versus potentially imported green e-fuels. If we want to become energy independent and self-reliant, our e-fuel production needs to be cost competitive which can probably only be reached through economies of scale. Otherwise, Iceland will end up importing what could have been produced locally. That is one reason Landsvirkjun is actively exploring the feasibility of exporting green e-fuel to Europe.
Is that the case, is hydrogen or e-fuel export from Iceland realistic?
Yes, it is realistic and important to consider. Europe’s energy transition requires an enormous amount of renewable energy that will partially be imported from overseas, presumably in the form of green hydrogen. Landsvirkjun has been approached by several international companies seeking to develop hydrogen export projects in Iceland and is engaged in several interesting discussions on the topic. This indicates that Iceland is not only an option but a competitive one. Also, this creates a real opportunity for Iceland to contribute to the fight against climate change via exports of green e-fuels that replaces fossil fuels abroad.
Furthermore, Landsvirkjun partnered with the Port of Rotterdam and executed a pre-feasibility study on exporting green hydrogen from Iceland to Rotterdam to gain a better understanding of the concept and its feasibility. The results indicate that such a project could be technically feasible, financially attractive and would have a significant contribution to the fight against climate change.
The two companies worked together to map the key components of the value chain from renewable power generation and hydrogen production in Iceland and then ship it to the port of Rotterdam. A comparison was made of possible hydrogen carriers considering energy density, costs, demand, and other attributes.
What sizes are we looking at when it comes to a possible export project in Iceland?
The study with Port of Rotterdam showed that a possible project could be realised in the second half of this decade and would require between 2 and 4 TWh of electricity (some 200 to 500 MW). This would lead to roughly 1 million tonnes of CO2 emission reduction per year whereas long term the potential could be a reduction of millions of tonnes.
The availability of diverse sources of sustainable energy is a great advantage to Iceland and leads to a competitive price for Icelandic hydrogen on the European market. The hydrogen would most likely be converted to ammonia for transport to Rotterdam where it would be recovered for use at the Port of Rotterdam or in the hinterland.
Where would the energy come from in Iceland to supply green hydrogen for export?
Partly it would come from Iceland’s current robust energy system, with its minimal carbon footprint and small ecological footprint. However, the majority would likely come from new energy generation from both Iceland’s traditional hydro and geothermal resources as well as new large scale wind parks.
Wind power in Iceland is quite competitive internationally given the ideal weather conditions and our strong and flexible hydropower system that complements the intermittency of wind power generation. Our large reservoirs would serve as batteries to balance the wind power.
All in all, Iceland is in a strong position to not only be among the first countries to phase out fossil fuels but also to support Europe’s energy transition.