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Iceland positioning itself as leading exporter of renewables

The tiny North Atlantic nation is pinning its hopes on becoming the vanguard of Europe's clean energy push

Iceland is trying to position itself as the leading exporter of renewable energy to the world.

Speaking at an event in London in early November, the country's president Ólafur Ragnar Grímsson, said developing Iceland's geothermal and hydropower resources boosted its economy and slashed carbon dioxide (CO2) emissions. Iceland now wants to export its clean energy model to Europe, the US and China. "The Arctic and northern regions are not just territories of oil and gas. They are the clean energy future of Europe," Grímsson said. "We have a moral obligation, due to the threat of climate change, to share our experience. The big question for all of us is how we can make that happen together."

Grímsson said developing its renewable energy sources has transformed Iceland from - a nation of farmers and fishermen - to a world-leader in clean energy development.

Iceland now domestically produces around 85% of the primary energy it uses. Last year, Iceland produced 4,600 gigawatt hours (GWh) of electricity from geothermal energy, according to government figures. This is around a quarter of the country's total electricity generation in 2012.

The remaining 75% of the country's electricity came from hydropower. Hydropower generation has increased rapidly since the 1960s, boosted by the development of Iceland's aluminium industry, which uses around 70% of total production.

Although Iceland's oil consumption has fallen over the past five years, according to the country's National Energy Authority, it still consumes around 21,200 barrels of oil a day, all of which is imported.

Grímsson said it was the threat of climate change which prompted the country's renewable energy push. "In Iceland we don't have to go to international conferences to learn about climate change. We see it upfront," Grímsson said. "We risk (creating) a future that will be completely different from anything any other generation has ever seen."

Iceland's CO2 emissions have fallen since the 2008 economic crisis, according to World Bank figures. This could be a result of its renewable energy production, but is  more likely to be a result of reduced economic output curbing the country's energy consumption.

Five years after the collapse of Landsbanki, which plunged Iceland into huge debt, the country is still feeling the effects of the financial crisis. According to figures from the International Monetary Fund (IMF), the Icelandic krona depreciated by 40%  following the crisis.

However, the devalued krona has helped to encourage direct foreign investment to energy-intensive sectors. A cheaper currency reduces labour costs, which, in turn, offset wage increases.

Iceland returned to positive economic growth in 2011 as its gross international monetary reserves exceeded its short-term debt levels. However, it is still in a vulnerable position financially. Iceland's economic growth and real output is still 10% below its pre-crisis peak and its GDP growth, which reached 2.9% in 2011, slowed to 1.6% last year.

Grímsson said the country's agricultural production was transformed by using geothermal energy to heat greenhouses. Homes and apartment blocks are also heating by geothermal power.

Iceland has been forming deals with companies in Asia, Africa, Latin America and Europe to jointly develop geothermal projects. Grímsson said these deals are boosting Iceland's economy and increasing its international influence. "Our geothermal cooperation with other countries is the most important pillar of the Icelandic foreign policy and diplomatic dialogue," President Grímsson said.

"It's an extraordinary luxury for a nation of 300,000 people to be in that position. The (economic) potential could be off the scale in benefits for my nation."

Iceland's Geysir Green Energy has partnered with Sinopec to explore for geothermal resources in China's Inner Mongolia region. Iceland and China are in talks to build a complex of greenhouses, heated by geothermal energy, in northern China. This could cut the costs of transporting food hundreds of miles from agricultural areas to population centres, and reduce CO2 emissions. Grímsson said Iceland is also in discussions with India to do similar deal.

In September, Iceland signed a $4 billion agreement with Ethiopia to build a 1,000 megawatt (MW) geothermal power plant in the African country's volcanically active Rift Valley.

Grímsson said developing these clean energy sources is not just about ensuring energy security in a low-carbon way. "It is about the transformation of our societies and our economies in a responsible profit-driven and welfare-driven way," Grímsson said. "Countries are now looking to the northern part of Europe for their clean energy needs."

Denmark, Finland, Iceland, Norway and Sweden have set ambitions carbon-cutting targets. They have pledged to reduce their CO2 emissions by 85%, from 1990 levels, by 2050. The International Energy Agency (IEA) said to achieve this, the region must cut emissions from its transport sectors from 80m tonnes of CO2 in 2010 to just 10m t/CO2 in 2050.

To do this, the region will have to limit growth in transport demand, cut clean energy technology costs and improve fuel economy, the IEA said. Biofuels and electric vehicles will also have to take centre stage.

Direct CO2 emissions from energy used in buildings must also be slashed, by 90% from 2010 levels, to just 5m t/CO2 in 2050.

The Icelandic government is expected to decide in the next few weeks whether to approve construction of a 1000 km subsea cable to export hydropower from Iceland to the UK.

Hörður Árnason, chief executive of Landsvirkjun, Iceland's national power generation company, said Iceland generates more renewable electricity per capita than anywhere else in Europe.

With a population of 300,000 people, Iceland's maximum power demand is unlikely to exceed 2,639MW, Arnason said. He added that around 10% of the power Iceland produces in not being used and could be freed up for export. "The interconnector would allow us to unlock value that we're not using today," Arnason said.

The interconnector could provide 1GW per year of clean energy to the UK at a relatively low cost. At around £107/MWh ($172/MWh) it is likely to be cheaper than electricity generated from UK offshore wind and comparable with the cost of producing biomass power from converted coal. 

Charles Hendry, former UK Minister of State for Energy and Climate Change, said Britain needs to rebuild its entire energy infrastructure to adapt to its increasing use of cleaner fuels. "We have to make a decision whether to put power plants where supply or demand is," Hendry said. "The answer to that is the interconnector."

Arnason said the project would need cross-party political support, of around 80% within Iceland, to go ahead because of the long-term timescale for construction and the huge cost.

Arnason added that the pre-construction studies would take around three years and then initial construction would be an additional five or six years away.  It will also need widespread political support from the UK to commit to it financially.

Paul Johnson, project director at the UK National Grid, said the project would cost the UK around £2.5bn. Although the interconnector was needed to improve the UK's clean energy security, the country would need to bring in outside investment to make the project happen, he said.

"The next generation want to see clean energy at a cost-competitive price," Johnson said. "The interconnector is where we need to go forward but it will never solve all our energy problems."

The European Union has proposed member nations use an interconnector to supply around 10% of their energy. Around 5% of the UK's power is imported through interconnectors.

The proposed project could be met with political opposition from within Iceland over fears consumer energy bills will increase.

In the UK, rising energy bills is a huge issue of contention. In October, several UK-based utility companies announced steep price rise for natural gas and electricity. Some increased gas and electricity prices by more than 11% and 10% respectively year-on-year. The companies blamed higher European gas prices and UK government-imposed levies to promote renewable energy for the price rises. Around 14% of the average UK electricity bill fund government energy and climate change policies.

Although the UK is expecting an electricity supply crunch, the public is unlikely to support an expensive renewable energy project if the cost is passed onto the consumer. 

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