Ræða á fundi bresk-íslenska verslunarráðsins, 4. desember 2013

Ladies and Gentlemen,

It is with pleasure that I address you here today. I welcome the initiative taken by the British-Icelandic Chamber of Commerce in organising this meeting where we will discuss various aspects concerning the possibility of an electricity interconnector between Iceland and the UK.

As we have witnessed in recent weeks and months this is a topic of discussion today, both in Iceland and in the UK. I am therefore happy to share with you some general views on the issue.

At this meeting we will have three key-note speakers who will address the topic. There are indeed many issues to examine regarding this complex matter. Before entering a detailed discussion on the pros and cons of connecting the Icelandic electricity system to Europe, through an interconnector, I think it is important to look at the Icelandic energy sector and it‘s history, in a broad perspective.

Energy issues have for decades been of key importance in Iceland and we have been very fortunate over the years in building a sustainable and secure energy sector. One can compare this sector to the other most important Icelandic sector; fisheries. In these two key sectors of our economy we have placed importance on a long term vision and a gradual and sustainable growth for the benefit of the owners of the natural resources; the Icelandic people.

This is an important point of departure in every discussion on changes within these sectors, which could turn out to be of a fundamental nature. In other words, we have a responsibility to be cautious, critical and careful in our decision making.

The Icelandic energy sector is based on a number of pillars. For the last decades we have gradually been increasing our electricity production. In the beginning from hydropower but in the seventies electricity production from geothermal power plants were added to the energy mix. Today all our electricity production is from renewable energy sources; around 75% hydropower and 25% geothermal power.

In our energy policy we have placed great importance on sustainable utilisation of the energy resources, especially in the field of geothermal energy. Further growth in electricity production is possible and we have mapped this and categorised in a Master Plan on utilisation of energy resources.

The geothermal energy resource has also been utilised for another important purpose; to heat our houses. Today the heating of houses in Iceland is 90% covered by direct use of geothermal energy and the remaining 10% by electricity.

One can also mention that in the field of geothermal energy and district heating we have been active in projects abroad and in sharing our knowledge in this area. Only last week I was joined by several Icelandic companies to Romania to launch a geothermal project under the auspices of the EFTA Devolopment fund and I am hopeful that this will lead to new opportunities for Icelandic companies in this field.

If we look back in history, energy has been one of the key drivers behind economic growth and foreign direct investment. The power intensive industries in Iceland consume more than 80% of all electricity production and are one of the three pillars of our GDP. Landsvirkjun, the national power company, was established in 1965 in direct connection with our first large scale power intensive foreign investment; the Alusuisse aluminium smelter at Straumsvík.

An important part of Icelandic energy policy has always been to ensure that households and industries enjoy favourable electricty prices. This is in line with the notion that the resources are owned the by Icelandic people and historically speaking the state owned electricity companies have paid limited dividends to it‘s owner.

The industry in Iceland, as well as other consumers of electricity, relies on secure delivery of energy and therefore a solid up-to-date energy infrastructure is essential. This we have tried to take care of over the years and currently we are working on a comprehensive strategy in further strengthening the transmission and distribution infrastructure.

This brief overview of the energy sector and our energy policy shows that we have been fortunate in building up this sector. This success is however by no means to be taken for granted. The entry of power intensive industries into Iceland which consume 80% of the electricity production, did not come about by it self. Building the necessary infrastructure to be able to provide secure delivery was not an easy task at the time. Providing the rural areas with electricity in the fifties and the sixties was costly. This also applies to the extension of the district heating system to smaller remote communities in the seventies and eighties. In the seventies more than 50% of houses were heated with oil; now this ratio is down to 1% due to systematic efforts by the Government.

Today we can see how the access to secure electrical power, at low prices, and cost efficient geothermal heating has been a major factor in positive regional development and economical growth.

I believe that we can still today, learn from this history; especially with regard to future development in the energy sector.

This is therefore my point of departure in any discussions on fundamental changes to the energy sector; such as the possibility of an interconnector to the UK.

Ladies and Gentlemen.

The idea of connecting Iceland to Europe with an submarine interconnector is not new and has surfaced several times over the decades. Studies on such a project date back to the seventies. In previous studies the project has not been found economically viable due to various reasons and a technically challenging project to undertake. However, most recent studies indicate that this may be changing, relating mostly to rising electricity prices in Europe, especially from renewable energy sources, and improvements in technology as regards the interconnector.

In June this year I received a report from a working group on the possibilty of an interconnector to Europe. This working group was established by my predecessor in office to revisit the issue of an interconnector. After reviewing the report I decided to submit it before the Parliament before further steps were taken. I introduced the report in Parliament in October where I called for a constructive and thorough debate on these issues. The working group report is now in parliamentary process and we will give it the time it needs in order to review all aspects that come into play regarding this important issue.

Indeed I could stand here all day and discuss the various pros and cons related to such a project. In general I have to say that I agree with the findings of the working group that there are still considerable uncertainties towards various aspects of the project.

If we were to connect through an interconnector, one can regard the interconnector as a new client in our electricy system. This particular client however would be of such a size, consuming around 1/3 of all electricity produced, that he would automatically affect other customers of the electricity system; both industries and households. These effects are in my opinion subject to further studies.

Furthermore, this new client would probably not be connected to the grid until after at least ten years according to the Executive Director of Landsvirkjun. One thing is certain, we cannot afford to sit back, wait and do nothing else during these ten years. As I mentioned before energy and economy are closely related and of vital importance for Iceland today. We always need to focus on development of new industries, economic growth and job creation, and in this field energy plays a key role. This cannot be put on hold while we continue to study an interconnector project for the next years.

The challenge, therefore, is to keep the focus on much needed industrial development of today and to meet existing interest from abroad towards various new investment projects, while at the same time continuing to study the pros and cons of an interconnector.

I have said before that I belive we should approach the issue of an interconnector with calmness and that all decisions should be taken on firm grounds as it would be irresponsible to rush to any decisions in this matter.

Constructing a submarine seacable to the UK, which would be the longest electric seacable ever built, is a risky investment of an unprecedented size for Iceland. Therefore, it is essential to have a general consensus on such a project before embarking upon it. I believe we are all in agreement on that.
Furthermore, if we are, following the in-depth discussion I have called for, both in Parliament and elsewhere, to embark upon further steps on the issue, I believe the Government should step in and lead such next steps; for example if we where at some point to take up formal discussions with the UK Government on the issue.

Ladies and Gentlemen,

The idea of an interconnector between Iceland and Europe is an exiting possibilty which is perhaps more realistic today than it has been in the past. It is important that we continue with the dialogue on this possibility; allow ourselves to be critical and identify the challenging and controversial spots of such a project.

I repeat that our point of departure should be how we have managed to sucessfully build up our energy sector over the last 50 years or more and how this sector has benefitted our economy and society. Excercising caution in this field is not to be questioned.

Again I would like to thank the British-Icelandic Chamber of Commerce for setting up this meeting and I look forward to the presentations which we will have today.