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01. mars 00 Atvinnuvega- og nýsköpunarráðuneytið

11th Annual U.S. Hydrogen Meeting and Exposition , Virginia, U.S.A. 01.03.00

Valgerdur Sverrisdottir,
Minister of Industry and Commerce

ENERGY IN ICELAND
The Resource, its Utilisation and the Energy Policy
Presentation at the National Hydrogen Association's
11th Annual U.S. Hydrogen Meeting and Exposition
Vienna, Virginia, U.S.A.
March 1 2000

Iceland's natural resource base consists of the fish stocks, the land with its soil and vegetation, spring water and renewable energy resources - both geothermal and hydro. The unpolluted environment, on which food-processing and tourism are based, is also regarded as one of our most important natural resources.

In terms of the population size, Iceland has considerable untapped reserves of energy. Further harnessing of these reserves for economic development is a task for the future which should play a large role in maintaining sustainable development and high standards of living in Iceland in the coming decades.

In this address I would like to say a few words about Iceland's energy resources, how we have made use of them, environmental aspects of the utilisation and the energy policy.

Domestic Energy Resources

Hydro Power
Natural conditions in Iceland favour the harnessing of hydropower for the generation of electricity. The hydropower potential is theoretically estimated at about 64 TWh per year, of which 40 – 45 TWh per year may be technically and economically feasible. After taking into account environmental aspects the potential will probably be 25 -30 TWh per year. So far only 6 TWh per year have been harnessed, or about 20 per cent.

Geothermal Resources
An estimate has been made for the geothermal resources. It should be stressed that the geothermal resource is not strictly renewable in the same sense as the hydro resource. An assessment of the total potential for electricity production from the high-temperature geothermal fields in the country gives a value of about 1500 TWh or 15 TWh per year over a 100 year period. The electricity production capacity from geothermal fields is now only 1.3 TWh per year.




Energy Policy in the Past

Development of the energy reserves in Iceland may be divided into three phases, with a certain degree of overlapping.

The first phase covered the electrification of the country and harnessing the most accessible geothermal fields, especially for space heating. In the 1950's the Government decided that as large a part of the population as practically possible should be given access to electricity from public utilities. A programme of rural electrification was begun in 1954 and completed in the late 70's with 99.99 per cent of the population having access to public utilities.

In the second phase, steps were taken to harness the resources for power-intensive industry. This began in 1966 with the signing of agreements on the building of an aluminium plant, and in 1979 a ferro-silicon plant began production. The production capacity of both plants was increased by 60 per cent in 1997 and 1999, respectively. A 60,000-ton aluminium plant owned be a U.S. company commenced operation in 1998 and is now in the phase of expansion by 50 per cent. My government regards the harnessing of domestic power sources, both geothermal and hydroelectric, for power-intensive production as a priority for economic development. We regard these products as a form of export of power; for example each kg of aluminium exported represents about 14 kWh!

In the third phase, following the oil crisis of 1973-74, efforts were made to use domestic sources of energy to replace oil, particularly for space heating. Oil has almost disappeared as a source of energy for space heating, and domestic energy has replaced oil in industry and in other fields where such replacement is feasible and economically viable.

Together with the harnessing of the energy potential for economic development in Iceland, there may be two more phases in the future – in the next decades rather than years. One is export of electricity by submarine cable. The other is production of alternative fuels, such as hydrogen, the topic at this meeting.

Energy Consumption

Allow me now to say a few words on the development of the energy consumption in Iceland. During the last few decades we have seen great changes in the energy consumption in Iceland. At the beginning of the century domestic, low-quality peat was the main energy resource. At the beginning of the Second World War, imported coal was by far the most important source of energy, followed by oil. Geothermal and hydropower provided only about 9 per cent of the country's requirements. The energy policy I have just described has completely changed this picture and geothermal heat and hydropower now account for more than two thirds of the country's primary energy consumption.

If we compare the per capita consumption of primary energy in Iceland with the consumption of other OECD-countries, Iceland comes first with 8.6 toe per capita, followed by U.S. with 8.1 and Luxembourg with 8.0 (figure for 1997). In electricity consumption, Iceland is second, coming very close to the figure for Norway.

The breakdown of electricity consumption for 1999 was as follows:
Public utilities 38.3 per cent
Power intensive industries 61.7 per cent



Sales of imported oil by consumption sector in 1998 were as follows:
General transportation 42.2 per cent
The fishery fleet 43.6 per cent
Energy production 2.0 per cent
Industry etc. 12.2 per cent

As these figures show, 86 per cent of the oil consumed in Iceland is used in the fishing and transportation sectors. If use of oil used by Icelandic companies for transportation between Iceland and other countries is included, this figure is 90 per cent.

A few words on the utilisation of geothermal energy. The Icelandic sagas record the use of hot springs during the first centuries of settlement in Iceland. For example, they tell how the first settler, Ingólfur Arnarson, named the site Reykjavik after the steam rising from the hot springs. Reykjavik means "Bay of Steam", or "Steamy Bay". A few of the first settlers built their farms near hot pools and geysers, which they used mainly for bathing, washing and cooking.

Historical records show that sulphur was mined and exported as early as the 13th century. Sulphur is precipitated from sulphur-bearing steam. High prices were obtained for sulphur, which was used in the making of gunpowder and therefore had great military value.

It was not until this century that utilisation of geothermal energy began on any significant scale. Naturally, utilisation of this resource has gone closely hand in hand with developments in science and technology, not least in drilling techniques and geophysics.

The first use of hot water to heat houses dates back to 1908, though it was not until the 1920's that this development took wing with the building of four regional schools in geothermal areas, geothermal energy being used to heat the buildings and hot water for the school swimming pools. This was the first large-scale attempt to utilise geothermal energy. It was successful, and as a result, the presence of geothermal sources became important in choosing sites for schools, hospitals and other institutions.

There are now about 30 public district heating utilities in operation. Before the oil crisis of 1973/74 there were 15, the second 15 having been established largely as a response to the rise in the price of oil. In addition to these public systems, there are also several small local systems shared by groups of farms.

By far the most important application of geothermal energy is in space heating. More than 75 per cent of the geothermal energy that has been harnessed (excluding steam used for electrical generation) is used for space heating, and geothermal energy meets 86 per cent of the space heating requirements of Iceland.

There are more than 100 public pools in the country using geothermal water, and over 5 per cent of the utilized geothermal energy is used in swimming pools.

The use of geothermal water for greenhouse cultivation dates from 1924. Geothermal water is also used in aquaculture, particularly to stimulate the growth of smolts and species that live in warm water like sea bass.

The first large-scale industrial application of geothermal energy was in 1968 to dry diatomaceous earth. The plant was a joint venture with a U.S. company. There is another plant where geothermal heat is used to dry seaweed and salt is also produced using geothermal steam. It should also be mentioned that in the last few years, attempts have been made to utilise the thermophilic bacteria found in hot springs.

Utilisation of geothermal energy in Iceland is rather different from that in other countries as energy from the low-temperature fields is generally utilised directly without using heat exchange. This is possible because water from these fields normally contains relatively small quantities of harmful substances. In most other countries, geothermal utilisation is largely associated with electrical generation, while in Iceland 10 per cent of the electricity consumed is produced from geothermal energy. The main reason for this is the plentiful availability of hydropower, which meets about 90 per cent of the country's needs for electricity.

Environmental Aspects of Developing the Domestic Energy Resources.

In recent years increased environmental concern has been raised over the possible harmful impact of developing the indigenous energy resources of the country. This is despite the fact that these energy sources are much less harmful to the environment than the fossil fuel sources they replace.

Hydro power developments may have various environmental impacts. The most severe is usually connected with the construction of reservoirs which may be necessary to store water for the winter season. Such reservoirs often cover vegetated areas in the highlands which may be valuable as grazing land for sheep. In some cases these areas are also important habitats for wild birds. Other forms of impact may involve the disappearance or alteration of waterfalls, reduced sediment transportation in glacial rivers downstream from the reservoirs and changed conditions for fresh-water fishing.

Geothermal developments may also have various environmental impacts, among them the drying up of natural hot springs. Development of high-temperature fields may cause some air pollution by increasing the natural H2S emission from the fields. It may also cause pollution of surface and ground water by power plant effluents. These effects are essentially restricted to high-temperature fields.

Many of these effects are inevitable, but their extent can be minimised by environmentally sound planning and construction and by pollution control equipment. Against the negative environmental impacts of both hydro and geothermal developments we must weigh the very important positive effect of eliminating air and water pollution from the fossil fuels they replace.

We must also evaluate the use of these renewable energy resources in the light of the UN Program of Action, the so called Agenda 21, adopted at the United Nations Conference on Environment and Development in 1992. Chapter 9 of Agenda 21, which addresses the protection of the atmosphere, states that the ultimate objective in that area includes the following: First, to reduce the polluting effects of energy use on the atmosphere and, second, to increase the proportion of efficient energy exploitation which does not pollute the atmosphere and of renewable energy especially. According to the Agenda, governments should review energy use with the aim of promoting clean energy and harmonise regional energy programs wherever possible to enable the utilisation of clean energy from new and renewable energy sources. We regard our use of the renewable energy resources to be consistent with the objective of Agenda 21 and the United Nations Convention on Climate Change which was also adopted in Rio.

Emissions of greenhouse gases in Iceland differ from other OECD countries. Firstly due to the large share of renewable energy resources and secondly due to the large share of emissions from the fishing fleet and transportation. Iceland has therefore very limited possibilities to limit and reduce emissions of greenhouse gases. Let me give you an example. In the absence of the actions taken in the space heating sector following the oil crisis in the 1970s greenhouse gas emission would have been 40 per cent higher in 1990, the base year of the Kyoto protocol, and on the same level as average emissions in the OECD countries. As 100 per cent of the electricity production, and over 95 per cent of the stationary energy use is supplied by renewable sources, Iceland has reduced its emission of greenhouse gases almost as far as possible. Potential emission reductions in the fishery sector and transport are very limited for the commitment period 2008 – 2012. The use of alternative fuels might change that in the longer term.

The main objective of the Climate Convention is to reduce emissions of greenhouse gases in the world. It is ironic that the commitments proposed in the Kyoto Protocol for Iceland might counteract this objective. Let me explain this statement with an example. A new aluminium plant under construction in Iceland with a production capacity of 180,000 tonnes and using renewable energy sources will increase Iceland's total emission of greenhouse gases by about 0.31 million tonnes CO2 equivalents, which equals 11.3 per cent of the total emission of Iceland in 1990. This is only due to so called process emissions, that is emission from the chemical reaction. The same plant using electricity supplied by a coal fired power plant would increase emission by about 2.5 million tonnes or 7 to 8 times more. This is unfortunately not a theoretical example; new aluminium plants world wide are now mainly supplied by thermal power in the developing countries – countries which will not take concrete commitments according to the Kyoto Protocol. In the short term, production of power intensive products is the only possible way to increase the use of the renewable energy resources in Iceland and contribute to the global reduction of greenhouse gases. Iceland will not be able to accept the commitments of the Kyoto Protocol if they hinder the use of renewable energy resources for power intensive industries as a result of process emissions.

Government Policy and Future Development.

My government's policy is to harness Iceland's clean and renewable energy reserves, geothermal and hydropower, for sustainable development and to further improve the living standards in the country. By using our clean energy sources, we are making a contribution towards the reduction of carbon dioxide emissions from power plants, as it is clear that this utilisation replaces fossil-fuel power stations, at least to some extent.

A major task of economic policy in Iceland at present is to ensure that foreign investment continues to yield a dividend in growth and better living standards. The investment in power intensive industries over the past 5 years is probably the single most important contribution to our economy in that period. The agenda of my Government emphasises the increased use of energy resources for economic development. In the near term, power intensive industries are the most realistic option for large scale utilisation of the domestic energy resources. In the long term other options may be possible.

The option of exporting power by submarine cable has been studied from time to time since the early fifties. The export is now considered technically feasible and on the margin of being economically feasible. The cost of electricity exported to England or the Continent of Europe would double from the cost on the shore in Iceland, which supports our policy to produce power intensive products in the country for export. Some companies, mainly in the power sector in Europe, have shown interest in exploring this option further. As the Icelandic power system is isolated and mainly based on hydro, an interconnection to the European electricity system would have many benefits for Iceland.

Production and use of alternative fuels has also been studied for some decades. Studies in the early 1990s indicated that the production and use of alternative fuels is not economically viable. The situation may be somehow different today mainly due to the progress in fuel cell technology, but many innovations and improvements are still needed before hydrogen or other alternative fuels can replace oil in the energy system. During the past few years the discussion in Iceland on alternative fuels has mainly revolved around hydrogen as an energy carrier. Following the outcome of a committe established by the former Minister of Industry and Commerce under the chairmanship of Mr. Hjalmar Arnason Member of Parliament some large foreign companies have shown interest in co-operating with Icelandic parties in the study of hydrogen. Early last year VistOrka, an Icelandic private company, together with DaimlerChrysler, Norsk Hydro Produksjon and Shell International, signed a joint venture agreement on co-operation in this area. On that occasion the Government made the following statement:

"It is the Government's policy to promote increased utilisation of renewable energy resources in harmony with the environment. One possible approach towards this goal is production of environmentally friendly fuels for powering vehicles and fishing vessels. Liquid hydrogen is an example of such a fuel. The establishment of a company owned by Icelandic parties and several international corporate leaders in the field of hydrogen fuel technology could open up new opportunities in this field.
The Government of Iceland welcomes the establishment of this company by these parties and considers that the choice of location for this project is an acknowledgement of Iceland's distinctive status and long-term potential. The initiative taken by the parties involved in this project deserves to be applauded and respected."

The Government is not involved in the work of the companies. However the Government is now considering to provide financial support for a project on hydrogen fuelled buses in Reykjavik.

In conclusion, the Icelandic energy system is based on renewable energy resources – both hydro and geothermal – to a larger extent than in any other country. Fossil fuels are almost exclusively used where it is not technologically feasible to use renewable energy sources, that is to say in transport and fisheries. My Government's policy is to promote increased use of our renewable resources production. Iceland therefore welcomes studies, technological development and other initiatives in promoting the use of alternative fuels. Use of hydrogen is in line with our policy if it proves to be economically feasible.

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