Fraunhofer Institute for Systems and Innovation Research ISI
Fraunhofer Institute for Systems and Innovation Research ISI

Project

IceCompetition – Electricity costs of energy intensive industries in Iceland. A comparison with energy intensive industries in selected countries

The study analyses the competitiveness of energy intensive industries in Iceland with respect to electricity costs and compares electricity costs of energy intensive industries in Iceland with those in Germany, Canada (Quebec) and Norway. The comparison includes all main components affecting total electricity costs, namely: the price of electricity, network costs, taxes and levies, and carbon-rebates where these are in effect.

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There are ongoing disputes about electricity prices and their impact on the competitiveness of energy intensive industry in Iceland. As energy intensive industries produce relatively homogenous goods or services that are at the upper end of the value chain, and as they trade their products or provide their services in the global market, they face global competition. Electricity, one of the main input factors, is - up to a certain point - only accessible and available at a regional level. Therefore, the global competition of energy intensive industries is highly affected by regional factors.

An outstanding energy structure and low energy prices are strong competitiveness factors and will increase foreign investment and thereby economic prosperity in the country. On the other hand, there is general consensus that the costs of electricity supply should be recovered by respective and fair electricity prices for all types of consumers.

Against this background, the Icelandic Government has approached Fraunhofer to study the impact of electricity prices on the competitiveness of their energy intensive industries.

 

In order to study the impact of electricity prices on the competitiveness of their energy intensive industries, the study provides an overview of factors that influence (impact) electricity prices for power intensive industries in Iceland, of specific features of the Icelandic energy market and energy mix (i.e. the role of 100% renewable energy), the share of electricity cost in the operation cost (business cost) of power intensive industries in Iceland, the composition of electricity costs in Iceland.

Based on desk research, granted confidential information and interviews with stakeholders, a comparison of electricity costs as well as competitiveness of power intensive industries in Iceland, Norway, Germany and Canada (Quebec) was conducted.

 

The study is structured as follows:

  1. to provide an understanding of the factors that affect electricity prices, the Icelandic electricity market, with respect to supply, demand, price mechanisms and supports, is outlined
  2. the electricity price components are described for each of the competing countries with respect to energy intensive industries
  3. electricity prices of energy intensive industries in Iceland are compared with Norway, Germany and Canada
  4. factors determining electricity prices in Iceland are discussed
  5. recommendations are provided

Duration

February 2020 - November 2020

Clients

Department of Energy, Industry and Business affairs, Ministry of Industries and Innovation, Iceland