Green energy exports key to Iceland’s growth -McKinsey

November 1, 2012 by  
Filed under Green Energy News

Thu Nov 1, 2012 1:02pm EDT

LONDON Nov 1 (Reuters) – Iceland should explore exporting
renewable power to Europe via a subsea cable as part of a
strategy for broad-based growth to recover from its ruinous
banking crash, according to consultants McKinsey Co.

Iceland risks slipping back into external deficit if it does
not address the fundamental economic shortcomings exposed by the
crisis, notably low productivity. This would threaten living
standards and might delay the removal of capital controls
imposed after the banking system collapsed in 2008.

“With this outlook, Iceland could remain trapped in a
vicious cycle of sustained capital controls, high capital cost,
low investments and low economic growth,” McKinsey said in a

However, with its ample natural resources and small
population, Iceland is very well placed to implement a
successful growth strategy that enjoys broad political support.

An interconnector to Europe would enable Iceland to increase
the “resource rents” – or excess profits – that it reaps from
its abundant supplies of hydropower and geothermal energy.

Britain agreed with Iceland in May to examine options for
building an 1,800 km (1,125 mile) underwater cable to tap the
island’s green power..

McKinsey said Iceland could also link up with other markets.

The consultancy calculated Iceland’s current resource rent
from low-cost energy at just 1 percent of GDP.

With an interconnector, this could jump to 5 percent of GDP,
approaching the 6 percent resource rent that Norway extracts
from its oil fields.

McKinsey estimated that Iceland could export green energy to
Britain at an all-in price in 2020 that was some 60 euros per
megawatt hour cheaper than offshore wind power. It could share
these savings with its cable partner.

“Iceland should act swiftly to substantiate and eventually
realise this potential. Clean Icelandic energy can contribute to
renewable targets in Northern Europe, but delays will invite
competition from other renewable energy technologies such as
wind energy and solar power, which have rapidly reducing cost
levels,” McKinsey said.

Sharing out the windfall profits fairly would be essential,
as would building support among the population for the expansion
of new generation capacity.

Iceland has harnessed only 20-25 percent of the available
hydro and geothermal energy up to now. Projects that could
almost double current capacity by 2025 are being held up on
environmental and economic grounds, McKinsey said.

(Reporting by Alan Wheatley; Editing by Anthony Barker)

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