NIB Nordic Investment Bank

Loan

Iceland. Landsnet hf.

Date of loan: 23 Nov 2017
Country: Iceland
Customer: Landsnet hf.
Amount in USD: USD 50 million
Amount in EUR: EUR 42.51 million
Maturity: 10 years
NACE sector / loan type: Electricity, gas, steam and hot water supply

Sectors

Energy and environment

Environmental effect

This loan contributes to climate change mitigation: 36%

Project

The loan has been provided to finance new overhead transmission lines connecting the Theistareykir geothermal power plant to the local and main grid, and to the Bakki industrial area near Húsavík, as well as to strengthen the transmission network in the Skagafjördur area and on the Snæfellsnes peninsula.

Landsnet is extending the power transmission grid in the northeastern part of Iceland to connect the new geothermal power plant at Theistareykir, and the existing geothermal power plant at Krafla, to the industrial area at Bakki near the town of Húsavík, as well as to the main and local power grids.

The project includes the construction of three 220 kV electrical substations at Bakki, Theistareykir and Krafla, a 220 kV overhead transmission line between the Bakki and Theistareykir substations (28.8 km, Theistareykjalina1), and between the Theistareykir and Krafla substations (32.6 km, Kröflulina 4), as well as a 66 kV underground cable to the local grid in the north-east.

The construction work is expected to be completed at the end of 2017 or early in 2018.

Landsnet is also reinforcing the transmission network in the Skagafjörður area and on the Snæfellsnes peninsula. This project requires the installation of 66 kV underground cables connecting the village of Varmahlid to the town of Saudakrokur (24 km), Ólafsvík to Grundarfjörður (26km), as well as the construction of four 66 kV substations at Varmahlið, Sauðárkrókur, Ólafsvík and Grundarfjörður. The investment will increase the reliability of the network and expand the transmission capacity to meet growing demand for electricity.

On the Snæfellsnes peninsula, construction is scheduled for completion in May 2018. In the Skagafjörður area, completion is scheduled for March 2019.

Landsnet hf is Iceland’s transmission system operator, and it owns and operates 3,300 km of transmission lines, 240 km of transmission cables, as well as 75 substations operating in the 66–220 kV range. It is a licenced natural monopoly regulated by a special law by a revenue cap-based tariff framework. About 18 TWh of electricity are transmitted annually. The ultimate ownership is through state- and municipality-controlled power companies, and rests with the Icelandic state (93%) and the City of Reykjavik (7%). The number of employees is 120.

Fulfilment of NIB's mandate

The improved connection from Theistareykir will add up to 700 GWh of power to the grid annually, equalling almost 4% of Iceland’s total power consumption. The connection between the Theistareykir geothermal power plant and Bakki is a prerequisite for a new silicon plant. The connections to the local and national grid will offer more renewable power for other consumers in Iceland.

Reinforcing the transmission network in the Skagafjördur area and on the Snæfellsnes peninsula, where disturbances in electricity distribution have been regular, will significantly improve security of supply and add capacity in a region where power consumption is very high.

Sustainability summary

This is a project with a potentially extensive environmental and/or social impact (category A, read more)

According to the environmental impact assessment of the transmission lines between Krafla, Theistareykir and Bakki, the most significant negative environmental consequences from the project include impacts on the landscape, particularly in the Theistareykir area, which has a high conservation value and untouched nature, as well as on the Leirhnjukshraun and Theistareykjahraun lava fields and other special geological formations. There are also some tourist hiking and riding trails in these areas, and the region is very sensitive to soil erosion. Landsnet has implemented mitigation measures to minimise these impacts, and the transmission line route is in accordance with the relevant regional and local plans.

The construction and operation of the new underground cables in the Skagafjördur area and on the Snæfellsnes peninsula are not expected to cause any significant negative environmental or social impacts.

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