Power projects in Iceland

NIB has recently signed three loan agreements with Icelandic power companies, for the financing of three new power plants in Iceland with a total output capacity of 910 MW. Totalling EUR 180 million, the loans will be disbursed over the next two years.

On 15 April 2004 NIB and Landsvirkjun (the National Power Company) signed a EUR 70 million loan agreement. The loan is intended for the financing of the Kárahnjúkar hydro power plant in the eastern part of Iceland. The power plant, with a total capacity of 690 MW, will provide power to a new Alcoa aluminium smelter planned in Reyðarfjörður in Eastern Iceland. The estimated total investment cost of the Kárahnjúkar project is EUR 1 billion and the estimated cost of the smelter is another EUR 1 billion. The project has undergone a thorough Environmental Impact Assessment in Iceland in accordance with Icelandic law and was approved by the Minister of the Environment in December 2001. The environmental impact of the project was also carefully reviewed as part of NIB’s internal credit process, and the project was found to meet the bank’s requirements for an environmentally acceptable investment. Construction of the Kárahnjúkar power plant will be completed in 2007.

NIB has also recently signed two loan agreements for the financing of two new geothermal power plants in Iceland. These will provide power to the Norðurál aluminium smelter, located in the southwest of Iceland. A EUR 40 million loan agreement was signed with Hitaveita Suðurnesja hf. on 3 May and a EUR 70 million loan agreement with Orkuveita Reykjavíkur on 6 May. The total capacity of these power plants will be 220 MW. These projects are playing a major part in increasing the utilisation of geothermal energy for power production in Iceland. With the new power plants operational Iceland’s total geothermal electric power capacity will exceed 450 MW. The utilisation of geothermal energy is one of the most environmentally friendly methods to produce energy. Reasonable harnessing of the geothermal reserves, precise monitoring, as well as reinjection of the geothermal fluid, make geothermal an environmentally sustainable source. NIB’s share in the financing of the two geothermal projects amounts to nearly 50 per cent of their total cost.

The positive economic impact of the three power projects and the construction of the new aluminium smelters will be significant both for the Icelandic economy in general and for the relevant regions in particular. By participating in these projects NIB is supporting sustainable economic growth, and, as a leading power production financier, continuing its support of the Icelandic power sector.