All agreed loans

Iceland. Landsnet hf.

Date of agreement: 11 Jun 2021
Country: Iceland
Customer: Landsnet hf.
Amount in USD: USD 50 million
Amount in EUR: EUR 41 million
Maturity: 10 years
NACE sector / loan type: Electricity, gas, steam and hot water supply

This loan contributes to climate change mitigation: 100%

Project

NIB is co-financing two transmission grid projects in Iceland that will make the transmission system more climate resilient and unlock some renewable energy generation capacities connected to the grid.

The first project relates to the construction of the 121-kilometre-long Kröflulína 3 overhead power transmission line between Krafla and Fljótsdalur, including the modifications of the 220 kV substation at Krafla, as well as the extension of the 220 kV substation and underground cable link at Fljótsdalur. The project, which has a total investment cost of USD 56.8 million, was started during the spring 2019.

The second project consists of the 62-kilometre-long 220 kV overhead line and 10-kilometre-long underground cable between Akureyri and Hólasandur, including new 220 kV substations in Rangárvellir and Hólasandur. The project started in 2020 with a total investment of USD 68.5 million.

Both projects are scheduled to be completed in 2022.

Landsnet is extending the 220 kV power transmission grid in the north-eastern part of Iceland to strengthen the transmission system between eastern, northern and south-western parts of Iceland. The goal is to increase the transmission capacity, stability and reliability of the transmission system. The existing 132 kV transmission lines were built in 1970s and their capacity for connecting new users to the transmission system is limited.

In 2017, NIB signed a 10-year USD 50 million loan with Landsnet Hf. to co-finance 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 hf. is Iceland’s transmission system operator. 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. The operator transmits about 18 TWh of electricity annually. Landsnet is a licensed company, regulated by a special law and operates, using a revenue cap-based tariff framework. Landsnet is ultimately owned by the Icelandic State through Landsvirkjun (65%), Rarik (23%), Westfjord Power Company (6%) and the City of Reykjavik through Orkuveita Reykjavikur (7%). The Landsnet-operated network connects Iceland's five generating companies to five regional distribution networks and directly to large industrial energy consumers.

Fulfilment of NIB's mandate

Productivity
Landsnet’s investments in the transmission lines in the North-East part of the grid are significant, both from a financial and a network stability perspective. The mitigation of stability issues and capacity bottlenecks in the region will affect the long-term reliability and efficient operation of the entire network. This will bring widely distributed benefits to the economy through improvements in transmission capacity and security of supply.

Productivity impact indicators:
Capex in EUR million
Total network losses in the grid in GWh
The System Average Interruption Duration index (SAIDI) in the North-East part of the grid in minutes

Environment
In North-East Iceland, the transmission system is exposed to harsh weather conditions. The system average interruption duration index in the region was approximately 600 minutes during 2016–2020, and much higher than in other parts of the country. The investments are thus expected to contribute to a more climate resilient transmission system.

The stronger and more reliable grid will also improve the utilisation of renewable energy generation capacities connected to the grid, for which the transmission capacity is currently constrained. The planned investments will contribute to unlocking around 400 GWh of renewable power annually to the market.

Environmental impact indicator:
Additional transmission of renewable energy in GWh

Sustainability summary

The most significant negative environmental impacts of the Kröflulína 3 project include local and, in some cases, permanent impacts on wetlands and lava fields with conservation value. The area of disturbed protected wetlands is assessed to be approximately 8 hectares, and the area of disturbed protected lava fields around 18 hectares. Landsnet will compensate for the impact by restoring a wetland area of the same size as the one being disturbed. The transmission line route will also cross the National Park of Vatnajökull over a length of 150 metres, yet the impact on the conservation value of the park is considered insignificant.

The most significant negative environmental impacts of the Hólasandslína 3 project include local and, in some cases, permanent impacts on wetlands and heathlands. The area of disturbed protected wetlands is assessed to be circa 5 hectares. Landsnet will compensate for the impact by restoring double the disturbed area. The project is also assessed to have some negative impact on birds, especially ducks in Laxárdalur and ptarmigans in the heaths, due to potential collisions with the power line during operation. However, the impact is not assessed to be significant at the population level.

Press release

Norræni fjárfestingarbankinn fjármagnar mikilvægar styrkingar í flutningskerfi endurnýjanlegrar raforku á Íslandi