Iceland and Power Security: An attraction for energy intensive industries Rikardur Rikardsson, Director of Sales and Business Development 30 th

Transcription

1 Iceland and Power Security: An attraction for energy intensive industries Rikardur Rikardsson, Director of Sales and Business Development 30 th International Ferro Alloys Conference November 10, 2014

2 The landscape of the energy sector has changed with increased demand Power security under threat Energy prices escalating Pollution an increasingly difficult challenge Overview Power intensive industries are seeking to build long term competitive advantage through power security Power security enables differentiating cost and risk control The aluminium industry is a prime example where power security determines competitiveness Iceland is a location that offers power security to power intensive industries Developed location with opportunities to develop similar to emerging markets

3 The landscape of the energy sector has changed with increased demand

4 Increased demand dramatically alters the landscape of the energy sector World Electricity Generation +50% 34k TWh Renewable Energy Energy security under threat Energy prices escalating +90% 22k TWh Nuclear Pollution an increasingly difficult challenge 12k TWh Fossil Fuel Source: IEA World Enegy Outlook 2013

5 Power intensive industries are seeking to build long term competitive advantage through power security

6 Power Security Build long term competitive advantage through power security Power security enables differentiating cost and risk control Physical security Energy availability Resource transport Electricity transmission Price security Resource dependence Price stability Carbon security Carbon cost liability Brand liability

7 Energy availability in Iceland today and into the future 100% renewable and controllable, mostly hydro and geothermal Energy resources directly connected to the grid Hydro Geothermal Onshore wind National circular grid TWh Technically available 34 TWh Potentially harnessed by 2030 RENEWABLE TODAY RENEWABLE FUTURE Probable increase in other supply companies generation Landsvirkjun s potential increase in generation Current generation

8 Energy resource transport issues expose power intensive industries to geopolitical risks Ensuring long term energy security is a major challenge for many countries

9 Power Delivery Quality World Rankings Transmission security Iceland has consistently been near the top of the World Economic Forum list of delivery security for power Security designed to meet high standards of aluminium sector Norway Iceland France Sweden USA Germany Malaysia Russia Brazil Source: World Economic Forum

10 Power Security Build competitive advantage through power security Power security enables differentiating cost and risk control Physical security Energy availability Resource transport Electricity transmission Price security Resource dependence Price stability Carbon security Carbon cost liability Brand liability

11 USD/MWh Iceland Norway Serbia Sweden Macedonia Montenegro Finland Austria Croatia Bulgaria Poland Romania Greece France Luxembourg Slovenia Estonia Belgium Germany Turkey Latvia Netherlands Italy Spain Denmark Portugal Czech Rep. Hungary Slovakia Ireland Lithuania UK Cyprus Malta Power price is generally driven by fossil fuel resource prices In most markets coal and gas set the marginal price Hydro driven markets are the exception European power prices and energy source mix Hydro driven Coal driven Gas driven Source: Eurostat 2014

12 Power price stability is uncommon Electricity markets have been and will continue to be volatile Volatility is expensive and makes long term planning and investments challenging Makes OPEX difficult to predict USD/MWh USD/MWh UK Germany USD/MWh USD/MWh US Scandinavia Source: New England Hub, UK N2EX, Phelix and Nordpool

13 Long term price security is available in Iceland 10+ year fixed price contracts available Fixed real list price is $43/MWh US Germany UK Scandinavia Negotiated on commercial terms no strings attached Iceland Historic prices Discounts available for greenfield projects Electricity prices in Iceland follow worldwide trends at a competitive discount

14 NPV of a 15 year fixed price contract per MW in Power cost significantly lower in Iceland + $8,7m/MW The value of price stability Power cost predictability simplifies financing + $3,8m/MW $12.4m/MW Power cost not subject to market risk or cost of hedging it out $3.7m/MW $7.5m/MW Iceland USA Europe Source: International Energy Agency, World Energy Outlook 2013, Landsvirkjun

15 Power Security Build competitive advantage through power security Power security enables differentiating cost and risk control Physical security Energy availability Resource transport Electricity transmission Price security Resource dependence Price stability Carbon security Carbon cost liability Brand liability

16 Carbon cost not a liability in 100% renewable power 100% renewable power is a hedge against carbon tax regime risk Over 40 national and 20 subnational jurisdictions have now adopted emissions trading schemes or carbon taxes EUR/t CO2 EST CHE LUX NOR NLD DNK SWE IRL ISL ITA ISR GBR SVN GRC FRA FIN DEU AUT ESP PRT BEL TUR JPN HUN SVK CZE NZL KOR POL AUS CHL CAN USA MEX ,200 1, Source: OECD, IEA Average effective tax rates on CO2 from Energy t CO2/GWh KOR ISL CHE SWE NOR FRA NZL FIN BEL CAN LUX DNK AUT SVN HUN ESP SVK PRT IRL NLD ITA DEU GBR CHL JPN CZE USA TUR POL MEX GRC ISR AUS EST Tonnes CO2 per GWh from electricity and heat generation

17 Apple, Box, Facebook, Google, Rackspace, and Salesforce have committed to a goal of powering data centers with 100% renewable. Greenpeace Major brands upgrading carbon profile from nice tohave to necessity Major companies focus on consumer sentiment and manage carbon footprint and sustainability Laggards are likely to find themselves at a disadvantage BMW has located HPC cells in Verne Global in Iceland in order to save 3,750 metric tons of CO2 emissions yearly with cost reductions of up to 82%. Verne Global A smelter in combination with a hydropower plant emits six to nine times less of greenhouse gases than a smelter in combination with a fossil fuel power plant. Alcoa Iceland is a leading candidate, enabling Silicor to produce the only truly green silicon in the world. Silicor Materials Source: Greenpeace, Verne Global, Alcoa, Silicor Materials

18 Iceland is a location that offers power security to power intensive industries

19 From power insecurity. Reuters, January 2012 Power security becoming a significant source of competitive advantage for power intensive industry Aluminium ReliablePlant, February 2009 Platts, August 2014 WSMV, January 2012 Silicon Metal Bulletin, August 2013 Data Centers Transaction Processing Performance Council

20 towards power security Aluminium New Europe, May 2012 Power security becoming a significant source of competitive advantage for power intensive industry Silicon Silicor Materials, July 2014 Iceland Review, June 2012 AMM, September 2010 Reuters, March 2014 Data Centers Data Center Knowledge

21 Mature aluminium production cost is now driven by power cost 30,000 Case study: Aluminium industry has migrated towards power security Production cost of aluminium has decreased over time Real USD/ton 25,000 20,000 15,000 10,000 Technology improvements increase efficiency and reduce production cost Mature technology with strategic focus on power cost Technology improvements have reduced energy consumption per produced ton of aluminium 5,000 0 Source: US Geological Survey

22 World Primary Aluminium Production Market Share (ex. China) Case study: Aluminium industry has migrated towards power security NORTH AMERICA 28% 18% EUROPE 36% 30% GCC ASIA (ex. China) 13% 6% Production cost of aluminum has decreased over time % 19% Technology improvements have reduced energy consumption per produced ton of aluminum CENTRAL & SOUTH AMERICA 10% 6% AFRICA AUSTRALASIA 10% 8% % 7% Source: CRU

23 Market share of aluminium production in West Europe Case study: Aluminium industry has migrated towards power security Country Percent change Iceland 6% 23% 17% Norway 27% 33% 6% Sweden 3% 3% 1% Greece 4% 5% 0% Spain 10% 10% 0% Switzerland 1% 0% -1% France 12% 10% -2% Germany 17% 15% -2% Italy 5% 0% -5% UK 8% 1% -7% Netherlands 8% 0% -8% Aluminium production relocation has also happened within regions In Europe aluminum has moved north where power security is available Iceland 23% 6% Differentiating renewable opportunities in Northern Europe Norway 33% 27% Source: CRU

24 Data center power consumption in Western Europe Case study: Data center industry is locating in power security Google, Facebook, and Verne Global have chosen to move to cheaper power 2012 [MW] 2013 [MW] % change Nordics % UK % Switzerland % Germany % France % Netherlands % Belgum + Lux % Spain % Italy % Source: DCD Intelligence 2013

25 Publicly announced projects being developed in Iceland United Silicon* PCC* Thorsil* Silicor Materials** Yearly Production t t t t Power Consumption MW 58 MW 87 MW 85 MW Silicon industry is locating in power security Start of Production * Silicon metal ** Polysilicon CRU Silicon Metal Market Outlook April 2014: Based on the availability of affordable electric power, Iceland will likely become an important silicon producer in the future. Three projects remain under active consideration and the country will likely account for a major part of the prospective gains in European silicon output towards the end of this decade. Source: CRU, Vidskiptabladid

26 The landscape of the energy sector has changed with increased demand Power intensive industries are seeking to build long term competitive advantage through power security Iceland is a location that offers power security to power intensive industries Build competitive advantage through power security Physical security Energy availability Resource transport Electricity transmission Power Security Price security Resource dependence Price stability Carbon security Carbon cost liability Brand liability

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