Today, no electricity producer is obligated to guarantee electricity to the public according to the law. Alongside the increasing electricity demand due to population growth and energy transitions, it is essential to ensure both stability and fair pricing for the public.

Dagur Helgason, electricity market specialist at ON Power, wrote an article published on Vísir today, about a proposal for a good solution that would ensure electricity security for the future.
The article can be read below.

How do we Ensure Long-term Electricity Security for the Public?

Electricity security has been a hot topic in recent years. With the energy transition in full swing and demand growing day by day, we face a key question: How do we ensure that the public enjoys stable electricity supply, even when resources are tight?

The consequences of insecure electricity supply have been tangible. Projects cannot get started and businesses relying on stable electricity run into walls. However, the public is the group that is most vulnerable. When the electricity system suffers setbacks, the first to be affected are the users who have agreed to such cuts, as they receive their electricity at a lower cost. Subsequently, costly measures are often taken to procure electricity, such as buying it from large consumers. All of this is done to avoid rationing electricity to households and smaller businesses.

Today, no electricity producer is obligated to guarantee the public electricity according to the law, and it varies by producer how much electricity they produce for the public. For instance, Landsvirkjun produces about 73% of all electricity in the country but only about 40-55% of the electricity that the public uses; ON Power produces about 17% of all electricity in the country but about 20-30% of what the public uses; HS Orka produces about 7% of the country's electricity and about 5-15% of what the public uses, according to statistics from the National Energy Authority. Other producers produce about 3% of the total electricity in the country and most of that electricity is likely to go to the public.

Although new power plants could increase supply, there is nothing to ensure that the public would benefit from it. Thus, the power companies in the country really have no obligation to cut electricity to their users, to buy electricity back from them, or to do anything else to respond to public demand. Such measures do not guarantee long-term solutions, and this setup is one of the major problems that have been discussed in relation to electricity security in recent years.

Proposals for a Solution

Several proposals are already available on how to improve this situation, including supply obligations for producers. This means that Icelandic electricity producers are required to sell some part of their electricity to the public. Thus, both stability and fair prices for the public could be ensured.
ON Power supports wholeheartedly that a supply obligation be imposed to protect the public from electricity shortages, but not least to create incentives for producers to always consider the public in their business dealings. However, for this proposal to succeed, several aspects must be considered that have not yet been resolved. It must be ensured that the distribution of responsibility placed on producers is fair and that it stands the test of time and can evolve with changes in the electricity system.

On 3 June 2022, a working group on energy security in the wholesale electricity market submitted a proposal for a regulation to the Minister of the Environment, Energy, and Climate. The working group was established at the initiative of the government and included representatives from Iceland’s three largest electricity producers (Landsvirkjun, ON Power, and HS Orka), the National Energy Authority, Landsnet, the Consumers’ Association, and the Icelandic Environment Association (Landvernd). It can thus be said that the working group covered a broad range of stakeholders and experts. The group's proposal was well considered, following valuable discussions about how best to ensure that wholesale electricity reaches the public and that the distribution of responsibility is as fair as possible.

The proposal from the working group established in 2022 defined universal service users as the users that needed special protection, including households and essential infrastructure. This entailed provisions for the National Energy Authority to set standards for electricity security and to lay the groundwork for assessing the fulfilment of electricity security requirements. The obligations of suppliers to offer electricity contracts to universal service users were defined, and they were required to structure their contracts with others in such a way that they could fulfill this obligation. Suppliers would also need to inform the National Energy Authority about how they intend to meet these obligations. Last but not least, the proposal included provisions for a supply obligation for electricity producers.

Furthermore, the proposal included a well-designed method for distributing this responsibility, which should be shared among the parties in proportion to their production in the previous year. This approach ensures, among other things, that part of increased production partially goes to meeting the needs of the public. Thus, the obligation would not only fall on those who were producers in the year that the law took effect but also on all future power plants. Here was a fair and clear way to distribute this responsibility for the future. Such a distribution of supply obligation would ensure that new production meets the basic needs of the public.

This would not only have ensured electricity for the public but also withstood fluctuations and future challenges, such as climate change or natural disasters. Climate change can, for example, impact the production capacity of hydroelectric power plants; temperature and pressure changes in geothermal systems can affect the production capacity of geothermal plants. And the volcanic eruptions in Reykjanes act as reminders that natural disasters can have a tremendous impact on production capacity. The most obvious example is, of course, that a power plant that is covered by lava does not produce much electricity, which fortunately has not happened.

The Solution is Available – Let’s use it

The proposal, developed by all key stakeholders in the sector, is a unique example of a sensible and well-considered approach to electricity security, guided by fairness. By placing a supply obligation on producers in proportion to their production in previous years, it was ensured that the responsibility was distributed fairly and that future production would always meet the basic needs of the public. This was a solution that would stand the test of time – a solution that would ensure electricity security for the future.

It is incomprehensible how a proposal backed by representatives of the three largest producers in the country, along with interest groups and other experts, could have vanished into thin air. It had neither been discussed in Parliament nor via the consultation portal, and solutions that are less ambitious than this well-developed proposal are still being discussed.

Now, over two years later, the issue is still unresolved. We face the same problem and the same discussions, with ideas that reflect the proposal of the working group but do not have the same maturity. We cannot afford to delay any longer. By adopting this sensible approach now, we can ensure electricity security for the public for the long term.

Why should we wait? It is time to resolve the issue and ensure electricity security for the public with a solution that all major stakeholders have already agreed upon. It is not just sensible – it is essential.