Energy market reform options in Iceland

The National Power Company of Iceland, Landsvirkjun, asked Copenhagen Economics to to assess the Icelandic energy market, with a focus on security of supply and the value from its natural energy resources, and suggest potential elements for reform.

Iceland is a relatively small and isolated region with abundant access to cheap natural energy resources. While historically these energy resources have not been in high demand, this has been changing. Power intensive consumers have located in Iceland, and higher demand is foreseen. While this is a positive situation for Iceland, it also raises some questions.

Based on an analysis of the Icelandic energy markets, including interviews with a range of stakeholders, we have identified two main focus points for potential improvement of energy market regulation in Iceland:

We identified five areas for policy reform which could constitute a strong reform package for the future energy policy of Iceland. This includes options for taxing natural resource rents and energy market design reform.

Copenhagen Economics pointed out imperfections in the setup and functioning of the Icelandic power market, and suggested interesting ways to remedy for the identified lack of supply security. Their approach was pragmatic and the service provided was professional and met our expectations to the fullest extent.
Hörður Arnarson - CEO, Landsvirkjun (The National Power Company of Iceland)


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