Iceland Attracts Aluminum/Power Interests and Looks Beyond Clean Thermal/Hydro Power To The Hydrogen Economy

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). The need for high energy availability and efficiency and high standards of environmental protection and sustainability are major factors in the siting of new aluminum smelter projects worldwide.

In July of this year Alcoa (NYSE:AA) signed a memorandum of understanding (MOU) with Landsvirkjun, Iceland's national power company for a 295,000 ton per year, low emission aluminum smelter to be built in eastern Iceland. Landsvirkjun, with the backing of the Icelandic government undertook to develop a 500MW (with a top rating of 630MW) hydropower facility in eastern Iceland. The Karahnjukar project is set to include the smelter, a hydropower plant, eight dams, a harbor facility and a number of infrastructure improvements. The estimated total cost of the project is $3 billion which represents about a third of the country's total gross domestic product.

From the environmentalists point of view the project will destroy areas of one of Europe's largest remaining wilderness areas. Alcoa has pledged in the MOU to lend planning and financial support in establishing a protected, park area near the project. The World Wide Fund for Nature (WWF) maintains that this is the government's responsibility and claims that decisions on the aluminum project are being made before those for the possible park.

Interestingly it is the hydropower plant and its network of dams and tunnels which the environmentalists claim will cause 70% of the project's damage, destroying wildlife and vegetation. Just as intriguing is the fact that by locating the smelter in Iceland, which is one of the world's most pollution free nations, Alcoa has negotiated an exception to the 1997 Kyoto Accord on greenhouse gases. 98% of Iceland's buildings operate with geothermal heat. The exception will allow Alcoa to operate without having to pay penalties for any carbon dioxide emissions. Alcoa is recognized as a top profile performer in sustainable practices worldwide.

There would seem to be a majority of Icelanders who are for the project, even in the site's eastern region of the country. The domestic pro political lobby has heavy guns on its side. But the Karahnjakur project will still come under fire from an intense anti lobby until March 2003 when the MOU requires details and agreement to be reached which include specific construction sites, energy costs and taxes and unemployment estimates. The final decision on the deal rests there.

Some months before the MOU was signed Norsk Hydro (OSLO:NHY) (Oslo, Norway) withdrew from the role, which Alcoa is now playing in the Karahnjakur project after intense environmentalist lobbying. The domestic Norwegian lobby probably tipped the scales for Norsk. Europe's largest wilderness area, Svalbard, is a Norse territory in the Arctic region and the attachment of the Norwegians to the wilderness is strong.

Parallel to this Icelandic cliffhanger, Atlantsal, a Russian-Icelandic company has begun an environmental impact study to precede a decision whether to build a 360,000 ton aluminum smelter and a two million ton alumina refinery in Iceland. Atlantsal is in the process of building weather survey stations and taking soil samples. The results of the environmental study should be in by the end of 2003 and the go/no go decision will be made during 2004. If it's a go decision the plan is to begin operating the plants in 2006.

The company is considering building the smelter in northern Iceland and placing the refinery either in the northern or southwest part of the country. The plants will be powered by a combination of high-temperature geothermal sources and by traditional hydroelectric power. This 'clean power' combination is making Iceland an attractive prospect for metals producers.

Icelandic aluminum producer Nordural, a subsidiary of US Columbia Ventures, plans to double smelting capacity to 180,000 tons by 2004 as a first step in expanding output to 300,000 tons.

For a nation with a total population of 280,000, the majority of who live in the capital Reykjavik, Iceland is punching a pioneering role in sustainable energy models. A grand plan, inspired by the proposal of chemistry professor Bragi Aranson, is putting Iceland on track to become the world's first hydrogen economy. Vistorka, an Icelandic consortium, is teaming up with three multinationals: DaimlerChrysler (XETRA:DCXGn) (Stuttgart, Germany), Shell Hydrogen (LSE:SHEL) (London, United Kingdom) and Norsk Hydro, to form Icelandic New Energy Ltd. The three multinationals have taken on the concept of making Iceland the testing ground for hydrogen vehicles, a hydrogen refueling infrastructure and the production of hydrogen using electricity from renewable sources.

A five phase development scheme has been laid out. The first phase is a fuel cell bus demonstrator evaluation project called the Ecological City Transport System (ECTOS). Under ECTOS a hydrogen fuelling station from Norsk Hydro will be installed at a Shell fuel station for the three DaimlerChrysler city buses to be delivered in 2003 and tested for two years on the streets of Reykjavik. The program is funded by the partners, the government of Iceland and the European Commission.

In the second phase, all Reyjavik city buses would be replaced with hydrogen vehicles and consideration would be given to changing all other Icelandic bus fleets to hydrogen. In the third phase, hydrogen powered private vehicles would be introduced and in the fourth phase hydrogen power units for marine vessels will be introduced followed by the conversion to hydrogen of Iceland's large fishing fleet. The energy world will be watching agog, like a kid with a helium balloon.