Iceland’s energy grid leaves investment and jobs unrealised

Bergþór Ólason argues in an article published by mbl.is that Iceland’s energy constraints and regulatory choices have prevented investment and jobs from materialising. He says the costs of such missed opportunities are rarely counted, because they do not appear in economic statistics or state accounts.

Landsnet has estimated that limits in the electricity transmission system cost the national economy 11 billion to 15 billion krónur a year. The estimate does not include lost opportunities for business development, Ólason writes. He asks how many companies have abandoned expansion plans, investments have gone elsewhere and jobs have failed to emerge because electricity could not be guaranteed.

He says both limited electricity generation and the inability to move existing power between parts of the country result from decisions made or not made.

Electricity becomes more expensive than oil

In Vestmannaeyjar, Vinnslustöðin has invested for years in equipment to electrify its fishmeal factory and replace imported oil with Icelandic electricity. But electricity has become so expensive, in part because of transmission costs, that burning oil is now the cheaper option.

The company estimates that using electricity instead of oil could cost up to 500 million krónur more each year. Ólason says this conflicts with government policies promoting the energy transition, including taxes on fossil fuels and climate targets. He argues that an operating environment in which cleaner energy does not pay can undo the benefits of investment without banning it.

Rules can add to the barriers

Ólason also criticises what he describes as growing regulation that can become detached from its original purpose. He says Icelandic authorities have repeatedly gone beyond what shared European Economic Area rules require when implementing them, a practice known as “gold-plating”.

A government working group published a report on gold-plating in 2024. Ólason’s broader argument is that decisions affecting energy supply, transmission costs and regulation can carry economic consequences even when the opportunities lost are difficult to measure.