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20 March 2024updated 02 May 2024 5:55pm

Iceland’s energy triumph holds lessons for Britain

Firm power can reduce the UK’s electricity prices, as it does in the Nordic island state.

By Rian Whitton

This article was the winning entry in the TxP Progress Prize, a new blog prize in partnership with Civic Future and New Statesman Spotlight, encouraging responses to the question: “Britain is stuck. How can we get it moving again?” See here for the full list of winners.

Limited access to cheap, firm electricity supply – supply that is expected to be available nearly all of the time – exacerbates Britain’s industrial stagnation. From 2000 to 2021, electricity prices have grown 210 per cent, outstripping wages and general inflation. This preceded the recent rises brought on by Russia’s invasion of Ukraine in 2022.

The situation is even worse when compared to our peers. Electricity prices for industry are higher in Britain than in any comparably rich country. Expensive power acts as a blocker for growth; there is a clear correlation between automation and cheap industrial electricity.

The UK’s production industries, measured by the index of production, are just 95 per cent of what they were in 2019. For the energy sector, it is 68 per cent, while for mining and quarrying it is 67 per cent.  Britain’s energy-intensive industries used less electricity in 2023 than in any other recent year, indicating lower demand is outlasting recent price spikes. Though not as affected by energy prices, discrete manufacturing is flat. Motor vehicle and aerospace vehicle sales peaked in 2017 and have not recovered since.

This has undoubtedly been affected by Brexit-linked trade restrictions. But the simultaneous poor performance of European manufacturing suggests the more significant issue is the high cost of electricity. This is driven mainly by energy price increases. Large German chemical manufacturers have seen electricity prices double from 9 cents per Kwh to 19 cents per Kwh between 2019 and 2022.

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Amid these increases there has been a marked expansion in variable wind and solar generation. Given that factories require predictable, dispatchable generation, however, an intermittent grid is not well suited for satisfying increasing industrial demand. The Royal Society’s proposed solution to this is large-scale electricity storage through hydrogen, which is prohibitively expensive to store and transport.

If the story of electricity prices from 2022 to 2050 is the same as 2000 to 2021, British industry will suffer. The country’s ambitions to lead in artificial intelligence, an increasingly energy-intensive industry, will be hindered. Competing nations like Ireland envisage data centres taking up 23 per cent of all electricity demand by 2030.

The solution is expanding sufficient zero-carbon firm power – meaning always available and not dependent on the weather – to reduce industrial electricity prices.

This is no pipe dream. Unlike the idyll of a fully renewable and flexible storage grid, such a system has already been achieved successfully in Iceland, though at a limited scale.

With 70 per cent hydroelectric power and 30 per cent geothermal electricity, Iceland has a 100 per cent renewable and carbon-neutral electricity grid, which provides over ten times more electricity per capita than Britain. This bounty has allowed the country with a population of less than 400,000 to become the tenth-largest smelter of aluminium globally, producing more than any EU country in 2022. Electricity is so cheap in Iceland that US aluminium producers have shifted production there.

If Iceland, which has to import bauxite for aluminium production, can build a heavy industry out of nothing more than cheap firm power, the potential value of low-cost energy to the UK could be seismic.

One option is geothermal electricity, which is produced by extracting steam from heated water in subterranean wells and converting it into electricity. Up until recently this was seen as location-dependent. In Iceland, for instance, the geothermal gradient (a reference to the relative increase with depth in the earth) is very steep. More heat means greater thermal efficiency and thus more power potential. This means that natural geothermal energy can be sourced relatively cheaply there. This is not the case in much of the world. Variance in the gradient dramatically changes the maximum temperature of a well, which affects how much electricity can be produced.

If water reaches 374 degrees Celsius and 220 bars of pressure, it becomes supercritical, drastically improving its thermal efficiency. Though such wells have not been commercialised, they represent potentially limitless energy if made accessible globally.

The problem is that for most of the world, to reach such temperatures would require drilling up to 12 miles into the earth, far beyond the capability of mechanical drilling. Quaise Energy, an American geothermal start-up, proposes using gyrotrons, millimetre-wave emitting machines used in fusion reactors, to vaporise rock with extreme temperatures rather than bore through it. This could allow for drilling depths far beyond today’s limits.

While speculative, if artificial geothermal energy became viable across the world it would upend our understanding of energy scarcity. The earth’s crust holds far more power than all the world’s uranium, thorium, and fossil fuel reserves. While governments and utilities spend trillions of dollars for buildouts of renewables and hydrogen, global capital expenditure for geothermal energy only breached $1bn dollars in 2021, an industry record. The rate of investment reflects how new this technology is, and the fact that it is yet to get the exposure of wind and solar energy, which are far more mature.

While geothermal power holds considerable theoretical potential, any firm power strategy for the UK must also consider nuclear fission for the medium-term. Nuclear power is proven and maintains critical industrial, scientific, and military expertise pertinent to Britain’s defence. Geothermal energy requires little initial cost and has enormous potential payoff. Prioritising these two technologies simultaneously makes sense.

When it comes to large-scale reactors, Britain must rely on foreign suppliers. South Korea’s Kepco is currently the only viable supplier of large-scale nuclear power. Domestic British excellence exists in small modular reactors (SMRs), produced by Rolls-Royce. Unfortunately, the government’s SMR competition, announced last year, is slowing down initial work. The Rolls-Royce model is the most advanced in the generic design approval process, and other countries will prioritise their national champions.

One necessary step is to prioritise SMRs and fission over speculative attempts to commercialise nuclear fusion – the process in which two light atomic nuclei combine to form a heavier nucleus, releasing energy. Fusion is touted as a cleaner, less problematic alternative to nuclear fission, which refers to the splitting of atoms, creating radioactive waste in the process. While fusion is a domain where Britain should maintain its expertise, inadequate supply of tritium, a necessary feedstock for the fusion process, is a severe bottleneck to commercialisation, and there is no indication supply can be secured quickly. Any expanded fusion research must not come to the detriment of investment in fission or geothermal energy, which have more immediate prospects.

There are a number of measures that the UK government could take to achieve this vision of cheap, zero-carbon electricity. First, geothermal power should be prioritised in government subsidies alongside existing efforts to rejuvenate nuclear fission, particularly over hydrogen. Great British Nuclear, the body delivering the government’s long-term nuclear programme, and an analogous “Great British Geothermal” should be empowered.

But current research spending on geothermal energy by governments is tiny; the 2022 US infrastructure bill, totalling $1.2trn in spending, earmarked a mere $84m for geothermal research over three years. With the British government already funding geothermal heating, even a commitment of £300m for novel drilling techniques could be transformative at the global level.

Further, Britain is a leader in fusion research. High-powered microwave systems known as gyrotrons, a potential drilling technology for deep geothermal wells, are already being procured for use in British fusion reactors. Efforts should be made to repurpose this technology for drilling. A government task force should be set up to engage researchers in state-of-the-art geothermal projects, particularly from the US and Iceland. This should be centred around a new drilling project to reach supercritical temperatures in a British well by 2035. This could be a major goal of the UK’s net zero transition.

Beyond research and development, any commercial generation from new geothermal or SMR-based fission should be managed by a new public utility, which will be specifically targeted to energy-intensive industries. This could be a subsidiary of Labour’s proposed Great British Energy.  It would supply baseload energy to industrial users rather than households.

And finally, the six-company strong SMR competition, run by the government, should be split up. Rolls-Royce, being more advanced than other competition entrants, should get its own contract while other entrants compete for a smaller investment. 

Without addressing the jump in electricity prices, Britain’s current energy strategy does not allow for significant growth in industry. All major parties assert that they can bring back growth – a prioritisation of clean, stable electricity is a prerequisite to achieving this.

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