The European Investment Bank (EIB) signed three loans totalling EUR 157 million on Friday 12 November 2004 in Iceland.

These loans will serve to finance the construction and operation of two geothermal electricity generation and transmission facilities in the southwest of Iceland by the country's three largest energy companies: Landsvirkjun (EUR 50m), Reykjavik Energy (EUR 77m) and Hitaveita Sudurnesja (EUR 30m). The project consists of the development of two geothermal fields and the construction of two new geothermal cogeneration plants of 80MWe/266MWth and 100MWe respectively, plus a new high-voltage transmission line.

The power plants will provide Nordural's expanded aluminium plant with competitively-priced energy. Electricity will also be supplied to the municipal distribution grids in the southwest of Iceland as well as to the national power grid. The geothermal plants will also produce heat - in one case for district heating and in the other to meet new industrial requirements.

The loans are provided by the EIB under a specific EUR 1.7 billion facility established for the EIB's lending to the EFTA countries. 23% of this EFTA Facility has been allocated to Iceland, mainly to the renewable power sector but also for transport infrastructure, water supply and wastewater collection and treatment. The EIB's role under its EFTA Facility is to finance projects of common interest to EFTA and EU countries, in this case the development of renewable geothermal energy for power production for all electricity users in Iceland and to meet the needs of an electricity-intensive industry.

EIB Director Thomas Barrett, who signed the three loan contracts, said: The investments will contribute to the common EU/EFTA policy to promote renewable energy, which has a key role to play under the Kyoto Protocol. With Russia's recent signing of the protocol, it will enter into force in early 2005, making the emissions reduction targets taken on for the 2008-2012 period by more than 30 developed countries legally binding, including on Iceland.

By contributing to the growth of the aluminium industry, the EU expects the investments will also have a positive economic impact on Iceland's economy. These EIB loans will serve to diversify the sources of funding and reduce the cost of capital for this important environmental project.