Summary sheet
The project comprises the expansion and refurbishment of existing geothermal power plants and the extension and renovation of the district heating and electricity distribution networks in the Reykjavik area during 2025-2029.
In line with the EU and national energy policies, the project will ensure the security of supply of renewable energy and hot water, as well as will secure and improve the energy efficiency of the corresponding enabling infrastructure. It will also serve the increase in demand for renewable energy and hot water from future housing developments and infrastructure expansion in the Reykjavik area.
The Project will enable increased demand for renewable heat, power and hot water due to ongoing and future economic expansion in the capital area. Concerning the district heating (DH), it will contribute to the increase of sustainable heat generation capacity, and efficient heat transport and connections. By strengthening and extending the electricity distribution network, it will support Reykjavik's expansion and the decarbonisation of the country's economy. These utilities have also been operating for around a century and some sections need to be renovated to maintain security of supply.
The investments will support the country's carbon neutrality target by 2040, in particular by supporting additional electricity load from the electro-mobility sector. The financing of this programme will also contribute to the Bank's lending priority policy on Energy Efficiency, Securing the enabling infrastructure and Decarbonising Energy supply, as well as on Climate Action (100%).
EIB financing will contribute to addressing market failures that may result in sub-optimal investments. These include negative environmental externalities and the need to ensure security of electricity and heat/hot water supply, which has valuable public-good attributes. The investment programme will enable the connection of new users, improve the reliability of supply in a context of increasing demand due to population and tourism growth as well as to the electrification of key sectors of the country's economy. Demand lags investment, so full benefits in terms of sales are not expected to materialise during or short-term after the programme implementation.
The broader social benefit indicator as well as the economic rate of return are rated as Excellent. The Promoter and its utility subsidiary has the necessary experience and capacity to manage the implementation of the programme and operate the assets over the term of the loan.
EIB, as a reputable IFI, provides a valuable financial contribution to the Borrower, notably to diversify its funding sources outside its local market.
Based on their technical characteristics, the geothermal systems expansion and district heating networks activities fall under Annex II of the Environmental Impact Assessment Directive 2011/92/EU, as amended by Directive 2014/52/EU, which requires the competent national authority to determine the need for an EIA. The electricity distribution activities do not fall under any of the annexes of the Directive. Based on available information at this stage, the environmental impacts of the project are expected to be minor and related mainly to noise, vibration, dust, and traffic disruption, and mostly temporary during the construction, which will be mitigated through appropriate site organisation and construction management. Subsurface risks are expected to be well controlled and managed based on the promoter's extensive experience in the area.
As a public undertaking operating in the utility sector of an EEA member state, the Promoter is subject to public procurement and its procurement procedures need to be in line with the relevant applicable EU procurement legislation (Directives 2014/23/EU, 2014/25/EU, where applicable, as well as Directive 92/13/EEC), as transposed in the national legislation, with publication of the tender and award notices in the Official Journal of the European Union, as and where required.