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Icelandic geothermal power company HS Orka gets out of unfavourable PPA

Reykjanes geothermal power plant of HS Orka, Iceland (source: flickr/ ThinkGeoEnergy, creative commons)
Alexander Richter 1 Dec 2016

Following years of arbitration, Icelandic geothermal power utility HS Orka is now being freed from an unfavourable PPA with a aluminum smelter company in Iceland, freeing up electricity for other likely more favourable electricity sales contracts.

Canadian Alterra Power Corp. (TSX: AXY) reports today that “its 66%-owned Icelandic subsidiary HS Orka hf (“HS Orka”) has received positive results from the arbitration concerning the validity of a power purchase agreement between HS Orka and Nordurál Helguvík ehf (“Nordurál”).

The arbitration panel determined that the power purchase agreement has lapsed due to certain circumstances, and therefore is at an end.

The panel further determined that the ending of the contract was not due to any fault on the part of HS Orka, and that all counterclaims advanced by Nordurál in the arbitration have been denied. Ásgeir Margeirsson, CEO of HS Orka, said, “We are pleased to have this longstanding issue behind us. This award will enable us to freely pursue new contractual opportunities in Iceland as new power becomes available to us.”

The arbitration has been going on for quite some time and is based on a Power Purchase Agreement signed in 2007 for a planned aluminum smelter on the Reykjanes peninsula in Iceland and the planned increase of geothermal power generation capacity by HS Orka with a new plant or expansion of existing plants.

Neither the construction of the smelter nor the geothermal expansion of HS Orka went ahead. With back and forth, the arbitration now is the final decision and puts an end to this years-long uncertainty.

“If we had expanded our power plant today we would have had to sell to Helguvík under an agreement that would have been very negative for us,” Mr. Margeirsson said. The electricity price in the PPA was linked to aluminum prices, which was customary at the time. With the aluminum price today about half of what it was anticipated at the time of the contract being signed in 2007, the structure would have been rather bad for HS Orka.

Today, there is a lack of electricity and not sufficient capacity in the system. The demand is driven by the private market, data centers, private industry and silicon plants. So there are now a number more options, which are also allowing for higher prices for HS Orka and its geothermal power.

Source: Alterra Power, mbl.is