Icelandic energy pays price for aluminium profits

kronur1Nordural (Century Aluminium) pays a quarter less for its electricity in Iceland than the global average. This was revealed in a confidential leaked document to RUV.

It is the energy companies who carry the most risk when global aluminium prices fall.

The document is from Hatch consultants and is compiled on behalf of foreign banks and Nordural. It is stamped ‘confidential’ and covers actual figures on production costs, including energy prices. At the time of writing Nordural was paying 15 mill per kilowatt hour. A mill is one thousandth of a dollar, meaning 15 mill is 1.5 US cents, or 2 Icelandic kronur. Icelandic homes pay roughly 10 kronur per kilowatt hour, and British homes pay up to ISK 42 for comparison.

The electricity cost is connected to the market value of aluminium, which was USD 1,400 per tonne at the time of writing. If the aluminium price increases by USD 1,500 then the price of electricity supplied increases by 15 mill.

The price of aluminium has been roughly USD 1,500 per tonne for the last decade, but prices fluctuate rapidly and most experts predict a slight fall in average prices over the next decade. The document clearly states that Nordural is paying a quarter less for its electricity in Iceland than is average around the world.

Although the document relates to only one Icelandic aluminium smelter, Dr. Sigurdur Johannesson at Statistics Iceland believes heavy industry generally pays the same amount.

The suspected low electric price and the danger to Icelandic energy companies from changes in aluminium prices have been raising eyebrows for some time. And at least one financial advice website encourages investors to buy shares in Nordural’s mother company because of Iceland’s low and stable electricity prices.

Roughly a third of the sale price of aluminium runs to Nordural in pre-tax profit – providing the company with a three-time better deal than Icelandic energy company Landsvirkjun gets for its investment.

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