Rio Tinto Iceland Aluminium Smelter Energy Price Negotiations Settled Skip to content

Rio Tinto Iceland Aluminium Smelter Energy Price Negotiations Settled

By Gréta Sigríður Einarsdóttir

Hörður Arnarson forstjóri Landsvirkjunar Rannveig Rist forstjóri Rio Tinto á Íslandi Tinna Traustadóttir framkvæmdastjóri Orkusölusviðs Landsvirkjun Sigurður Þór Ásgeirsson fjármálastjóri rio tinto
Photo: Landsvirkjun. Landsvirkjun CEO Hörður Arnarson and Rio Tinto Iceland General Manager Rannveig Rist sign agreement. Also present, Landsvirkjun head of sales Tinna Traustadóttir and RIo TInto Iceland Finance and Logistics Manager Sigurður Þór Ásgeirsson.

The National Power Company Landsvirkjun and Rio Tinto Iceland have reached an agreement on energy prices for the Straumsvík aluminium smelter, amending the power purchase agreement (PPA) between the two companies dating back to 2010. Rio Tinto Iceland General Manager Rannveig Rist states that the amended contract means the smelter’s closure has been avoided.

Rio Tinto Iceland filed a complaint to the Competition Authority in July last year, claiming Landsvirkjun was abusing its position in the energy market. They have now decided to withdraw it.  The company also heralded the closure of the Straumsvík Aluminium smelter, were Landsvirkjun not to comply, and for the past few months, the smelter has not been running at full capacity.

“It’s a huge step for us to have a deal that makes ÍSAL a competitive force, avoiding the risk of the factory’s closure,” stated Rannveig Rist, General Manager of Rio Tinto Iceland.

The energy prices are confidential but the nature of the agreement’s amendment has been disclosed. Instead of a fully fixed-price based agreement, the base power price has been adjusted and remains in USD and linked to the US Consumer Price Index (CPI). It will also be partially linked to global aluminium prices. Landsvirkjun Director Hörður Arnarson stated, “This will make it easier for the aluminium smelter to adjust to fluctuations in the aluminium market.” As before, the contract specifies the sale of 390 MW or 3.416 GWh a year and expires in 2036.

Rio Tinto is Landsvirkjun’s second-largest customer, purchasing around 20% of its energy output. Hörður told RÚV that it is likely that the company’s revenue from the Rio Tinto deal will remain the same. When asked if they were giving the company a covid-19 discount, Hörður replied that they weren’t, although they did last year, a special discount due to the situation in international markets. When asked why the energy prices were confidential, Hörður stated that the contract was an old one and included confidentiality clauses and that the companies needed to come to an agreement on when and how they are made public.

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