CEO Statement

HS Orka’s operations excelled in 2018 and the company’s electricity production reached a historical high.

Production at the Reykjanes Power Plant was significantly reduced in the autumn of 2016 but recovered successfully in 2017 and actually surpassed expectations. Continued progress was made in 2018, as a result of increased expertise and improved utilisation of the resource. The geothermal resources on the Reykjanes peninsula are now one of the best-researched areas of the country. The continuous supervision and monitoring of the resource is an integral part of the geothermal industry. Production at the Reykjanes Power Plant exceeded expected capacity. HS Orka’s employees and experts have worked diligently, in collaboration with various consultants, to increase production and work through the negative development that took place in 2016. Operations at geothermal power plants are complex and this achievement can be attributed to the skill of our employees and the quality of our power plants and mechanical equipment. The newest production well in Reykjanes, RN-36, which will be connected to the power plant in the coming months, has been tested and shows tremendous potential. A new well (RN-37) will be drilled this winter. These wells will further support the continued, safe operations at Reykjanes.

Work is currently underway on the construction of a geothermal plant in Reykjanes to extract geothermally heated water for heating purposes. The plant currently utilises steam for these purposes and the new plant will provide the Resource Park’s companies with the necessary hot water utilities.

Electricity production at Svartsengi was increased in 2017 and again in 2018 due to increased efficiency in the utilisation of resources and production management. Work is underway on renewing the mechanical equipment in the oldest units at Svartsengi, which are now 30-40 years old. Plans are in place to replace the oldest units with newer more efficient models in the next few years. These new units will produce twice the power, without increasing the burden on resources.

Work is also underway on preparations to increase the production of hot water. The Suðurnes region is evolving and developing rapidly and HS Orka held a symposium in September 2018, with the relevant municipalities, where regional development and key future issues were discussed. HS Orka is obliged to provide these communities with sufficient hot water in the long-term and will, in time, increase production capacity.

The Board of Directors recently made the decision to begin construction on the expansion of the Reykjanes Power Plant. The project utilises a unit called REY 4, a 30MW low pressure generator. The Subterranean sea water from the separation stations at Reykjanes Power Plant will be ‘boiled’ more than they are at present, creating a low-pressure steam that will propel the new unit. This will result in a 30% increase in electricity production at Reykjanes without increasing the burden on resources. The utilisation of resources for the benefit of society is an integral part of HS Orka and the Resource Park’s policy.

HS Orka entered into agreements with foreign insurance companies to increase the insurance coverage for its operations, following a tendering process and a detailed audit of the company’s operations. These steps were taken to increase protection and risk management on a general basis but also to bring us closer towards a more comprehensive approach to security and risk management.

In 2017, a major step was taken as a result of the new financing of the company through its agreement with Arion Bank. Work is now subsequently underway on financing new projects in cooperation with Arion Bank.

Drilling ceased on the deep well IDDP-2 in Reykjanes in January 2017. The project was extensive and involved numerous challenges. In 2018, work was carried out on well exploration as well as the design and preparation of equipment for well testing. The well is expected to begin production in the first half of this year and its potential capacity for electricity production will subsequently be assessed. The project is tremendously exciting, as the end goal of the deep-drilling project is to utilise geothermal energy with less cost and less environmental impact than ever before.

HS Orka’s electricity sales have performed extremely well this year, reaching an all-time high in both small-scale and large-scale sales. HS Orka received the award for the Icelandic Satisfaction Poll in the category of electricity sales in 2019, for the 14th time in the poll’s 16 years. We are incredibly proud and grateful for the continued trust of our customers.

HS Orka exceeded its scheduled production for 2018. Total power generation was 1,397 GWh, which was approximately 2.1% above the year’s estimate and 21.4% higher than production in 2017.

Operational revenue for the year amounted to ISK 8.9 billion compared with ISK 7.5 billion in 2017. The increase is approximately 18% between years, primarily due to an increase in revenue from electricity sales, which represented 85.8% in 2018.

EBITDA for the year was 3.2 billion ISK compared to 2.2 billion ISK in 2017. The main explanation for the increase between years is increased electricity production in Reykjanes and an increase in smaller electricity sales.

In 2018, construction began on the Brúar Power Plant in Biskupstunga in Bláskógabyggð. This is HS Orka’s first hydropower project. The power plant is 9.9 MW and will commence operations at the beginning of 2020.

HS Orka has also worked on the development of other projects. Share capital was increased in VesturVerk in Ísafjörður as a result of research conducted on potential power projects such as the Hvalá (55 MW) and Skúfna projects (approx. 14 MW), as well as other projects. HS Orka now owns a 74% share in VesturVerk.

The Resource Park, which has deservedly earned attention, continues to grow and prosper. Food production and tourism are growing rapidly at the Resource Park and other exciting new projects are under development. The Lagoon opened its new luxury Retreat Hotel and Retreat Spa which means that the Svartsengi area now boasts three hotels.

Investments in 2018 totalled 3.1 billion ISK. The single largest investment was the construction of the Brúar Power Plant but investments also included drilling at Reykjanes, preparation for drilling at Eldvörp, preparations for the Hvalá Power Plant and connections between wells in Reykjanes.

The company’s balance sheet has strengthened substantially in recent years. However, with increased investment, the company’s debts have also increased slightly. The company is extremely well prepared for further investments with very strong finances and operations behind it.

HS Orka looks forward to an exciting business year in 2019 with a sound operational foundation and continued construction of new production units.

HS Orka will continue to provide important services for the development of society, to large or small parties, through the sale of its services.

Finally, I would like to thank the company’s employees for their outstanding work and sacrifices for the company’s operations.