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National Energy Authority operates under the authority of the Ministry of the Environment, Energy, and Climate in accordance with laws and regulations pertaining to the National Energy Authority

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National Energy Regulatory

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Energy Transition



Small-scale power plants

Small hydroelectric or farm power plants are compact energy facilities that utilize local energy sources. They can harness energy from water, wind, sunlight, geothermal heat, or a combination of these sources.

Small-scale hydroelectric or rural power plants fall under the category of minor power facilities that utilize available energy sources at their respective locations. These plants can harness energy from sources like falling water, wind, solar, low-temperature geothermal heat, or a combination of energy sources. Typically, these facilities are intended for local electricity generation, catering to rural communities, summer cottages, or small settlements. However, they can also feed surplus power into the electricity distribution systems of utility companies or distribute excess electricity based on agreements with system owners and operators.

Many small hydroelectric stations were established in the early 20th century, with about 530 of them around 1950. The number decreased due to rural electrification, and by 1992, there were 175 small-scale power plants in operation in Iceland (with capacities less than 300 kW). From 2000 to 2022, approximately 38 small-scale power plants were built or renovated for electricity generation and distribution. Older installations have also been refurbished.

Small-scale power plants are categorized as follows: if installed capacity is under 11 kW, it's classified as a micro-hydro plant; without a license, up to 100 kW; for capacities between 100 and 300 kW, it's termed a small micro-hydro plant; above that, up to 9.9 MW, it's a minor power plant. Facilities over 9.9 MW fall under utilization and conservation planning.

The National Energy Authority's (NEA) mapping tool displays all registered power plants, local facilities, and options for capacities over 100 kW.

Preparation for small-scale power plants varies based on the nature of energy source (water, wind, geothermal, or solar), installed capacity, and whether the intention is to sell electricity to distribution networks or transmission systems.

Power plant permit

Common to all types of power plants with installed capacity under 1 MW is that they do not require a power generation license unless they are connected to a distribution network or a transmission system. Additionally, power generation licenses are not needed for power plants with installed capacity under 100 kW.

However, despite not requiring a license, owners of power plants with capacities ranging from 30 kW to 1000 kW are obligated to provide technical information about their facilities to the NEA. Furthermore, they are required to annually report the total electricity generation from power plants with installed capacity over 100 kW to the NEA.

If the plan involves engaging in electricity trading, a license from the NEA is necessary. Such a license does not entail special rights or privileges for the licensee. Applicants need to demonstrate financial capability to fulfil the commitments associated with their operations.

Thea NEA can only grant power generation licenses and licenses for electricity trading to legal and tax-paying entities.

Research and development permit

A permit from the National Energy Authority (Orkustofnun) is required for conducting research on the potential of water and geothermal energy for electricity generation, in accordance with Article 1 of the Act on Research and Utilization of Resources in the Earth, No. 57/1998, and Article 1 of Act No. 68/2008. Before granting a permit, environmental impact assessments from the Ministry for the Environment and additionally from the Prime Minister's Office in Iceland are sought, where applicable. It is also necessary to seek the opinions of landowners concerning the relevant land, in accordance with Articles 13 and 14 of the Administrative Procedure Act, No. 37/1993. A research permit is granted to one party for each area. The permit includes the authority to search for the relevant resource in the designated area during the permit period and to investigate its extent, quantity, and productivity. Landowners do not require a permit for research conducted on their land. However, landowners must provide the National Energy Authority with a plan and description of the intended drilling, blasting, mining activities, or other significant operations for this purpose.

In the application for a research permit, it is necessary to specify the research and utilization purposes, research plan, delineation of the research area, and potential impacts of utilization on neighboring areas. Additionally, a list of registered landowners in the intended research permit area must be provided.

Utilization permit

A utilization permit from the National Energy Authority (Orkustofnun) is required for utilizing geothermal energy and water, whether it's for the utilization of resources on private land or public land, with the exceptions specified in the Act on Research and Utilization of Resources, No. 57/1998. Landowners do not have priority for a utilization permit regarding resources on their own land unless they have previously been granted a research permit. A utilization permit grants the permit holder the authority to extract and utilize the relevant resource during the permit period, to the extent and under the conditions specified in the law and deemed necessary by the National Energy Authority.

Environmental assessment for plans and projects

Before seeking specific permits for power plant projects, it is necessary to determine whether the project is subject to an environmental assessment according to Act No. 111/2021. This assessment considers both the type of power plant and its installed capacity. A notification to the National Planning Agency (Skipulagsstofnun) regarding the project plans is required, and the agency then decides whether an environmental impact assessment is needed. The following types of power plants are designated as mandatory notifications to the National Planning Agency:

  • Hydropower plants larger than 200 kW

  • Wind power plants with an installed electrical capacity of 1 MW or more, or structures that are 25 meters or higher.

  • Geothermal or industrial power plants for electricity, steam, and hot water production with an installed capacity of 2,500 kW or more.

Development and building permits

According to the Planning Act No. 123/2010, a development permit from the respective municipality is required for larger-scale projects that are not subject to a building permit. All developments must be in accordance with the approved urban planning of the relevant local authority before seeking building permits for properties.

Work permit

For power plants with installed electrical capacity of 2 MW or more, an operational permit from the Health Committee of the respective municipality is required, as per Regulation No. 550/2018 on operational permits for industrial operations that may cause pollution. In some cases, temporary activities during the construction period of smaller plants might also require an operational permit, such as when setting up facilities for workers.

Permit with the Cultural Heritage agency

According to the Cultural Heritage Act No. 80/2012, no one, whether landowner, resident, or anyone else, may damage, harm, alter, cover, repair, remove, or relocate cultural heritage without a permit from the Cultural Heritage Agency. Therefore, a permit must be obtained if it becomes evident that activities related to a power plant have an impact on cultural heritage.

Other permits

Hydropower Plants: According to Article 33 of Act No. 61/2006 on salmon and trout fishing, any activity in or near fishing waters, up to 100 meters from the shore, that could impact fish migration, fish stock productivity, fishing conditions, or other aspects of the aquatic ecosystem, requires a permit from the Fisheries Directorate.


Small hydropower plants are classified based on three main factors: installed capacity, waterfall height, and whether the plant is run-of-river or with reservoir storage.

Those considering the construction or refurbishment of small hydropower plants need to consider several important factors:

Flow measurements

Flow measurements in waterfalls that extend for at least 1 year or longer. The difference in flow can be significant between seasons, and winter months, when the demand for electricity is highest, are often almost waterless.

Design or redesign

Design or redesign of dam and intake structures.

Small hydropower plants: Introduction and guidelines for preparation.

Selection of machinery

Selection of penstock and machinery based on estimated water flow and expected power output of the plant.

Small hydropower plants: Introduction and guidelines for preparation.

License grants

Small scale power plants : Guidelines on reporting obligations for hydropower plants with installed capacity up to 10 MW.

Potential power options

The National Energy Authority and regional authorities have prepared several reports on potential power options:

Note: Reports are only available in Icelandic


Geothermal energy in Iceland originates from precipitation that comes into contact with hot bedrock, similar to processes at tectonic plate boundaries elsewhere on Earth. However, the connections to volcanic activity vary, being strongest in high-temperature areas linked to active volcanoes and potential magma intrusions. The relationships are less direct in low-temperature areas, yet volcanic activity can still impact the geothermal conditions of the Earth's crust.

The majority of geothermal utilization in Iceland is for space heating. Direct uses of geothermal energy are categorized into space heating, snow melting, fish farming, swimming pools, industry, and agriculture, while indirect use includes electricity generation.

Electricity generation using low-temperature geothermal sources is increasing, often utilizing binary cycle systems where hot water creates steam and pressure to drive a turbine or pump. The water loses energy and cools during this process but can be used subsequently for space heating or bathing.

Average-temperature geothermal areas in Iceland: Utilization possibilities for heat and electricity

Wind turbines

Wind power is a renewable energy source that has rapidly gained momentum worldwide due to its decreasing initial costs, making it a competitive option in electricity generation.

Conditions for wind energy production in Iceland are favorable due to cost-effective wind conditions. While relying solely on wind energy is not advisable, combining it with other sources like hydropower can optimize energy production. Wind energy can complement hydroelectric power by using stored water during windy periods. Batteries can also play a role, albeit to a limited extent. As the initial costs of wind power systems continue to decrease, they become a more feasible solution to meet energy demand in Iceland, potentially leading to a competitive energy market.

Small wind turbines ranging from 0.5 to 3 kW can fulfill lighting and operation needs for homes or summer houses, while larger systems of 4–10 kW are required for purposes like cooking or electric vehicle charging.

Before embarking on wind power projects, an assessment of wind resources, which can be highly location-specific, is crucial. Variations in elevation significantly affect wind patterns, with higher elevations experiencing stronger winds. Wind speeds also vary by season. The Icelandic Meteorological Office has published a wind atlas providing local data collected from weather stations across the country.

Solar energy

Solar energy is the type of power generation that has experienced the fastest growth worldwide in recent years. Small solar power systems on rooftops of homes and businesses have played a significant role, contributing to about half of the total solar energy production. These small solar installations are already playing a major role in global energy distribution. Solar energy capacity worldwide has doubled approximately every three years over the last few decades, even in northern regions. In Finland, for instance, by the end of 2021, around 39,000 small solar installations had been connected to the electricity distribution grid, despite Finland's location above the 60° northern latitude. Commonly, small rooftop solar installations are grid-connected. When solar energy production exceeds a building's demand, the excess energy is fed back into the grid. Battery storage or hybrid solutions with other energy sources like small hydroelectric plants can also be employed.

Solar energy harvesting is feasible in Iceland, although production is limited during the darkest winter months. In Northern Europe, solar panels achieve about 10% of their full capacity on average throughout the year. In Iceland, this utilization rate may be slightly lower, around 9% of installed capacity.

The costs of solar energy systems primarily involve equipment purchase and installation. Once installed, maintenance costs are low, and the lifespan of solar panels can be very long, often with a 25-year manufacturer's warranty. Installation of solar panels does not usually qualify for government subsidies in Iceland, as it has in other European countries due to energy exchange programs. However, it's worth noting that after the amendment of the law on reimbursement of home heating costs (78/2002) in 2022, all environmentally-friendly energy production methods are eligible for subsidies in cold climates. Residents of such areas could potentially receive similar support for installing solar panels as they would for a heating system.

Currently, several small-scale solar energy systems operate in Iceland that are not connected to the electricity distribution grid. Examples include the IKEA solar energy system in Garðabær, the Brimborg geothermal power plant at the Polestar factory, and the Fallorka hydroelectric power plant in Grímsey.

The synergy of many benefits

Most small-scale energy sources have limitations in terms of continuous energy supply. Iceland experiences dark winters with limited solar energy, while rivers and streams freeze and water-based energy decreases. At the same time, strong winds prevail. By combining various energy sources, the energy supply can be bridged and leveled out. Batteries can then store energy for varying demands throughout the day.

Equipment for integrating different energy sources is becoming increasingly affordable and advanced. When connected to the grid, equipment must adhere to standards such as ÍST EN 50549-1, while general regulations for small-scale energy sources apply.

Commonly, the same control system manages energy production from solar panels, wind turbines, and small-scale hydroelectric plants. This equipment is linked to batteries and the general power distribution system, enhancing energy security, improving power quality, and reducing strain on the grid.