HS Orka Annual Report 2014

HS Orka performed well in the year 2014

HS Orka performed well in 2014. The total electricity production was 1,338 GWh, which was approximately 3.6% below expectations and approximately 1% less than production in 2013. The company’s electricity production has been stable in recent years, which demonstrates the quality of the power plants and the technical abilities of the employees who run them. The Company benefits from the stable nature of geothermal power plans. 

The company’s operating revenue in 2014 was ISK 7.48bn, as compared to ISK 7.03bn in 2013. The increase between years is approximately 6.4%. Revenue from electricity sales formed 73% of the company’s income in 2014.  

EBITDA 2014 

2.74 bn. ISK

The year’s EBITDA is ISK 2.74bn, as compared to ISK 2.60bn in 2013. The increase between years is 5.2% predominantly due to an increase in income from the electricity retail market. Over the last few years there has been an increase in sales in the retail market, particularly in the last twelve months were the Company has seen an increase in demand. 

New service agreement

At the end of 2014, the Company agreed to transfer over 80 employees to HS Veitur, a distribution utility. These individuals worked extensively for HS Veitur under a service agreement signed in 2009 (following the division of Hitaveita Suðurnesja into HS Orka and HS Veitur back in 2008). The two companies continue to take advantage of certain synergies in support services under a new arrangement, although due to the transfer of employees the number of transactions between the companies has declined significantly in 2015.

As regards other transactions with HS Veitur, the production and wholesale sales of hot water into the distribution systems of HS Veitur continue to be the most significant. There has been a rise in the use of hot water in recent years and work on an increase of hot water production from Svartsengi is forecast to meet future needs. This expansion is now nearing completion.

Conclusion of arbitration expected

Over the last few years HS Orka has continued to have discussions regarding the power purchase agreement signed with Norðurál in 2007 to sell power from the Reykjanes expansion to a proposed new aluminium smelter in Helguvík. The parties have failed to reach any resolution and in 2014 HS Orka referred the matter to an arbitration tribunal. The conclusion of the arbitration is expected in 2016.

           

Increasing energy production

Nevertheless, HS Orka has continued to work on increasing energy production in geothermal projects at Reykjanes, Svartsengi, Eldvörp and Krýsuvík. The main tasks have been in the field of resource agreements, licence issuance, basic research and preliminary design. A project agreement was signed with Jarðboranir hf. (Iceland Drilling Co.) last autumn for the drilling of three high-temperature wells. Work on the first well, RN-34 in Reykjanes, began in December. Plans have been made to drill two wells at Svartsengi later in 2015.

An agreement was signed in December 2014 regarding the involvement of HS Orka in Vesturverk ehf. in Ísafjörður (“Vesturverk”). Vesturverk is engaged in preparations for harnessing the River Hvalá in Ófeigsfjörður in the Strandir region. The Hvalá power plant is expected to generate up to 55 MW and is in the Framework Programme’s utilisation category.

HS Orka is also examining a number of other small energy production projects, although decisions on whether to embark on such projects will be made later.

HS Orka’s options for signing long term sales agreements with other companies remain extremely limited while the contract relating to the aluminium plant in Helguvík remains unresolved. However, in 2014 an agreement was reached became effective with Advania for the sale of electricity to a data centre at Fitjar.

Investments

Investments in 2014

1,24 bn. ISK

Investments in 2014 amounted to a total of ISK 1.24bn. The largest investment projects included the increased production capacity of hot water at Svartsengi, increased freshwater acquisition and construction of a new pumping station at Svartsengi, preparations for a submarine outlet pipe at Svartsengi, an environmental impact assessment for drilling work at Eldvörp, re-injection wells in Reykjanes and the initiation of new drilling projects in Reykjanes.

The company’s balance sheet has strengthened considerably in recent years, and its liabilities have been rapidly decreasing. At December 31, 2014 the company’s equity ratio was 60%. This supports the company’s ability to embark on further investments in the near future.  

HS Orka anticipates a similar operating year in 2015, as any expansion undertaken will take a number of years until the new energy production is realised, as several years are required to develop a new project. Meanwhile HS Orka will continue to provide important services for the benefit of the community, to both smaller and larger entities, through the sale of its services.

Address of the Chairman of the Board

Proud of what we have achieved

We were proud in 2014 to achieve another year of operational excellence, marking stable of electrical and hot water production, which resulted in increased revenues of 6.4%. This performance demonstrated again the consistency and dependability of our operations, even in the face of the multiple challenges we faced, such as low aluminium prices and significant competition in the Icelandic electricity market. 

2014 was also a financial success for the company as we strengthened our balance sheet through substantial debt payments from the company’s cash flow. At our current pace of debt repayment, we will see significantly increased cash flow to our shareholders beginning in 2017..

220 millions ISK to shareholders

The company continued a geothermal field maintenance program at Reykjanes in 2014, which includes drilling a new re-injection well and building a re-injection pipeline this year, to enhance the stability of the field. 

Although HS Orka is currently retaining most of its operating cash flow for debt service and potential expansions, a flow-through dividend of ISK 220 million was distributed to shareholders in 2014 representing cash received from the Blue Lagoon resort, which is 33% owned by HS Orka. The Blue Lagoon continued to outperform expectations in 2014 due to increased visitor attendance and operational excellence. .

Dispute with Norðurál

As in previous years, number of attempts were made during the first half of the year to resolve the dispute with aluminum smelter Norðurál regarding the conditional power purchase agreement between the parties.  Unfortunately the parties have not been able to reach agreement on changes to key terms which would result in the fulfillment of the conditions of the power purchase agreement.  HS Orka therefore decided to refer the disbute to arbitration.  Results of the arbitration process are expected in 2016.

Mr. Margeirsson new CEO

Our management team delivered another strong performance during the year. Asgeir Margeirsson took over as CEO of the company on January 1, 2014 and led a number of administrative improvements designed at exploiting efficiencies and enhancing long term performance. This included the formal office and management separation of HS Orka and HS Veitur in line with Icelandic regulatory requirements. 

Using nature´s geothermal asset

Later in this Annual Report we explain our efforts to fully utilize the geothermal resources we hold under license, through the concept of our Resource Park. It is our goal to continue this concept to bring benefits to many parties by using our resources in the best possible way, to optimize the outcome for society and the environment. We are very proud to be using nature’s geothermal asset, our outstanding employees’ expertise and our capital resources to provide clean energy to all of our customers.

Thanks to employees

I wish to thank all of HS Orka’s employees, managers and directors for their strong and unselfish efforts made on behalf of the company, often under challenging circumstances. I also wish to thank HS Orka’s shareholders, Alterra Power Corp. and Jarðvarmi, who continued to work well together, with good cooperation and goodwill in addressing the affairs of the company during 2014. It is my hope that 2015 will be another year of steady and positive results for the company.. 

Procurement and inventory department

Procurements, both Icelandic and foreign, were greater in 2014 than in the preceding years, as can be seen in the following table. Foreign procurements have increased annually since 2011, while domestic procurements have not changed much. The same applies to the scope of activities in inventory. 

Purchases

Six tenders for purchases of goods were advertised during the year and eight project tenders, or a total of 14 tenders, which is a significant increase from preceding years. Examples of the tenders for the purchase of goods included insulated and non-insulated steel pipes and connectors, butterfly valves, pumps and transformers. Also tendered were the construction of a re-injection station and a new deaerator column at Svartsengi, the laying of cold water pipe III north of the power plant at Svartsengi, re-injection pipes in Reykjanes and the drilling of up to five high-temperature and re-injection boreholes, just to mention a few.

 

Foreign procurement							Domestic procurements	Inventory
Year	Orders	Fob-price ISKm	Import duties ISKm	Transport costs ISKm	Insurance ISKm	Total ISKm	Orders	No. of dispathes	Dispatches per mont
2009	25	142,4	7,7	7,1	0,5	157,7	200	1.446	121
2010	26	2.579,7	1,5	47,0	7,8	2.636,0	250	1.498	125
2011	14	65,3	1,9	4,1	0,3	71,6	385	2.049	171
2012	30	85,8	3,1	6,1	0,3	95,3	264	1.550	129
2013	38	92,2	5,0	5,3	0,3	102,8	320	1.801	150
2014	43	105,2	1.7	9,9	0,4	117,2	370	1.480	123

The warehouses are the same as in the prior year, i.e. at Svartsengi and in Reykjanes as well as leased premises in Ásbrú. One inventory manager is employed full time at Svartsengi. No inventory managers are employed in Reykjanes or Ásbrú. 

However, inventory managers in the warehouse of HS Veitur in Reykjanesbær manage, for the most part, the warehouses in Reykjanes and Ásbrú and they assist the inventory manager at Svartsengi as needed and relieve him during vacations.

Value of inventory

Value of inventory 

438 m. ISK

The value of HS Orka’s inventory increased during the year, increasing from ISK 414m at the beginning of the year to ISK 431m at the end of the year. This increase can, for the most part, be attributed to the purchase of materials for on-going projects which are expected to be completed in 2015. 

During the year the Company audited inventory held to ensure all assets were appropriately recorded and obsolete items disposed of. Spare parts purchased with the unit in Reykjanes and in power plant 6 at Svartsengi were sorted and recorded in inventory. 

Additional shelves were added for these new goods, and various goods were moved to more appropriate locations. This work was expected to be completed during the year but proved more extensive than anticipated and will be continued in 2015.

Maintenance Department

Consistent with prior year, the Maintenance Department has three employees: the head of maintenance and two carpenters. The employees of the department handle maintenance for both HS Orka and HS Veitur, and the work continues to be diverse as in past years.

Changes to the office

The main tasks for HS Orka during the year consisted of the changes made to the offices on the upper floor at Brekkustígur 36 and management of that project. The entire floor was altered in two stages: offices were merged and the number of workstations increased, meeting rooms were altered and their number increased. In addition to the employees of the Maintenance Department, a number of contractors were involved in the project, which was a success despite the inevitable disruption and inconvenience and transfers of staff. Preparations for the alterations began in mid-April, and all work was fully completed at the beginning of October. Changes were also made to the kitchen on the ground floor.

Warning and guidance signs

Other tasks included changing the flooring of the connecting corridor between power plants 1 and 5 at Svartsengi, the installation of warning and guidance signs at Svartsengi and Reykjanes and various maintenance work on the structures at Svartsengi, Reykjanes and Reykjanesbær.

The projects that the employees of the department are unable to take on are either tendered or performed by tradesmen according to contractual rates. The foreman of the Maintenance Department supervises and is the contact person for such contractors/tradesmen.

This section merely provides a rough idea of the tasks performed by the Maintenance Department during the year. It is difficult to provide an exhaustive list, and there was no lack of projects, as the focus is always on ensuring that the company’s buildings are in as good condition as possible. 

Information Technology Department

The company’s information systems are serviced by the Information Technology Department of HS Veitur. The information systems include all the company’s computer software, hardware, centralised equipment and telephone systems (with the exception of industrial computer control and related equipment).

Disk system replaced

The company’s disk system was replaced during the year along with normal renewals of terminals and smaller computer equipment. 
Considerable improvements to the company’s premises were completed during the year and involved extensive changes to computer wiring and technical equipment.
There were extensive renewals and an increase in the number of meeting rooms at Brekkustígur, and computer equipment was installed in all meeting rooms. 

Telephone system updated

The company’s telephone system was updated and new switchboard and service desk software from Zylink installed. This software greatly improves the working conditions of the service team and provides better support for information provision on call traffic. 

There are plans to adopt additional components of the system this year to make it possible to process e-mails sent to the service desk in a queue arrangement.

The review of the power billing system component within the current information system, which is to replace the current system component, continues. The company has been unable to update this component, as the manufacturer has ceased its development. 

The IT Department of HS Veitur employs three employees. In addition, one employee from a service company has a permanent position within the company in accordance with the service agreement with HS Orka.

Board and organisation

HS Orka Resource Park

Efficient utilisation of the geothermal output

The Resource Park that has been developed in the neighbourhood of HS Orka’s geothermal plants in the Suðurnes region is unique; it heralds the future, new ways of thinking and encourages further development, increased use and more efficient utilisation of the geothermal output. 

The companies of the Resource Park directly utilise two or more resource streams from the geothermal plants of HS Orka and therefore must, for obvious reasons, be located in the Suðurnes region. The operation of the Park has been developed on the basis of joint interests, such as the effluent from one company comprising raw material for another. Through their proximity; and close interdisciplinary co-operation, HS Orka uses the Resource Park to get people to think about the valuable resources with which the company has been entrusted and is expected to ensure will endure for generations to come.

 

 

"Society without Waste"

The object of the Resource Park is to establish a “Society without Waste” and to ensure that all resource streams that flow to and from the companies in the Park are utilised to the fullest extent possible, in as responsible a manner as possible, and for the benefit and further progress of the community. The utilisation of geothermal energy in the Suðurnes region provides raw material for a diverse range of manufacturing. The multiple uses bring forth an economy of scope in which the same raw material is used in the manufacture of numerous products. The operations within the Resource Park are characterised by research, development and innovation. A part of the operation of the Resource Park is to monitor and create a venue for scientific and technological development in order to better utilise the resource streams and thereby create a venue for the collaboration of companies in different sectors and with different backgrounds. The Resource Park has become a dynamic and rapidly growing entrepreneurial centre.

500 jobs in HS Orka Resource Park

Over 500 people currently work in HS Orka’s Resource Park. If account is taken of the synergistic effects, bought-in work and general basic services, one could argue that the Resource Park creates 1500–2000 jobs in its area of influence, assuming that one job in primary production creates 2–3 derived jobs in support industries. It is interesting to note that of the 500 employees in the Resource Park, only 35 are working in the power plants. The goods produced by the companies in the Resource Park are largely export goods, and their overall contribution to economic growth in 2013 was assessed as being approximately ISK 42bn, or just over 2% of GDP. Thus, the full utilisation of resources in the Suðurnes region results in multiple sources of revenue for the national economy.

„Full utilisation of resources is simply evidence of common sense.“ 

Albert Albertsson, Visionary HS Orka

New Resource Parks

Resource streams from the operation of HS Orka in the Suðurnes region have yet to be fully utilised. Systematic efforts are made to attract new, specialised companies to the Park that can take advantage of the unexploited raw materials streams available. A greater number of diverse and specialised companies that base their operation on research and development strengthen the Resource Park and the ideology on which its operation is based. With increased technology, processing utilisation and an increase in the number of specialised companies, the Resource Park of HS Orka will grow and strengthen over the coming years for the benefit of the Suðurnes region and the country as a whole. 

Moreover, it is HS Orka’s policy to develop new resource parks in conjunction with the utilisation of geothermal energy in other areas. The multiple use of resources supports their responsible utilisation and leads to the sustainable development of the community. HS Orka continues to cultivate its Resource Park sensibly and responsibly for the benefit of society at large. 

Power plants

The production department performed well during the year, and there were few downtime incidents. The operation of the geothermal systems remained consistent with prior years.

Extraction

• The net extraction at Svartsengi was approximately 5,59 million tonnes, representing a decrease of around 16,6% due to increased re-injection of run off water. 

• The net extraction in Reykjanes was approximately 13,733 million tonnes, representing a decrease of around 0.356%. 

Electricity Production

• Electricity production at Svartsengi was 551.6 GWh, which is an increase of around 3.61% between years.
• Electricity production in Reykjanes was 786 GWh, a decrease of around 3.93% between years. 
• The total production of the two power plants decreased by approximately 0.934% between years.

 

Increase in electricity production at Svartsengi

3,61%

Hot water production at Svartsengi in 2014 was 2.41% less than the prior year. 

Table 2 shows an overview of the hot water production.

Hot water production

	Tonnes	Avarage flow l/s	Energy content GWh	Avarage power
Production hot water 2014	12.441.567	395	680,1	77,6	All year 2014
Maximum monthly production	1.193.482	446	72,4	97,3	December 2014
Maximum weekly production, sales	278.319	460	17,1	101,8	Week 51 (13. til 20. dec.)
Maximum 24-hour production	40.176	465	2,46	102,6	18. dec. 2014
Maximum production per hour, l/s	1.732	481	0,105	105,3	kl 14:00-15:00 18. dec. 2014
Maximum production per hour, MW	1.710	475	0,106	106,4	kl 00:00-01:00 13. dec. 2014

It should be noted that the installed production capacity is 465 l/s. This means that approximately 103.45% of productivity was achieved during the cold snap on 18 December. No significant changes have been found in the chemical composition of the hot water distributed by HS Veitur to the Suðurnes region from the reservoirs of HS Orka.

HS Orka’s cold water production to HS Veitur totaled 6,131,832 m3.

15,4 million tonnes

Extraction from the geothermal area at Svartsengi was approximately 488 kg/s on average, or a total of 15,4 million tonnes an increase of 6,9%. 

Re-injection of runoff water into deep wells SVAH-17 and -24 was around 9.8 million tonnes, which corresponds to approximately 311 kg/s on average over the year. Re-injection increased by approximately 27.5% during the year with the implementation of an additional main pipeline and a new pumping station.

Geothermal Production in the Reykjanes area

Net extraction during the year

5,59 m. tonnes

Extraction from production wells in the Reykjanes area in 2014 was around 16,336 million tonnes, which corresponds to an average annual production of 518 kg/s, or 0.086% less than the year before. 

In 2014, injection into the geothermal reservoir at Reykjanes was approximately 82.54 kg/s on average, or approximately 2,603 million tonnes. Net extraction in 2014, therefore, was approximately 13,733 million tonnes, or approximately 436 kg/s. Work is ongoing to increase Re-injection at Reykjanes.

Operation and maintenance of power plants 

The decision was made to postpone the major overhaul of unit 12 at Svartsengi for one year. The overhaul had been on the 2014 maintenance schedule. 

The reason for the postponement can be traced to some extent to the decision to carry out stress tests on the Reykjanes geothermal system by temporarily reducing production in production wells.

Reykjanes power plant

The Reykjanes power plant performed quite well, with the exception of a few short repair stops, mainly for repairs to the steam supply systems.

Annual turbine inspections were carried out on unit 2 (50 MW) on 10–15 June and on unit 1 (50 MW) on 24–29 June. In addition to regular inspections, minor improvements were made to steam piping. 

On 22 October, production well REYH10 was connected to system 2 after cleaning and maintenance. Re-injection into well 20 was reduced in mid-2014.

Svartsengi power plant

Unit 11 (30 MW) was shut down on 2–6 June for the annual turbine inspection and other maintenance. 

Unit 12 (30 MW) was shut down on 10–17 June for the annual turbine inspection, inspection of fans and cooling tower together with minor repairs to the OV6 steam system. 

Unit 3 (6 MW) was shut down 18–28 May for normal overhaul and cleaning.

The annual shutdown in OV 2 and OV 3 was on 30 September. The steam system and separator station were shut down for 10 hours for cleaning and inspection and minor renovations carried out.

Repair at Ormat units

Repairs on the air coolers at Ormat units 7 and 9 were initiated during the year. These involved lining the condenser pipes, as was done to units 8 and 10 in 2013 with good results. 

Ormat unit 4 was not in operation in October 2014 due to a malfunction in its controls unit, which will be updated in 2015. 

Hot water production towers 6, 7 and 8 underwent their 10-year maintenance inspection. De-aerator rings were replaced and other equipment inspected. The inspection revealed that maintenance on the interior of the towers will soon be necessary. This will be made much easier with the addition of the new tower 5, which is projected to be operational in Spring 2015. 

A new re-injection station with two pumps that pump runoff water from heat production was brought on-line in September. Great success was achieved in controlling surface water with the addition of the pumping station. In addition, the volume pumped into the re-injection zone increased.

There has been considerable strain on the hot water production during the coldest months in recent years.

Strain on the hot water production

The construction of a new production unit was begun in 2014, unit 5, with a production capacity of 120 l/s. The unit was sited near the powerhouse of OV 2. The tower is expected to be ready for operation by the spring of 2015.

In 2014, work was started on increasing the flow capacity of the cold water utility with a 1.5 km pipe from the pumping station at Lágar to the pump house. This work was completed on 6 November 2014. The enlargement of the flow system led to excellent increases in transfer capabilities together with energy savings in pumping.

 

Electricity purchases and sales

Demand for electricity grew 

Demand for electricity grew last year. The demand increased both from new entities wishing to enter the market and from established companies that are adding to their operations.

Total electricity sales

4%

HS Orka’s total electricity sales increased by more than 4% and were somewhat characterised by the company’s production capacity and the status of the wholesale market, which has changed considerably between years as a result of the increase in demand.

No major overhauls

Notwithstanding these increases, there was a slight decrease in electricity production from the company’s power plants at Svartsengi and in Reykjanes into the transmission and distribution system compared to the previous year. No major overhauls of the power stations’ machinery were undertaken. The company plans to overhaul both of Svartsengi’s 30 MW units in 2015, as the overhaul was postponed last year. This will require increased energy purchases to meet the production loss. 

Increased purchases

Most of the electricity that HS Orka purchases from other electricity producers is in accordance with long-term agreements with Landsvirkjun and the owners of smaller hydropower plants. In addition, some is purchased through short-term agreements with other producers. Such purchases increased significantly during the year due to increased sales. 

The reason for the postponement of the overhaul of one of the 30 MW turbines at Svartsengi was the low water level at many of the nation’s hydropower reservoirs, which led to a difficult position in electricity production in Iceland and necessitated some curtailments in energy delivery.

 

 

Hydropower projects under development

In order to meet increased energy requirements in coming years, HS Orka has been examining several hydropower options in conjunction with the planned production increase from new geothermal plants. The company’s two first hydropower projects are under development and could be brought on-line within a few years. Increased purchases from smaller privately owned power plants are also being finalised.

Wholesale electricity

Wholesale electricity increased

25%

The sale of wholesale electricity increased by 25% during the year, most of which was due to sales to Landsnet for losses in the transmission system. 

Sales to Norðurál did not change much from the previous year. Income from retail electricity sales increased by 15% between years, while income from electricity sales to major users decreased slightly. 

Developments project

Re-injection pipes in Svartsengi

The new re-injection pipes that were laid in 2012 and 2013 and completed at the beginning of the year. Re-injection capacity was doubled with the pipes, and the operational stability of the re-injection utilities significantly improved.

A new production unit for hot water was designed by Verkís hf. and was put out to tender during the year once the construction permits had been obtained. Construction began in the second quarter and will continue into the spring of 2015. Ístak hf. is responsible for the construction and installation. The increase in capacity is expected to cover demand for hot water until 2024.

 

Freshwater pipe from Lágar

Work on increasing the flow capacity of fresh water from Lágar began in the early part of 2014. Work was halted due to snow and frost in the final months of the year. The pipes had already become operational by then. Urð og grjót hf. is responsible for the construction, and finishing work will be completed by spring 2015. The project is a prerequisite for the increased production of hot water for the hot water utility of HS Veitur hf. 

Runoff pipe to the sea

Work continued on the administration of planning issues for the advancement of the drainage pipe. The decision of the National Planning Agency on assessment obligations had been referred to the Appeals Committee for Planning and Resource Issues. The conclusion of the Appeals Committee for Planning and Resource Issues was positive, and the decision of the Planning Agency, i.e. that the project did not need to undergo a full environmental impact assessment, was upheld. 

Verkís had, for the most part, completed the design. An invitation to tender for materials was issued in late summer. SET hf. will be responsible for the manufacture/procurements of pipe material. Tenders for the surface levelling of the pipe siting and service road took place in the latter part of the year, and Ístak-Ísland hf. was selected to take care of the project. 

Negotiations for the lease of state land for the project lasted for the entire year. Work on the land-use plan for the valve building was substantially completed during the year.

  

Exploration drilling in Eldvörp

A project environmental impact assessment was prepared for the exploration drilling, as plans assumed drilling at up to five sites. The Company anticipates that in order to confirm the workability of the geothermal area drilling will not be needed at all sites. The Planning Agency issued its opinion in September. Preparations and the creation of local plans for the drill site were subsequently initiated. The opinion of the Agency will be taken into account as regards the design of drill sites, their arrangement and the manner in which work will be carried out in the area. 

Preparation for two drilling projects

Preparations began late in the year on site plans for the construction of drilling sites for two drilling projects. These involved the drilling of an auxiliary and maintenance borehole and for an exploratory borehole. After consultation with the Planning Agency, work began on preparing a query concerning the need for assessment, and at the same time, work began on local plans for the drilling sites. Both projects involve the enlargement of pre-existing drilling sites in the Svartsengi area just north of Mount Þorbjarnarfell. Following the tender process Jarðboranir hf. (Iceland Drilling Co.) was selected as the drilling contractor. The project also involves drilling at the Reykjanes Power Plant.

Preparations were initiated on a research schedule and application for investigation permits for the area to the east of Stóra-Sandvík. Negotiations with landowners were started. 

Joint venture for Hvalá

During 2014, HS Orka acquired an interest of 35.6% in Vesturverk ehf., a joint venture for the Hvalá hydro development project at Ófeigsfjörður in the Strandir region. HS Orka has the option to acquire up to 50% of Vesturverk, and such an increase in investment will be subject to the results of development work and feasibility studies over construction of a power plant.

Agreements with landowners in the area for water rights were reached during the year, and negotiations on land use took place at the close of the year. A schedule for the main investigations required was prepared and necessary construction work assessed..

Svartsengi pumping station

Construction work on a pumping station for the runoff water from the power plant at Svartsengi began during the year and was completed by year-end. The pumping station makes it easier to control runoff flows from the plant’s production units and increases the capacity of the drainage system. The contractor was H.H. Smíði in Grindavík. 

A construction permit was obtained for a new re-injection pipe to the re-injection well north-west of Mount Sýrfell. Construction began mid-summer following a tendering process where the project was divided into numerous components such as foundations, pipes, earthworks, etc. Construction work is in full swing. The pipe is unique as the design contains a special arrangement for the steam pipe, allowing it to be covered with soil so that part of the pipe is underground. Verkís hf. designed the pipe. SET, Framtak, Ellert Skúlason and ÍAV are involved in the construction. 

Framework Programme

Work was spent on applications for HS Orka’s power development options in the third phase of the Framework Programme. All options that were discussed in phase 2 were reassessed and described again. These consist of production areas in Krýsuvík, with four sub-areas; in Eldvörp, with tie-ins to the Svartsengi area; and in Stóra-Sandvík, with possible tie-ins to the Reykjanes power plant area.

 

Exploration

Geothermal in 3D

Utilisation of geothermal energy at Svartsengi has been on-going for over 30 years and has provided employees extensive knowledge and experience during that time. The geothermal plants were built in stages as knowledge of the system increased, providing a good example of successful geothermal utilisation. In conjunction with the plans for drilling at Svartsengi in 2015, the decision was made to embark on transferring the geothermal data into a 3D model. This work is still underway. 

Drilling of two high-temperature wells

The drilling of two high-temperature wells at Svartsengi is planned, and both will be located within the current production area. The first borehole is designed as an auxiliary hole that will be 2,000 m deep and will be directionally drilled to the south-east. The other borehole is designed as a deep exploratory hole and will be 2,500 m deep, directionally drilled to the east under the Grindavík road and Mount Sýlingafell. 

Re-injection

Re-injection at Svartsengi

300 kg/s

Re-injection at Svartsengi has been very successful. A total of 300 kg/s is injected into two holes located approximately 3 km south-east of the production area. Increased re-injection involves decreased disposal to the Blue Lagoon, and keeping the surface area of the lagoon within permitted limits has been successful.

Attention continued to be paid to gaining better knowledge about the geothermal system in the Reykjanes area. Efforts included investigations into the system’s reaction to the concurrent re-injection during production, updates of the geological model and updates of the stress model as well as the resource and calculation models. Extensive phase tracer tests were conducted in Reykjanes during the year, which confirmed that the liquids re-injected at the edge of the geothermal area travel approximately 16 m per day at a depth of over 2,000 m. 

Earthquakes measured

Ísor operates a localised earthquake measurement network in Reykjanes, with a total of seven stations, for HS Orka. Almost 1,000 earthquakes were measured within the geothermal area during the year, most of which were under 2 on the Richter scale. In addition, the boreholes in Reykjanes are monitored regularly. Such monitoring applies to aspects such as temperature, pressure, energy content, chemical content and deposits, as well surface level changes, distribution and subsidence. Activity in the Gunnuhver hot spring increased in September, with the spring moving over to an older pre-existing channel. This shows clearly how high-temperature areas can be dynamic and ever-changing.

 

Earthquakes on geothermal area 

1000 pr year

Extensive tests were carried out in borehole 33 in Reykjanes, which was drilled in the latter part of 2013 and is the first deep re-injection hole in Reykjanes. The borehole, located north of Mount Sýrfell, is over 2,500 m deep and is directionally drilled to the south. Calculations show that the borehole can handle around 100 kg/s of runoff fluid. At the close of the year, the drilling of borehole 34 began, which is the second deep re-injection hole in the area. The borehole is drilled just 15 m from hole 33 and will be approximately 2,000 m deep, directionally drilled to the north-west.

HS Orka, together with other energy companies and Jarðboranir, has developed new procedures in which drilling fluid (mud) and drill shavings are transported away from the site and disposed of in an accredited manner according to laws and regulations. HS Orka hf. has already used this procedure in the drilling of borehole 34 with excellent success.

Better utilisation

Research and experiments on the better utilisation of the geothermal fluid at Reykjanes have been carried out in an attempt to increase production without increasing extraction from the geothermal system. The first results appear promising, and the final results and proposals are expected in the first half of 2015. Air extraction experiments from boreholes have been carried out for over two years. The air is H2S-free and sufficiently clean that it fulfils standards for especially clean spaces such as surgical operating theatres and data centres. Preparations are now underway to exploit this method to ventilate computer areas and staff facilities at Svartsengi.

Resistance measurements have been carried out in Stóra-Sandvík, a likely geothermal system to the north-east of the geothermal area in Reykjanes. The measurement data will be interpreted in a 3D model, and the results are expected in the spring of 2015. The data will be used as the basis for making a decision as to whether to embark on further investigations in the area.

Reasearch projects

Research and development projects

HS Orka participates in various research and development projects. The Icelandic Deep Drilling Project (IDDP) continued preparations for deep drilling in Reykjanes. The extension of borehole RN-15 was specifically examined in this respect. Discussions were held with the Norwegian company Statoil as regards its re-involvement with IDDP. 

Seismometers on land 

30

Seismometers in the ocean

24

IMAGE and EU

HS Orka is party to a multi-national research project which is supported by the European Union’s (EU’s) 7th Framework Programme. The name of the project is IMAGE (Integrated Methods for Advanced Geothermal Exploration). The goal of the project is to develop new methods to investigate the deep roots of geothermal systems. Reykjanes is one of three high-temperature areas specifically examined. Installed were 30 sensitive seismometers on land and 24 in the ocean around the Reykjanes peninsula. 

Monitoring tectonic movements

Seismometers in total

84

With the addition of the meters already in place, therefore, there will be around 84 seismometers monitoring tectonic movements in the production areas of HS Orka for more than a year. It will be interesting to see the results of these measurements. HS Orka, moreover, participates in other research projects in co-operation with Icelandic and foreign bodies and companies and is also involved in the preparation of two EU applications to Horizon 2020, projects intended to develop better techniques for the drilling and processing of high-temperature areas..

Environmental issues

Leader in environmental matters

HS Orka seeks to be a leader in environmental matters. Recent years have seen developments in social attitudes toward environmental issues which have led to positive controls on business operations. HS Orka endeavours to maintain an overview of the impact that the company may have on the environment and seeks ways to minimise any negative environmental impact its operations may have. The company monitors all significant environmental aspects that relate to its operation, such as the geothermal resource, geological formations, air quality, ground water, beaches and coastal waters.

Renewable resources

The interests of HS Orka lie in the responsible utilisation of the renewable resources with which the company has been entrusted and in treating the delicate environs of the Reykjanes peninsula with respect and responsibility. This requires constant improvements to promote greater achievements in environmental protection in day-to-day operations.

Responsible utilisation of resources

One of the goals of the HS Orka Resource Park is: Caution in conduct toward the environment and resources. This entails:

• Responsible utilisation of resources.
  
• Full utilisation of resources.
  
• Realisation that the effluent from one entity is the raw material/s resource for another.
  
• Minimisation of surface disturbance.
  
• Minimisation of ecological impact.
  
• Preservation of biological diversity.
  
• Responsible disposal.
  

The HS Orka Resource Park is a powerful tool to achieve the company’s goals in environmental issues. 

„Be in the nature not on the nature.“
Albert Albertsson,  concept creator at HS Orka

 

Human resources

There were several changes in human resources during the year. Most of the changes were in the service unit that services HS Veitur in the field of electricity and water distributions as well as in maintenance and offices. A total of six employees left the company, and seven new employees were recruited.

Mr. Margeirsson new CEO

Ásgeir Margeirsson, was hired to become HS Orka’s CEO at the beginning of the year, after serving as the Chairman of the board for four years. Three new employees began at Svartsengi, two in the maintenance team and one in the control equipment division. One employee began work in the sales division at Brekkustígur.

 

At the end of 2014, the Company reached a new service agreement with HS Veitur, which resulted in over 88 employees being transferred to HS Veitur on January 1, 2015. Subsequent to this, the two companies continue to benefit from synergies in support services, with HS Veitur purchasing services relating to finance, human resources, quality and safety issues from HS Orka and HS Orka purchasing services relating to IT services, procurement, inventory and property maintenance issues from HS Veitur.

 

HS Orka employees

53 employees

Employees

	2014				2013
	Employees		Equivalent unit		Employees		Equivalent unit
Suðurnes - Njarðvík	69		69,0		69		68,8
Suðurnes - Svartsengi	30		30,0		29		29,0
Hafnarfjörður	18		18,0		19		19,5
Vestmannaeyjar	13		12,1		13		11,8
Selfoss	4	134,0	4,0	133,1	4	134,0	4,0	133,1
Total sum		134,0		133,1		134,0		133,1

Employees

	2014				2013
	Employees		Equivalent unit		Employees		Equivalent unit
Management	2		2,0		2		2,0
Sales and marketing	2		2,0		2		2,0
Power station, management	4		4,0		4		4,0
Power st., maintenance and superv.	26		25,0		25		25,0
Project Development	1		1,0		1		1,0
Technical Services	5	40,0	5,0	39,0	5	39,0	5,0	39,0
Distribution Services	49		60,0		61		60,0
Office	45	94,0	33,1	93,1	34	95,0	33,1	93,1
Total sum		134,0		132,1		134,0		132,1

Quality issues

A great deal of effort was spent in 2014 on the development and adoption of a quality management system that accords with ISO 9001. Most of the work has been spent on the development of the upper part of the system. Efforts were also spent on process analysis as regards measurements, analysis and improvements to the quality control system, including customer satisfaction.

The Quality Committee and Quality Issues

An audit schedule was prepared for internal audits covering 2014. Internal audits were, for the most part, in accordance with the schedule and have been successful. It is clear that the courses and training that the auditors underwent last year resulted in well performed audits. The Quality Committee met again after a break and currently meets every other week to discuss the adoption and other quality issues. The Quality Committee consists of the executive management team. Work that began last year to create a venue for staff to register accidents, near misses and undesirable conditions onto the company’s intranet was completed. All employees were subsequently informed of the new arrangements.

Preparing process documents

Work was embarked on in preparing process documents for the main aspects of the operation, including processes for the power plants, sales and production management, project management and transaction services. The process documents provide an easily understandable overview of the company’s operations. 

Quality control system 2015

ISO 9001

Developing and adopting a quality control system according to ISO 9001 is a major project involving all aspects of the company. The commitment of management as well as the participation of employees is extremely important in the adoption of such a system. The benefits of the quality control system are becoming ever clearer, as can be seen the daily work of all employees who make an effort to do better all the time and thereby ensure constant improvements. The quality culture within the company has grown considerably and will continue to do so. The company plans to obtain ISO 9001 certification in 2015.

Safety and health issues

Various safety and health issues were addressed in 2014 and work was carried out in accordance with HS Orka’s safety programme. Safety meetings are held with employees every month in addition to meetings and presentations where, among other things, risk assessments are reviewed before maintenance projects are embarked on. Work in enclosed spaces is part of the maintenance of power plants and a training course was held for staff to practice rescue from such places.

The safety of employees ensured

Targeted efforts were spent on signposting HS Orka’s work sites and work roads. Work is carried out in accordance with a schedule that provides for the installation of gates on all access roads to power plants and other work sites. This is done to ensure the safety of employees and to warn the general public of possible risks in the areas in which the company operates.

A new accident and incident registration system was adopted at the beginning of the year. Its object is to make it easier for employees to enter registrations and make the process more efficient. Staff can now easily register any accidents or incidents that occur into the database of HS Orka.

Employees are under obligation to wear personal meters that measure and give warning if the concentration of H2S in the air exceeds target values. Employee health is also closely monitored, and annual medical check-ups are offered to the employees of power plants.

A Safety Committee is operated within the company. The Committee held four major scheduled meetings during the year in addition to several smaller meetings.

Accident and incident registration

A registry of accidents and incidents (near misses) that occur at HS Orka is maintained. Accidents and incidents are divided into three categories according to their level of seriousness and lost time from the workplace.

• Type 1 = Accident/incident, no lost time
  
• Tegund 2= Accident causing 1–7 days lost time
  
• Tegund 3= Serious accident causing lost time of more than 7 days
  

No lost time accidents

A total of 19 accidents/incidents were registered in 2014 in HS Orka’s operation. There were eight cases in which the employees of HS Orka were involved, and 11 accidents/incidents were reported by contractors working for the company.

Further breakdown of accidents/incidents involving HS Orka employees:

• Three first aid accidents.
  
• Four incidents were reported.
  
• There was one collision at the Svartsengi site in which two passenger vehicles were damaged.
  

There were no lost time accidents at HS Orka in 2014 (Type 2 or 3). In comparison, there were two accidents in 2013 that caused absences, and the frequency of lost time accidents was 2.96. The frequency of lost time accidents is based on international standards, where the frequency of accidents is compared based on 100 worked man-years or 200,000 working hours.

The frequency of work-related lost time accidents at HS Orka in 2014, was nil.

The accident frequency of contractors working for HS Orka is monitored, and contractors are under obligation to notify the appropriate entity of any accidents. A total of 11 accidents/incidents were reported. One first aid accident was reported. Six were classified as incidents, one was classified as damage to equipment, there were two collisions and there was one minor incident when a spark fell on remains of sulphur dust and caused smoke formation.

Visits

HS Orka focuses on providing the public with education on geothermal energy, the manner in which it is harnessed and how it is used. 

Exhibition Power Plant Earth

The exhibition Power Plant Earth is located in the power plant in Reykjanes. The number of visitors has increased annually since its formal opening in 2008. 

Power Plant Earth is an interactive exhibition about the solar system, the different forms of energy used on the Earth and what energy use options are available both here in Iceland and elsewhere.

The company itself receives groups from companies that are in related operations and student groups from many parts of the world. In addition, there are numerous photo opportunities and interviews handled by staff.

Visitors

Totals visitors 2014

5.753

In total, employees attended around 100 receptions and received 1,510 visitors. The Power Plant Earth exhibition received 4,243 guests. In total, therefore, 5,753 guests visited the company in 2014.

Hiking

Reykjanes hikes

For the seventh year in a row, HS Orka sponsored, in partnership with other companies in the Suðurnes region, the project Reykjanes Hikes. A total of 11 hikes were offered round and about the Reykjanes peninsula during the period from June to August. The hikes were on Wednesdays under the guidance of Rannveig Garðarsdóttir.

The hikes are at varying levels of difficulty and can be anything from a light stroll up to longer and more difficult walks in the stunning environment of the Reykjanes peninsula. During each hike, our guide told participants about the nature and history of the area through which they were walking.

Good participation

11 hikes in 2014 

746 hikers

There were a total of 746 people who laced up their hiking boots and joined us during the summer of 2014. A total of 630 people participated the year before, when there were 10 hikes as opposed to the 11 hikes in 2014. The hikes are extremely popular and suit everyone.

Employee association

Sigrún re-elected as Chairman

The Annual General Meeting of the employee association was held on 25 April 2014. Sigrún Guðmundsdóttir was re-elected as Chairman. Other members of the Board are Ingi Björn Jónsson, Vice-Chairman; Sigurður Baldur Magnússon, Secretary; Matthías Örn Friðriksson, Treasurer and Skarphéðinn Rúnar Pétursson, Board Member. Alternates are Jóhann S. Sigurbergsson and Sólveig Björgvinsdóttir.

Annual celebration

The company’s annual celebration was held on 1 March in Icelandair Hotel Reykjavík Natura. Attendance was excellent, and guests enjoyed themselves immensely during the evening’s entertainment, some of which was homemade and some purchased. The evening was a great success, with delicious food and outstanding hosting by Logi Bergmann Eiðsson. 

The summer was welcomed with a family outing on 7 June at Svartsengi. The weather was delightful, and everyone had a great time. The children were invited on a motorbike ride, Sportacus visited and entertained and the jumping castle was popular among the younger children. The children were face-painted, and then it was time to enjoy the barbecued hotdogs. Our summer cottage in Húsafell was in full use the entire summer. Conduct was exemplary and everyone enjoyed their stay.

Summer og autumn outing

Our summer/autumn outing was to Snæfellsnes in September. The outing began with a hike between Arnarstapa and Hellnar in lovely weather. From there, we went to Stykkishólmur and on an adventuresome sail in Breiðafjörður bay. While on the boat, staff were given the opportunity to taste delicious fresh seafood straight from the sea. In the evening, there was a feast in Hotel Stykkishólmur, singing and general merriment. The weather could have been better the next day when we visited Bjarnarhöfn, had a taste of fermented shark and examined the museum. Next, one of the coaches went to Erpsstaðir to have a taste of some real country ice cream, while the other coach went on a Viking adventure at Eiríksstaðir. The entire group subsequently met up again for a wonderful lamb’s meat soup in Munaðarnes. It was a tired but happy group of travellers who came home on Sunday evening after a great trip.

Employees were invited to a wild game feast at Lava Restaurant at the Blue Lagoon on 1 November. Attendance was fantastic, and the food was exquisite. The surroundings and ambiance of the evening were superb – a marvellous time with great colleagues.

The Board of SFHS looks forward to the coming year and is certain that it will be at least as eventful as the past year. It is fantastic to be in an association where everybody is an active participant in all events that are offered. Success is always enjoyable. We would not be able to do this without with the participation and help of all the members. 

Key figures

Profits from regular operations amounted to ISK 736 million, as opposed to losses amounting to ISK 355 million the year before. The improved results can for the most part be attributed to increased revenue and the excellent results of subsidiaries. 

Profit 2014 in ISK

679 m.

EBITDA 2014 in ISK

2,738 m.

EBITDA increased by ISK 135 million between years and was approximately ISK 2,738 million in 2014, up from ISK 2,603 million in 2013. This increase is due to the fact that revenue increased to a greater extent than increases in operating expenses.

Operating revenue

The company’s operating revenues amounted to ISK 7,479 million in 2014, as compared to ISK 7,031 million in 2013. There are several reasons for this increase in revenues. Increased sales in the retail market account for most of the increase, while sales to major users decreased slightly.

Operating expenses rose by 6%, or the equivalent of ISK 310 million, between years. Energy purchases have increased somewhat, while transmission costs have decreased slightly. The operating costs of power plants, moreover, are rather lower than in 2013. Office costs and management expenses, moreover, have increased somewhat, largely due to the cost of court proceedings and changes to the company’s internal organisation. 

Instalments were paid on long-term debts to the tune of ISK 2,224 million. These payments, together with increases in price adjustments, mean that the company’s long-term debts have increased by ISK 2,125 million since 2013. The equity ratio on 31 December 2014, therefore, was very strong, or 59.7%, as compared to 58.0% at the end of 2013.  

Operating revenue 2010 - 2014

Equity capital 2010 - 2014

Equity ratio 2010 - 2014

Projections for 2015 assume somewhat of an increase in both income and expenses and that profits will be approximately ISK 1.7 billion. EBITDA is expected to be similar as in 2014. Instalments on loans are estimated to be ISK 2,249 million.

 

Annual Report

HS Orka has undergone various changes in the last year. One of the developments is that instead of releasing a printed version of the annual report, it is now published online. This is in line with the CSR policy of the company.

A pdf-version of HS Orka‘s annual report is available below.