Denmark. Elfelagið SEV

NIB is providing a loan to co-finance the construction of a pumped storage system to balance the intermittent renewable power generation with consumption in the Faroe Islands.

The system consists of mountain caverns and a tunnel connecting the existing Myrarnar upper reservoir and the Heygadalur lower water reservoir through eight pumps with a total capacity of 70 MW, pushing water uphill using surplus wind and solar energy, and letting the water down through four turbines with a combined capacity of 40 MW when required. The estimated total project cost is DKK 1.3 billion.

The project is planned to be constructed between 2022 and 2027 and will contribute to the Faroe Islands’ target of achieving 100% fossil free energy generation and onshore consumption by 2030.

Currently, approximately 62% of SEV’s total annual energy generation capacity of 180 GW is from oil-fired thermal power plants, while the remainder comes from renewable energy sources such as hydropower and wind power. The plan is for existing oil-fired and thermal power plants to only serve as back-up power sources to renewables by 2030.

The Elfelagið SEV power company is an inter-municipal community owned by all 29 municipalities in the Faroe Islands. The company owns the electricity grid and 98% of total installed electricity production capacity on the Faroe Islands.

Productivity
The project contributes to transforming the energy systems on the Faroe Islands, which are still very fossil-fuel-driven, to ones based on renewable energy. The pumped hydro solution will allow the energy to be accumulated when an excess of generation is available and release it when there is a deficit. Pumped hydro is among the most efficient technologies to balance the generation mix with a high penetration of renewables.

The investment will allow intra-day balancing and frequency stabilisation, thereby reducing the need for other balancing infrastructure and improving the overall quality of the grid, meaning fewer disruptions and improved frequency stability.

Environment
The system will enable the utilisation of a greater share of the renewable power produced, mainly from wind, and support the grid stability as the installed wind power capacity increases according to the Faroese electricity sector’s decarbonisation plan. The system is expected to generate circa 55 GWh of hydropower per year, thereby helping reduce oil-based electricity generation. The CO₂ emissions are expected to decrease by at least 35,000 tonnes annually.

Expected annual environmental impact from the project:

• Added hydropower generation capacity: 40 MW
• Estimated hydropower generation per year: 55 GWh

NIB assesses that the project will cause no significant negative environmental or social impacts. It is assessed that the main impact will disturb the birdlife during the construction phase, as the work includes drilling and blasting. The hydropower station structures will be built mostly in underground caverns. After construction, the site will be reinstated to its current state, and the deposit areas for excavated rock will be landscaped.

The pumped storage will use existing reservoirs, and the dam heights and lower and upper regulated water levels will be maintained. Hence, only the frequency of reservoir use will increase, and the impact on flora and fauna in the area is therefore assessed to be minor.

The project is eligible for the EU taxonomy under the environmental objective “climate change mitigation”. It fulfils the significant contribution and do no significant harm criteria for the activity “storage of electricity”. The project is therefore assessed to be aligned with the EU taxonomy.