// Iceland's advantage
The country that built a science-based model for managing its fisheries and harnessing its geothermal heat is uniquely placed to make its own fuel. Iceland brings all-renewable power, deep technical skill, advantageous regulation, and secure fuel demand, clearing the obstacles that hold these projects back elsewhere.
// Power
Electricity is the largest single cost in producing eSAF, typically well over half of the levelised cost of the finished fuel. The economics of an eSAF project therefore turn on one question above all others: the price, availability, and carbon intensity of its power. Iceland answers all three at once, which is what makes the dominant cost line both low and predictable rather than a source of risk.
Iceland generates over 99% of its electricity from renewable sources, approximately 70% hydropower and 30% geothermal, with new onshore wind in development. Hydro and geothermal are dispatchable and run around the year, so the system delivers high-availability power without the intermittency that forces continental producers, working off weather-dependent grids, into storage, curtailment, or oversized electrolysers. Every unit of hydrogen produced here will be verifiably green, with no carbon offsets, no additionality risk, and no greenwashing exposure.
Power costs are among the lowest in Europe, and approximately 80% of electricity is sold through long-term bilateral PPAs rather than spot markets. For an investor, that combination of a low and contracted price on the single biggest cost line is what makes the returns bankable rather than exposed to the swings continental developers carry.
SOURCES 1 Landsvirkjun FS2025 · 2 Eurostat nrg_pc_205
Iceland's published average industrial price against 2025 first-half ranges in peer markets. Electricity is the largest cost input to eSAF production
// Regulatory position
Iceland participates in the EU Single Market through the EEA Agreement, giving it access to the EU regulatory framework without full EU membership. Under Article 4(1) of Commission Delegated Regulation (EU) 2023/1184, adopted pursuant to Article 27 of the Renewable Energy Directive, electricity taken from the grid counts as fully renewable for RFNBO production when the installation sits in an electricity-market region whose renewable share exceeded 90 per cent in the previous calendar year.3 Iceland’s grid clears this criterion comfortably, so the additionality and correlation tests that constrain continental producers do not apply here. The rule will apply in Iceland once the delegated regulation is incorporated into the EEA Agreement.
Icelandic airports also sit at the highest tier of the EU’s SAF price support. Under Article 3c(6) of the EU ETS Directive, as incorporated into the EEA Agreement by Joint Committee Decision No 334/2023, the purchase of eligible SAF at Icelandic airports carries a right to reimbursement of 100 per cent of the price difference against fossil kerosene, where other countries sit at 95%.4 For a producer, that is revenue security: the green premium an airline would otherwise absorb is closed in full, which underpins the contracted price the project is built on. The legal entitlement exists at EEA level today; what remains is for Iceland to issue the implementing regulation that lets airlines claim it, and the project’s economics hold without it.
How Iceland compares with other European eSAF locations on the policy and resource factors that decide project economics
| Factor | Iceland | Norway | Germany | Netherlands | Denmark |
|---|---|---|---|---|---|
| Grid carbon intensity5 | 28gCO₂/kWh | 30gCO₂/kWh | 337gCO₂/kWh | 251gCO₂/kWh | 132gCO₂/kWh |
| RFNBO additionality6 | Exempt | Exempt | Applies | Applies | Applies |
| ETS SAF support tier78 | 100% | 95% | 95% | 95% | 95% |
| SAF allowances claimed910 | Not yet | Yes | Yes | Yes | Yes |
| Water stress11 | Low | Low | Medium-high | Low-medium | Low |
| Innovation Fund access12 | Yes (EEA) | Yes (EEA) | Yes | Yes | Yes |
SOURCES 3 DR (EU) 2023/1184 · 4 EEA JCD 334/2023; Dir 2003/87/EC · Scorecard: 5 Ember 2024 · 6 DR (EU) 2023/1184 · 7 Dir (EU) 2023/958 · 8 EEA JCD 334/2023 · 9 EC Decision 2025 · 10 ESA 026/26/COL · 11 WRI Aqueduct 4.0 · 12 EU Innovation Fund
// Demand
Iceland’s economy runs on the fuels that are hardest to replace with electricity. Aviation connects an island with no road or rail link to the continent, and Icelanders consume more jet fuel per person than almost any other European nation, around nine times the EU average.13 The fishing fleet that underpins the export economy runs on imported marine fuel, and the long distances between towns and ports make heavy road transport difficult to battery-electrify; the national energy forecast projects steady demand for liquid fuel across these sectors through its outlook.14 These are exactly the sectors that hydrogen and e-fuels are made for, the ones direct electrification does not reach, and the Icelandic government’s roadmap sets out replacing imported fossil fuel across all of them with domestically produced hydrogen and e-fuels.15
For a producer, that is durable demand in the same place as the plant. Making these fuels in Iceland means a large home market across aviation, fishing and heavy transport, not only the export market, which anchors production and reduces the risk of relying on a single offtake channel. The demand is here, it is growing, and it sits in the sectors only these fuels can serve.
SOURCES 13 Hagstofa Íslands UTA03801; Eurostat · 14 Orkustofnun Orkuspá 2025–2050 · 15 Iceland Gov. H2/eFuels Roadmap 2024 · Fuel figures: Orkustofnun UOS-2025-4; Hagstofa Íslands 2025
// Industrial base
Iceland is among the world’s most advanced, high-income economies, and it has supplied reliable, large-scale industrial power for nearly 60 years, most notably to aluminium smelters drawing hundreds of megawatts each, beginning with the ISAL smelter at Straumsvík in 1969.16 The country operates an independent, regulated transmission system with high reliability, and the institutions, grid, and skilled industrial workforce a project on this scale depends on are already in place. A first-of-a-kind plant is hard enough on its own; building it in a mature industrial economy that has run energy-intensive industry at scale for decades means the country is not one of the variables.
SOURCE 16 Rio Tinto, ISAL, Straumsvík (1969)
// Combination
Each of these would help a project. Iceland is unusual in holding all four at once: low-cost, high-availability renewable power, a regulatory position no other location matches, a large home market in the hardest sectors to electrify, and a 60-year industrial track record behind it. Power alone does not make a project financeable, and neither does the regulatory tier alone; it is the four together that turn a hard project into a buildable one, because each closes a different risk a lender or buyer would otherwise price in. That combination is Iceland’s advantage.
All-renewable and contracted long, the dominant cost line made low and predictable.
RFNBO-eligible by default, at the only 100% SAF-support tier in the EEA.
Aviation, fisheries and heavy transport, in the same place as the plant.
The grid, institutions and skilled industrial workforce already in place.
