Legal Framework

The Blue Lagoon

The ownership of resources inside the ground is attached to a private land, while on public land resources inside the ground are the property of the State of Iceland, unless others can prove their right of ownership. Even though the ownership of resources is based on the ownership of land, research and utilisation is subject to licensing according to the Act on Survey and Utilisation of Ground Resources, No. 57/1998 and the Electricity Act, No. 65/2003. Survey, utilisation and other development pursuant to these Acts are also subject to the Nature Conservation Act, Planning and Building Act and other acts relating to the survey and utilisation of land and land benefits.

The Act on Survey and Utilisation of Ground Resources, No. 57/1998, covers resources inside the ground, at the bottom of rivers and lakes and at the bottom of the sea within netting limits. The Act also covers surveys of hydropower for the generation of electricity. The term resource applies to any element, compound and energy that can be extracted from the earth, whether in solid, liquid or gaseous form, regardless of the temperature at which they may be found.

According to the Act Orkustofnun is permitted to take the initiative in and/or give instructions on surveying and prospecting for resources in the ground anywhere in the country, regardless of whether the owner of the land has himself or herself begun such surveying or prospecting or permitted others such surveying or prospecting, unless the party in question holds a valid prospecting licence pursuant to the Act. In the same way, Orkustofnun may permit others to survey or prospect, in which case a prospecting licence shall be issued to them. A prospecting licence confers the right to search for the resource in question within a specific area during the term of the licence, survey extent, quantity and potential yield and to observe in other respects the terms which are laid down in the Act and which Orkustofnun considers necessary.

The utilisation of resources inside the ground is subject to a licence from Orkustofnun, whether it involves utilisation on private land or public land, with the exceptions provided for in the Act. A landowner does not have a priority to an utilisation licence for resources on his or her land, unless such an owner has previously been issued a prospecting licence. A utilisation licence permits the licence holder to extract and use the resource in question during the term of the licence to the extent and on the terms laid down in the Act and regarded necessary by Orkustofnun. Before the holder of a utilisation licence begins extraction on private land the holder needs to reach an agreement with the landowner on compensation for the resource or obtain permission for expropriation and request assessment. In the event of neither an agreement made on compensation nor expropriation requested within 60 days immediately following the date of issue of an utilisation licence, the licence shall be cancelled. The same applies if utilisation on the basis of the licence has not started within three years of the issuance of the licence. This also applies to the utilisation of resources inside public land.

Orkustofnun may revoke the above licences if their conditions are not fulfilled. If a licence holder does not comply with the conditions established in the licence or contracts relating to the licence, Orkustofnun shall issue a written warning and provide time limits for rectification. Should the licence holder not comply with such a warning, the licence shall be revoked.

According to the Electricity Act, No. 65/2003, a licence issued by Orkustofnun is required to construct and operate an electric power plant. However, such a licence is not required for electric power plants with a rated capacity of under 1 MW, unless the energy produced is delivered into the distribution system of a distribution system operator or into the national transmission grid. The owners of power plants with a rated capacity of 30 – 1,000 kW shall submit technical details of the plant to the National Energy Authority. Also, the National Energy Authority shall be informed annually of the total generation of power plants with a rated capacity of over 100 kW.

The National Energy Authority is responsible for monitoring mineral prospecting or extraction areas and geothermal areas, as well as to regulate the compliance of companies operating under issued licences. The National Energy Authority will report to the Minister of Industry, Energy and Tourism on the conduct of exploration, prospecting, and extraction in accordance with further instructions issued by the Minister. The protection and monitoring of prospecting and extraction areas is also subject to the Nature Conservation Act.

Three major amendments have recently been made to the legal energy framework in Iceland:

  1. The ownership of resources can no longer be sold by the state or municipalities although utilisation rights can be leased to a developer for up to 65 years with a possibility of extension. Royalties for the utilization are determined by the Prime Minister.
  2. Producers of electricity compete in an open market in Iceland. Therefore CHP power plants are obliged to keep separate accounts for heat and power production to prevent cross subsidisation of electricity.
  3. The National Energy Authority can grant licenses on behalf of the Minister of Industry, Energy and Tourism, effective as of 1 August 2008.
  4. Orkustofnun grants licenses, that before were granted by the Minister, based on the Acts on natural resources, hydrocarbon and electricity.
  5. Administrative decisions are made by Orkustofnun that include granting of licenses, revision and revoking can be appealed to the committee of environment and natural resources.