Landsvirkjun reports significant profit drop in first half of year in Iceland

Landsvirkjun, Iceland’s largest power producer, has reported a significant decrease in profit for the first half of the year, highlighting several factors that contributed to a revenue decline. The company experienced a profit drop of over 38%, amounting to approximately $70 million (about 9.8 billion ISK), with operational revenue from electricity generation and sales reducing by more than 25% to just under 20 billion ISK.

The reduction in revenue has been attributed to limited electricity supply and contract changes with a major customer. Notably, adjustments in pricing agreements shifted from ties to Nordpool, the Nordic electricity price index, to being linked solely to aluminum prices, which are more volatile.

Rafnar Lárusson, the company’s Chief Financial Officer, noted that last year was exceptional for Landsvirkjun, with record operational revenues. Comparatively, the Nordpool electricity price was eight to ten times higher than prices in Iceland two years ago due to the impact of Russia’s invasion of Ukraine. The company was able to capitalize on high prices last year due to hedging derivatives, although revenue from these risk mitigations has since decreased.

Looking ahead, Lárusson expressed optimism about the company’s future, despite challenges related to water levels affecting hydroelectric production. He emphasized that Landsvirkjun is typically well-positioned to handle revenue fluctuations through hedging strategies akin to automotive shock absorbers, balancing out earnings over the long term. The overall operational health of the company remains solid, with positive outlooks for the coming years, contingent upon improved water conditions.