Iceland energy policy shaped by EU market regulations

Icelandic energy policy has been heavily influenced by European Union energy packages since 2003. The implementation of the first EU energy package through Electricity Act No. 65/2003 removed the legal obligation for Landsvirkjun to ensure sufficient electricity for public utilities.

The third energy package, approved by Alþingi in September 2019, further increased marketization and placed energy trading under mainland European rules. Under these regulations, electricity is treated as a commodity rather than an essential service.

Data from a parliamentary resolution proposed by Halla Hrund Logadóttir indicates a significant imbalance in energy distribution: households consume less than 5% of electricity, while nearly 80% is allocated to aluminum smelters, ferroalloy plants, and data centers via long-term contracts. Other sectors, including agriculture and banking, account for approximately 15%.

While current laws allow for electricity rationing during unforeseen shortages to prioritize homes and critical infrastructure, such measures are considered a last resort.