Legislation

The Electricity Act, No. 65/2003, based on EU Directive No. 96/92   and Directive 2003/54/EC concerning common rules for the internal market in electricity, was enacted in mid-2003. The objective of the Electricity Act is to encourage an economical electricity system, thereby strengthening Icelandic industry and regional development. In addition, the Act is intended to: Create a competitive environment for the generation and sale of electricity; foster efficiency and cost-effective transmission and distribution of electricity; ensure the security of the electricity system and the interests of its consumers; and promote the utilisation of renewable energy sources.

In accordance with the Electricity Act, Landsnet (Icegrid), a private enterprise, was established to provide the electrical transmission and system operations services. The company commenced operations in early 2005 and is responsible for transmission and system operations services. Landsnet is the sole transmission system operator for electricity in Iceland. Following a 2022 restructuring where the state acquired shares from Landsvirkjun, the ownership structure is split between the Icelandic Treasury (approximately 93.22%) and Reykjavík Energy (6,78%). Landsnet is authorised to operate an electricity market, a role fulfilled by its subsidiary, Elma Energy Exchange (Elma). In compliance with the Electricity Act, the operations of the electricity market are financially separated from Landsnet’s monopoly transmission activities to ensure transparency and independence.

The Icelandic Environment and Energy Agency is responsible for supervising the transmission and distribution enterprises, and is expected to establish an income cap for the enterprises' tariffs. The Act specifies what can be included as operating expense, and the Icelandic Environment and Energy Agency will establish a cap in correspondence with this while simultaneously making demands for increased rationalisation and cost efficiency.

The Act also regulates the potential return on capital invested in the operations. Electricity distribution starts where the transmission system ends. Distribution utilities operating at the time the Act is decreed will retain their previous rights to construct and operate distribution systems. The same tariff shall apply for the distribution of electricity in each predefined tariff area.  With permission, distribution utilities can apply to the Icelandic Environment and Energy Agency for higher tariffs in rural areas, where the distribution costs are higher than in densely populated areas.