Alcoa Inc. moved a step closer to building a second aluminum smelter in Iceland, as the world's biggest producer of the lightweight metal seeks sources of power that are cheaper than in the U.S. and Europe.
Alcoa will begin a "detailed feasibility study" for the plant at Husavik in northern Iceland, the company said Wednesday. The plant will be the world's first to be run on geothermal power, or power tapped from hot springs, it said.
"We have a great deal of work ahead of us to prove the feasibility of this project," Alcoa Executive Vice President Bernt Reitan said in the statement.
Alcoa, based in New York, and Montreal-based Alcan Inc. are shutting plants in North America and Europe and building others in the Middle East and Iceland, which have large reserves of untapped energy. Power, which accounts for about a third of the cost of making aluminum, is about 30 percent cheaper in Iceland than in other locations, said Lloyd O'Carroll of BB&T Capital Markets in Richmond, Va.
Alcoa is already building a smelter in Fjardaal, in eastern Iceland. Reitan said as early as last June that Alcoa may build a second smelter.
Power for the second plant will be provided by Iceland's state-owned power company, Landsvirkjun HF. Landsvirkjun is building a hydroelectric dam in eastern Iceland that will generate electricity from ice floes off Iceland's biggest glacier to supply Alcoa's $1.1 billion Fjardaal project over 40 years. Fjardaal will start production next year, with capacity of 346,000 tons of aluminum a year.
"We would play a major role in the geothermal projects," Bjarni Bjarnason, a director at Landsvirkjun, said in an interview from Reykjavik.
A geothermal field in Iceland's volcanic north near the Arctic Circle would offer sufficient energy to power a smelter capable of producing 250,000 metric tons a year of aluminum, Bjarnason said in June.
Alcan, Alcoa's nearest rival, also plans to expand a plant in Iceland that has a capacity of 176,000 tons a year, Cynthia Carroll, president of Alcan's primary metal group, said in September. Electricity for Alcan's expansion may come from hydroelectric plants, the power source for the current smelter, or geothermal power.
