A river of change: how the Kárahnjúkar Hydropower Plant has transformed East Iceland
Vortex artwork at the Kárahnjúkar Hydropower Plant. Photo by Bernt Rydgren
When the Kárahnjúkar Hydropower Plant was first proposed in East Iceland, it sparked both optimism and concern. Now, more than two decades later, the project – officially known as the Fljótsdalsstöð Power Station – has left an indelible mark on the region, reshaping its economy, infrastructure, and remote communities. Nestled among glaciers and fjords, the region has experienced a quiet but profound transformation, where prosperity has risen alongside the natural beauty it seeks to sustain. But challenges remain, and maintaining this delicate balance requires ongoing commitment, writes João Costa.
A thriving economy and a growing community
At the heart of East Iceland’s economic revitalisation is a gamechanging partnership between the Kárahnjúkar Hydropower Plant and the Alcoa Fjardaál smelter. With an installed capacity of 690MW, the hydropower plant is Iceland’s largest power station. Its primary purpose is to supply power to the smelter, which lies 75 kilometres further east and began operation in 2008.
The population of the region has grown from 9,280 in 2003, when construction of the hydropower plant first began, to more than 11,000 today. This may seem like a modest increase, but in a country where remote communities often struggle to retain residents, it signals a shift away from rural decline.
The economic impact is even more striking. Despite being home to just 3% of Iceland’s population, East Iceland now accounts for nearly a quarter of the country’s exports. This growth has brought stable jobs, better services, and – for the residents of the region’s remote communities – opportunities that once seemed out of reach.
The Jökulsá í Fljótsdal delta in upper Lagarfljót, one of two main rivers affected by the Kárahnjúkar Hydropower Plant. Photo by Bernt Rydgren
Infrastructure that connects and strengthens communities
The benefits of the Kárahnjúkar Hydropower Plant go beyond economics. The project ushered in much needed infrastructure improvements, and local residents have seen their daily lives improved by better roads and access to services.
These developments have also made East Iceland more accessible to tourists, bringing more income to the region through nature-based tourism and cultural initiatives.
The change is tangible. Small businesses have been able to flourish, schools remain open when weather conditions are challenging, and once-quiet villages are now abuzz with activity.
The Fljótsdalshreppur municipality building near the power station housed the original visitor centre. Photo by Joerg Hartmann
Sustainability at the heart of progress
Sustainability has been central to the development of the Kárahnjúkar Hydropower Plant. The project operates with an exceptionally low greenhouse gas footprint of 1.2 gCO2e/kWh.
In recognition of its strong sustainability performance, the project was awarded Gold certification under the Hydropower Sustainability Standard (HSS) in May 2025 – the highest possible rating under the globally recognised framework. This certification followed a rigorous independent assessment that confirmed the project met or exceeded international best practice across key environmental, social, and governance (ESG) criteria.
Landsvirkjun, Iceland’s national power company, has not only embraced sustainable practices in its operations, but has integrated sustainability into corporate transparency, reporting publicly through the Global Reporting Initiative (GRI) and CDP.
A robust climate risk assessment program also ensures that the project can adapt to a changing landscape in an era of environmental uncertainty.
The Hálslón Reservoir and Kárahnjúkar Dam. Photo by Bernt Rydgren
Protecting nature and heritage for future generations
Environmental stewardship has also been a priority. While the project was initially met with concerns about ecological disruption, extensive monitoring has shown that many anticipated negative impacts never materialised.
In fact, species populations have increased, and reduced flows in Jökulsá á Dal have led to healthier aquatic habitats. Meanwhile, large-scale revegetation efforts have helped to counteract land degradation in the project-affected area.
Beyond nature, the project has supported cultural heritage. Archaeological sites have been documented and protected, and collaboration with the Cultural Heritage Agency of Iceland ensures that the region’s rich history remains intact.
The Skriðuklaustur cultural-heritage site near the power station. Photo by Joerg Hartmann
Addressing ongoing challenges
Yet, challenges remain. Increased turbidity caused by the project has affected a fishery in Lake Lagarfljót, for example. Efforts to restore the salmonid population are underway, and Landsvirkjun is compensating through supporting fisheries elsewhere in the region, but a long-term solution is still being continuously improved.
Additionally, the fair distribution of real estate tax revenue from the project among municipalities has been raised as a concern and remains under discussion at the national level.
Visibility presents a further challenge. Despite its significant contributions to the region’s economy and strong local support, the project’s positive impacts are not always well understood. There is an opportunity to better communicate its successes and inspire developers in other regions facing similar challenges – not just in terms of economic growth, but also in resilience to climate change and its role in shaping a sustainable future.
Efforts to address impacts on fish populations at Lake Lagarfljót are ongoing. Photo by Bernt Rydgren
A lasting legacy of progress
Kárahnjúkar’s story is one of profound transformation – economic, social, and environmental. It has reshaped East Iceland, breathing new life into communities while maintaining a commitment to preserving the local environment.
As efforts continue to address the remaining challenges, the project stands as a testament to what is possible when innovation is delivered with a responsible approach. The river of change is still flowing, and its course is one of progress.
AUTHOR
