Iceland ready to heat up global clean tech

Its economy might be taking a pounding but few countries are better positioned to take advantage of demands for a low-carbon world

It is somewhat ironic that of all the countries currently struggling with the prospect of an economic downturn it is the one arguably having the toughest time that ultimately has the least to worry about when it looks to its long-term future.

Over the past few weeks, Icelanders have had to become used to their country making a series of unwelcome appearances on the world's business pages. Commentators have wondered aloud if this small northern economy of just 300,000 people could be the first to collapse as a result of the global credit crunch.

Despite a fundamentally strong economy that has in recent years propelled Iceland to the top of the UN's quality of life rankings, the country's banks have been hit hard by the recent drop off in investor confidence and have struggled to obtain foreign currency loans.

The net result has been an economic car crash. The central bank last week raised interest rates for the second time in three weeks to a record 15.5 per cent. This was in an attempt to head off spiralling inflation and shore up the Krona following a start to the year that has seen it lose a fifth of its value against the Euro. Meanwhile, the finance ministry is now predicting that the economy will contract next year for the first time in over 15 years as high interest rates put the brakes on consumer spending.

And yet, while it may prove of little consolation to those Icelanders facing a tough couple of years, many within the Icelandic government believe the country's recent travails are the precursor to a long-term economic boom that should make Iceland a global trailblazer in the development of clean technologies.

The reason for this optimism lies below Iceland's famous landscape in the form of the molten rock that bubbles conveniently close the surface.

It was back in the late 1970s at the peak of the oil crisis that the Icelandic government decided to exploit the geothermal energy that gives the country its distinctive volcanic landscape and famous hot pools. The country invested heavily in geothermal and to a lesser extent hydroelectric power, building as it went the foundations that would quickly turn it into one of the most productive countries in the world per capita.

The net result claims Einar Karl Haraldsson, chief political adviser to the Icelandic foreign ministry, is that around 80 per cent of Iceland's energy now comes from renewable sources and the country is arguably further along the road to becoming a low-carbon economy than any other.

The process of harnessing geothermal energy is remarkably simple, according to Sol Squire, managing director for offshore operations at Data Islandia, a data storage specialist offering to store and archive firms' electronic data at facilities powered entirely by geothermal energy. "Basically you drill a hole in the ground and then add some water to juice it up a little," he explains. "The water turns to steam and that drives a turbine."

This readily available source of power means that geothermal and hydroelectric energy provides 99.95 per cent of the country's electricity and 98 per cent of its heating requirements. Moreover, geologists are convinced that Iceland has barely begun to tap the geothermal potential that arises from its position above the meeting point of the European and North American tectonic plates. Some reckon that all the energy needs of the Northern hemisphere could be met from Iceland, but the truth is that no one is that sure how much energy could be eventually harnessed.

"What you've got to remember is that we've been working on this for less than thirty years," said Albert Albertsson, deputy CEO at Iceland's Resource Park, which hosts the famous Blue Lagoon spa and one of the country's largest geothermal power stations. "We really have only harnessed a tiny fraction of the potential energy."

The government is now engaged in a major project to tap more of this huge potential energy source. Conventional power plants are based on bores drilled to a depth of between 2km and 3km, but work is now underway at the Resource Park on bores of up to 5km in depth. "The water pumped into those bores will reach an unbelievable pressure and deliver four to five times the power yield of conventional bores," explained Haraldsson.

Of course, until such time as long distance power cables become a reality, Iceland's remote location means it has no means to export this geothermal energy. As such, the government has now embarked on a major charm offensive to attract those industries it feels will stand to benefit from its abundance of green and cheap energy.

The country already has a substantial aluminium manufacturing sector that has grown used to using geothermal energy to power its smelting process, but now Haraldsson and his colleagues in government are seeking to attract the new generation of clean tech firms to the country.

Green automotive firms are a particular area of interest as Iceland seeks to remove the last major source of emissions from its economy through the development of zero-emission vehicles. Again, it is the country's unique geothermal resources that are likely to hold the key. Not only could electricity generated by the geothermal plants drive a fleet of electric vehicles, but research projects currently underway at the Resource Park are also seeking to capture the carbon dioxide naturally emitted by geothermal activity and use it to develop synthetic fuels.

Albertsson explained that the gases could be used to create methanol, which could drive fuel cell powered vehicles, while CO2 could also be captured and fed to algae, potentially increasing the yield of lipids that go to make second generation biofuels.

However, it is the IT sector that has the most to gain from Iceland's green energy surplus and the government is doing all it can to lay out the welcome mat.

"The government has previously supported aluminium as the main export industry," explained Data Islandia's Squire. "But strategically that did not bring us closer to Europe. In contrast, high tech allows us to build real links with Europe and North America."

Consequently, corporation tax has been cut to 15 per cent and the government has committed to laying new high speed data cables to better connect the country to Europe and North America as it seeks to convince firms to locate their datacentres on the island.

With growing numbers of firms facing soaring energy bills and a burgeoning carbon footprint as a result of their IT infrastructure, Haraldsson believes Iceland boasts a compelling proposition. "In the big cities where many firms locate their datacentres energy is either expensive or polluting, if it is available at all," he said. "We have energy and we also have a cold environment and an abundance of clean water for cooling [server farms]."

He added that firms locating at least part of their IT infrastructure in Iceland would also be able to avoid any future carbon taxes and tap into cheap land as well as a population boasting a high level of computer literacy.

The government expects five to six more large scale datacentre developments to be built on the island over the next five years, although Squire insists its projections have been "grossly underestimated". "If you look at the pressure IT departments are under to cut energy use and the advantages Iceland has I'd expect three to four times that number of datacentres within five years," he added.

Data Islandia is one of the first to attempt to exploit this potential market, partnering with electronic data storage specialist Hitachi Data Systems to offer customers the opportunity to store and archive their data at its soon to be completed Icelandic facility.

It is this vision of Iceland as both the datacentre capital of the world and one of the Northern Hemisphere's premier clean tech hubs that explains why many within the country's polictical and business community are retaining a remarkably upbeat outlook in the face of its current economic buffeting.

"When the oil crisis receded in the 1980s all the interest other countries had shown in renewables disappeared and they fell back on their oil-reliant ways," observed Haraldsson. "But we continued to make progress in renewable energy development and now Icelanders are going to reap the benefits."