Vol. LII No. 3 2015
December 2015

Iceland’s Sustainable Energy Story: A Model for the World?

©Reykjavik/Reykjavik University

In an era when climate change is making it necessary for countries around the world to implement sustainable energy solutions, Iceland presents a unique situation. Today, almost 100 per cent of the electricity consumed in this small country of 330,000 people comes from renewable energy. In addition, 9 out of every 10 houses are heated directly with geothermal energy. The story of Iceland’s transition from fossil fuels may serve as an inspiration to other countries seeking to increase their share of renewable energy. Was Iceland’s transition a special case that is difficult to replicate, or can it be applied as a model for the rest of the world?

Iceland’s energy reality

Iceland is often called “the land of fire and ice”. It is this mixture of geology and northerly location that gives the country its extensive access to renewables. The island lies on the Mid-Atlantic Ridge between the North American and Eurasian tectonic plates, a very active volcanic zone that powers its geothermal systems. Glaciers cover 11 per cent of the country. Seasonal melt feeds glacial rivers, which run from mountains to the sea contributing to Iceland’s hydropower resources. Furthermore, the country has tremendous wind power potential, which remains virtually untapped.

Today, Iceland’s economy, ranging from the provision of heat and electricity for single-family homes to meeting the needs of energy intensive industries, is largely powered by green energy from hydro and geothermal sources. The only exception is a reliance on fossil fuels for transport.

The country’s geothermal energy provides society with numerous benefits other than electricity and district heating. It is widely used to melt snow off sidewalks, heat swimming pools, power fish farming, greenhouse cultivation and food processing, as well as for the production of cosmetics, such as merchandise from Iceland’s famous geothermal spa, the Blue Lagoon.

Iceland’s transition from coal and oil to renewables

While today Iceland is a strong example of how renewable energy can power a modern economy, this has not always been the case. For centuries, utilization of the geothermal resources was limited to washing and bathing, while hydropower production started out in the twentieth century with only a few Megawatts (MW) of power generation. In fact, until the early 1970s, the largest share of the country’s energy consumption was derived from imported fossil fuels. What made this small nation take on this big mission towards renewables?

Despite good intentions, it was not the importance of renewables for climate change that led to this development. The drive behind this transition was simple—Iceland could not sustain oil price fluctuations occurring due to a number of crises affecting world energy markets. It required a stable and economically feasible domestic energy resource for its isolated location on the edge of the Arctic Circle.

The challenging first steps towards Iceland’s renewable developments, both for geothermal and hydropower, were taken by local entrepreneurs. In the early twentieth century, a farmer found a way to use the hot water seeping out of the ground to develop a primitive geothermal heating system for his farm. Municipalities gradually built on his success leading to more systematic exploration of the geothermal resources. Drilling technology, borrowed from the oil industry, allowed deeper drilling for hotter water that could heat more homes. Larger projects were then developed with the implementation of geothermal district heating systems on a commercial scale. Early hydro projects, similar to geothermal, were developed by diligent farmers to provide electricity for their farmhouses, or as a cooperative effort for a few farms. In 1950, 530 such small hydropower plants were built in Iceland, creating scattered independent power systems around the country.

To further incentivize geothermal energy utilization, the Government of Iceland established a geothermal drilling mitigation fund in the late 1960s. The fund loaned money for geothermal research and test drilling, while providing cost recovery for failed projects. The established legal framework also made it attractive for households to connect to the new geothermal district-heating network rather than to continue using fossil fuels.

Simultaneously, Iceland started to focus on large-scale hydropower development, which attracted large international industrial energy users. The goal was to lure new industries to Iceland in order to diversify its economy, create jobs and establish a nationwide power grid.

It was the combination of these developments that created the Iceland of our times.

Was Iceland’s transition a unique case?

While Iceland’s story represents a dramatic change in a relatively short time frame, a logical question is: Does Iceland’s proximity to renewable resources make its transition an exceptional case and one that is difficult to replicate?

In general, a country’s energy mix and consumption patterns are a complex equation. Factors such as cost, resource availability, production efficiency and politics play an important role. Access to renewable resources, be it wind, solar, geothermal or hydro, can promote their use. However, the availability of renewables does not ensure a “green transition”.

In this regard, Iceland’s case was quite unique. Cohesion between municipalities, government and the public to start exploring and exploiting the local green resources was driven by energy costs and the need for energy security. Although Iceland in the 1970s was a small and peaceful State, there were barriers, and success was not assured. At the time, the country was emerging from centuries of poverty and foreign rule, lacking basic infrastructure and knowledge about the potential of its resources, as well as the experience in undertaking major energy projects. In fact, until the 1970s, the United Nations Development Programme classified Iceland as a developing country. Furthermore, Iceland had emerging yet inexperienced institutions to provide the critical financing. The country was, and remains, so sparsely populated that developing an interconnected energy grid was very costly.

These are the same challenges that many countries are facing today while pursuing a sustainable energy path. Nepal, for instance, faces investment and power system challenges in its plan to use some of its untapped hydropower resources. Countries in East Africa, among others, lack the technical know-how to evaluate and harness their vast geothermal resources. Although their circumstances are far from being the same as those in Iceland, much of the nation’s experience can be extrapolated and applied to other countries.

The lessons learned

The essence of Iceland’s experience yields the following advice to current and future “transition makers” as to how to overcome barriers in renewable energy implementation:

  • Establish cohesion and collaboration between municipalities, government and the public during early stages of transition. In Iceland, this dialogue fostered trust and a solution-based mindset in overcoming the aforementioned barriers.
  • Local empowerment and public engagement is key for success. The way in which municipalities in Iceland engaged and learned from innovative entrepreneurs helped both the geothermal and hydro concept to take off and prove its value.
  • A favourable legal and regulatory framework, along with government incentives and support, speeds developments. The Icelandic drilling mitigation fund accelerated the transition by decreasing municipalities’ risks in undertaking geothermal projects.
  • Long-term planning for renewable energy implementation, as with any industrial development, is important. Iceland’s later-stage power developments raised questions on how much of its nature should be developed for energy projects. A stakeholder inclusive master plan process around future developments was therefore undertaken.
  • Showcasing every step of success is influential. The public participates in a transition that they understand and want. In Iceland, the municipalities that had gained steady access to geothermal hot water became powerful role models for others to do the same. Politicians also used “before and after” photos of the capital area to attract voter’s attention to the cleaner air that was the result of utilizing geothermal resources instead of fossil fuels.

How can Iceland contribute?

While Iceland’s story presents valuable lessons for policymakers, the country has mostly focused on sharing its knowledge through technical expertise in geothermal development.

For decades, Iceland has been involved in geothermal technical assistance and renewable energy education. Over 1,000 experts from around the world have undertaken geothermal courses in Iceland since 1979, through United Nations geothermal training programmes and at higher learning institutions, such as the Iceland School of Energy at Reykjavík University. The Icelandic energy industry has participated in geothermal projects in over 50 countries and continues to be highly active worldwide. An example of such involvement is the construction of the world’s largest geothermal district heating system in China, which serves over 1 million customers.

An interesting aspect of the future of geothermal energy is that recent volcanic activity is by no means a condition for successful direct utilization. Due to technological innovations, widely available low temperature geothermal zones can be developed for space heating and cooling. For instance, few realize that one of Europe’s largest geothermal district heating systems is in Paris. In Europe alone, it is considered that approximately 25 per cent of the population lives in areas suitable for geothermal district heating. For exploring the feasibility and implementation of these and other opportunities  around the world, Iceland’s know-how and experience is invaluable.

A meaningful example for the rest of the world

Just as geothermal and hydro power generation made sense for energy transition in Iceland, local conditions elsewhere will determine which renewable resources are the most efficient and how they will be best exploited. Because every country is unique, each transition will be different. Iceland’s conversion is therefore a meaningful success story rather than a “one model for all” approach. First and foremost, Iceland is an inspiring example of what is possible, with many important lessons to share for any country seeking such a transformation.

Iceland’s story is also a reminder that not only rich developed countries have the opportunity to overcome cost and internal barriers for a green transition. Perhaps it may be easier to implement new power solutions where power systems have not yet been fully implemented and stakeholders can be more mobilized to change the status quo.

The good news is that the world has never before been more prepared to undertake the forthcoming change. New and improving technologies are becoming available all the time, as are better funding schemes. Cooperation and sharing of know-how around the globe are becoming increasingly easy and instantaneous. Combining these factors with the many lessons learned in the past, such as from Iceland, will prove to be a powerful tool for countries in achieving a more sustainable path.

Lastly, it is clear that countries around the world, both rich and poor, will need strong leadership at all levels to accomplish the energy transition ahead. These leaders will require meaningful examples to inspire people to action. Committed to further sharing its knowledge and experience, Iceland will proudly take on that role, while continuing to learn, and enthusiastically contributing to our common sustainable future. 



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