June 1, 2018
A Geothermal Leader: The Case of Iceland
By Ragnheiður Elín Árnadóttir
A combination of necessity, a great deal of ingenuity, some stubbornness, a "problem solving" mentality, and daring policy decisions have enabled Iceland’s small but impressive geothermal sector to become a global leader.
Iceland prides itself in being nearly 100 percent renewable in primary power production. Nearly all Icelandic homes and businesses are heated with renewable energy, approximately ninety percent of which is derived from geothermal sources, while the remaining ten percent is from renewable electricity. Additionally, there is a new industry developing within and alongside the geothermal industry. This emerging industry uses the other "streams" from the geothermal utilization process with innovative new technology. While some might call these streams "waste," this is not the case for the leaders of geothermal utilization in Iceland. Just as one man’s trash is another man’s treasure, the residual from one production stream is the other‘s resource, creating a society without waste.
With all eyes on climate change and emissions reductions, it is possible to assume that nations around the world are considering all potential energy resources to meet their targets and increase the usage of sustainable, renewable energy. Yet, the world is largely leaving an important option out of the equation: geothermal.
Globally, geothermal utilization possibilities are numerous and potential is high, both in power generation and heating, with social, economic, and environmental benefits. However, geothermal utilization remains miniscule compared to other energy resources. When the International Energy Agency (IEA) lists different global energy resources in its “Key World Energy Statistics,” geothermal is grouped as "other" along with wind and solar, among others, and accounts for only a fraction of the global energy mix.
Similarly, discussions of renewable energy at international conferences and fora are often limited to wind, solar, and biomass, while geothermal is rarely mentioned. There is a need to garner more global awareness of geothermal energy. Focusing on Iceland’s experience with geothermal energy is a perfect place to start to draw lessons for the rest of the world.
In absolute terms, the United States generates more power from geothermal than any other country in the world, with an installed capacity of 3,567 MWe. However, geothermal accounts for just 0.4 percent of total US electricity production, and only around three million Americans get their heating and cooling from geothermal. In comparison, 26.6 percent of the total electric power generation in Iceland comes from geothermal, a much larger percentage despite having less installed capacity, totaling 665 MWe.
Thus, while the United States may be the largest in absolute terms, Iceland is by far a global leader, and has a unique and inspiring geothermal story to tell. In many ways, Iceland can be regarded as a model in providing secure, sustainable, and affordable heat and power to its citizens.
Geothermal is one of the cornerstones of Iceland’s energy sector, and the country has a long history of geothermal utilization. Geothermal was present as far back as 874, when Iceland was first settled. The Icelandic Sagas tell numerous stories about the utilization of geothermal water throughout the early middle ages for bathing, washing, and heating houses.
The use of geothermal water for house heating started in Reykjavik in 1930, and it was slowly built up throughout the following decades. At that time, Reykjavík was like many other capital cities, with a dark cloud of coal-dust looming over the city. The buildup of the geothermal district heating system was a huge and risky construction project for a small, poor nation to undertake and occurred amid turbulent times, including the Great Depression and World War Two. The history of the Reykjavík District Heating Company, an internationally-recognized pioneer in its day, is an interesting read. It tells the story of when the mayor of Reykjavík and Icelandic government ministers had to travel abroad repeatedly in search of loans and guarantees to finance the district heating system. Interest came from as far afield as New Zealand, where geothermal utilization was not as far along in 1944, and the United Kingdom. British Prime Minister Winston Churchill visited Iceland during the war and mentioned Iceland's geothermal heating potential in his autobiography.
Iceland’s major national effort turning to geothermal occurred in response to the 1973 oil crises, as global crude oil prices increased 70 percent. At that time, approximately half of all houses in Iceland were heated with imported fossil fuel, at a great expense to the country. Concerted efforts and long-term political vision, along with an important support mechanism, transformed Iceland into a clean energy economy within just two decades. Subsequent generations of Icelanders have reaped the benefits of the foresight and courage of the politicians and policymakers from that time.
However, despite this success, financing geothermal projects has been—and remains—a challenge. There is risk associated with geothermal projects, and some claim geothermal projects are simply not bankable. Iceland addressed this risk in the 1960s with the establishment of a National Energy Fund, which offers loans to fund the initial cost of drilling and exploration. If the initial drilling stage, which usually bears the most risk, is unsuccessful, the loan defaults to the state. If the drilling is successful, the loan will be paid as planned. This policy promoted the expansion of geothermal energy in Iceland more than anything else. The scientific understanding of the geological and geophysical systems has improved with every new project and each new geothermal well drilled. .
Today close to one hundred percent of houses in Iceland are heated with renewable energy, and nine out of ten are heated directly with geothermal heat, through district heating systems. The remaining 10 percent, which are in areas where geothermal resources are yet to be found, are heated with renewable electricity.
The social and economic benefits of this development have been substantial. As calculated by experts in the Icelandic ministry of industries and innovation, the annual macro-economic benefits of the geothermal district heating system accounts for to up to 7 percent of Iceland’s GDP, roughly equivalent to 3,000 USD per person each year.
Switching from imported fossil fuel to a renewable domestic resource also benefits the environment and has greatly reduced Iceland's CO2 emissions. In Reykjavík, for example, CO2 emissions due to space heating have gone from 250,000 tons per year to zero in the last fifty years. In the hundred-year period from 1914 to 2014, total CO2 savings from the use of domestic renewable energy in lieu of imported fossil fuel in Iceland can be calculated at 350 million tons of CO2.
This simple example, from one small country, should be a key contribution to any discussion on climate change mitigation and meeting common targets under the Paris Agreement.
Ragnheiður Elín Árnadóttir is a Senior Fellow at the Global Energy Center. She served as Iceland’s former Minister of Industry and Commerce, and was responsible for energy issues.