Iceland Takes Hard Look at Tech Boom Sparked by Its Cheap, Bountiful Power

Steaming geysers, dramatic waterfalls and icy landscapes lure millions of tourists to this country every year. Now its geology is fueling a computer tech boom.

But the voracious electricity demand of Iceland’s proliferating data centers is testing the island nation’s environmental ethos.

Iceland’s Nordic climate and the geothermal steam rising from the tectonic fault line that runs beneath it provide two things the computers that run world’s economy need in seemingly endless supply: cooling and electricity.

By 2030, data centers and all internet-related activity—from streaming video to analyzing financial data to storing software, photos and emails—could use more electricity than all of China did this year, according to a study from the Western Norway Research Institute and Huawei Technologies Co. Iceland is becoming the bleeding edge of the world’s newest power-hungry industry.

Iceland’s first environmentalist government is now considering ways to slow the rise of data centers in the country by reviewing its rulebook for adding new power plants. Many lawmakers say they worry the tech boom is putting Iceland’s pristine nature at risk—the crux of its crucial tourism industry.

“When you get down to it you are dealing with extremely rare and beautiful places, delicate places,” said Andri Snaer Magnason, a poet, activist and third-place finisher in Iceland’s last presidential election. “The expansion of the current grid is quite painful.”

The rise of processor-heavy technologies is turning computing power and data storage, the services data centers offer, into commodities. That means variable costs help determine whether data-center operators and their clients are profitable. And the most important variable cost in the data economy, executives and experts say, is power.

Arctic-area countries with some of the world’s cheapest power—not to mention, free cooling—have tried to lure data centers. Facebook Inc. opened its first European data center in Sweden in 2015, adding to an industry that earned $1.56 billion that year, a figure that could quintuple by 2025, according to the Boston Consulting Group. Amazon.com Inc. is planning to open three data centers near Stockholm this year.

Apple Inc. has invested about $3 billion in the past three years to build two data centers in Denmark as well as one in Ireland to support its iTunes Store, App Store, iMessage, Maps and Siri products for customers in Europe.

Iceland’s big competitive advantage is its 100% emissions-free power, which comes exclusively from hydroelectric dams and geothermal wells. Its relatively consistent, cool temperatures are also just right for data centers to use free-air cooling, not too hot like Denmark in summer, or too cold like northern Sweden.

Tate Cantrell, chief technology officer at Verne Global Inc., one of the leading data center companies operating here, said the country’s mid-Atlantic location also allows data and the technicians who manage it to travel between the U.S. and Europe relatively quickly. 

In its most recent Data Centre Risk Index, commercial real-estate investment company Cushman & Wakefield Inc. ranked Iceland first in the world as a data center location based on factors like energy cost, the ease of doing business and internet bandwidth. It ranked the U.S. 10th.

Data centers are already contributing hundreds of millions of dollars per year into Iceland’s economy, according to a March study by KPMG for the Icelandic Data Center Association, and creating almost 1,000 jobs.

German car makers BMW AG and Volkswagen AG use processing power in Verne’s Icelandic data centers for rendering car designs and running virtual crash-test simulations. Life science groups like Britain’s Earlham Institute use its facilities to analyze data. The German artificial-intelligence powered language company DeepL rents space there too. Global financial institutions also dot Verne’s campus, but they demand privacy, according to Verne.

At Eldvorp, a geological site in southwest Iceland not far from many of its data centers, the private utility HS Orka hf has been running tests at a 1980s-era geothermal well as it considers whether to using the site to generate 50 megawatts of electrical power.

“In the past our eggs have tended to be in one basket,” said HS Orka spokesman Johann Snorri Sigurbergsson, referring to Iceland’s earlier focus on fisheries and the smelting industry. “Data centers for us are adding to the diversity in our client portfolio.”

About 40 minutes outside Iceland’s capital Reykjavik, Icelandic technology company Advania is investing $61 million to build an additional five data centers alongside its original three and open a new one near the capital. Construction crews work on a plot of land that was once the Patterson Airfield during World War II, surrounded by a desolate moonscape of snow-covered volcanic rock.

“It’s our responsibility to use the power resources that we have,” said the chief executive of Advania’s data center unit Eyjolfur Magnus Kristinsson, echoing the argument that Iceland used a half-century ago to bring aluminum smelters to the island.

But the boom is beginning to trigger an environmental backlash. Icelandic data centers are projected to use about 125 megawatts of capacity total by the end of 2018, more than all the homes in Iceland and a 300% increase since last year, according to KPMG.

The topic of adding new electricity “is a hot potato,” said Rosa Bjork Brynjolfsdottir, a lawmaker with the Left-Green party. “We’re not going to say, ‘hey, five new data centers, bring them on, we will dig some more holes,’” she said, referring to geothermal wells.

As a legacy of its relationship with electricity-intensive industries, like aluminum and silicon smelters, Iceland already produces more than twice as much electricity per capita as any country in the world, according to the International Energy Agency.

To add new capacity, utilities need to dam new rivers or dig more geothermal wells in sensitive areas. The Eldvorp site, for example, is known for igneous craters that environmentalists say are unique.

Guthmundur Ingi Guthbrandsson, Iceland’s new Yale University-educated environmental minister, is urging caution. “Electricity already produced should be used more efficiently. That is goal number one,” he said.

One particular concern is cryptocurrency mining—a processor and electricity-intensive computing process for generating currencies such as bitcoin. The process accounts for about 90% of Iceland’s data center industry in terms of electricity consumed, according to the KPMG study.

Mr. Magnason recently calling the Eldvorp site an example of bitcoin-driven environmental destruction.

“When you give cheap power to wasteful industries it’s like feeding a hamburger to a fat man or like giving a beer to an alcoholic,” he said.