Convincing a central Reykjavik taxi driver to go to Valhallarbraut 868, an obscure address at a place called Asbru near Keflavik – nearly three quarters of an hour across a lunar-looking landscape from Iceland’s capital – is not easy. It must be a mistake, he will tell you, because there is nothing there, at least not anymore. Not since the NATO base shut down in 2006. Eventually, a more enterprising driver, happy for the long fare on a drizzly summer’s afternoon, will agree, but cannot resist asking what on earth exists on the site today, inside the buildings that are so nondescript one would assume they are entirely vacant.

Compared with its military base days, the site is thin on the ground with people – they number merely in the dozens rather than hundreds. But within its windowless walls are gently whirring machines whizzing with gigabytes and gigabytes of data. London-headquartered data centre outsourcing company Verne Global, which serves such clients as BMW and Colt Telecom, set up its ‘KEF201’ data centre on the 180,000-square-metre campus in February 2012, and has doubled capacity since then.

After a global search for the site of its first data centre, Verne Global CEO Jeff Monroe says: “It just happened to be Iceland that fit all the criteria we had.”

Cool as they come

To be cost competitive, data centres need two important things: a cool yet temperate climate; and cheap, plentiful and reliable energy. Iceland has both. At the Verne Global data centre, the cooling system is a simple screen allowing in air from the outside. “Do you know what it costs to cool a data centre in Texas?” jokes a site manager. State-owned utility Landsvirkjun provides Verne Global with 100% green electricity, the company says.

“Fifty percent of the cost of a data centre is power and 25% is cooling, so we offer huge savings,” says Thordur H Hilmarsson, director of the Invest in Iceland agency. “We have free cooling all year, the prices are attractive and we can offer long-term agreements with energy suppliers, which is very important in a time of price volatility.”

Verne Global’s Mr Monroe cites the availability of technical staff as well as fibre-optic connectivity as other factors working in Iceland’s favour.

In a report analysing Iceland’s competitive advantages for data centres, UK-based consultant BroadGroup wrote: “Encompassing everything from costs to quality to regulation, Iceland scores more highly than leading global data centre locations, such as the US, UK, Sweden, Singapore and Hong Kong. Iceland's power costs can be half those in Scandinavia, and significantly more competitive than other European countries. Iceland’s power costs remain very likely to stay much lower than other countries, particularly given the opportunity to cap such prices for 10 years or even longer for greenfield projects.”

Iceland is unique in the world in its near-complete reliance on renewable energy, with fossil fuels used only for cars and aeroplanes and virtually everything else powered by its volcanic geothermal energy, hydropower and onshore wind. More than 90% of homes in Iceland, and all of the city of Reykjavik, are heated by geothermal energy. Advancements in geothermal drilling technology, led by local engineering firms such as Mannvit, EFLA and Verkis, will only add to Iceland’s energy bounty. “We are at the forefront of harnessing and developing geothermal energy, and we are exporting our know-how in this area,” says Mr Hilmarsson.

Breaking ground

Now in recovery from its traumatic financial crash in 2008, but with an economy in dire need of diversification, Iceland is counting on its uncommon energy paradigm to attract other power-hungry industries apart from its predominant sector of aluminium production. After a period of introspection and retrenchment post-crisis, the country is making a play for investments that are identified as being energy-dependent, land-intensive (the sparsely populated island has nothing if not space) and knowledge-based. Data centres fit the bill, but there are other more industrial opportunities too.

“In industry here you have access to power streams easily and cheaply. Hi-tech end users are making use of this as are industrial-scale greenhouses – it is almost organic production,” says Mr Hilmarsson. “So there is the beginning of a clustering around the power plants.”

Three silicon metal producers are reportedly preparing to locate in Iceland, and a polysilicon company that is pioneering new technologies for cleaning silicon is in the final stages of securing funding for a project in Iceland. There is hope that carbon fibre suppliers for the automotive industry could also be enticed in the future, especially in light of Iceland’s newly minted free-trade agreement with China that places it in a prime export position.

If all three of the silicon metal plants come on stream at the same time, which could easily happen early next year, there will be pressure, however, on the local construction industry and there are fears this could lead to overheating of the economy. In a place where hot energy seeps liberally out of the ground, and where memories of economic meltdown are still fresh, there is always the sense that while the hot geothermal pools may appear to have bottomless potential to harness, the flow of investment projects coming in is best kept slow, steady and deliberate.