Iceland's Geothermal Revolution: Why the Rest of the World Is Ignoring Its Best Energy Source

I grew up in Akureyri, a town of 19,000 in northern Iceland where the tap water smells faintly of sulfur and the sidewalks stay warm through January. For most of my childhood, I never thought twice about where our heat came from. It was simply there -- pulled from the earth beneath our feet, as natural as breathing.

It was not until I moved abroad for graduate studies that I realized how extraordinary Iceland's energy system truly is. My flatmates in London were paying hundreds of pounds a month to heat poorly insulated flats with natural gas. Meanwhile, my parents back home paid a fraction of that for geothermal district heating that kept their house at a steady 22 degrees Celsius through the Arctic winter. Something did not add up.

The Numbers That Should Change Everything

Iceland generates over 90% of its residential heating from geothermal sources. Approximately 25-30% of the nation's electricity comes from geothermal power plants, with the remainder supplied almost entirely by hydropower. The country is effectively 100% renewable for both electricity and heating -- a feat no other nation of comparable industrialization has achieved.

The economics are staggering. Iceland's residential heating costs are among the lowest in Europe despite the country's extreme latitude and harsh winters. The capital region's district heating system, operated by Orkuveita Reykjavikur, delivers hot water to over 200,000 residents at roughly one-third the cost of oil-based heating in comparable Nordic countries.

But the truly remarkable statistic is this: the global share of geothermal in total primary energy consumption remains below 0.5%. Despite seven decades of Icelandic proof-of-concept, the technology that heats my parents' home remains a rounding error in the world's energy mix.

What Iceland Got Right

Iceland's geothermal story is often dismissed as a geological accident -- the lucky byproduct of sitting on a volcanic hotspot at the divergence of the North American and Eurasian tectonic plates. There is truth in this. The Mid-Atlantic Ridge provides Iceland with shallow magma chambers, high geothermal gradients (often exceeding 150degC per kilometer of depth), and abundant surface manifestations like geysers and hot springs.

But geology alone does not explain Iceland's success. Several deliberate policy choices were equally critical:

1. The Oil Crisis Catalyst (1973-1980)

Before the 1970s, Iceland actually heated most of its buildings with imported oil. The 1973 OPEC embargo hit the island economy hard, and the government responded with a systematic program to convert district heating systems from oil to geothermal. Public investment in exploratory drilling, combined with guaranteed municipal contracts, de-risked the transition for utility operators. By 1990, oil's share of residential heating had fallen from over 50% to less than 5%.

2. Integrated District Heating

Iceland invested heavily in district heating infrastructure -- insulated pipelines that carry geothermal hot water directly to homes and businesses. Reykjavik's system, first built in the 1930s, now stretches over 400 kilometers. The key insight was treating geothermal not just as electricity generation but as a direct-use thermal resource. This is far more thermodynamically efficient than converting heat to electricity and back.

3. Deep Drilling Expertise

Decades of investment created a world-class drilling industry. Icelandic companies like Mannvit and Iceland Drilling Company developed specialized techniques for high-temperature, corrosive geothermal environments. This human capital proved as important as the geological endowment.

Enhanced Geothermal Systems: The Game Changer

Here is where the story becomes globally relevant. The criticism that "you need a volcano" has been technically obsolete for over a decade, thanks to Enhanced Geothermal Systems (EGS).

EGS works by drilling deep wells into hot dry rock -- formations that have heat but lack the natural permeability and water that conventional geothermal requires. Engineers then create artificial reservoirs by injecting high-pressure fluid to fracture the rock (hydraulic stimulation), circulating water through the fractured zone, and extracting the heated fluid from a production well.

The principle is straightforward: everywhere on Earth, temperatures increase with depth. The average geothermal gradient is about 25-30degC per kilometer. Drill deep enough -- typically 3 to 10 kilometers -- and you reach temperatures sufficient for power generation virtually anywhere on the planet.

Recent breakthroughs have dramatically improved EGS viability:

• Fervo Energy's Project Red in Nevada achieved a flow rate of 63 liters per second at 191degC in 2023, demonstrating commercial-scale EGS performance using techniques borrowed from the oil and gas industry's horizontal drilling playbook.
• Eavor Technologies in Canada developed a closed-loop system that eliminates the need for hydraulic fracturing entirely, using a sealed underground heat exchanger that circulates fluid through a network of connected wells.
• Quaise Energy is pursuing millimeter-wave drilling technology that could reach depths of 20+ kilometers, accessing supercritical temperatures (400degC+) that would multiply the energy output per well by an order of magnitude.
• The IDDP (Iceland Deep Drilling Project), in which I participated as a junior researcher, drilled to 4,659 meters at Krafla in 2009 and encountered 900degC supercritical fluid -- producing steam with ten times the energy content of conventional geothermal wells.

A landmark 2019 study by the U.S. Department of Energy estimated that EGS could provide over 5,000 GW of generating capacity in the United States alone -- roughly five times the country's current total installed capacity across all sources. The technical potential is simply enormous.

Why the World Hasn't Followed

If geothermal is so promising, why does it remain marginal? Having spent fifteen years studying this question, I believe the barriers are primarily institutional, not technical.

The Exploration Risk Problem

Geothermal development requires significant upfront drilling to confirm resource viability. A single exploratory well can cost $5-10 million, and success rates for initial wells in new fields historically hover around 50-70%. This "exploration risk" scares away private capital, particularly compared to solar and wind projects where the resource assessment (measuring sunshine and wind speed) is cheap and reliable.

Iceland addressed this through public geological surveys and government-backed drilling programs. Most countries have not replicated this model.

The Visibility Gap

Solar panels are visible. Wind turbines are dramatic. Geothermal power plants are squat, steam-venting facilities that most people would mistake for small industrial sites. This lack of visual identity translates directly into a lack of political salience. Politicians do not get photo opportunities cutting ribbons at geothermal wells the way they do at solar farms.

This is not trivial. In energy policy, attention drives investment, which drives cost reduction, which drives adoption. Geothermal has been caught in a negative attention spiral.

Misaligned Regulatory Frameworks

In many jurisdictions, geothermal resources are regulated under mining law rather than energy law. This creates permitting nightmares -- a geothermal developer may need mineral rights, water rights, environmental permits for drilling, and separate approvals for power generation, each from different agencies with different timelines.

Iceland created a unified National Energy Authority (Orkustofnun) that streamlines geothermal permitting. The regulatory architecture matters enormously.

The Oil and Gas Industry Paradox

The irony is that the skills, equipment, and workforce needed for EGS overlap heavily with those of the oil and gas industry. The same directional drilling techniques, the same reservoir engineering principles, the same supply chains. Yet the fossil fuel industry has shown limited interest in pivoting to geothermal, partly because the profit margins are smaller and partly because the regulatory and business models are unfamiliar.

This is beginning to change. Baker Hughes, Halliburton, and Schlumberger have all made geothermal investments in the past three years. But the pace remains glacial relative to the opportunity.

The Path Forward

I am cautiously optimistic. Several convergent trends suggest geothermal may finally be approaching its inflection point:

Cost reduction through oil and gas technology transfer. Fervo's success with horizontal drilling techniques borrowed from shale gas has reduced EGS well costs by an estimated 40-50% compared to earlier approaches. As more oil and gas engineers and equipment move into geothermal, costs should continue to fall.

The baseload advantage. Unlike solar and wind, geothermal provides continuous, 24/7 power with capacity factors above 90%. As grids incorporate more intermittent renewables, the value of firm, dispatchable clean energy increases. Geothermal does not need batteries.

Heat decarbonization. About 50% of global final energy consumption is in the form of heat -- for buildings, industry, and agriculture. Solar and wind cannot easily serve these applications, but geothermal heat is a direct substitute for fossil fuel combustion. As climate policy begins to address heating (which it has largely neglected), geothermal's value proposition strengthens.

Policy momentum. The U.S. Department of Energy launched its Enhanced Geothermal Shot initiative targeting $45/MWh by 2035. The European Union's REPowerEU plan includes geothermal expansion. Kenya, Indonesia, and the Philippines continue to expand conventional geothermal capacity.

A Personal Note

Last December, I returned to Akureyri for the holidays. It was minus 15 outside, the aurora borealis was shimmering overhead, and my parents' house was warm as ever -- heated by the same geothermal district system that has served the town for decades. The cost for the month was about 8,000 ISK, roughly $58 USD.

I thought about my colleagues in Berlin shivering through their first winter after Germany's rushed exit from Russian gas. I thought about families in the American Midwest paying $300 a month for natural gas heating. I thought about the 2.4 billion people worldwide who still burn wood or dung for warmth.

The heat is right there, beneath all of us. We just need to reach down and take it.

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Freya Magnusdottir is a geothermal energy researcher and consultant based in Reykjavik. She holds a PhD in Geothermal Sciences from the University of Iceland and has worked on deep drilling projects across five countries. The views expressed are her own.