How Iceland Runs on Volcanoes
BLUF (Bottom Line Up Front): Iceland is the only country in the world that can claim nearly 100% of its electricity and heating comes from renewable sources. This isn’t because they are hippies; it’s because they live on top of a geological “hell.” They drill down to the magma, pump up the steam, and use it to power everything from street lamps to aluminum smelters.
I often have clients ask me why their shower in Reykjavik smells funny. I tell them: “Because you are showering in a volcano.” This is not a metaphor. Iceland sits directly atop the Mid-Atlantic Ridge, where the North American and Eurasian tectonic plates are pulling apart. This geological violence brings magma incredibly close to the surface.
To harness this, Icelandic engineers drill boreholes, some over 2,000 meters deep, into the earth’s crust. They aren’t looking for oil; they are looking for high-pressure steam. Water from rain seeps into the ground, hits the superheated rocks near the magma chambers, and turns into steam. The engineers pipe this steam up to the surface.
At power plants like Hellisheiði (which you pass on the way to the south coast), this steam spins massive turbines to generate electricity. But they don’t stop there. The “waste” heat from this process is used to heat fresh water, which is then pumped through super-insulated pipes into Reykjavik to heat homes, swimming pools, and even parking lots.
This system is incredibly efficient. The water loses less than 2°C (3.6°F) during its 30-kilometer journey from the plant to the city. It is a marvel of insulation engineering. When I book tours for clients, I always recommend a stop at the ON Power exhibition. Seeing the massive pipes zigzagging across the moss-covered lava fields makes you realize that in Iceland, nature is the machine.
However, it is not without risks. Drilling this deep can trigger earthquakes. In some areas, like the Reykjanes peninsula, the ground is so active that power plants have to be built with special reinforced foundations to withstand constant tremors. It is a delicate dance between exploiting the earth and not waking the dragon too much.
This reliance on domestic energy changed Iceland’s destiny. Before the 1970s, Iceland was a poor country dependent on imported coal and oil. They were at the mercy of global markets. Today, they are energy independent. It is a lesson in using what you have—even if what you have is terrifying subterranean heat.
Because energy is so abundant and cheap, water usage in Iceland is different from anywhere else. In most countries, heating a swimming pool outdoors in sub-zero temperatures is a luxury for the rich. In Iceland, it is a basic human right. Every tiny town, even those with only 100 people, has a public swimming pool (Sundlaug).
I cannot stress this enough: The swimming pool is the Icelandic pub. It is where politics are discussed, where business deals are made, and where neighbors gossip. It is not about swimming laps; it is about sitting in the “Heitur Pottur” (hot pot) at 40°C while it snows on your head.
When I plan itineraries for krbooking.com, I include a local pool visit in every single one. Not the Blue Lagoon—that is for tourists. I mean the local municipal pools like Laugardalslaug in Reykjavik. Entry costs a fraction of the Blue Lagoon, and you get to see the real Iceland. You will see CEOs sitting next to fishermen, both naked in the shower (you must shower naked before entering, the “Shower Police” will check), and then chatting in the tub.
This abundance of hot water changes the architecture, too. Radiators are always on. People often leave windows open in winter because the heating is so cheap they don’t bother turning it down. Sidewalks in downtown Reykjavik (Laugavegur) are heated from below using the return water from the district heating system. This means no ice, no shoveling, and fewer slip-and-fall accidents.
But there is a sensory catch. The geothermal water in Reykjavik contains sulfur. It smells distinctly like rotten eggs. You get used to it after a day, but for first-time visitors, it can be a shock. The cold water comes from a different source (spring water) and is some of the purest in the world. So, rule number one: Drink the cold, bathe in the hot. Never mix them up for your tea.
Here is the controversial part of the story. Iceland produces way more electricity than its 380,000 citizens can ever use. You can’t put electricity in a box and ship it to Europe (yet—though they are discussing a submarine cable). So, Iceland decided to import the demand.
They invited heavy industry. Specifically, aluminum smelting. Aluminum production requires massive amounts of electricity. Companies like Alcoa ship bauxite ore all the way from Australia to Iceland, smelt it into aluminum using cheap, green geothermal power, and then ship it out. This makes Iceland one of the largest aluminum producers per capita in the world.
For the traveler, this creates a visual conflict. You drive through the pristine fjords of East Iceland or the Reykjanes peninsula, and suddenly you see a massive, steaming industrial complex. It clashes with the “untouched nature” marketing. This is the “Green Trap.” To monetize their green energy, they had to industrialize their wilderness.
This has sparked huge environmental protests. The construction of the Kárahnjúkar Hydropower Plant involved damming glacial rivers and flooding highland wilderness to power a smelter. It split the nation. When you visit, you are witnessing a country fighting for its soul: Is it a nature reserve for tourists, or a powerhouse for industry?
Recently, a new player has arrived: Data Centers. Bitcoin mining and AI processing generate massive heat and need cheap cooling. Iceland offers both cheap power and free air cooling (just open a window). If you see a nondescript warehouse near the airport, it’s likely mining crypto. It’s the modern version of the aluminum smelter, cleaner but still energy-hungry.
This is a common headline, but the reality is nuanced. When we talk about electricity production and district heating (heating homes and water), yes, Iceland is effectively 100% renewable. About 70% comes from Hydropower (dams) and 30% from Geothermal. They burn almost zero fossil fuels to keep the lights on or the houses warm.
However, the total energy consumption of the country is not 100% renewable. Cars, buses, and the massive fishing fleet still run on diesel and gasoline. The aviation sector (planes flying tourists in and out) burns kerosene. Iceland has an aggressive goal to become carbon neutral by 2040, which involves banning new gas cars and investing in hydrogen fuel for ships. So, while your hotel room is green, the bus that took you there probably isn’t yet.
As a visitor, you can participate in this transition by renting an Electric Vehicle (EV). The charging infrastructure in Iceland is surprisingly good, even on the Ring Road, because electricity is everywhere and cheap.
I get a panicked message from a client about this at least once a month. “Is the water safe? It smells terrible!” The answer is yes, it is safe, and the smell is Sulfur Dioxide.
In Reykjavik and nearby areas, the hot water is pumped directly from geothermal boreholes. It is not heated in a boiler like at home; it comes out of the earth hot. During its time underground, the water dissolves minerals from the volcanic rock, primarily sulfur. This sulfur is actually excellent for your skin—it’s why people pay a fortune to go to spas. It helps with eczema and psoriasis.
However, it tarnishes silver jewelry instantly (leave your rings at home!) and tastes awful. The cold water, on the other hand, comes from freshwater springs and never touches the geothermal system. It is filtered through lava for decades and is arguably the cleanest tap water in the world. So: Shower in the smelly stuff, drink the cold stuff. Note that in some parts of Iceland (like the East), the water is heated electrically, so it doesn’t smell at all.
Marketing photos make the Blue Lagoon look like a natural wonder discovered by Vikings. The truth is more industrial. The Blue Lagoon is a man-made accidental lake created by the run-off from the Svartsengi Geothermal Power Plant next door.
In 1976, the power plant began drilling for steam. The byproduct was a silica-rich, milky blue brine (saltwater) that they couldn’t pump back into the ground because the silica would clog the pipes. So, they dumped it into the nearby lava field, expecting it to drain away. It didn’t. The silica sealed the lava rocks, creating a pool.
Locals started bathing in it illegally in the 80s and noticed it cured their skin conditions. Entrepreneurship took over, and today it is a world-class spa. When you swim there, you are swimming in industrial wastewater—but very clean, natural, mineral-rich wastewater. Knowing this history adds a fascinating layer to the experience; you are literally swimming in the exhaust of a power plant.
This is the “Harnessing Hell” part of the equation. Living on the Mid-Atlantic Ridge means constant geological activity. Icelanders have a fatalistic pragmatism about this. They know that an eruption could happen at any time.
We saw this clearly in late 2023 and 2024 with the eruptions near Grindavik (ironically, right next to the Blue Lagoon and the Svartsengi Power Plant). The lava flows threatened to destroy the very power plant that provides heat to the peninsula. The government had to build massive earthen walls (berms) overnight to divert the lava away from the geothermal infrastructure. It was a battle of Man vs. Nature.
For the most part, the engineering is robust. Houses are built to withstand strong earthquakes (reinforced concrete is standard). But the risk is non-zero. The “Cheap Energy” comes with a “Volcanic Tax”—the possibility that the earth might wake up and reclaim the power plant. As a tourist, you are generally safe as monitoring is world-class, but flights can be disrupted by ash.
There is a myth that because the energy shoots out of the ground, Icelanders don’t pay utility bills. This is false. While the resource is free, the infrastructure is incredibly expensive. Drilling a borehole 2km deep into volcanic rock costs millions of dollars. Maintaining pipes that carry boiling water across freezing lava fields is a maintenance nightmare.
However, compared to the rest of Europe, it is very cheap. An average Icelandic family pays significantly less for heating and electricity than a family in the UK or Germany, despite living in a sub-arctic climate where the heating is on 9 months a year. This low cost is what allows for the high quality of life—people can afford to keep their large homes warm and light up the dark winters without going bankrupt.
Interestingly, because it is a flat rate or very cheap, Icelanders are not very energy conscious. You will see lights left on in office buildings all night. The concept of “saving energy” doesn’t have the same financial urgency there as it does elsewhere.
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