Buy Iceland ?

‘A crisis like this can be a real opportunity to buy things for next to nothing’ said a former board member of one of my banking clients to me recently during a meeting. I’m not an investor myself but if you’re a finance minister and able to easily tap a loan from the ECB there are real possibilities here.

Take Iceland, a rugged wasteland twice the size of the Netherlands and only 300.000 or so people living there, all directly on the coast. Iceland has two properties that, like Fortis/ABNAMRO make it a great investment opportunity for governments: a financial problem and exploitable resources.

I’m not talking about fishing rights or the various military installations that Russia might want to rent for the next century. I’m talking about the potential for geothermal energy that sits underneath Iceland’s rocky landscape. Energy will be one of the most valuable and scarce resources until we get those fusion reactors to work and Iceland has been hard at work for decades to tap this virtually unlimited source. Most of the hot water for cooking, washing, heating and the many open air swimming pools comes from geothermal sources as well as over a quarter of the electricity generated. This is cheap and CO2 free, giving Iceland an edge in future carbon-trading. Because Iceland sits on top of the crack between the Eurasian and American continental plates, there are many places on the island where heat from the inside of the planet can be cheaply and reliably accessed.

Energy generation with geothermal heat has many advantages compared to the best known sustainable resources such as wind and solar: its available reliably 24×7 and very concentrated. This means it can be generate in industrial volumes (think Gigawatts – enough to power several cities) in a fairly small location. Most sustainable sources cannot provide that level of reliability at such quantities. This means that the installations for ‘harvesting’ geothermal energy are very much like the power stations we build all over the planet running on coal, oil or natural gas. The source of hot water is different, but most other parts are essentially the same.

The Icelanders are only tapping about half a Gigawatt right now because with 300.000 of them and a fair amount of (even cheaper) hydro power available there is no need for more. The potential power available could make Iceland the Kuwait of the 21st century if Gigawatts of energy were used to make hydrogen for use in Europe or move our energy-intensive industries (aluminium smelters and chemical factories) to Iceland. The interior of Iceland is uninhabited and the ecosystem consists of some patches of moss here and there. In fact NASA thought it looked so much like the Moon that the Apollo missions were rehearsed there 40 years ago. All in all not a bad place for heavy industry (way better than the center of of of the most densly populated countries on earth).

Whether we have peak oil next week or in 20 years, geothermal will keep going for millions of years and can handle the expected growth in energy needs. And those fishing rights will keep our chips from being all by themselves in yesterday’s paper for years to come. Might just be a real bargain!

In a response on Sargasso member JSK points out that an undersea cable for moving the electricity is feasible. I thought the distances would be too great but the an existing ‘NordNed‘ cable between Norway and the Netherlands has a longer length (580Km) than  the gap between Iceland and the Faröe islands or from there to Scotland or Norway (via the Shetlands). The transmitting capability of the NordNed cable is 700MegaWatt so an Iceland-EU cable will have to be at least 10-20 times bigger to have a real impact on European power requirements. The laying of such a cable at a depth of kilometers instead of tens or a few hundred meters will be an additional challenge. Unlocking Iceland’s Gigawatts of clean and dependable power for many decades would seem to be worthwhile to take on such a challenge though.