Iceland’s abundant renewable energy resources and cool climate position it as an attractive location for data centres, particularly those supporting artificial intelligence (AI) workloads. However, limitations in its electricity grid capacity are hindering the country’s potential to capitalize fully on the growing global demand for data centre infrastructure.
The surge in AI development worldwide has triggered a rapid expansion in data centre investment. Global spending on data centres is projected to reach $7 trillion by 2030, more than double the current UK gross domestic product, according to industry estimates. While the United States, led by major tech companies, dominates this market, European countries are also seeking to expand their data centre capacities to reduce dependence on US infrastructure and foster regional digital autonomy.
Iceland’s electricity supply is mostly renewable, deriving nearly all power from hydroelectric and geothermal sources. This clean energy, combined with a cool and stable climate, offers significant advantages for data centre operations, which require substantial and reliable energy inputs. The country's energy grid was originally designed to support energy-intensive aluminium smelting, which requires uninterrupted electricity to prevent costly production disruptions. This reliability benefits data centre operators aiming to maintain continuous operations.
Verne, a London-based data centre company, has been operating in Iceland since 2008, running a 140 megawatt (MW) campus in Keflavik on a former NATO base. The facility benefits from the low cooling costs associated with Iceland’s cold climate, resulting in high energy efficiency. Verne reports a power usage effectiveness (PUE) rating of approximately 1.05, considerably lower than the European average of 1.36 to 1.6, meaning less additional power is needed for cooling relative to the computers' energy use.
Other data centre operators, including North, Borealis, and the newcomer Akur, have also established facilities in Iceland, shifting in recent years from cryptocurrency mining to AI-focused computing. Despite this progress, Iceland’s total colocation data centre capacity is expected to reach only 206 MW by the end of 2026, according to CBRE, a global commercial real estate services company. This falls short compared to neighboring countries such as Norway, which is projected to have 467 MW, and Finland, with 116 MW. By 2030, the Norwegian and Finnish markets are expected to surpass 1 gigawatt (GW) in capacity, while Iceland’s market growth remains constrained.
One key challenge is Iceland’s aging electricity grid, which is showing signs of strain under increasing demand. Karl Gudmundsson, head of strategic investments at Iceland’s prime minister’s office, acknowledged that the previous surge in power-intensive bitcoin mining generated local opposition and raised questions about sustainable energy use. Though current government strategy highlights Iceland’s competitive electricity prices and favorable climate as assets for expanding data centre services, infrastructure upgrades are needed to attract larger investments.
Some data centre executives argue that Iceland’s geographic distance from major European connectivity hubs poses minimal latency issues. Dominic Ward, Verne’s CEO, noted that delays to cities like Dublin, London, and Copenhagen are only in the range of 10 to 20 milliseconds, a negligible factor for most AI applications.
Nevertheless, Iceland faces stiff competition from countries such as Norway and Finland, where large-scale investments from Microsoft and Google have boosted data centre capacity and attracted global clients. For Iceland to realize its potential as a hub for AI-driven computing infrastructure, significant grid improvements and further investments will be essential in the coming years.