Iceland pitches itself as a ‘digital suburb of Dublin’ in bid to secure data centre investments

Nestled on the northern edge of Iceland, just outside the rural town of Blönduós, a row of uniform white buildings breaks up the otherwise sparse landscape.

Outside, all that can be heard is the rush of the nearby river Blanda, and the gentle grazing of some hardy Icelandic horses.

Inside, the combined whirring of thousands of individual machines creates a deafening roar, and the icy Nordic breeze rushes through vents in the walls to cool the furious activity of the storing, processing, crunching, and mining of data.

The data centre is one of three operated by Borealis Data Centre (Borealis) in Iceland, and is one of a growing number being set up in the Nordic country to take advantage of an electricity grid powered by 100 per cent renewable energy.

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Iceland’s electricity grid is powered by roughly 70 per cent hydroelectric energy, and 30 per cent geothermal. With homes and buildings also heated by geothermal energy harnessed from volcanic steam, only 15 per cent of primary energy use in Iceland is fossil fuel-based, as the country works to decarbonise its transport sector.

On top of the green energy credentials, the Icelandic climate reduces cooling costs, and the sparsely populated island could be seen as having plenty of physical scope for development (Iceland’s population of about 370,000 is similar to that of Fingal in Dublin, but spread over 230 times the land mass).

The island is also part of the EU internal market through European Economic Area (EEA) agreements, and adheres to GDPR regulations for data processing.

In March of this year, a new 1,700km underwater cable between Iceland and Ireland went live.

The €50 million Iris cable took four years to complete and was the first submarine fibre connection between the two countries, running between landing stations in Thorlakshofn in southern Iceland and Renmore in Galway.

It can transfer data at a speed that effectively makes Iceland a “digital suburb of Dublin”, according to the Icelandic data centre industry.

[ Data centres in Ireland: the grey, windowless structures causing controversy ]

A Data Centre Forum in Reykjavik last week was well-attended by experts and executives from the Nordics and beyond (apart from many Icelandic women who happened to be striking for gender equality on the same day).

The Iris cable cropped up in panel discussions and presentations, pitched as a way for Iceland to benefit from the business of tech giants based in Ireland, who need to hit certain climate targets, while also alleviating current pressures on Ireland’s grid from data centre activity.

In Ireland, about 80 data centres consumed 18 per cent of total electricity from the national grid in 2022, the same amount consumed by all urban homes.

In the final quarter of 2022, Irish data centres consumed 400 per cent more electricity compared with the same period in 2015.

The Sustainable Energy Authority of Ireland reported that just over a third (36.8 per cent) of electricity in 2022 came from renewable sources, similar to 2021 figures.

As well as placing pressure on the grid itself, with a continued reliance on fossil fuels for about two-thirds of electricity production, additional energy requirements from data centres driving up emissions could put Ireland at risk of missing legally binding emissions targets.

In 2021, the national grid operator, EirGrid, decided to stop connections for new data centres until 2028, a de facto moratorium on the building of new facilities in the greater Dublin area.

Thorvardur Sveinsson is chief executive of Farice, the State-owned company which builds and operates the network of submarine cables connecting Iceland to the UK through the Faroe Islands, to Denmark, and now to Ireland.

Speaking in Farice’s office overlooking Reykjavik, he says it was a “natural” decision to lay a cable to Iceland’s closest neighbour.

[ Data centres are a key component of Ireland’s infrastructure, Ryan says ]

“Iceland has a lot of green energy, Dublin might be lacking in that field, but has all these data centres. So maybe it’s a win-win. Maybe we can be a good next-door neighbour, where processing can be offloaded to Iceland,” he says.

“Iceland will never compete with Dublin as a major European network hub, but we could be complementary to each other. I think it’s a good match.”

Sveinsson says it is “too early to say” whether companies with data centre operations in Ireland would offload some activity to Iceland with the opening of the new cable, as “a lot of people want to see how the first winter goes”.

However, Björn Brynjúlfsson, chief executive of Icelandic data centre operating company Borealis, says the Iris cable has “sparked further talks” with big players that have Irish operations.

In Ireland, about 80 data centres consumed 18 per cent of total electricity from the national grid in 2022, the same amount consumed by all urban homes

“I think there is a lot of potential to collaborate. We don’t have endless energy in Iceland, but we have quite a bit and it’s all renewable. Ireland being one of the key digital hubs in Europe, we like the idea of being a digital suburb for certain applications or certain workloads,” he says.

Hand in hand with the rise of technology such as artificial intelligence is an increase in energy-intensive data-processing demands.

Those in the Icelandic data centre industry say that this kind of work in particular could be done in Iceland, powered by renewable energy, with the final processed data transmitted back to tech companies based in Ireland through the Iris cable.

Eyjólfur Magnús Kristinsson is chief executive of another data centre operating company, AtNorth, which has facilities across the Nordics including three in Iceland.

Kristinsson says there were “large players that are hosting in Ireland that are now contemplating splitting up their workloads”.

[ Data centre energy use ‘heading toward 30%’ of Ireland’s supply, claims environmental group ]

“Ireland has obviously done tremendously well in building one of the biggest data centre markets in Europe. But we are attracting different customers, especially energy-hungry workloads, like HPC [high performance computing] and AI… I think those two markets can coexist in a very friendly way, so I think the Iris cable should be seen as a very positive thing for the Irish data centre market,” he says.

The director of data centre site selection with AtNorth, Jóhann Þór Jónsson, added that as there are “demonstrations in the streets of Ireland against data centres”, that we “may have gone a little bit overboard” with seeking out the industry.

“Ireland went into very aggressive tax reforms and incentives to bring data centres to Ireland. They had the power, and they had the connectivity. Galway for example is a super good location for connectivity, but I think Ireland just may have gone a little bit overboard because they were overconsumed,” he says.

“Why don’t the big data centres offload their capacity that they don’t need to have at hand to Iceland? You have a very active data centre community in Ireland, and I think it would be good to try to bridge those two together. You need to offset some of your capacity, and we can take it,” he added.

However, while energy in Iceland is renewable, grid capacity is not infinite. A long-established and energy-intensive aluminium smelting industry consumed about 12,500 gigawatt-hours (GWh) in 2022, or some 65 per cent of all electricity consumed last year in Iceland.

Of the remainder, less than 5 per cent of energy consumed last year went to domestic homes, while about 6 per cent was consumed by data centres.

Pétur Arason is the mayor of a local municipality in Iceland, which includes the northern town of Blönduós, which has a population of about 900 people.

I think there is a lot of potential to collaborate. We don’t have endless energy in Iceland, but we have quite a bit and it’s all renewable

—  Björn Brynjúlfsson

While he welcomes the establishment of the Borealis data centre on the outskirts of the town, and the job opportunities and diversity it brings to the local economy, he says the national power system is almost at capacity, and is hindering rapid expansion of the data centre industry.

“We have a sustainable power industry where we only use renewable resources, but our system is quite limited, and the distribution networks are a little packed as well,” he says.

“That could be one of the things that at the moment is limiting the positivity that Borealis has here, but of course we can expand, just they cannot triple or quadruple in size tomorrow because of the power situation.”

[ Q&A: How sustainable is Ireland as a data centre hub? ]

He says that while there were projects in the pipeline for more hydroelectric and geothermal power plants, as well as harnessing Iceland’s wind as a third renewable resource, they can take up to a decade to negotiate the planning process and incorporate inputs from stakeholders and bodies such as environmental groups.

Árni Finnsson is chairman of the Iceland Nature Conservation Association and says his association monitors decision-making around new energy projects in Iceland. They use the limited resources they have to make submissions and campaign against projects that pose a risk to Iceland’s largely untouched natural landscape.

“[Environmental groups] all experience a shoestring budget, but our shoestring is very thin,” he laughs, but adds that in general he sees no issue with the data centre industry in Iceland.

However, he shares the view of some Icelanders that renewable energy should not be used for data centres engaged in mining for cryptocurrencies such as Bitcoin.

Cheap renewable energy has made Iceland a magnet for cryptocurrency miners, who race against each other using energy-intensive computers to solve complicated equations for the reward of digital cryptocurrency – the real life value of which is unstable and dependent on market trends.

While Iceland’s national power company Landsvirkjun says it is not entertaining new requests from customers looking for energy for crypto mining, it is unclear how much mining activity is still going on across the country.

“We haven’t been criticising data centres very much actually, but I think data centres, they are not entering a country with no limits. Data centres are perfectly justifiable, but not for bitcoins,” says Finnsson.

“[The energy industry] tells us they need to build more power stations, that there’s excessive demand, but they are not telling us from whom. I think crypto mining is probably some of it. Selling energy to bitcoin production is not justifiable.”

Geologist Snæbjörn Guðmundsson, also founder of grassroots environmental group Náttúrugrið Náttúruvernd, adds that it “doesn’t make sense” to expand power production in Iceland.

[ Amazon to build three data centres in Dublin ]

“We are already the largest producers of electricity in the world, per capita, by far. In that case it doesn’t make sense to build more power projects in Iceland, at all, it would put huge pressure on Icelandic nature,” he says, noting that hydro and geothermal plants can fracture and disturb local habitats.

Guðmundsson says that the prospect of Iceland offering to take on the energy-intensive data centre activity from countries such as Ireland was “thinking in a fairy world”, unless current energy production can be diverted from industries such as aluminium smelting.

“If you want to grow the data centre industry, you have to take the electricity from somewhere else. The energy sector wants to produce more, build more power plants, but that’s putting a lot of pressure on Icelandic nature that is really special,” he says.

In response to the Icelandic proposition, Cloud Infrastructure Ireland (CII) noted that the “ambitious” sustainability targets of its members could help Ireland to reach its own renewable energy goals. Formed under the wing of business lobby group Ibec in 2021, CII members include Amazon Web Services, Google and Microsoft, and it promotes the development of the data centre industry in Ireland.

CII director Michael McCarthy said that the group “remains committed to working with Government, EirGrid and other State agencies to identify solutions that can enable our sector to grow and thrive while simultaneously contributing to Ireland’s renewable energy goals”.

He added that cloud service providers are committed to enabling more than 1,100 MW of renewable capacity in Ireland “with no direct Government or consumer subsidy”.

Gary Connolly is the founder of industry group Host in Ireland, which promotes Ireland as a location for data centres hosting digital assets. He says that subsea cables are “good for the diversity and resilience of data coming in and out of Ireland”. “The design, build and operation of global centres, both in Iceland and here, presents another opportunity for Irish companies to continue exporting products and services. This infrastructure is such a critical part of the Irish economy, the more connectivity we have the better,” he said.

Only time will tell whether the Iris cable makes Iceland a “digital suburb” for Dublin’s tech companies and their data centre operations but Farice chief executive Thorvardur Sveinsson says that the network connection to Ireland was one that could open further doors.

He says his company is already considering Northern Ireland at the “high end of the list” in terms of its next cable connection project.

“Northern Ireland is clearly an interesting connection point, it is a very intuitive for us to connect to Ireland,” he says.

Sveinsson also notes other subsea digital infrastructure projects in the pipeline that can now be progressed in part due to Farice’s landing station in Galway.

These include the Far North Fibre project, a 14,000km Japan to Europe subsea fibre optic cable which would land in Ireland, as well as the 2,100km Pisces project that would link Ireland with Spain and Portugal.

“We were the first cable laid. We were the ones taking risk on this submarine route to Galway, to see did the planning process work. How does the tax system apply? All of these questions are serious questions that can create a lot of havoc,” he says.

“We have solved them, so the other guys can see how we did it, and we will see Galway hopefully develop as an exchange point for different cables.”