Could Geothermal Energy Save Iceland’s Economy?

Iceland recently came one big step closer to making the innovative “Energy for Debt” plan a reality, when the country’s voters rejected a referendum to pay back debt incurred by the country’s privatized bank Icesave.  An alternative plan has emerged – known as “Energy for Debt” – that would essentially turn the country’s vast geothermal resources into a currency that the bank’s debtors would accept instead of cash.

If adopted, the plan would send geothermal electricity from Iceland to Britain and the Netherlands via a high-voltage DC transmission line as a way to repay the failed bank’s investors.  Iceland has incurred massive debt totaling $5.3 billion (45% of national output in 2009), but instead of paying back the debt by taxing residents to raise cash, Icelanders are considering exchanging it for their cheap, abundant geothermal electricity instead.

The plan was created by Dutch businessman/philanthropist Gijs Graafland's Planck Foundation.  The plan’s proponents assert that it would help rebuild Iceland’s fragile economy on a foundation of clean, renewable energy.

Officials from Iceland, Britain and the Netherlands are preparing to resume negotiations as early as this week, but in order to make “Energy for Debt” a reality, the three countries must reach an agreement on the interest rate of the loan.  Many Icelanders feel the 5.5% rate in the original deal reached last year is too high.

Despite its obstacles, ”Energy for Debt” presents a new way of thinking that has the potential to supply Europe with a renewable source of clean energy while simultaneously jump-starting Iceland’s troubled economy.