The island generates almost all its power from geothermal and hydroelectric sources, meaning that power costs, which account for the majority of data centre costs, are very low.
In addition, the climate reduces the costs associated with cooling large data centres.
The Invest in Iceland Agency cited a benchmarking study by PricewaterhouseCoopers Belgium which found that Iceland is the most competitive location for the operation of data centres.
"Iceland is a unique low-cost location for large international data centres and can offer clean, renewable energy at a very competitive price," said the organisation.
"The study showed that Iceland offers a lower cost for data centres than the US, the UK and even India.
"Iceland also has the second lowest corporate tax in the OECD at 15 per cent, highly skilled IT labour at competitive prices, and low land and lease costs."
Other industry sectors have already moved operations to Iceland to take advantage of its abundant power resources, particularly aluminium smelting which requires vast amounts of electricity.
Power is so cheap that some towns in Iceland have heated pavements in the winter, but there could be a problem for data centres.
Although the island has 720Gbps cable connections, the government is planning two new submarine cables linking to Denmark in the east, and Greenland and the US in the west.
The cables should be completed by the end of the year and will give a total capacity of 1.9Tbps to 3.8Tbps.
Iceland makes play for data centre market
By Iain Thomson on Apr 1, 2008 7:19AM