The plans involve a 1,000km undersea cable – the longest in the world – with a capacity of 1GW. Together with related generation and onshore transmission investments, the package is estimated to cost around £4 billion.
If the scheme stacks up economically and clears political hurdles, it could be running by 2022.
Bjorgvin Sigurdsson, executive vice president of state-owned Icelandic generator Landsvirkjun, said: “We are looking at this much more seriously than ever before. The technology seems to be there to make it work… the issue is whether this makes sense economically.”
Iceland enjoys some of the lowest electricity prices in Europe, with 99 per cent of it coming from hydroelectric and geothermal sources. This has attracted energy-intensive industries such as datacentres.
Guðni Jóhannesson, director general of the National Energy Authority of Iceland, said the interconnector could provide flexible power to the UK at 60-70 per cent the price of offshore wind. “However you look at it, there is a big potential,” he said.
To achieve that potential, the Icelandic government must convince its citizens the scheme will benefit them. It faces concerns that exposure to a bigger market could raise domestic prices. Iceland is also seeking policy guidance from the UK on how it can benefit from long-term renewable energy contracts.