The Business of Renewable Energy Development: The Oil Industry and Geothermal Energy in Iceland and California, 1960s-1970s

Nya Fest Session 4: Sustainability and energy transitions in economic and business history organized by Mattias Näsman and Josef Taalbi


Odinn Melsted


Renewable energy systems are often thought of as alternatives to fossil fuels. A historical view, however, reveals that different energy systems tend to co-evolve, with incumbent energy constellations shaping the emerging ones. In this paper, I will examine the role of established fossil fuel business constellations in the development of renewable alternatives by looking at the case of oil and geothermal energy in Iceland and California, which both became leaders in geothermal heating and power development in the 1960s and 1970s. While fundamentally different in end use, geothermal and hydrocarbon industries employ similar methods for exploring and extracting fluids and gases out of the earth. Those similarities induced oil companies to enter the geothermal business, and geothermal pioneers to seek cooperations with the oil industry, whereas the business models and practices of oil and geothermal development were deeply intertwined. The volcanically active region of Greater California (U.S. and Mexico), with power plant complexes at The Geysers, Imperial Valley and Cerro Prieto, became a hot spot for geothermal development in the 1960s and still holds one fourth of the world’s geothermal power capacity. Those projects were largely implemented by oil companies – Pure Oil, Union Oil and Chevron – which set up geothermal divisions and acquired start-ups. Oil companies provided the necessary funding for high-risk exploration drilling and applied their expertise to explore and exploit geothermal energy with geoscientific exploration techniques, oilwell rotary drilling and reservoir engineering. Around the same time, Iceland became a leader in geothermal use, as public utility companies built geothermal power plants and district heating utilities all around the island. As a result, geothermal energy provides for the heating of 9 out of 10 houses and almost one-third of the electricity supply today. Unlike California, Iceland never had an oil industry. Even so, petroleum technologies and geoscientific expertise were crucial to Iceland’s transition from oil to geothermal energy, as exploration and exploitation methods were learned from the oil industry. In both cases, the businesses of oil and geothermal energy have been deeply intertwined, not only via expertise and technologies, but also via business models and practices. In California, oil companies sold steam to electric utilities at prices linked to fossil fuels, which made the geothermal business highly profitable in the 1970s. Similar to oil companies, Icelandic geothermal companies employed the business model of charging geothermal tariffs linked to oil prices, which guaranteed a return on investment and allowed to pay off drilling and infrastructure loans. Based on archival research in the U.S. and Iceland, and employing the concepts of socio-technical systems and “oil spillovers”, I adopt a comparative perspective on Iceland and California. As I will argue, we need to look beyond single energy carriers and examine the co-evolution of historical energy systems. My case studies reveal the links and hybridization between fossil fuels and renewables, or oil and renewable energy businesses, and complicate standard notions of energy transitions from one energy carrier to another.


No PDF available.