Every day when David Oddsson goes to work, the head of the Central Bank of Iceland must brave a crowd of jeering protesters, angry that the man they view as the chief architect of Iceland's near-total financial collapse refuses to step down. This tiny country of 300,000 spent the past decade becoming a financial hub of Europe, loading its banks with so much debt that when they finally collapsed, their inability to pay back account holders in the U.K. led that country's prime minister, Gordon Brown, to freeze Icelandic assets under a law designed to fight terrorism.

Iceland Prime Minister Johanna Sigurdardottir has said the country still has two valuable natural resources that could help it climb out of the current crisis—fish and renewable energy. Many believe the country's fishing stocks may already be overtaxed, however, and the vast swathes of land required to build additional hydropower dams in Iceland make them politically unpopular. That makes the exploitation of the thousands of megawatts of untapped geothermal power lying just beneath the feet of Iceland's citizens very appealing.

"When I started in this industry in 1995, we produced under 50 megawatts of geothermal power, and today it's 10 times that," says Ásgeir Margeirsson, CEO of Geysir Green Energy, which is a shareholder in one of the leading geothermal power companies in Iceland.

Domestically, several hundred more megawatts of geothermal power are set to come on line in the next few years and, owing to the excellent balance sheets of Iceland's power companies, not even the nationalization of its banks, collapse of its currency, and impending indebtedness to the International Monetary Fund can stop it, Margeirsson says. (Nor has the economic crisis affected the highly experimental Iceland Deep Drilling Project, whose long-term goal is to dramatically increase the efficiency of existing geothermal fields.)

But Iceland's plan to become the dominant player in global geothermal power production through financing such projects, on the other hand, is as dead as the 50 percent of the country's livestock that were snuffed out by the eight million tons of sulfur dioxide- and fluorine-laced aerosol released by the volcanic Laki fissure in 1783.

"With[in] another two years, we would have been in a position to be the strong player we've always believed was needed in the market," says Alexander Richter, a former director in the Global Geothermal Energy Team of Glitnir Bank, which financed geothermal projects in the U.S., China and elsewhere, and is one of the three banks the Icelandic government recently nationalized. "The sense in the seafood and energy industries is that [the financial services built around those two industries] basically all disappeared overnight. ... We were in Reno, Nev., at a geothermal trade show on basically the same day it went down here—it was surreal."

Karl Gawell, executive director of the U.S.-based Geothermal Energy Association (GEA), notes that before the crisis, Iceland's small domestic market for energy encouraged its geothermal industry to seek expansion opportunities overseas. Unfortunately, financing for those projects is difficult to come by because of the dismal global economy.

"In general, there is financing out there for geothermal, but it's difficult to get and it's expensive," Gawell says. "You have to have a really premium project to get even credit card interest rates."

Unlike the financial side of Iceland's geothermal power industry, the engineering sector is using the crisis as an opportunity to sell its services internationally. Despite—and because of—the collapse of its domestic civil engineering business, Mannvit Engineering, Iceland's largest engineering consultancy and a significant employer of geothermal engineers, is expanding its overseas business as fast as it can.

"When [the crisis] happened, our decision to put further efforts into what we're doing abroad was almost immediate," says Runolfur Maack, deputy CEO of foreign operations at Mannvit. "Over the past few months, the increase in our foreign income was at least 50 percent." (Despite the increase, international business represents only a tenth of the total income of Mannvit.)

The collapse of the Icelandic krona means that Mannvit's services are cheaper than ever. The company hopes to land more geothermal contracts in Chile and even in the U.S., the latter of which it has never before operated. "We used to be expensive, but because of the huge devaluation of the krona, we are now more competitive in our prices," Maack says.

GEA's Gawell warns that even as Icelandic expertise becomes more competitive, demand for it could be drying up due to global financial distress. "On the other hand, in the long run I don't think there's any question we're moving into a climate change regime for energy," Gawell says. "Countries that rely on fossil fuels will have to invest in new technology and efficiency or will pay higher prices. I think Iceland will be in very good position in those markets."

Preparing the next generation of engineers to capitalize on the long-term trends in renewable energy is the one part of the geothermal industry that is booming. A new master's program in alternative energy that is a joint effort of Icelandic and foreign universities (and includes a specialization in the physics of geothermal power), has been drawing more attention than ever.

"Up to now Iceland was expensive to visit, much less live in," says Arnbjörn Ólafsson, director of international affairs at the School for Renewable Energy Science in Akureyri, Iceland. "We've had more applications now than ever before. It basically started in October, which was the week after the collapse in Iceland. The visits to our Web  site, especially from the U.S., went up 50 percent. It shows that there's a lot to the old saying about 'any information is better than no information at all.'"

Whereas many in Iceland, including its new prime minister, who took power February 1 and who is a Social Democrat, are optimistic that the country's renewable power surplus can help rebuild its economy, there are significant obstacles that must first be overcome. The further development of geothermal resources, for instance, is heavily dependent on outside investment, yet the most important source of outside investment to date, new aluminum smelters, has become politically unpopular because of concern about the environment, and economically unsound, as long as the price of aluminum stays low.

Attracting energy-hungry alternatives to smelters, such as data centers and solar silicon plants, are an official priority of Landsvirkjun, Iceland's national power authority. Orkustofnun, Iceland's National Energy Authority has even floated the idea of building undersea cables that could transmit power directly to the European grid. But so far none of these projects has progressed past position papers and declarations.

"The change the left wing party brings is to prioritize alternatives to the smelters," Geysir's Margeirsson says. "But it is a question of investors coming in and having the courage to invest in these big projects."

Richter, who resigned from the newly nationalized Glitnir Bank in December, and then immediately launched a Web site that aggregates news about new geothermal projects, is skeptical that new opportunities for Iceland to use its energy will come swiftly.

"The prime minister said we are blessed with two resources that have helped the country for centuries—fish and geothermal," he says. "In a sense, that's a very naive view." Iceland must overcome a huge foreign debt that it has already promised to pay off, a collapsed currency that makes imports expensive as well as high inflation combined with high unemployment, Richter notes.

Both Richter and Margeirsson worry that a buyer for Iceland's electricity may not materialize in the current gloomy economic climate. What's more, any buyer looking to invest in the country must  be willing to accept  Iceland's commitment to limiting development and keeping the country environmentally friendly. "You have people like Björk who are critical of current development policies," Richter says. "So we have to do this in a more sustainable way. It can't be all just heavy industry—we have to watch out for the environmental issues…. There's a big discussion around that. How do you maintain growth so that the country itself is not selling out?"