Building a data center that minimizes use of fossil fuels is one of the gargantuan tasks facing the IT industry, yet at least one company has a simple solution: move to Iceland. With cooling freely provided by nature and access to both geothermal and hydroelectric energy, the UK-based co-location vendor Verne Global says it is on the verge of opening a “100% carbon neutral” data center before the end of this year.

“It’s all about the power,” Verne Global CTO Tate Cantrell says. “Iceland has great natural resources.”

Based in a former NATO facility in Keflavik, the data center is capable of supporting as much as 200,000 to 250,000 square feet of compute and technical space with more than 100 megawatts of power and 8-terabit-per-second connectivity to the United States and Europe, Cantrell says.

It certainly won’t be the world’s biggest data center, but Verne Global claims to be unique in getting all of its power from two sources of renewable energy. The energy in Iceland will cost less than half as much as power in the UK, Cantrell said. While access to separate geothermal and hydroelectric power sources will guard against power outages, Verne Global does have diesel engines installed just in case both sources of renewable energy fail. Verne Global further saves on power costs by taking advantage of Iceland’s natural climate to gain free cooling.

The Verne Global facility is 20 milliseconds from London and Paris and 41 milliseconds from New York, the company says. Of course, cheap data centers are all well and good, and Iceland is roughly centrally located between North America and mainland Europe, but some applications require low levels of latency that can only be achieved by close proximity to data centers.

“We host systems in two facilities in London that are 30 miles apart. That’s about the maximum distance some of our financial services clients will tolerate,” says Sean McAvan, vice president of EMEA sales for Datapipe, an IT hosting company which is the first publicly announced customer of Verne Global’s Iceland data center.

For demanding applications like trading systems, the Verne Global data center could still be useful as a disaster recovery site. But for most applications, the Verne Global speeds will be “more than manageable,” McAvan says.

Datapipe chose Verne Global because of “geography and the power source and also the potential of combining those in some unique service offerings,” McAvan says. “It sits kind of geographically between New York and London which are two of our fastest growing markets.” One potential scenario is keeping the most time-sensitive computing tasks in New York or London while shifting less critical processing loads to Iceland to take advantage of the lower cost, McAvan says.

But first, Datapipe has to get its servers in place. Verne Global will fill its Iceland facility with modular data centers 500 square meters large. The maker of the modular data centers, Colt, is shipping the first one to Verne now. In addition to facilitating access to the modules, Verne Global makes sure its customers have physical security, uninterrupted power supply, cooling, and other services, but customers must install their own servers and buy network connectivity from service providers.

The Colt modular data center will arrive in Iceland later this month, and then be assembled and tested over a period of weeks. It should be ready for Datapipe to install its own equipment before the end of 2011. Of course, the efficiency of each customer’s slice of the data center will depend on the customers themselves, but having access to cheap power and a reliable facility should be a good start.