Reykjavik - which literally translates as "Smoke Bay" - derives its name from the steam from hot springs. From the time of the first settlement in Iceland in the late ninth century, Reykjavik’s natural hot springs have been utilized in many ways. Today, Iceland's population benefits greatly from its water, as there are mainly two sources of energy in Iceland, geothermal and hydropower.
 
Geothermal heat is one of Iceland's greatest environmentally friendly, natural resources. The emission of carbon dioxide from the utilization of geothermal areas is tiny compared to emissions from the burning of fossil fuels such as oil. Reykjavík has enjoyed this inexpensive and reliable power source for more than 70 years, when Reykjavik District Heating began operation.

Although geothermal water is nearly inexhaustible, it is necessary to make sensible use of it, and in Iceland it is utilized mostly for central heating; 85% of all the houses in Iceland are heated this way.  But the geothermal water also has many other uses, including  swimming pools, soil warming, fish farming, drying of timber and wool, animal husbandry and many more. Reykjavík Energy operates the world's largest and most sophisticated geothermal district-heating system.