* Iceland eyes electricity exports to Britain
* Final investment decision seen in 2015-2016
* 1,000 km cable would be in waters 3,000 metres deep
By Nerijus Adomaitis
OSLO, Jan 9 (Reuters) - Iceland is considering building the world's longest subsea power cable by around 2020 to take advantage of its abundant geothermal energy to supply Britain with green power, the head of the state-run electricity producer said.
"We can serve as a green battery for the UK," Hordur Arnarson, the chief executive of Landsvirkjun said in an interview.
"We believe it's a win-win situation, because we have a flexible (source of) renewable power, which could be used to balance (supply and demand in Britain)," Arnarson said in an interview. "It will be the longest subsea cable in the world."
The project, previously considered economically unviable, is back in the frame because of rising demand for low-carbon energy and regulations favouring renewable power.
A government-appointed committee will deliver a report on the project this year, and Landsvirkjun expects to make a final investment decision on the 1,000 kilometre subsea cable by 2015-2016, Arnarson said.
Tiny Iceland, with a population of just 320,000, has plenty of geothermal power thanks to its volcanic formations. McKinsey & Co estimates it is harnessing only 20 to 25 percent of its hydro and geothermal energy potential.
The consultancy added that Iceland should explore exporting renewable power to Europe as part of a strategy for broad-based economic growth to recover from a ruinous banking crash.
The proposed cable would also allow Landsvirkjun to step out of its small domestic market.
In a potential risk to the project, Britain still has an outstanding dispute with Reykjavik over the 2008 collapse of Landsbanki's Icesave unit. Iceland still faces court action for failing to compensate depositors in Britain and the Netherlands in full.
Arnarson declined to cite a figure for the costs of construction, which would take five years and would entail laying cable 3,000 meters underwater in some areas.
The longest subsea cable currently in operation is the 580 kilometre NorNed link from Norway to the Netherlands, which was completed in 2008 and cost 600 million euros ($784 million).
Arnarson said the country's hydro and geothermal plants already could produce 10 percent more than the current levels of around 17.5 terawatt-hours in 2012.
Norway, which also gets almost all of its electricity from hydro power, plans to build a 700 kilometre power link to UK by 2020.