I could easily see, in the near future, Iceland becoming the source of electricity for Europe. Build a power cable to Britain, and Bob's your uncle.
Hydro (which is probably near full reasonable utilization, relatively)
Geothermal (which considering the location, is barely touched)
Off shore Wind. (North Atlantic winds, anyone?)
But, no, that wouldn't have happened earlier, the tech's only just getting in place now.
Now. Your idea of geothermal steam powering steam engines in the 1700s or 1800s is a cool idea. I have no clue how feasible it is - I think you'd have problems with pressures in piping and stuff, but it's a neat idea.
Have liquid solder (lead/tin alloy that melts at under 200C) used as a heat transfer from HOT rocks...
Using energy generated in Iceland to power Europe would run into similar issues as the
Rampart Dam proposal for using Alaskan hydropower in the United States did. The energy resources of Greenland might be lower cost than those in Europe, and they might be massive, but getting the energy to Europe would require significant investments in transmission infrastructure, as well as energy loss from the transmission itself. It's less an issue nowadays than when Rampart was proposed, but it's still an issue.
So that leaves the potential option of using the energy locally, but there are few industries where power requirements in terms of price and capacity are a major concern, and Iceland probably doesn't have resources of the quantity, quality, and cost competitiveness to be used in those industries. For example, aluminum smelting might benefit from access to cheap and plentiful energy, but it doesn't have much of an advantage if it has to import materials to be refined, ship its finished products over long distances, and somehow locally train or bring in from elsewhere workers who know how to make aluminum.
Unlike Rampart, and like similar Alaska projects that were smaller in capacity, it would be possible to start small and build up capacity, but then you have the issue of still having to build up infrastructure suitable for heavy industry while not having the energy capacity that would attract significant industry attention and plants.
The irony is that in hindsight the Alaska projects actually would have been lower cost than power generated from other sources a few years after the project was voted against, but they didn't know that at the time. Also, the only reason why Alaskan hydropower is so competitive (and the reason why it was considered in the first place) is because all the good sites in the Pacific Northwest were already developed by the mid-1970s. There are far more sites suitable for renewable energy than large hydroelectric dams, so if the capacity gained from Iceland can be found elsewhere for less cost there is no reason to pursue such a project.
That's just the economic case too, the Alaskan projects also had the environment as a major concern, as it would have inundated a massive area of land.
While a different type of project, environmental concerns could be raised if Iceland was developing all of this capacity, especially since it would likely be for export.