Indeed, I will turn my comment into an answer.
There is one area on Earth that exactly fits your requirements. It has absolutely no oil, gas, or coal reserves. Yet it obtains almost all of its power needs domestically, through renewable resources.
With just a bit of handwaving, no real need for magic otherwise, no physical laws are broken, you can have a thriving industrial steampunk society. No combustion necessary.
Scale up Iceland to a continent size. Geothermal vents supplying steam everywhere. Hot enough to cook with, heat the houses with, and even drive generators. Lots of water for hydro powered wheels and mills. Can also be used to provide power for turning and drop-forging metals.
For even higher temperatures, Iceland also has continuous lava flows. Lava is hot enough to melt copper, make glass, and process other elements. Here is where the handwaving cones in. The trick would be to have small, continuous lava flows that can be controlled and directed. Copper does not have to be formed into wires to generate electricity, one can mold and hammer it into bars that do nicely. Put the raw copper ore into clay molds, flow the lava over it, you have copper bars. Okay, maybe lots of impurities, but it will suffice. The water wheel mills can provide energy for forging these bars into useable products. Place copper bars around a water wheel, and natural magnets, and one has an effective but crude generator. With electricity comes the ability to process even more metals, and produce machines. Process copper in continuously improving refinements and build better and better generators.
Plus, lava retains it heat for a substantial period of time. One could imagine an industry where lava is cut into sections while still very hot, and used for such things as crude ceramic kilns and glass molds.
As for why there is no fossil fuel engines, Iceland has no fossil fuels except wood. Come to think of it, Hawaii doesn't either. No volcanic area does. As far as I know, fossil fuels can not form under such volcanic conditions.