Shulman Advisory

The State of Geothermal Power Generation in Japan

Geothermal power plants, at less than half a percent of Japan’s total power generation, are currently one of the country’s smallest sources of renewable power. However, with Japan having, by some estimates, the third-richest geothermal resources in the world and its government looking to achieve carbon neutrality by 2050, this relatively minor power source is expected to grow in importance over the next couple of decades.

This article examines the details of geothermal power generation in Japan. It focuses on the industry’s current state, the challenges faced by geothermal power plant developers in the country, and the initiatives led by the government and private sector to grow the use of this power source.

The State of Geothermal Power Generation in Japan

In FY2019, geothermal contributed 0.27% of Japan’s total power generation. Despite this small share of total generation, with 554 MW of installed capacity as of 2019, the country ranked 10th in the world in installed geothermal power generation capacity.

A fact worth noting is that the vast majority of Japan’s geothermal power plants are concentrated in just two regions: Tohoku in the north of the country and Kyushu in the south. According to the Ministry of Economy, Trade and Infrastructure (METI), each of those two areas boasts over 200 MW worth of operational geothermal power plants.

In line with its push to increase the share of renewables in its total power generation, Japan is looking to nearly triple its existing geothermal capacity to 1,550 MW by FY2030. It aims for geothermal to contribute between 1.0% and 1.1% of total generation by the same year. Considering that the government also estimates that the country has 33.6 GW of geothermal resources suitable for power generation, these goals do not seem out of reach.

Achieving the goals would also help bring Japan a step closer to reaching its 2050 carbon neutrality goal. Even accounting for initial construction, geothermal power plants are estimated to emit about 98% less carbon dioxide than coal power plants.

Additionally, increasing geothermal capacity will help Japan secure power that is more stable, being independent of fuel imports and weather. With high capacity utilization rates (upwards of 80%), geothermal vastly outperforms the more widely used renewable power sources, wind and solar. For example, onshore wind power plants typically have capacity factors of around 30% and solar panels run as low as 13%.

Challenges Faced by Japanese Geothermal Power Plant Developers

With 33.6 GW of potential and a longer history of development in Japan than wind and solar, one might wonder why less than 1 GW of geothermal capacity has been installed to date.

There are numerous reasons behind this underdevelopment, including government regulations regarding the utilization of national park land for geothermal power plant construction, the economics of constructing these power plants, Japan’s technological capabilities in the sector, and friction with hot spring communities.

Government Regulations

The Japanese government separates land inside national parks into five zones: regular zone, Class 3 special zone, Class 2 special zone, Class 1 special zone, and special conservation zone. Until 2012, developing geothermal power plants inside any of the special zones (with the exception of underground excavation from regular national park zone into Class 3 and Class 2 special zones) was not permitted. Because of that, less than 30% of the 33.6-GW potential was directly accessible to developers.

In 2012, however, the Ministry of Environment (MOE) revised the regulations to allow construction of geothermal power plants in Class 3 and Class 2 special zones under certain conditions. This unlocked an additional 33% of the available potential.

The regulations were further relaxed in 2015 when the ministry allowed development in Class 1 special zones under certain conditions — mainly that the construction have no effect on the ground surface within the zone. This allowed developers to dig underground from the surface of Class 3 and Class 2 special zones into Class 1 special zones. With that, a further 11% of the potential was unlocked for a combined total of 23.5 GW, including the previously accessible zones. Today, only 30% of geothermal resources, those located in special conservation zones, remain legally inaccessible.

That said, considering the long power plant development cycle and the relatively recent relaxation of these regulations, no geothermal power plants located in the zones of national parks made accessible in 2012 and 2015 have been commissioned yet. The first such project under development, the Oyasu Geothermal Power Plant, is expected to be commissioned in FY2024. This 15-MW power plant in Yuzawa City, Akita Prefecture, is being jointly developed by INPEX, Mitsui Oil Exploration, and Idemitsu Kosan.

High Cost and Long Development Cycle

Another reason geothermal power plants are not as popular among Japanese developers as solar and wind power plants is the high risk and costs associated with their development. According to the New Energy and Industrial Technology Development Organization (NEDO), a 30-MW geothermal power plant costs about 25.6 billion yen to construct. Of that, as much as  7.3 billion yen (28.5%) needs to be invested in the higher risk initial survey and planning phase, with the remaining 18.3 billion yen (71.5%) being spent on the actual construction.

In addition to their high costs, geothermal power plants also take a long time to build, partly because of the complex survey process involved in selecting an ideal project site. While mega solar power plants can be developed in as little as one year, biomass power plants in three to four years, and onshore wind farms in four to five years, METI estimates that it takes 13.6 years on average to get a geothermal power plant through the development process, from ground surface survey to commissioning.

As an example, survey work related to the Oyasu power plant mentioned earlier started in 2011. If the plant is commissioned in FY2024 as planned, the development process will have taken around 13 years to complete.

Lack of Technological Progress

In the 1980s, Japan had a 90% share of the global geothermal power turbine market. Companies like Mitsubishi Power, Toshiba, and Fuji Electric continue to be major players and, in 2010, enjoyed a combined 67% share of the global market. That said, with more-advanced binary cycle geothermal power plants, which can operate with cooler water than conventional dry steam and flash steam plants, gaining market share, Japanese manufacturers are lagging behind.

With the domestic giants lacking the necessary technologies and the use of binary cycle geothermal power plants increasing in Japan, foreign manufacturers and developers including Baseload Power and Climeon have entered the Japanese market. Kyushu EPCo commissioned a binary geothermal power plant in 2015 and Hokkaido EPCo announced in December 2020 that it will commission its first such power plant in FY2023.

Another sign of Japan’s lack of technological capabilities in the geothermal sector is the fact that, primarily due to maintenance issues, the capacity factor of the country’s geothermal power plants dropped below 50% in 2016.

Friction with Hot Spring Communities

Geothermal power plants, as part of their operation, need to discharge hot water produced from the steam that passes through their turbines. Two common ways of doing so are returning the water underground and using it in hot bath facilities.

It is the former case that can be a source of friction between geothermal power plant developers and local communities. While these conflicts are not as common as NIMBY issues with solar (partially because of the much lower number of geothermal projects overall), they are still a considerable roadblock for some projects, especially those located near hot springs.

For example, in 2018, owners of a hot spring hotel located just two kilometers away from Waita Geothermal Power Plant filed a provisional injunction with Kumamoto District Court demanding the power plant’s suspension. According to the hotel, the hot spring water turned muddy after the power plant’s second well used for returning water underground started operation in 2016.

Initiatives to Grow Geothermal Power Generation in Japan

Even though the issues listed above have slowed the development of geothermal power plants in Japan, both the government and the private sector have been implementing strategies to help advance the industry’s progress and to hit the FY2030 geothermal power generation share target.

National Government’s Initiatives

The Japanese government has, as mentioned earlier, gradually relaxed regulations related to building geothermal power plants in national parks. Additionally, it has been putting effort into conducting primary land assessments to find sites potentially suitable for the development of geothermal power plants. While these initial surveys need to be followed by more comprehensive surveys related to factors including a potential power plant site’s ground surface, excavation conditions, and fumarolic activity, they still help improve the business case for developers.

The two organizations responsible for conducting the government-sponsored survey work are the New Energy and Industrial Technology Development Organization (NEDO) and the Japan Oil, Gas and Metals National Corporation (JOGMEC). Between 1980 and 2009, NEDO conducted a geothermal development survey in which it assessed 67 locations outside of national parks, looking at factors such as their geological structure, temperature, and hot water reservoir accessibility. JOGMEC, on the other hand, conducted an aerial geophysical survey of national parks. Another survey is currently underway, and a resulting shortlist of locations with high potential for the development of geothermal power plants is expected to be released by FY2021. In addition to conducting surveys, JOGMEC also supports geothermal projects by guaranteeing developers’ loans.

Another major goal of the Japanese government is to shorten the development period from the current 13 years to less than 10 years. The two ways it plans to do so are by streamlining the environmental assessment process for new plants and supporting the development of faster drilling technologies. In FY2020, the government budgeted nearly 13 billion yen for geothermal power plant development-related subsidies, including 3 billion yen for the development of new drilling technologies.

Private Investment in Geothermal Power Generation Technology

While Japanese companies are lagging behind their foreign competitors when it comes to the newer binary cycle geothermal power plants, they are still active in the geothermal power generation space.

In fact, many large Japanese companies including Mitsui Oil Exploration, Mitsui Gas Chemical, JFE Engineering, Mitsubishi Chemical, Mitsubishi Material, and J-Power were and continue to be involved in the country’s geothermal power plant projects. Additionally, some Japanese companies are expanding their technological capabilities through investment in and acquisition of foreign geothermal technology companies.

Two examples of the latter include ORIX, which acquired a 20% stake in Ormat Technologies, a US-based geothermal power generation technology company, and Kyushu EPCo, which acquired Thermochem, another American geothermal power generation technology company. Both of these investments happened in the past three years.

Consensus with Local Communities

Even though some local communities are opposing geothermal power plant construction, others are finding ways to reach consensus with developers and even find ways in which the two parties can create a mutually beneficial relationship.

One such case is the Matsukawa Geothermal Power Plant in Iwate Prefecture, which was commissioned in 1966. The hot water discharged by this power plant is used to warm a local public bath and to provide steam to a neighboring greenhouse.

Another case worth noting is Kirishima City in Kagoshima Prefecture. In 2015, the city established an ordinance requiring geothermal power plant developers to hold meetings to explain their projects to local community members, to submit their business plans to the city, and, in general, be more transparent about their activities. This, while placing more burden on the developers, helps ensure that friction with the local community is minimized.

Finally, in 2019, JOGMEC certified three districts in Hokkaido, Iwate, and Akita as model districts for regional industrial development that utilizes geothermal resources.

The Outlook for Geothermal Power Generation in Japan

While solar and wind power generation were introduced to Japan relatively recently, the country has a long history of developing geothermal power plants. After all, it has some of the world’s richest geothermal resources, an estimated 33.6 GW of total power generation capacity potential. That said, with most of the resources located inside national parks, the regulations related to building geothermal power plants in certain park zones having been relaxed only recently, and the long time needed to develop these plants, Japan’s geothermal resources remain largely untapped.

That, combined with the government’s goal to reach carbon neutrality by 2050 and its aim to secure more sources of reliable power independent of fuel imports, make geothermal power generation one of the most suitable options. To grow the use of this power source, both the government and the private sector are actively working on developing new technologies and constructing new geothermal power plants, even inside national parks.

With the first project inside a special zone of a national park scheduled to be commissioned in FY2024 and more underway, the available geothermal power generation capacity in Japan is expected to increase rapidly over the next couple of decades.

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