Is Japan Next for Geothermal?

Geothermal giant Ormat announced this week it's going to Japan.

Ormat signed a cooperation agreement with Japanese construction conglomerate JFE Engineering. The deal calls for the two companies to work together in building geothermal power plants in Japan. Ormat supplies the equipment, and JFE does the work.

This is a telling move from one of the world's largest geothermal players.

There are a number of reasons Japan could be big for geothermal. The nation is a volcanic island. Like Hawaii, the Philippines, Kenya and New Zealand (all of which have significant geothermal development), it's relatively easy to locate geothermal systems capable of driving a power plant.

But there's an even bigger reason geothermal could take off in Japan. Cheap money.
Last week, the Bank of Japan announced $30 billion in domestic stimulus spending. Apparently the Japanese economy is not turning around as quickly as the government would like. So it's time to add a little fuel to the fire.

The $30 billion will be doled out as low-cost loans to a number of strategic sectors. One of those is energy.

This means Japanese geothermal projects would likely qualify for a low-interest chunk of government cash. And nobody does low interest like the Japanese. Where Department of Energy geothermal loans in the U.S. are charging somewhere around 5.5%, Japanese loans (indexed to the government bond market) would likely come with interest rates less than 0.5%.

This is a big shot in the arm for Japanese geothermal, particularly for small companies. The hardest part of developing a geothermal project is financing the construction of the plant. In the U.S., junior companies with few assets to finance against have in the past been pushed into ultra-high-interest bridge loans. Making project economics a lot tighter.

The provision of low-cost loans from the DoE has made things much brighter for U.S. geothermal developers. And the new Japanese stimulus package could do same for Japanese start-ups.

I'm going to be looking into this. Japan is an oddly difficult place to work, more akin to Italy than the U.S. in terms of corruption and cronyism. But with the right people, a Rising Sun geothermal project could be a huge moneymaker now that government money is on the table.

By. Dave Forest of Notela Resources