Japanese Renewable Energy - The Best Geothermal Energy Stocks

Japan is not commonly regarded as a significant player in geothermal energy. Yet the country boasts an enormous resource in its thermal regions, spread throughout the country.

In addition, several Japanese companies are among the world leaders in the supply of geothermal energy generating plants and systems.

In May 2011 the Japanese Prime Minister announced that plans to expand the country's nuclear capacity would be put on hold. Instead, the country would seek to develop renewable energy.

The Prime Minister set a target - by around 2021 Japan should be receiving 20 per cent of its power needs from renewable energy sources, more than double the current figure (which mainly comprises hydroelectric power).

As I have already noted, he put the stress on solar energy, in which Japan is a technological leader. He noted that solar power is steadily falling in price, and should cost one third of what it does now by 2020, and one sixth of the present price by 2030.

So geothermal energy is not expected to play a hugely significant role in the new Japanese push into renewable energy. Nevertheless, it is likely that efforts to harness the country's impressive thermal resource will be accelerated over coming years.

Depending upon evaluation methodology, Japan ranks around third in the world in untapped geothermal potential, with an estimated 23.5 GW available.

At present, Japan has 18 geothermal power plants - responsible for 0.3 per cent of the country's electricity - and it ranks eighth in the world for installed geothermal capacity, with about 540 MW. For comparison, the United States ranks first (3,086 MW), followed by the Philippines (1,904 MW) and Indonesia (1,197 MW).

However, by and large its thermal regions have been transformed into onsen – hot spring resorts - which are a hugely significant phenomenon of Japanese culture. Many of the best resources are in national parks and in popular tourist spots.

Indeed, reverence for hot springs is such that one geothermal energy expert declared that they are regarded as almost holy by the Japanese.

In addition, it can take five to 10 years to fully develop a new geothermal project, and Japan is now in a hurry.

Nevertheless, Japanese companies have expertise in this field. In particular, four corporations stand out. They are all large companies, with a wide plethora of activities. Geothermal energy is just one part of their business.

But if the Japanese drive into renewable energy becomes a major stock market theme over the coming decade, then these companies will be among the significant beneficiaries.

* Fuji Electric Holdings Company (6504.TYO) has been developing geothermal power plants since the 1970s, and has sold these systems to countries around the world, including Indonesia, the Philippines, the US, Iceland and New Zealand.

In the 10 years to 2009 it received orders for 12 such power facilities, with a total capacity of 674 MW, and claimed a 40 per cent share of the global market for geothermal power generation plants.

With the introduction of a new 2 MW binary cycle power plant it is aiming to lift its global share to 50 per cent.

It is particularly targeting Indonesia, one of the world leaders in exploiting geothermal resources.

* Itochu Corporation (ITOCY.PK) is a partner in the huge $1 billion, 330 MW Sarulla geothermal project in Indonesia with Kyushu Electric Power and Ormat of the US. Itochu has also agreed to work with General Electric on a variety of renewable energy projects, including geothermal.

* Mitsubishi Heavy Industries (7011.TYO) is a leading manufacturer of geothermal power plants, and has sold these to more than a dozen countries.

Iceland has been a particularly prominent market, and in 2010 MHI reached agreement with Reykjavik Energy to begin joint development of geothermal projects around the world, with an emphasis on Africa, Latin America and Asia.

The two companies said their target was to capture 50 per cent of the world geothermal market by 2014.

* Toshiba Corporation (TOSBF.PK) is another leading producer of geothermal plants, and has supplied customers in the US, Mexico, Costa Rica and the Philippines.

* Learn more on the attractions of Japanese renewable energy in the ebook Investing in Japanese Renewable Energy.

June 7th, 2011

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