IHI Expects Japan Market for Small Geothermal Projects to Expand

IHI Corp. (7013), a maker of everything from aircraft jet engines to gas turbines, expects the market for small-scale geothermal projects to take off in Japan as the country seeks cleaner sources of energy.

The Tokyo-based company has developed a 20-kilowatt generator capable of turning hot water into electricity that can be set up in as little as half a day, said Tomohiko Yamaguchi, an IHI official in charge of marketing the product.

“The government may want to push large-scale geothermal projects, but big ones are having a hard time,” Yamaguchi said in an interview on May 20. “Small ones are easier to set up. They are faster to expand.”

Smaller geothermal plants may prove popular in Japan because their scale makes them more manageable for operators, offering a quicker way to build out the island nation’s rich sources of heat below the earth’s surface.

The market to utilize heat from hot springs “is becoming active, helped by the government’s focus on clean energy,” Yamaguchi said.

Since IHI’s “Heat Recovery” generation device went on sale in August, the company has received orders for more than 10 units for hot springs and industrial sites, Yamaguchi said.

IHI was developing the system initially targeting waste water from factories, according to the official. Once the device was ready, half of all inquiries were related to hot springs.

“We realized the use at hot springs has potential,” Yamaguchi said.

Small Vs. Big

Utility-scale geothermal plants in Japan typically take 10 or more years to get up and running. Environmental assessments associated with the projects usual last three years to four years.

IHI’s technology is called binary, meaning it’s able to use lower-temperature water to heat a secondary fluid at a much lower boiling point. Hot springs operators are able to run the systems using existing wells, requiring no additional drilling, according to Yamaguchi.

Electricity from geothermal plants can be sold at above-market rates under the country’s incentive program for clean energy brought in almost two years ago.

Deregulation introduced in 2012 -- binary plants are no longer required to submit a project plan -- has also reduced the burden on power producers, Yamaguchi said.

Ormat Technologies Inc. (ORA), based in Reno, Nevada, dominates the market for binary systems, according to a KPMG Iceland report published in 2011. IHI is targeting a market segment that uses smaller quantities of water than Ormat’s devices, Yamaguchi said.

Binary Cycle

Kobe Steel Ltd. (5406) and Ulvac-Riko Inc. are among Japanese companies that also make small-size binary cycle systems.

Geothermal, which currently supplies about 0.2 percent of Japan’s electricity, has the potential to produce 23,000 megawatts of capacity for the nation, according to a 2012 report by the Geothermal Energy Association in Washington D.C.

As of the end of February, Japan had approved 13 megawatts of geothermal projects since the incentive program’s introduction, according to the trade ministry. One megawatt equals 1,000 kilowatts.

IHI aims to sell 40 units to 50 units per year in several years, Yamaguchi said. The generation device costs about 12 million yen ($119,000) and can cost as much as 30 million yen if sold as a system including equipment to remove impurities in water, he said.

To contact the reporter on this story: Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net Iain Wilson, Indranil Ghosh

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