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Promoting Wider Utilization of Geothermal Power Generation in Japan

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First Use of JOGMEC Liability Guarantee to Promote Utilization of Geothermal Power Generation in Japan

Expected to Be a Stable and Low–Cost Energy Source

Geothermal energy is a renewable source of energy that provides stable, long–term power supplies, unaffected by the weather or other factors. Japan ranks third in the world in terms of the potential for geothermal power (having a total potential of about 23.4 million KW). Three Japanese manufacturing companies have a share of approximately 70% in the world market (on an accumulated basis through 2010) for turbines for geothermal power plants. These strengths give Japan a strong competitive position in terms of natural resources and technological capabilities in the geothermal power business.

Geothermal power generation features low running costs yet requires considerable investments of time and money at the development stage, including surveys of geothermal energy resources, collection of steam and hot water, and construction of facilities. In addition, there are issues unique in Japan, such as restrictions under Japan's Natural Park Law and necessary adjustments with hot spring businesses. Hence, no new geothermal power plants have been constructed since 2000, with an only exception of the construction of a small–scale geothermal power plant in 2006. At the end of 2012, there were 17 geothermal power plants in Japan, with a generating capacity of 520,000 KW, which consists of only 0.3% of Japan's total power generated.

However, following the Great East Japan Earthquake in March 2011, the situation has changed substantially. Beginning in July 2012, the renewable energy feed–in tariff system was introduced that make it easier for power producers to calculate the return of their investments. Together with the deregulation of utilization of geothermal energy resources in national parks, policies for the usage of geothermal resources have become more supportive. In addition, in the Japanese government's Basic Energy Plan, which was announced in April 2014, geothermal energy has been specified as one of "baseload power" (which is defined as a power that can be generated constantly day and night at low cost), and policies for accelerating the development of geothermal power generation has been set forth.

With the Aim of Facilitating Financing for Geothermal Power Generation, Mizuho Contributed to Establish the JOGMEC's Liability Guarantee Program for Geothermal Power Generation

Japan Oil, Gas and Metals National Corporation (hereinafter, JOGMEC), which provides a wide variety of support for natural resource and energy businesses in Japan and overseas, is pursuing a policy of encouraging the development of geothermal energy resources. To this end, in September 2012, JOGMEC set up a new internal department for geothermal energy matters and has begun to provide assistance grants for initial geothermal resource surveys, equity capital for exploration of geothermal resources, and liability guarantees for the Japanese geothermal power producers' loans from private financial institutions to finance the cost of geothermal power plant construction.

Under the liability guarantee arrangements, JOGMEC applies its specialized knowledge to evaluate the risks of geothermal developments that would be difficult for financial institutions to evaluate on their own, and guarantees up to 80% of the loans, in order to smoothen the financing of geothermal power generation.

MHBK, drawing its experience and know–how accumulated in providing finance for renewable energy businesses and structured financing, has worked with JOGMEC from the early planning stages and exchanged opinions with them. In view of the special nature of the geothermal power producers, MHBK offers specific proposals regarding operation of these facilities from the perspective of a private financial institution, including advice on how to minimize the risks that financial institutions concern. Through these activities, MHBK has fully cooperated with JOGMEC in implementing the guarantee program.

Liability Guarantee Program for Development of Geothermal Power Generation
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Financing Provided for the Largest Binary Power Generation Business in Japan

MHBK, not only cooperated in structuring the JOGMEC liability guarantee program for geothermal power, but also conducted a business risk analysis and made loans in March 2014 for the Sugawara Binary Power Generation Project (hereinafter, the project), which is the first time in Japan for such financing to be provided under JOGMEC liability guarantees.

The project is located in Sugawara in the Kokonoe Town Kusu Country area of Oita Prefecture, and is being undertaken by Nishi Nippon Environmental Energy Co., Inc. (which was renamed Kyushu Mirai Energy Co., Ltd. in July 2014), a subsidiary of Kyushu Electric Power Co., Inc. The project makes use of an existing geothermal well owned by Kokonoe Town, and will be the largest binary* power generating facility in Japan with an output of 5,000KW. (Work on the facility commenced in March 2014, and it is scheduled to go into operation in March 2015.)

  • *Binary power generation: Uses a heat transfer medium with a lower boiling point than water (e.g., pentane) to be heated by steam and hot water, and the steam generated is used to rotate the turbine and generate electricity. Binary generators can also be equipped and operated as temperature adjustment facilities using waste heat from existing hot springs.

Public and Private Cooperation to Promote Expansion of Geothermal Power Generation

In the case of small to medium–sized binary power plants, the time necessary from surveys to full operation is shorter than that of large binary plants, thus, at lower costs. Therefore, not only power utilities and large companies but also hot springs cooperative associations and small to medium–sized businesses can enter the geothermal power business relatively easily.

JOGMEC's liability guarantee program substantially lowers the risk for power producers engaging in development of binary and other geothermal facilities. As such, it plays an important role in encouraging new entrants into the field. After the announcement of this first project, JOGMEC has received inquiries from many businesses.

MHBK, collaborating with JOGMEC, will draw fully on its strengths, which include the information–gathering capabilities of its branches and offices, a broad range of knowledge in the resources and energy businesses, and extensive know–how of finance to provide support for wider utilization of geothermal power.

Voices of Interested Parties

JOGMEC is continuing its activities to secure stable supplies of natural resources and energy, in line with the resource and energy policies of the Japanese government.

Even as renewable energy sources are attracting more attention, while Japan ranks third in the world in terms of potential power generation from geothermal sources, these sources are still not being used effectively. Amid these conditions, JOGMEC was able to provide its first liability guarantees, with MHBK making loans, for the first domestic geothermal power plant.

With this project as a beginning, we will continue to revitalize Japan's geothermal power business and look forward to MHBK's dedicated support to our mission for the future of Japan.

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Hidefumi Nakashima
Director General, Member of the Board
Geothermal Resource Development Department
Japan Oil, Gas and Metals National Corporation (JOGMEC)

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Steam output test (Source: Kyushu Electric Power Co., Inc., materials)

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