Asia’s geothermal boom slows as regulatory risks mount

Installed capacities were up 113% in the 25 years to 2020.

Investors must plan for regulatory risk if they want to unlock Asia Pacific’s geothermal projects’ full potential, according to Pinsent Masons experts.

The consulting agency’s report noted that installed geothermal capacities in Asia were up 113% in the 25 years to 2020 – outpacing global growth rates of 83% in the same period.

However, production has started to decline across Asia, with the region’s geothermal production skewing towards four territories – China, Japan, Indonesia and the Philippines – leaving it vulnerable to delays or regulatory changes.

Although Indonesia and the Philippines have opened the door to private investment and ownership, other parts lack annual investments into renewable projects.

Development also faces a rise in competition from cheaper alternatives and regulatory delays around permitting and development, which add to costs and delays.

“Geothermal projects typically face front‑loaded capital exposure, uncertain subsurface outcomes and prolonged permitting and land access processes, often across multiple government agencies and regulatory regimes,” William Stroll, energy transition exper at Pinsent Mason, said.

From a commercial perspective, he noted that stakeholders must focus early on how exploration risk, drilling failure, regulatory change and community opposition are allocated in concessions, joint ventures and financing structures.

As Asian countries increase electrification, the scope for geothermal projects is also set to increase.

Pinsent Masons’ research – which involved almost 1,000 active venture capital investors and technology developers— found that 21% are looking to invest in geothermal technology in the next 12 months.

However, whilst 5% of green energy developers in the region have made inroads into geothermal technology, none of the investors currently have investments in the sector.

David Clinch, an energy infrastructure expert at Pinsent Masons in Singapore, warned that the issues around government backing for projects would create additional challenges.

“Projects that rely heavily on state support or tariff guarantees also face change‑in‑law and policy risk that must be contractually managed,” he said.

He added that clients who address these issues early are better positioned to unlock financing and deliver projects at scale.