Geothermal power could aid Taiwan in reaching its green ambitions by providing a reliable baseload energy source, but only if the government is willing to share initial development risks.

In 1977, Free China Review (now Taiwan Review) published an article about the island’s electricity mix and the prominent role of nuclear power in providing Taiwan with power. It posited that “Northern Taiwan has geothermal potential” since “numerous hot springs and fumaroles vent steam from underground deposits.”  

Nearly five decades later, as Taiwan phases out its last nuclear power plants, geothermal energy is still not available on a sizeable commercial scale. And although major investors have entered the market with high ambitions, much of their intended investment funds have ultimately been diverted elsewhere.  

“We came into Taiwan in 2019 with a goal of investing over a billion US dollars in geothermal energy development,” says Van Hoang, chairman and CEO of Baseload Power Taiwan, an independent heat power producer. “Most of that investment has now gone to other countries.”  

Geothermal is considered a green baseload energy source, meaning that unlike solar and wind power, which are intermittent, it does not depend on weather conditions. So why is geothermal facing such headway in Taiwan, which aims to reach net zero carbon neutrality by 2050?  

“The root cause of the geothermal industry’s struggles right now is that there’s no geothermal law in Taiwan,” says Claire Lai, Baseload Capital’s regional marketing director for Asia. Most aspects of geothermal development are currently regulated by hot spring laws, but the function of hot springs differs greatly from that of geothermal power plants, rendering many regulations irrelevant or counterproductive.  

Lai notes that several government initiatives last year have been cause for cautious optimism regarding the potential of geothermal development. Taiwan’s first operating geothermal power plant in 30 years, the Qingshui plant in Yilan County, was inaugurated in November. The plant was granted permission to operate for 20 years, an increase from the mere two years previously allowed before the need for license renewal. Last year also saw the inclusion of geothermal as an innovative energy source in the government’s pathway to net-zero carbon emissions.  

In January this year, the Ministry of Economic Affairs (MOEA) hosted the first-ever Taiwan International Geothermal Conference, during which Deputy Minister of Economic Affairs Tseng Wen-sheng urged Taiwan Power Co. (Taipower) and CPC Corp. – the state-owned companies responsible for electricity generation/distribution and petroleum refining and sales, respectively – to create connections with international geothermal companies. 

“Geothermal is crucial to Taiwan’s renewable development,” said Tseng during his opening remarks at the conference. “In the past couple of years, in fact, the Taiwanese government has been working with academia, NGOs, and our own organizations to update itself on the latest geothermal developments in the hope that there can be more technological breakthroughs that can be more extensively applied in Taiwan.”  

Another important development has been the addition of regulations related to the exploration, development, and operation of geothermal power in an amendment to the Renewable Energy Development Act, a draft of which was pre-announced by the MOEA in September last year. But these developments are seen as but small steps toward solving the major challenges faced by industry. 

“We acknowledge the efforts made by the government, but we also urge them to do more,” says Lai. “If they really want to achieve their energy targets, they need to speed things up.” She suggests the Taiwan government looks to countries that have managed to develop geothermal energy on a commercial scale and take note of policies that have worked – and those that have failed.  

International examples 

Geothermal energy has been described as New Zealand’s most reliable renewable energy source – above wind, solar, and hydroelectricity – because it can be harnessed regardless of weather conditions. With installed capacity of over 1,000MW, approximately 17% of New Zealand’s electricity comes from geothermal power.  

New Zealand’s indigenous peoples have been utilizing geothermal energy as a source of heat for over 200 years, and the country started developing geothermal energy for commercial use in the 1950s. In 1958, New Zealand started running its first geothermal plant, which is still in operation today.   

“Much of our geothermal land is owned by our Māori trusts,” says Kennie Tsui, chief executive of the New Zealand Geothermal Association. “That partnership is a crucial element to the sector’s success.”  

Tsui stresses the importance of setting robust laws and regulations for the industry. In New Zealand, the central government holds the authority to set overarching policies and strategies, while local governments are responsible for devising consenting policies, monitoring, and handling license renewals.  

“A lot of investors favor this kind of setup, which gives local governments the authority to bring in panels of experts or undertake public consultations,” says Tsui. “It’s a really effective way to engage not just with the applicant [of a geothermal project] but also with the public.” 

The same system was introduced to Indonesia around four decades ago, when the New Zealand government assisted the country in the development of its first modern geothermal site, located in Kamojang, West Java. But it took until 2004 for Indonesia to enact its first geothermal law to provide concessions for various geothermal site developments. The new law mandated local governments to set most geothermal-related regulations – a system that didn’t work as well for Indonesia as it had for New Zealand.  

“The local governments didn’t have the skills to manage such kinds of concessions with private entities,” says Makoto Ozawa, an infrastructure consultant with over 15 years of experience supporting geothermal energy development in Indonesia. He notes that in 2014, Indonesia introduced a new law that centralized the management of geothermal development.  

“After the new geothermal law, newly installed capacity has accelerated,” says Ozawa. “Before 2014, there was heavy reliance on state-owned enterprises, but there are limitations to how much you can rely on such enterprises. So from 2014 onwards, there was a need to rely much more on private entity investment.” 

Risk mitigation 

Tsui notes two main challenges for developing geothermal power, the first of which is the high financial risks associated with the exploration of geothermal energy sources.  

“Geothermal has a higher upfront cost than wind and solar,” she says. “We need to ask what role government funding could play to reduce the private investors’ risks, and one way is through geological surveys.” Tsui points to numerous government-funded geological surveys completed by the New Zealand government from the 1950s through the ’80s. These surveys helped map out potential sites for geothermal energy development and accelerated the building of power plants. 

Ozawa says that geothermal development moved slowly in Indonesia between 2004 and 2014 because of the high financial risk associated with site exploration at the time. “It was difficult for private entities to take exploration risk,” he says. “And that’s the single characteristic of geothermal that is unique compared to other renewable energy sources. But once you’ve overcome that risk, it’s a clean baseload energy that provides electricity 365 days a year, 24 hours a day. So how you overcome the exploration risk is very important.”  

Indonesia’s solution was, together with the Japan International Cooperation Agency (JICA) and the World Bank, to establish a so-called de-risking facility, which splits the exploration risk between government and industry.  

“The de-risking facility, in my view, is a bit of a compromise solution,” says Ozawa. He adds that a more efficient solution was provided by the Philippine government, which “took all of the exploration risks until there was a stable flow of steam.” After that, plants could be built by private companies.  

Deciding to take the same path as Indonesia, the Taiwan government last year introduced the Geothermal Power Demonstration Incentive Program, which aims to encourage public and private investment in the development of geothermal power generation. The program provides incentives for both investment and exploration. 

The exploration incentive fund will be used for geological, geophysical, and geochemical surface surveys, drilling, and capacity testing. A maximum incentive funding of NT$100 million (approximately US$3.3 million) and 50% of the exploration cost can be provided for each case, with the development plan’s implementation period limited to five years. Although these incentives will aid the industry, Lai hopes for more government support. 

“Taking on more of the exploration risk would help create a healthier business environment,” she says. “We also advocate that the government share raw geological data.” Noting that the U.S., Japanese, and Philippine governments take on a larger role at the exploration stage, she encourages Taiwan to follow their examples. “Private companies can take on smaller surfaces than government, so if the government takes on a more prominent role at first, we can develop sites much faster,” she says. 

Another solution suggested by Lai is to raise the geothermal energy feed-in-tariffs (FITs), which guarantee that producers will be able to sell the electricity they generate at a price set in advance by the government under a long-term contract. At between NT$5.2 and NT$5.9 per kWh – depending on a facility’s capacity – current FITs are too low to be considered effective incentives, as companies are expected to pay much of the exploration and development costs.  

The second main risk of geothermal development relates to investments in technology. Tsui notes that a variety of technologies can be developed and utilized for geothermal power generation, and the technology selected will have a bearing on how many megawatts can be produced.  

“But once you’ve pushed through these challenges, the operating costs of geothermal compared to wind and solar are much lower,” Lai says. “The reason is that a geothermal plant runs 24/7 and has an efficiency of around 98%, compared to some of the wind and solar candidates, which might have an efficiency of around 40%.”  

Tsui and Ozawa note that geothermal energy should be seen as part of a holistic renewable energy solution that also includes wind, solar, green ammonia and hydrogen, and energy storage systems.  

“You can’t actually replace coal-fired powerplant baseload with solar or wind power because of their intermittency,” says Ozawa. While liquefied natural gas is a temporary baseload solution, it’s not a renewable source, and it is critical to gradually replace the gas with greener alternatives. Ozawa adds that governments “may need to invest heavily in battery systems or grid systems” to support intermittent renewable energy sources in addition to investing in geothermal energy. 

Shiv Aggarwal, APAC sales and commercial leader of General Electric Renewable Energy – Hybrids, agrees with this sentiment. Currently, Taipower procures services from various providers, including makers of battery energy storage systems, to manage intermittency-related issues. But Aggarwal says that “while this is a good short-term solution for grid management, it does not directly promote the use of storage solutions.” He recommends that the government introduce a revenue mechanism that allocates a portion of revenue from fixed capacity payments to owners of systems to encourage further development of energy storage.