Planning and regulation heat up challenges for Asia Pacific geothermal projects

Recent research found growth of direct-use installed geothermal capacities in Asia was up 113% in the 25 years to 2020 – outpacing global growth rates of 83% in the same period.

However, geothermal power production has started to decline across Asia as increasing challenges for investors and developers with the region’s geothermal production skewing towards four territories – China, Japan, Indonesia and the Philippines – which leaves it vulnerable to delays or regulatory changes within those countries.

Although some areas – such as Indonesia and the Philippines – have opened the door to private investment and ownership of geothermal energy projects, other parts of the region have been hit by a lack of annual investments into renewable projects in the Association of Southeast Asian Nations.

Geothermal development has also faced increased challenges through a rise in competition from cheaper alternatives – including solar and wind projects - and regulatory delays around permitting and development which have added to costs and delays.

William Stroll, an energy transition expert with Pinsent Masons, said those looking at investing or developing in the region need to plan carefully for the entirety of the project.

“For clients looking at geothermal in Asia, the primary challenge is not resource potential but risk allocation across the project lifecycle,” he explained.

“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.

“These factors can materially affect bankability, especially where regulatory frameworks are incomplete or evolving.

“From a commercial perspective, this means developers, investors and offtakers need to 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, and transition towards decentralised renewable energy sources from existing biofuel and coal-fired power provision, the scope for geothermal projects is also set to increase.

A boost for the region’s geothermal projects will come, however, from landmark new research by Pinsent Masons which found significant interest in support for geothermal projects by investors and developers in the APAC region.

Pinsent Masons and Censuswide’ research – which involved almost 1,000 active VC investors and technology developers around the world - found that 21% of those surveyed are looking to invest in geothermal technology in the next 12 months.

However, while 5% of green energy developers in the region have made inroads into geothermal technology, none of the investors currently have investments in the sector, highlighting the increasing lure of the sector in as future plans are drawn up and capital plans begin to align with technical directions.

David Clinch, an energy infrastructure expert with Pinsent Masons in Singapore, warned the issues around government backing for projects would create additional challenges for investors and developers looking to the region“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.

“Clients who address these issues early through robust contractual structures, stakeholder engagement strategies and alignment with government risk‑sharing mechanisms are better positioned to unlock financing and deliver projects at scale,” he said.

“Legal structuring is therefore not a back‑end issue; it is central to whether geothermal projects in Asia proceed at all.”