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Jeff Siegel

Written By Jeff Siegel

Posted September 12, 2011

Mikio Katayama is a very rich man.

And as president of the largest manufacturer of solar panels in Japan, Sharp Corporation (PINK SHEETS: SHCAY), he’s about to become even richer.

For this he can thank Japan’s new renewable energy law, which establishes a feed-in tariff for solar.

With that new law in place, Japanese domestic shipments of solar panels are now expected to increase by as much as ten times — and in a fairly short amount of time.

Sharp’s going to make a boatload. And I’m sure there’s going to be a nice little bonus in it for Katayama.

But as I mentioned in an article a few weeks ago, Japan’s new love affair with solar will not only benefit domestic suppliers like Sharp and Panasonic Corporation (NYSE: PC), but also Chinese manufacturers that have a cost advantage the Japanese will not be able to resist.

Companies like Suntech Power (NYSE: STP) — which currently has the largest share of Japan’s solar market among foreign suppliers — and Trina Solar (NYSE: TSL), which remains the low-cost leader in the space, will likely land some significant deals.

And of course, new solar tech firms here in the U.S. could also soon find their corporate lobbies filled with Japanese delegations armed with the authority to do multi-million-dollar deals…

My favorite solar tech play right now is a producer of solar windows that could drastically cut prohibitive manufacturing costs, something the shallow-pocketed Japanese are looking for right now.

Of course, the new renewable energy law in Japan also includes wind and geothermal. And lately, there’s been a lot of buzz about the latter. After all, when you’re situated on the Pacific Ring of Fire, geothermal resources aren’t hard to come by.

The truth is Japan possesses some of the world’s largest reserves of usable geothermal energy. Theoretically, the country could produce about 80,000 megawatts, thereby meeting more than half its electricity needs…

But that’s never going to happen.

Where the Smart Money Is

Japan is a resource-poor nation. And it’s not swimming in cash. Coal, natural gas, and solar are going to make up for the loss of nuclear over the next couple of decades. The infrastructure already exists, and none of these solutions require capital-heavy exploration projects.

While geothermal is one of only two forms of renewable energy that can provide baseload power (the other being marine energy), and is actually fairly inexpensive to operate once it’s up and running, it does require costly exploration and drilling.

Japan doesn’t have the cash for that kind of development, and I can’t imagine there are too many geothermal developers willing to do all the heavy lifting without the government providing a sizable chunk of the funding…

Also worth mentioning is that most of the sites that would boast the best geothermal potential are found within the country’s national parks, which serve the tourism industry. These are regions where construction is prohibited. That’s not going to change.

So, while the Japanese certainly have a wealth of geothermal resources under their feet, I wouldn’t count on much development in that area.

Most of the solid geothermal investors I know won’t even venture outside of the U.S., the Philippines, Indonesia, or a few scattered Central and South American countries. And these days, most of these guys — I’m talking about the folks who made millions in geothermal back around 2006 and 2007 — only seem to be interested in enhanced geothermal systems (EGS).

And that’s because the potential production from EGS is as much as…

130,000 Times Our Annual Energy Consumption!

EGS is the holy grail for the geothermal industry.

It’s basically “fracking” for geothermal. But because we’re simply talking about heat — and not a dedicated spot holding a finite resource — with EGS, geothermal power plants can be set up practically anywhere.

You can’t do that with wind or nuclear.

And the best part is with EGS, you can produce electricity cheaper than anything else we use today… and the resource is nearly inexhaustible.


Researchers at MIT were quoted in a 2006 report:

By almost any criteria, the accessible U.S. EGS resource base is enormous — greater than 12 million quads or 130,000 times the current annual consumption of primary energy in the United States.

That’s huge! And so is the potential payout for those who get in early.

Right now, there’s really only one way to play EGS, and that’s with a small geothermal developer in Idaho that’s been fed about $100 million from Uncle Sam.

It doesn’t take a rocket scientist to know which company the government picked to run this show…

While I’m no fan of the government deciding the winners and losers in the energy game, I sure as hell have no problem using their arrogance to make money.

Bottom line: Washington has already decided which company it likes for EGS. And that’s the one we’re buying now.

The company is expected to release the first round of results from its EGS project in a matter of months. Once those results hit, we’ll be looking to sell into the buying spree.

Here’s some background on the company to bring you up to speed.

To a new way of life, and a new generation of wealth…

Jeff Siegel Signature

Jeff Siegel
Editor, Energy and Capital

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