Geothermal Investment Hotspots: Outperformers and Markets to Watch

By Fitch Solutions

Key View:

• We highlight Indonesia and the US as geothermal power outperformers, as the two markets will have the highest levels of installed geothermal capacity globally over our forecast period to 2029.
• Chile is our geothermal power ‘market to watch’, as the market has an attractive regulatory environment for renewables investments and largely untapped geothermal potential.

We have identified two outperforming geothermal power investment destinations, and one key market to watch over the coming years, for this version of our Global Geothermal Power bi-annual report.

Headline Forecasts and Rationale, By Country

	Country	Rationale Behind Selection	Installed Capacity, MW, 2020e	Installed Capacity, MW, 2029f	Short-Term Growth Outlook*	Long-Term Growth Outlook
Outperformers	Indonesia	Indonesia will overtake the US as the world’s largest market for installed geothermal capacity over our 10-year forecast period. Plans to increase the share of renewables in the country’s power mix to 23% by 2025, with an estimated undeveloped geothermal potential of up to 24GW, poses strong upside risk to further growth in the sector.	2,373	3,623	5.80%	4.83%
	USA	The US will have the second-highest installed geothermal capacity base over the next decade. While growth will be limited during this period, new initiatives by the DOE and plans to boost geothermal developments in states such as California, pose strong potential for further growth.	2,592	2,764	2.20%	0.73%
Market to Watch	Chile	Chile has an estimated geothermal potential of at least 3.2GW. The market’s attractive regulatory environment for renewables investments, coupled with plans to reduce reliance on coal power, pose strong upside risk for new goethermal capacity developments.	40	73	41.60%	9.23%

Outperformers

We define ‘outperformers’ as those geothermal power markets that have a significant capacity base installed, and/or will register substantial growth in capacity over our 10-year forecast period to 2029.

• Indonesia: World’s Largest Geothermal Market

Indonesia will overtake the US as the market with the largest installed geothermal capacity globally over the next decade, growing from just under 2.5GW in 2021 to 3.6GW by 2029. Over the next decade, geothermal electricity will supply just over 5% of the country’s power output.

As of 2019, the market has been estimated to have a geothermal potential of just under 24GW as a result of its position in the Pacific on the so-called ‘Ring of Fire’. While not yet factored into our forecasts, the government aims to have 8GW of geothermal capacity online by 2030. This poses further upside risks for growth in the market, especially as the National Energy Policy targets a 23% share of renewable energy in the total energy mix by 2025 to reduce its high reliance on fossil fuels.

• US: Limited Growth but Large Development Potential

The US is currently the world’s largest geothermal market, with a capacity at the end of 2020 estimated at 2,592MW. While we forecast that geothermal capacity growth will be limited over the next decade, with less than 200MW of additional capacity forecast to come online by 2029, the country will still be the world’s second largest geothermal market.

While not yet factored into our forecasts, there are upside risks to our bearish growth outlook. New initiatives by the Department of Energy to boost geothermal developments and explore new technologies underline this view. Furthermore, Western US states such as California have once again begun looking towards geothermal power plant developments as a tool in sustaining baseload electricity supplies amid reductions in thermal-fired baseload power sources and increases in intermittent renewables such as wind and solar.

Markets to Watch

‘Ones to watch’ are those markets with significant growth potential for geothermal power and where the investment environment is improving notably. As such, we expect an uptick in investor interest in the market and capacity deployment to increase, albeit from a low base and potentially outside of our 10-year forecast period.

• Chile: Strong Renewables Growth And Supportive Regulatory Framework Poses Upside To Geothermal Growth

Chile’s geothermal capacity will grow to 72.7MW in 2021, up from an estimated 39.7MW in 2020. While these are still quite low levels and we are not forecasting any further growth over the next decade, we maintain that Chile’s geothermal potential is largely underdeveloped.

As of 2020, Chile’s geothermal potential is estimated at a capacity of at least 3.2GW. With an attractive regulatory environment for renewables, coupled with plans to phase out coal-fired power completely by 2040, we highlight that there is a strong upside risk to further geothermal capacity development in Chile.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. 

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