The proposed plant would have an electricity generation capacity of 270,000 kilowatts, roughly one-quarter of what a nuclear plant can generate, the Asahi Shimbun reports.
Partners for the project include Mitsubishi Corp., Sumitomo Corp., Japan Petroleum Exploration Co. and Mitsui Oil Exploration Co.
The Fukushima nuclear plant disaster, resulting from a magnitude-9 earthquake and tsunami last March, has led Japan to seek alternative energy sources to offset the lack of nuclear power.
Only one of Japan's 54 commercial nuclear power plants is operating. Most of the others have been shut down for testing and maintenance after the Fukushima crisis. The last one is scheduled to go offline May 5.
While Japan ranks third after Indonesia and the United States in terms of exploitable geothermal resource potential, it ranks eighth worldwide in total capacity of geothermal power installations, says the government
Officials say high development costs and restrictions on development posed by the location of geothermal resources within national parks have hampered development.
But last month, Japan's Ministry of Environment said it would allow vertical geothermal drilling in the country's national parks if certain conditions are met. Previously, only diagonal drilling outside of protected zones in parks was allowed.
For fiscal 2012, Japan's Ministry of Economy, Trade and Industry has budgeted about $108.6 million for research and development subsidies for geothermal power. Some of the funds are expected to be allocated to the Fukushima geothermal plant project.
While the newspaper didn't indicate the exact cost of the project, it said the total investment required is likely to be several hundred million dollars.
The Fukushima geothermal project would be the first such facility in Japan since a geothermal plant was built on Hachijojima Island in 1999.
The proposed site for the new plan is within Bandai-Asahi National Park, an area with active volcanoes.
Robert Giegengack, professor of Earth and Environmental Sciences at the University of Pennsylvania, says that based on its geography, Japan enjoys a "relatively high geothermal heat flow" making it a good location for geothermal power, International Business Times reports.
Giegengack says that opportunities for geothermal energy along the Pacific Rim currently are "underexploited."
He also notes that, worldwide, to operate a sizeable, profitable geothermal plant, is "complicated and difficult."
Construction of a geothermal plant typically takes about 20 years before it can be operational, Giegengack says, but the Asahi report says the Fukushima facility could be ready in 10 years.