Powering ahead perspectives on japans energy future

Prospects for and challenges to expanding the use of renewable energy in Japan 12 Tetsunari Iida, Executive Director, Institute for Sustainable Energy Policies Saving energy: can more be

Perspectives

on Japan’s energy future

A report from the Economist Intelligence Unit

Sponsored by GE

Martin Adams, Energy Editor, Economist Intelligence Unit

Jitsuro Terashima, President, Japan Research Institute

A greener future? Prospects for and challenges to expanding the use of renewable energy in Japan 12

Tetsunari Iida, Executive Director, Institute for Sustainable Energy Policies

Saving energy: can more be done? Improving energy efficiency in the commercial and residential sectors 16

Kenji Yamaji, Director-General, Research Institute of Innovative Technology for the Earth

Industry and Japan’s energy supply: Maintaining a competitive energy landscape 21

Mitsudo Urano, Chairman, Nichirei

Paul J Scalise, JSPS Research Fellow, Institute of Social Science, University of Tokyo

Christoph Frei, Secretary General, World Energy Council

In the year since a devastating earthquake and tsunami hit north-eastern Japan, the country has had to confront some previously unimaginable challenges One is that its entire energy policy, upon which the future of the nation depends, was destroyed along with the nuclear power plant at Fukushima The plan had been to expand nuclear power’s contribution from one third of electricity generation to one half by 2030 This now seems almost impossible Where does this leave Japan’s long-term energy future?

This question was the starting point for this paper The Economist Intelligence Unit (EIU) asked prominent figures from research, industry and academia to consider Japan’s long-term energy future, taking their analysis beyond the contentious factors that are presently the focus

of much heated debate Their contributions, in the form of essays and in-depth interviews, tackle the fundamental issues Japan must consider when plotting a sustainable and secure energy future These include: the strategic necessities of

a national energy plan; prospects for renewable energy; how to encourage greater energy efficiency; how to meet the energy needs of industry and commerce; challenges in reforming generation and distribution; and what Japan can learn from other countries’ energy strategies

GE Japan was the sponsor of this project but had

no editorial input into any of the sections below, which are solely the work of the authors.1 Their contributions can be summarised as follows:

1 Japan’s energy future: The EIU view

Martin Adams, Energy Editor,

Economist Intelligence Unit

The EIU view is that Japan will rely more heavily

on nuclear power and more lightly on renewable energy than many assume Its efforts to reduce the environmental impact of its energy use, and to shore up its energy security, will suffer as a result

2 Japan’s energy strategy: Past and future

Jitsuro Terashima, President, Japan

Research Institute

Japan has faced energy challenges before, most notably in the oil shocks of the 1970s But its response to those crises, Mr Terashima argues in this interview, was ad-hoc and relied too heavily

on market-based solutions to a strategic problem Japan is at another energy-strategy crossroads after the Fukushima disaster Despite rising anti-nuclear sentiment, there are compelling strategic—as well as practical—reasons for Japan

to maintain its nuclear power capabilities

1 Sections 1, 6 and 7 were

originally in English, while

sections 2, 3, 4 and 5 were

originally in Japanese

David Line of the Economist

Intelligence Unit was

the overall editor of the

paper Amie Nagano and

Takato Mori conducted

the interviews for sections

2 and 5 and oversaw the

translations Gaddi Tam was

responsible for layout and

design; the cover image is by

Wai Lam.

3 A greener future? Prospects for and challenges

to expanding the use of renewable energy in

Japan

Tetsunari Iida, Executive Director, Institute for

Sustainable Energy Policies

Renewable energy sources have the potential to make a

significant contribution to Japan’s energy supply, Mr Iida

contends in this essay This is particularly true of wind and

photovoltaic generation Common arguments against their

broader adoption, including supply stability and cost, can be

overcome with technological progress While legislation for a

fixed purchase price will be beneficial, Japan needs to separate

generation from distribution and encourage a “knowledge

revolution” to promote the broader adoption of renewable

energy,

4 Saving energy: Can more be done? Improving

energy efficiency in the commercial and

residential sectors

Kenji Yamaji, Director-General, Research Institute

of Innovative Technology for the Earth

Japan has a long history of improving energy efficiency, and

many effective policies have promoted the adoption of

cutting-edge technology But Mr Yamaji argues in this essay that

encouraging behavioural change will be crucial to long-term

sustainable consumption For this, clearer information on

energy supply and demand is vital

5 Industry and Japan’s energy supply:

Maintaining a competitive energy landscape

Mitsudo Urano, Chairman, Nichirei

Japan has paid insufficient attention to demand-side

perspectives in its energy strategy, Mr Urano argues in this

interview In the short term, some companies will be forced

to consider moving production abroad if they have to bear increasing energy costs However, many (especially SMEs) can become much more energy efficient by adopting industry best practices On the supply side, decisions about nuclear power need careful thought While renewable energy is a medium-term prospect, its current cost makes broad industry-level adoption unrealistic

6 Japan’s distribution challenge: Lessons from abroad

Paul J Scalise, JSPS Research Fellow, Institute of

Social Science, University of Tokyo

Japan’s electricity transmission and distribution (T&D) system has not changed dramatically in the post-war period, Mr Scalise writes in this essay Prices remain high even as investment

in T&D has fallen rapidly, while new generators complain

of uncompetitive charges to access the grid Is the vertical unbundling of generation from T&D the answer? Evidence from other countries that have attempted this is mixed While an Asian “Super Grid” remains a pipe dream, demand management through smart grids and smart appliances seems the most promising solution

7 The best energy mix for Japan: International perspectives

Christoph Frei, Secretary General, World Energy

Council

The Fukushima disaster may have led to global soul-searching about nuclear power, Mr Frei argues in this essay, but eliminating nuclear from the energy-generation mix is a radical step that few nations are able to take Fast-growing emerging economies and developed nations alike have to resolve the thorny triple problem of energy security, social equity and environmental impact In its search for a best energy mix, Japan is no different.Economist Intelligence Unit, April 2012

Japan’s energy future:

The EIU view

Japan will rely more heavily on nuclear power and more lightly on renewable energy than many assume Its efforts to reduce the environmental impact of its energy use, and to shore

up its energy security, will suffer as a result.

Martin Adams

Energy Editor, Economist Intelligence Unit

When an earthquake and tsunami hit Japan’s Fukushima Daiichi nuclear facility in March 2011, the disaster devastated the plant and surrounding areas But the ensuing emergency also destroyed the ambitious strategy that Japan had laid out for its energy future This envisaged expanding the role of nuclear from just under one-third of electricity generation to one-half by 2030 Sticking

to this plan is now impossible But with scant indigenous natural resources to rely on, how will the world’s third-largest economy meet its future energy needs?

Nuclear horizon

Following Fukushima, popular antipathy to atomic energy in Japan, as elsewhere, has grown; the majority of Japanese want to see nuclear power phased out, opinion polls suggest

Against this backdrop, shutdowns of nuclear plants for regular maintenance have combined with reticence on the part of local governments

to sanction restarts: only one of Japan’s 54 nuclear reactors is currently working Official safety reviews continue in an effort to persuade

a sceptical populace of the safety of nuclear power and allow local leaders cover to sign off on reactor restarts But when this can be achieved remains uncertain

Nonetheless, central to the Economist Intelligence Unit’s long-term view is the assumption that nuclear power will continue to satisfy a significant portion of Japan’s electricity demand for this decade and into the next Under Yoshihiko Noda, who became Japan’s prime minister in August 2011, the chances of a sudden rejection of atomic energy—which once seemed conceivable—have receded Businesses’ frustration with the protracted closure of dozens

of power plants following the natural disasters has been palpable Moreover, policymakers tasked with reshaping energy policy do so in an extremely difficult economic environment The vast cost of decommissioning waves of reactors (only the US and France have more) is but one argument against forced closures The nuclear lobby is a strong proponent of atomic power’s cost-competitiveness with other energy sources

1

For Japan, the energy security implications of rejecting nuclear are also worrying Government ministers say that they envisage a gradual slimming down of Japan’s reliance on nuclear in the “medium to long term”.

Use of nuclear will remain at low levels this year and next due to a mixture of continued inspections, further foot-dragging on restarts and the likely decommissioning of some aged reactors But we expect the proportion of nuclear

in the energy mix to rise It is likely, in most cases, that existing nuclear plants will resume operations, although we foresee a gradual drop

in the reactor numbers over the course of this decade and beyond as old reactors are shut down and decommissioned Electricity generation from nuclear will not therefore recover to pre-Fukushima levels Our forecast is for 30.6 gigawatts (gw) of nuclear capacity in 2020 (our current forecast horizon), down from 47.7 gw in 2010—a significant revision from the 61.2 gw we forecast before Fukushima

A greener future?

How will Japan fill the gap? Much attention has focussed on boosting renewable energy and energy efficiency Yet, on both counts, there are reasons for caution

Japan has an enviable record on energy efficiency Its economy is nearly one-third the size of that of the US, but energy consumption is only one-fifth of US levels—not least thanks to the efficiency of many Japanese manufacturers

Conversely, though, such achievements will make eking out new gains harder Energy consumption

by the household and transport sectors, moreover, has continued to rise: Japan has high levels of car ownership; there is heavy demand for power to run air conditioners in the warmest months; and, even as electrical appliances have become more efficient, consumers have used them more We think it will be difficult to reverse these trends, despite redoubled energy-saving efforts following last year’s disaster

Neither do we expect that Japan will be able to deploy renewables on a markedly greater scale than is currently the case A green revolution along these lines is keenly advocated by some, such as Naoto Kan, Japan’s prime minister at the time of Fukushima incident For renewables, though, cost remains a serious obstacle when compared with Japan’s other energy options This is one reason why presently they currently provide only a tiny share of Japan’s power: even the largest of the group, hydropower, satisfies little more than 1% of Japanese energy demand

It is likely to prove difficult for Japan to stump

up strong enough incentives to raise renewable energy’s share of total energy significantly this decade (and, indeed, to fund a necessary grid overhaul) just as many other developed-world governments are cutting back on subsidies Allowing electricity costs to rise to reflect the higher cost of renewable electricity looks politically problematic given the dissatisfaction among many ordinary Japanese with the performance of some electricity utilities (most notably but not exclusively that of Fukushima Daiichi’s owner, TEPCO)

Neither are Japan’s grid companies, which traditionally carry considerable political weight, keen to accept more power from renewable sources On top of this, sceptics point to a shortage of suitable sites for solar plants and wind farms in the heavily populated, mountainous country We expect solar and wind power capacity will only manage to top 5 gw by

2020 Hence, renewable energy will contribute less than 4% of Japan’s energy needs at the end

of this decade (Figure 2)

Fossils plug the hole

If renewables are to play such a small part in substituting for Japan’s forsaken nuclear build-out, what will step into the breach? Fossil fuels,

in our view, will be the chief beneficiaries of last year’s events

Japan’s liquefied natural gas (LNG) imports have surged by over a quarter following Fukushima

Japan is already the biggest market for LNG: gas is

an attractive option partly because of its relatively low carbon emissions versus other fossil fuels

Moreover, it is available from relatively nearby sources in Asia: Russia’s Sakhalin gasfields, for instance, will send much of their production to Japan Australian LNG production and export infrastructure is also coming on apace

The EIU believes that fresh long-term LNG deals will be struck, with Russia and Australia prime candidates to provide new supply For energy-security reasons, however, Japan’s government will be keen to make sure that dependence on individual suppliers (especially Russia, which has shown itself ready to cut off gas supplies during disputes) is limited—a difficult balance to strike

We anticipate that Japanese natural gas demand will double between 2011 and 2020 As a proportion of Japan’s energy mix, we forecast that gas will rise from 19% in 2011 to 26% of the whole

in 2020 (Figure 1) In order to turn to achieve such an expansion, however, pressure will grow to resolve problems in Japan’s gas-supply network:

partly thanks to the country’s mountainous nature, this remains strikingly underdeveloped

Although Japan will rely more on gas, petroleum products will nonetheless remain the biggest source of energy for Japan: their share of total energy will stagnate at just under 45%, but owing

to the fact that overall energy usage will climb over the coming decade, in absolute terms this will still entail using 40% more oil in 2020 than was the case in 2011

Coal consumption, meanwhile, will also climb

by nearly 20% over the course of this decade, according to our forecasts, making up about one-fifth of total energy consumption From

a strategic perspective, coal is seen as a more secure alternative to oil for electricity generation Heavy industry will also be important source of coal demand, particularly high-end steel manufacturing, where Japan is a global leader

Dirtier, less secure

One conclusion from our forecasts is that Japan’s progress towards creating a low-carbon economy will, for now, disappoint Climate change has been relegated far down the government’s agenda by last year’s earthquake, and the ruling Democratic Party of Japan will be unable to fulfil

a pledge, made before natural disaster struck, to

0 5 10 15 20 25 30 35 40 45

2020 2019

2018 2017

2016 2015

2014 2013

2012 2011

2010 Source: Economist Intelligence Unit estimates/forecasts (%)

Figure 1: % of Japan’s gross domestic energy consumption

cut carbon emissions by 25% by 2020 compared

to 1990 levels Emissions from burning fuel will

be 40% higher than 1990 levels by the end of this decade, we forecast (Figure 3)

Another important implication is that increased fossil-fuel imports are likely to raise energy-security risks Japan is the third-largest net importer of oil (following the US and China), and

it worries about relying on the instability-prone Middle East for most of its oil imports Over time,

Japan will try to reduce its dependence on the Middle East for oil and diversify its oil supplies Yet Japan’s energy security will be more difficult

to manage than would have been the case had it been able to go pursue its nuclear expansion For many, the Fukushima nuclear emergency revealed the dangers of relying on atomic energy Yet, in the longer view, the dramatic events of March 2011 may well be noted for setting Japan

on a less green, less energy-secure path

(%)

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40

2020 2019

2018 2017

2016 2015

2014 2013

2012 2011

2010 Source: Economist Intelligence Unit estimates/forecasts

Figure 2: % of Japan’s gross domestic energy consumption

100 110 120 130 140 150

20 19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01 2000 Source: Economist Intelligence Unit estimates/forecasts (%)

Figure 3: CO 2 emissions and energy consumption as % of 1990 levels

Japan’s energy strategy:

Past and future

Jitsuro Terashima

President, Japan Research Institute

1 Donella H Meadows, Dennis

L Meadows, Jørgen Randers

and William W Behrens

III: The Limits to Growth,

Universe Books, New York,

Economist Intelligence Unit: What were the key changes in energy strategy in post-war Japan?

Jitsuro Terashima: In 1961, the primary

structure of Japan’s energy supply began to change: the key energy source for Japan shifted from coal to oil It’s not an overstatement to say that Japan’s high-growth period was supported

by this shift to oil But then Japan experienced the oil crises of 1973 and 1979 The country was

forced to realise, in a shocking manner, the risk of excessive dependence on oil

In 1973, I joined a research project at the Japan Center for Economic Research [a non-profit, independent research institution] to evaluate the nation’s energy strategy towards the year

2000 A report entitled The limits to growth,

commissioned by the Club of Rome, had recently been published.1 This was a pioneering report that considered problems such as resource scarcity, population growth and environmental issues in a holistic manner We embraced this viewpoint and were among the first to work on Japan’s energy future considering the idea of a shift from fossil fuels to renewable energy

However, around the same time as interest in renewables started growing, Japan’s first nuclear reactor for commercial use started running in

Fukushima in 1971, just before the first oil crisis

[Nuclear power] was driven by awareness in Japan about the need to overcome excessive dependence on fossil fuels—as well as the US’s ambition to transform nuclear technology from military to commercial and peaceful applications

EIU: How did the two oil crises change Japan’s energy strategy?

JT: Japan faced two oil crises, but it does not

mean we learned lessons and formulated a strategic approach to the idea of energy security

as a result In fact, in a sense the country has been dealing with energy issues in an ad-hoc manner For instance, in 1973 the Middle East supplied 78% of all Japan’s imported oil Today, this has risen to over 80%, despite the call to diversify energy sources after the oil crises

One reason for this was the trend of “energy liberalisation”—the idea that a country’s energy supplies would be best managed by the market rather than as a strategic asset

During the 1980s and 1990s the global security debate shifted rapidly from a focus on considerations like long-term investments and risk diversification, to the idea of buying oil in the market as cheaply as possible Japan’s policy drifted in line with this seemingly easier way

energy-of dealing with the energy challenge; that is, securing energy supply meant building bigger oil tankers and letting a string of them bring oil to Japan through the Straits of Hormuz

This choice is backfiring today To be sure, there have been some improvements in terms of Japan’s energy security, such as the establishment of

a reserve of 200 days’ worth of supply, and an increased contribution by liquefied natural gas (LNG) at the expense of oil But fundamentally Japan’s energy-security situation is still in a very fragile state

EIU: How has the Fukushima accident changed Japan’s energy-security strategy?

JT: In June 2010, the Democratic Party of Japan

2 See Statement of Position

No.2, Jitsuro Terashima,

submitted to the Advisory

Committee on Energy and

Natural Resources, Ministry

of Economy, Trade and

by 30 percentage points, and

increases the contributions

of renewable energy and

fossil fuels by 10 percentage

points each The proposed

mix also assumes total

energy consumption will fall

of Japan’s total energy by 2030 The emphasis on nuclear resulted from Japan’s determination to reduce carbon-dioxide emissions by 25% in the mid-term That is, Japan took the nuclear option

on a single, environmental factor: that it does not produce carbon dioxide

With the Fukushima accident, however, the 50% proposition became unrealistic The previous prime minister, Naoto Kan, declared that society should not depend on nuclear power Japanese media and public sentiment now resonate with similar anti-nuclear calls The feeling is such that anyone who takes an anti-nuclear stance will be applauded Many are fixated on the thought that the shift of nuclear power to renewable energy is the “mega trend” in Japan’s energy strategy

EIU: What do you consider the best mix

of energy supply towards 2030?

JT: I am proposing an energy mix whereby 20%

of the total energy supply is derived from nuclear power, 30% from renewable energy sources and 40% from fossil fuels.2 I think Japan’s best mix will settle around these ratios While the ratio

of supply by fossil fuels will have to be increased temporarily, we should attend to the trend towards natural gasses; shale gas, for instance,

is entering a new era We can also expect a significant role to be played by non-conventional energy sources, including domestically produced methane hydrate

In fact, I think it’s possible for us to build a society that does not depend on nuclear energy But

I still believe that we should maintain around 20% of our energy to be supplied by nuclear power Nevertheless, I am not “pro-nuclear“ [to the exclusion of other energy sources] I was proposing renewable energy as early as the 1970s, and I intend to help turn the wheel as much as possible towards renewable energy at this crossroads for Japan’s energy strategy

EIU: What do you see as the strategic rationale for maintaining nuclear energy?

JT: I don’t believe nuclear energy should be

maintained on old justifications—such that its running cost is lower compared with other energy sources, and that it’s environmentally friendly given that it does not produce carbon dioxide emissions Given the accidents, these rationales are now readily shot down—correctly, in my view

However, the reality is such that whether Japan quits nuclear or not, others show no intention of doing so China, for instance, is aiming to increase the number of its reactors from 14 currently to 80

by 2030 Even the US, which had resisted acquiring additional reactors since the Three Mile Island accident, has recently decided to build two new ones Korea is aiming for 25 reactors and Taiwan

is currently operating six reactors There will be at least 100 reactors just in the eastern part of Asia surrounding Japan

If Japan chooses not to retain its specialised nuclear power human capital and technical infrastructure, it will lose influence in the international community, for instance to negotiate the safety of nuclear plants elsewhere

There is a view that research alone is enough to maintain such a human-capital base and technical foundations But this view misunderstands the essence of technology Without having an actual application base for the research, it’s unrealistic

to assume that Japan could secure the national budget and talent necessary to ensure its nuclear technology is maintained at a competitive level

Moreover, Japan’s position in the international community is unique and is of paramount importance: as the only sufferer of nuclear bombing, Japan has a role to affirm a militarily non-nuclear policy in the world, through international organisations like the International Atomic Energy Agency (IAEA) Japan is the only militarily non-nuclear country that the international community permits to run a nuclear-fuel cycle, because it has resisted the military use

of nuclear power I believe Japan must remain the symbol and exemplar of countries that resist the temptation of nuclear militarisation and focus instead on its peaceful use Japan can help other countries that have the same aim

Furthermore, while it wouldn’t be impossible [to abandon nuclear energy], it would require significant diplomatic and leadership capabilities

in order to achieve this in the long-term It’s worthwhile noting that European countries have been making efforts to build mutual understanding and a system of energy interdependence via a collaborative power-supply infrastructure There are power-distribution networks running across the borders of France and Germany, for instance; Germany was able to decisively break away from nuclear energy because it can get energy from France in times of shortage But Japan has not collborated with its neighbouring countries, such as Korea, China and Russia, to secure such a system At least for the moment, Japan will have to pursue a self-contained energy strategy Coming

up with a pan-Asian energy distribution network will take at least 10 years

It might appear to be justifiable to argue for quitting nuclear energy because it is seen as ethically correct or because renewable energy can be derived domestically or ecologically But

I question if we can indeed secure the kind of diplomatic and leadership capabilities needed to stick to this path, given Japan’s current strategic realities I believe a realistic and responsible path for this country is to have a mix of energy options.Even if one were to decide on the non-nuclear renewable energy option, it does not mean that a new system could start operating from tomorrow It’s clear that Japan will have to rely on fossil fuels for the next 10 to 20 years It’s important

to think about how to get by during this phase Given that almost all nuclear reactors will stop working by spring this year, Japan is making a rapid shift towards LNG and fossil fuels to get by

in the short run [Increased demand] will cause energy prices to rise This is something consumers

globally, and especially those in developing countries, would rather not see People working in the world of energy have a shared understanding that a developed nation like Japan, with advanced technologies, should pursue a balanced energy strategy, based on the idea of the “best mix”.

of sustainability is found in Our Common Future,

also known as the Brundtland report, published

by the United Nations World Commission on Environment and Development in 1987 This defines development as sustainable if it “meets the needs of the present without compromising the ability of future generations to meet their own needs.” The equivalent definition for the energy sector would stipulate the use of renewable energy, or “the use of resources within the range that they can be renewed.”1 Besides actual energy saving, renewable energy is the concept that best captures the idea of sustainability

With European countries at the forefront, the world is rapidly adopting renewable energy

The market for wind-power generation has been growing by around 20% annually in recent years, while that for photovoltaic (PV) power generation

has been growing by more than 40%.2 By the end of 2010, the aggregate generation capacity

of wind, biomass and PV exceeded the installed capacity of the world’s nuclear power facilities Globally and in Japan, the potential of renewable power—the only truly sustainable energy

source—is undeniable Solar energy alone is expected to become a huge energy resource, at

a scale of 10,000 times that provided by fossil fuels consumed each year.3 According to a recent survey by Japan’s environment ministry, PV power generation can eventually be expected to produce 200m kW of power and wind generation (including oceanic areas) 1800m kW.4 Together, this far exceeds Japan’s total current power generation capacity of around 240m kW (at the end of March 2010)

Japan is well suited to wind and PV power generation The development and adoption of

Renewable energy sources have the potential to make a significant contribution to Japan’s energy supply, this contributor contends This is particularly true of wind and photovoltaic generation Common arguments against their broader adoption, including supply stability and cost, can be overcome with technological progress While legislation for a fixed

purchase price will be beneficial, Japan needs to separate generation from distribution and encourage a “knowledge revolution” to promote the broader adoption of renewable energy

Tetsunari Iida

Executive director, Institute for Sustainable Energy Policies

1 See for instance Daly,

Herman E., Beyond

growth: the economics of

sustainable development,

Boston: Beacon Press, 1996

(Jizoku Kano na Hatten no

Keizaigaku, Misuzu Shobo,

2005)

2 “Renewables 2011: Global

Status Report”, REN21

(Renewable Energy Policy

Network for the 21st

Century), July 2011

3 See Lebel, Phillip G., Energy

Economics and Technology,

Baltimore and London:

Johns Hopkins University

landscape and various social

factors into account.

geothermal power, and environmentally friendly small hydroelectric and biomass generation, are also desirable, with wave-power and tidal power possible in the longer term But when Japan’s total potential renewable energy supply

is considered, wind and PV energy account for

by far the largest proportion In addition, given that these sources of energy are less likely to run into trouble over various competing rights and conflicts of interest (for example, hot springs’

rights to geothermal energy), the barriers for their development are comparably small While other renewable energy sources suffer from such problems—or limits to the absolute amount of the available resource, as with hydroelectric

or biomass generation—the reality is that they cannot be regarded as potential main sources

of Japan’s electricity supply, unlike wind and PV generation

Countering common arguments against renewables

Electricity companies often cite problems with stability and electricity quality as barriers to the deeper penetration of wind and solar energy

in their transmission networks Such excuses, among others, have been used to mislead the general public Ensuring the quality of electricity means reducing the risks of blackout, while managing frequency or voltage fluctuations within a certain range These goals are not impeded by the use of intermittent renewables such as wind and PV power

The experience of some European countries is instructive Spain, for example, has managed with intermittent renewables providing around 20% of its power The supply fluctuations that are associated with these sources can be leveled out by using more than one source of energy

Moreover, fluctuations from these sources are not totally unpredictable; they can be anticipated to

a certain extent from meteorological conditions

Given that demand for energy also fluctuates

in a predictable manner, the total electricity supply can be adjusted by filling any gaps from

5 For recent trends

concerning renewable

energy sources, see Special

Report on Renewable

Energy Sources and

Climate Change Mitigation,

7 See press release by

Institute for Global

Environmental Strategies/

Institute for Sustainable

Energy Policies, July 21st,

However, when the penetration rate of intermittent renewable power sources in the power grid exceeds 20%, other, longer-term solutions are required These include connecting intermittent renewables to a broader transmission system; adjusting fluctuations

in demand; storing energy; and disposing of excessive amounts of energy or transforming

it into other forms such as hydrogen With the increased use of renewable energy, it is expected that technological developments will allow these measures to be improved and gradually adopted The high cost of renewable energy is also frequently cited as a problem for its broader adoption But technical progress has led to significant cost reductions in small-scale and distributed energy technologies such as wind and

PV power In particular, the cost of PV power has fallen rapidly in recent years: it has halved in the past twelve months, to a module price of ¥100 per watt.5 In Germany, the purchase price of PV generation is as low as ¥20 JPY per kWh (within the mega solar system).6 The purchase price is expected to keep dropping, by around 10% every year The price in Japan will also certainly fall rapidly as the market expands

The greater use of renewable energy also has the merit of increasing Japan’s ability to avoid the use of fossil fuels The more renewables Japan uses in its electricity system, the more it can avoid bearing the burden of rising fossil-fuel prices Some suggest that savings on reduced consumption of fossil fuels could exceed the additional cost of adopting renewable energy.7

A step forward: the fixed purchase price system

On the legislative side, a key for increasing the use of renewable energy is the Act on Special Measures concerning the Procurement

of Renewable Electric Energy by Operators of

Electric Utilities (or “feed-in tariff”), due to be enacted in July this year The basis for the act originated in Germany in 1990 and varieties have spread to 87 countries in the world, helping promote the renewable energy revolution It is known as the most successful environmental policy in history.

The act establishes a purchase price for various sources of renewable energy—in accordance with scale of use and installation requirements—that power companies are obliged to pay They can impose a set consumer surcharge to allow an appropriate amount of profit While the purchase price is fixed for a certain period of time, the government will reduce it according to the adoption of new projects; eventually, it is hoped,

to a point where no burden will be shouldered

by consumers if they choose renewable sources

of electricity The act therefore promotes the expansion of the market for renewable energy and reduces its costs

In addition, by systematically including in the calculation a reduction in the cost of environmental externalities such as carbon dioxide and air pollution, radioactive substances, and the merit of being able to avoid the use of fossil fuels, renewables will reach grid parity (the tipping point at which consumers can switch to renewable energy at no extra cost) earlier than expected

The need for electricity market reform

Yet such measures, while welcome, are not enough Japan has lagged behind in the adoption

of renewable energy because of political and policy failures.8 These have been underpinned

by the monopolistic structure enjoyed by electricity companies, and outdated thinking on environmental energy policy

One policy that is required to expand the use of renewable energy involves the stipulation of a

“priority connection”, under which the owner

of the power grid is required to prioritise the connection and supply of renewable energy But

the separation of electrical power production from distribution and transmission (although only one tool) is the key measure of electricity market reform This is because power grids are quasi-public goods, similar to motorways; while one company may own the grids in a monopolistic way, the company must deliver fair services But the generation and selling of electricity are competitive and profit-making businesses In order

to ensure better services at a low cost, Japan must secure an open market that anyone can enter The realities of Japan’s electricity market are such that electricity prices are the highest among developed nations, and the breakdown of costs lacks clarity Moreover, electricity companies have attempted to thoroughly eliminate opposition views with regard to the monopoly situation in the market, and nuclear power, by cultivating mass media support in the guise of publicity expenses

I contend that this elimination of opposing views, coupled with the reckless construction of nuclear plants and the devaluation of the importance of ensuring safety measures, were the factors that led to the Fukushima accident—potentially the world’s worst ever nuclear disaster

Since March 11th 2011, however, the adverse implications of the monopoly situation in the electricity market have been exposed to public scrutiny Media taboos about covering the problems of nuclear power and the electricity monopolies have been shaken off to reveal various realities, such as the murky pricing of electricity and the cozy relationship between power companies and local politicians The TEPCO Management and Finance Investigation Committee, established to calculate

compensation for damage to be paid by TEPCO, has found that a total of around ¥600bn was excessively included in electricity costs in the past ten years—a finding that represents just the tip of the iceberg

Reform in the electricity market to include the separation of electrical power production from

8 See also Tetsunari

Iida, “Nihon no Kankyo

Enerugi Kaikaku wa Naze

Susumanainoka”, Sekai, May

2009

distribution and transmission is therefore

an urgent matter This is because there is no justification for the vertical integration of electrical power, whether as a measure of economic or public policy Indeed, the magnitude

of its adverse implications is unacceptable

Towards social innovation and a knowledge revolution

The participation of various players accelerates innovation both in technical and social terms—a trend that is perhaps best exemplified by the effect of the Internet A similar reality is seen within the electricity market For instance, in northern Europe and Germany, the open market has resulted in various innovations, including the emergence of electricity companies that allow consumers to select renewable energy—from which Japan in particular ought to learn

A new energy market structure has emerged in the past 20 years that leverages several layers

of various markets and maximises earnings from

local resources, while minimising environmental burdens The gap between such a trend and the reality in Japan, marked by an unchanging monopolised market, is of utmost concern

One of the reasons for the delayed adoption

of renewable energy in Japan is the lagging awareness among the “knowledge community”

of such rapidly changing realities Even the state’s white paper on energy is not up-to-date Discourse on Japan’s energy policies also relies

on outdated ideas and knowledge—a trend that is fostered partly via the influence of monopolistic electricity companies that support the status quo and reject liberalisation

Needless to say, the country today awaits urgently the realisation of energy-policy reform that can advance the adoption of renewable energy The most important agenda is to reform society fundamentally into an innovative form through a “knowledge revolution” in the area of environmental energy policies

Saving energy: can more be done?

Improving energy efficiency in the commercial and residential sectors

4

After the first oil shock of 1973, Japan made substantial progress in energy saving Japan’s GDP grew around 2.3 times from 1973 to 2009, but final energy consumption during the period rose just 1.3 times However, during those years, although energy consumption in the industrial sector grew approximately 0.85 times, energy consumption

in the commercial and residential sector (that is, people’s direct use of energy at home or in the workplace) rose 2.4 times In the transport sector it rose 1.9 times Evidently the industrial sector made substantial progress in the efficient use of energy, while the commercial and residential sector lagged behind

Japan fares comparatively well in terms of the ratio

of energy consumption to GDP If Japan’s score on this ratio (for 2009) is set to 1, the US stands at 1.9, the EU at 1.7 and China at 7.2 Although Japan

is therefore comparatively energy efficient, the amount of energy used per unit of GDP stopped falling in Japan around the latter half of the 1980s

It remains the case that energy saving in the commercial and residential sector is the key for the country to make further progress in overall energy efficiency

Policy progress

Japan’s energy saving policies have been based around regulatory requirements and financial incentives In the commercial and residential sector, regulations include the “Top Runner” programme (detailed below), requirements

to label home electrical appliances with their energy-saving capacity, and the registration of buildings’ energy-efficiency ratings at the time of construction

Incentives include subsidies and preferential tax treatment for the installation of energy saving facilities; preferential tax treatment (for instance special depreciation) for the construction of energy saving buildings; tax cuts for home renovations; the Eco-Point programme1;

Japan has a long history of improving energy efficiency, and many effective policies have promoted the adoption of cutting-edge technology But encouraging behavioural change will be crucial to long-term sustainable consumption For this, clearer information on energy supply and demand is vital

Kenji Yamaji

Director-General, Research Institute of Innovative Technology for the Earth (RITE) Professor Emeritus, Department of Electrical Engineering, School of Engineering, University of Tokyo

1 The Aso administration

started the Eco-Point

programme in 2009 as an

economic and environmental

measure The programme

allows consumers to collect

“eco-points” by purchasing

certain home appliances

with high energy-saving

capacity, and use the points

to buy other energy-saving

products In late 2009 the

government approved an

extension of the system for

housing, allowing those

who build or renovate

eco-friendly houses to collect

eco-points.