Japan: Greater energy security through renewables

This report outlines how the risks and challenges facing Japan’s electricity system can be better addressed through investment in renewable energy, which will also build energy security and reduce long-term reliance on imported fossil fuels and nuclear production.

Increases in energy efficiency have driven down electricity demand in Japan over the past six years and will continue to do so going forward.

Fundamental to our assessment is the fact that increases in energy efficiency have driven down electricity demand in Japan over the past six years and will continue to do so going forward. The positive influence of this key factor is often underplayed.

Energy efficiency in Japan supports the expansion of renewables. Our Japanese electricity sector model shows how falling demand, despite the probable strong uptake of electric vehicles, creates an ideal scenario for greater renewable energy investment.

Six years after Tokyo Electric Power Co.’s Fukushima nuclear disaster, Japan is at a turning point on energy policy. Its challenges are delineated by sluggish economic growth, a shrinking population and declining electricity demand, down 11.5% from its 2010 peak.

Policies since 2011 favouring replacement of nuclear baseload with fossil fuel baseload have proven costly, resulting in lost opportunities in the development of increasingly available renewable energy, which is seeing technology gains drive rapid declines in costs.

At stake in Japan’s energy transition are issues that transcend economics; indeed, Japan’s very energy security remains a risk. Before Fukushima, Japan had enough nuclear fuel to ensure nuclear power played an important role in long-term domestic production of electricity. Since Fukushima and the reactor shutdowns, the country has become deeply reliant on fossil fuel imports. This has contributed to a reversal in trade balance from 30 years of trade surplus to a deficit that reached US$116 billion in 2014.

Japan can go a long way toward delivering on its Paris climate agreement commitments and improving its energy security by increasing the share of renewable energy in its generation mix.

Strong policy leadership is essential.

Key Findings:

1. Energy productivity gains will drive down electricity demand from 1,140 terawatt hours (TWh) in FY2010 to 868TWh in 2030. With population decline limiting economic growth and Japan’s world-leading energy efficiency driving further energy productivity gains, electricity demand is set to decrease until at least 2030, as it has done for the past six years. Electricity generation totalled 1,140 terawatt hours (TWh) in FY2010 and then dropped 11.5% to 1,009 in FY2015. IEEFA sees continued productivity gains of 2% annually, driving generation down to 868TWh by 2030.
2. As Japan reconfigures its electricity industry, solar PV could account for 12% of Japan’s electricity-generation mix by 2030. As total electricity generation drops, solar PV has the potential to account for 12% of Japan’s electricity mix by 2030, up from 4% at present. Japan was the second largest installer globally of solar PV from 2013-2015. But with generous feed-in-tariffs that supported this expansion coming to an end, new policy support by the Japanese government will be required to perpetuate solar growth. A recent move towards reverse auctions for large-scale solar suggests Japan can realise significant further solar cost reductions, like those currently being achieved around the world. If introduced, a policy focus on rooftop solar and ongoing market reforms will expand Japan’s renewables footprint, while large pumped hydro storage capacity and greater regional grid connectivity will help integrate increased solar PV into the still largely regional grids.
3. Japanese offshore wind-power resources have tremendous potential, and can viably contribute to baseload power demand. While onshore wind development has been slow due to Japan’s lengthy approvals process for the limited suitable land available, significant and overlooked opportunities exist in offshore wind development. Indeed, offshore wind-powered generation has enormous potential that has been largely missed in Japan’s long-term energy plan. Japan has one of best manufacturing industries in the world—perhaps the best—and some Japanese companies are beginning to move on this front. Mitsubishi Heavy Industries is currently researching and developing offshore wind technology as well as supplying offshore turbines via its joint venture with MHI Vestas Offshore Wind. China and the U.S. are moving now to aggressively exploit this major, underused resource. Offshore wind’s inherent absence of land constraint issues works in its favour, as do its utilization rates of 45% to 50%, which indicate it can contribute to baseload power. IEEFA models 10 gigawatts (GW) of offshore wind in Japan by FY2030. Europe and China could reach 100GW each of offshore capacity in this timeframe.
4. Japan is in a position to meet 35% of its electricity needs with renewables by 2030. Assuming a much-needed policy push to increase solar and offshore wind capacity and factoring in the country’s probable electricity demand reduction, Japan’s total renewable energy share will double to 35% of generation by 2030. In IEEFA’s model, this includes hydro and biomass and depends on the Japanese government delivering on its COP21 pledge. It requires a major lowering of regulatory and grid barriers to renewable energy projects, changes that will allow Japan to tap capital markets to support national renewable energy programs. Similar strides have been made recently in France, where the government has launched a €7 billion green bond initiative to finance renewable energy and energy efficiency. If this happens in Japan, IEEFA estimates that its total renewable capacity will reach 100GW by the end of FY2016 and 159GW by 2030, almost triple the 2010 capacity.
5. Japan’s nuclear industry, mothballed after the Fukushima disaster, will probably not recover. IEEFA sees only a quarter of Japan’s 40GW of offline nuclear power capacity coming back into service by 2030. Nuclear power accounts for only 8% of total electricity generation by then, well short of the government’s target of 20-22%. Although Japan is seeking to restart nuclear production as a way to diversify its generation mix and improve energy security, the industry will face strong headwinds, as financially distressed operators struggle to achieve new safety standards before reactors reach their retirement dates.
6. Japan will very likely scale back plans to construct a new fleet of coal-fired power plants. Most of the 45 new coal-fired power plants Japan is proposing to build are still in the planning stages and — because of Japan’s declining electricity demand — many will not reach the construction phase. Whether the proposed coal fleet expansion would actually add overall capacity or merely replace existing thermal capacity is unclear anyway, and momentum for the initiative is fading. Japan’s major electricity power companies (EPCOs) have recently started to reassess their coal-fired generation plans. In January 2017, citing declining electricity demand, Kansai Electric Power Company announced a halt to a program to switch Ako power station Units 1 and 2 from oil-fired to coal-fired generation.

Even assuming no net thermal capacity expansion to 2030, lower electricity demand and increased renewable capacity will cut into utilization rates for such capacity. IEEFA sees Japanese thermal power generation declining to 40% below 2015 levels by 2030.

Similar trends have been apparent now for some time in China and India, where drives to install both thermal and renewable capacity concurrently have seen coal-fired power station utilization rates drop to 47% and 56% respectively in 2016, even with electricity demand rising in those countries.

IEEFA expects that only one quarter of offline nuclear reactors will come back into service. In the unlikely event that Japan’s nuclear restarts exceed this level, the result will be further downward pressure on thermal generation utilization rates.

As it goes through its electricity transition, Japan can learn from global trends toward investments in smart, nationally connected grids coupled with much greater reliance on renewables and energy efficiency.

Press release: Widespread adoption of carbon capture, utilization and storage technologies in South East Asia remains highly unlikely

Please view full report PDF for references and sources.