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Japan Renewable Energies as Main Power Sources

Penelitian - Positioning renewable energies as main power sources was included in the new "National Energy Plan" decided by the Japan’s cabinet in July this year. However, the energy mix, ideal power source composition, ratio of 22% to 24% was not changed.

Takuya Yamazaki, manager of the New Energy Section of the Agency for Natural Resources and Energy at the Ministry of Economy, Trade and Industry (METI), told Nikkei in an interview about the direction of renewable energy policies in the future responding to the plan.

Penelitian Japan Renewable Energies as Main Power Sources

Q: Positioning renewable energies as "main power sources" was specified in the new "National Energy Plan" for the first time, while the energy mix target value remained unchanged. Meanwhile, the bidding system and the deadline for start of operation were introduced following the revision of the feed-in tariff (FIT) scheme. Some people say that the situation is similar to "stepping on the accelerator pedal and the brake pedal at the same time."

Yamazaki: It is very meaningful for the positioning of renewable energies that their position as "main power sources" was specified in the National Energy Plan." Renewable energies were positioned as energies "to be introduced as much as possible while there are various issues."

The prime minister, the minister of METI and the office staff used the same expression. From now on, they aim to position renewable energies as "main power sources," not simply using them "as much as possible."

The main aim of the energy policy in the future will be to find out measures to overcome the obstacles, giving up the stance of limiting the introduction range because of problems. I think there is a big difference between them.

Q: Advantages of renewable energies had been recognized in terms of global warming and security measures since the period when "introduction of renewable energies as much as possible" was suggested. What are the reasons for further emphasizing the importance of renewable energies and ranking them as "main power sources" at this stage?

Yamazaki: Positioning renewable energies as "main power sources" is a global trend and it was determined that the trend will remain the same in the future. Following the Paris Agreement within the United Nations that came into force in 2016, "decarbonization" is becoming the goal of the measures against global warming, instead of "low carbonization."

Expectations for energy saving and renewable energies are rising rapidly as measures to realize decarbonization. Under such circumstances, many countries support renewable energies by positioning them as base power sources.

Such attitudes accelerate technological innovation and cost reduction, leading to further introduction and creating a virtuous circle. Japan needs to take part in the competition for innovation in this field, moving with the trend.

Q: What is the reason, as specified in the plan, for not increasing the ratio of renewable energies (22 to 24%) set for the energy mix, keeping the target value at the same level, while positioning them as "main power sources"?

Yamazaki: I emphasized the significance of the description of positioning them as "main power sources," but renewable energies in Japan do not actually satisfy the conditions required to be positioned as "main power sources." There are two concerns, specifically the "cost" and "long-term stability" that are required of main power sources.

The government will work out measures to solve these issues, but the path to overcome the issues has yet to come into view at present. In the first place, it will not be easy to achieve "22 to 24%" set by the previous National Energy Plan. I think it is too early to increase the target value now, when the competitiveness of renewable energies as power sources is not seen clearly.

Q: In respect to solar power, the introduction cost has been decreasing steadily responding to the decline in the purchase price under the FIT scheme.

Yamazaki: Needless to say, the cost is lower compared with projects in the initial stage of the FIT scheme. However, the construction cost and operation cost in Japan are roughly twice the cost in Europe, even for solar power plants constructed recently. It is essential that the costs are further reduced to achieve cost competitiveness against other domestic power sources.

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The public burden already reached 2 trillion yen. It is likely that the charge amount will further increase in the future, which is a serious problem. The basic premise for becoming a "main power source" is the expansion through competition with other power sources, independently without relying on the FIT scheme.

Q: Owners of solar power companies often say, "We cannot make a decision on additional investment unless further expansion of the market is promised by increasing the target value, although the certified amount is approaching the level of the best mix target. The cost will not decline if we cannot make investments.

Yamazaki: This is the eighth year after introduction of the FIT scheme and the certified amount has reached a certain level. Producers of each renewable energy can now see the introduction potential under the current cost level, I think.

As I said earlier, the scale of independent introduction without relying on the FIT scheme will be limited if the cost remains at the current level. It is not correct to set a target value higher than 22 to 24% and increase the introduction at a high cost to achieve the target.

We can set a new target value and discuss the measures for expansion of the market scale only when the power generation cost of 7 yen/kWh for solar power and 8 to 9 yen/kWh for wind power, for example, is in sight and reinvestment in existing power plants and development of new plants in suitable locations are possible without relying on the FIT scheme, after trying to realize "power sources independent from the FIT scheme."

As I often pointed out in the past, the value set for the energy mix is not an unchangeable "cap (upper limit). It is perfectly possible that the value of 22 to 24% will be increased when improvement in the competitiveness is in sight following further cost reduction, but the timing has yet to come.

Q: In regard to "power sources that are stable for a long period," how long is the business period you have in mind?

Yamazaki: When we say "power sources that are stable for a long period," we mean power sources that continue to generate power for an additional 20 or 30 years by reinvestment in the power generation equipment after the end of the FIT scheme 20 years from now.

It is generally said that solar panels can generate power for more than 20 years. If reinvestment is not made, however, 25 to 26 years will be the limit for business use.

We want the plants to continue to generate power after the end of the FIT scheme by replacing all panels with new ones, assuming a power generation business continuing for an additional several tens of years, instead of continuing the business for another five to six years by performing maintenance to properly maintain the equipment without replacing it.

Otherwise, power producers will pull out from the energy market one after another following the end of the FIT scheme, even if the target of 22 to 24% is achieved once, dropping to a value below the target value set for the energy mix. If this happens, the "energy policy" for supporting the country is meaningless.

When plants are seen from this viewpoint, it is possible that a significant number of renewable energy projects that are currently in operation or have been certified cannot be counted as "power sources that are stable for a long period."

Q: In respect to low-voltage projects from 10kWh to 50kWh, accidents including panels blown away by strong wind and the mounting systems collapsing due to heavy rain are sometimes reported. It is pointed out that such projects have deficiencies in the quality of design and construction as well as inspection and maintenance. Are you concerned about projects of this size in terms of their stability over a long period?

Yamazaki: It is true that low-voltage projects for business use are sometimes constructed on unstable sites and there are concerns about the construction quality, inspection and maintenance.

In the first place, solar power plants of this size constructed on the ground have disadvantages in becoming independent from the FIT scheme through a reduction of the power generation cost. Shifting to a self-consumption type is the most profitable method for the business in becoming independent from the FIT scheme.

The criteria for economic efficiency are the unit prices of electrical charges for commercial power (a little more than 10 yen/kWh for business use, a little more than 20 yen/kWh for household use), and that it is comparatively easy to achieve the cost target. Solar power facilities on rooftops of residential and office buildings as well as those on business sites fall under this category.

On the other hand, solar power plants that are constructed on the ground and have no consuming facilities have to sell the power to the wholesale power market after the end of the FIT scheme.

In this case, the feasibility of the power generation business will not be ensured unless the power generation cost is lowered to 10 yen/kWh or less, in general, although it depends on the wholesale market price.

Large-scale projects are more beneficial when consideration is given to the improvement in the efficiency of construction and operation costs. When consideration is given to the operation after the end of the FIT scheme, it is likely that solar power plants will be polarized into self-consumption-type plants constructed in consuming facilities and large-scale plants of megawatt class constructed on the ground.

The trend is apparent also in foreign countries where power generation costs have dropped significantly. Viewed from this perspective, low-voltage projects for business use on the ground will face severe situations in terms of the business, for they cannot be shifted to self-consumption types while they are small in scale.

Q: Do you mean that it is likely that low-voltage projects for business use will not replace the panels with new ones to continue the power sale business after the end of the FIT scheme because of the feasibility?

Yamazaki: The power generation cost of solar power plants drops significantly after depreciation of the facility, because solar power plants require no fuel costs. If the operation and maintenance are carried out in an effective manner, they can achieve a power generation cost that is competitive in the wholesale power market, even if solar panels and PV inverters are replaced with new ones.

Achieving a cost that can compete in the wholesale power market by constructing a new solar power plant without relying on the FIT scheme is the final goal for recognition of the plant as a main power source.

In the first place, it is important that reinvestments are made to depreciated solar power plants that are constructed based on the FIT scheme to continue the power generation business for another 20 or 30 years. I think it is not very difficult in terms of the cost.

However, it is possible that feasibility of low-voltage projects for business use will be comparatively low, because plants of around 50kW are scattered, limiting the possibility of improvement of the operation including daily inspection and maintenance.

We are anxious about how many power plant owners will take the trouble to make reinvestments in the panels and PV inverters to continue the power generation business after the end of the FIT scheme.

Low-voltage projects for business use account for about 30% of the certified solar power capacity or 95% of the certified projects in Japan. It is possible that 30% of power generation projects will withdraw from the power generation business one after another, even if the target value set for the energy mix is achieved once.

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Q: Some companies may purchase low-voltage projects for business use and manage them integrally if the secondary market of solar power plants (for sale and acquisition of used solar power plants) is activated in the future.

Yamazaki: We are looking forward to such a trend. The feasibility will be improved and reinvestments will be accelerated if a company owns tens or hundreds of projects concentrated in one area and operates them integrally and extensively, compared with a case where a company owns and operates two to three low-voltage projects for business use.

We prepared and released the "guideline on evaluation of solar power businesses" in collaboration with JPEA (Japan Photovoltaic Energy Association) at the end of June, aiming to activate the secondary market of low-voltage projects for business use. We set the evaluation criteria so that companies can purchase proper solar power plants selecting from a mixture of good and bad plants without worrying.

Q: Major companies with rich resources are promising as companies that integrate low-voltage projects. But we hear that major companies do not want to handle small power plants of the 5kW class because they are burdensome.

Yamazaki: It will not be very easy to integrate power plants. It will be impossible to find buyers depending on the location and the quality. Some of the owners do not want to sell the plants.

We cannot expect that investments will be made in all low-voltage projects for business use after the end of the FIT scheme for continued operation. The question is the percentage of low-voltage projects for business use that continue operation and the percentage of such projects that withdraw from operation, among the projects that account for about 30% of the certified capacity.

We will take measures to increase the yield, if only a little. We are also looking forward to technical innovation and fresh ideas of venture business owners.

This is my private view, but small and dispersed power sources including low-voltage projects for business use can be utilized as "local production and local use" power sources, in which solar power has advantages, which is one of the possible choices.

Many solar power plants on the ground are comparatively close to city areas, and the power generated by such plants can be supplied to nearby consuming facilities by constructing private transmission lines.

If this method is incorporated, the power can be sold for a higher unit price, compared with the unit price in the wholesale power market, and the feasibility will be improved. If technical innovation and cost reductions are accelerated for production of storage batteries and hydrogen, it may be possible to sell the power directly to general consumers in the form of batteries and hydrogen.

Whatever the case may be, we would like to search for the direction to make the best use of many low-voltage projects for business use in Japan and to promote reinvestment in the projects.

Q: One of the main purposes of the feed-in tariff (FIT) scheme revision was to clear away "stagnant projects" that obtained certification and have yet to start construction by the shift from "certification of equipment" to "certification of business plan." What will be the scale of the projects that will finally be invalidated?

Yamazaki: In January this year, we announced that projects with a total capacity of "16GW" became invalidated by March 2017. The capacity of 16GW is a fairly large amount. Projects of this capacity occupied the grid without starting construction, which was a serious problem. The FIT scheme revision was very effective for solving this problem.

As for projects that are newly certified between July 2016 and the end of March 2017, transitional measures were applied, and they are required to sign a connection contract within nine months from the day after the certification date. The projects that became invalidated among the newly certified projects are currently being counted.

Last-minute applications before enforcement of the revised FIT scheme were made at the end of 2016, and a double check of all projects is currently in progress, aiming to check whether connection contracts are concluded properly, matching against information from power companies.

We estimate that a considerable number of projects became invalidated (Note of editorial office: At a committee meeting, organized by METI and held on August 29 after the interview, it was announced that 2MW or higher output solar power projects with a total capacity of 1.26GW.

And general wood and agricultural residue biomass power projects with a total capacity of 5.56GW became invalidated, among the projects covered by the transitional measures, while projects of other sectors were being calculated.

Q: As for the capacity of projects that may become invalidated following the shift to the revised FIT scheme, the estimated value was announced as 27GW in April last year, and the latest estimated value announced in January this year was 16GW. The value was lower than the originally estimated value by 11GW. What is the reason behind the miscalculation?

Yamazaki: A considerable number of projects succeeded in signing a connection contract earlier than estimated, which significantly affected the decline in the estimated value for the capacity of projects that may become invalidated.

It normally takes about nine months before signing a connection contract, and therefore, we determined that projects certified in or before July 2016 will not be able to sign a connection contract by the deadline, the end of March 2017, unless an application for connection is not submitted to a power company by the end of June 2016.

The calculated the projects that had yet to submit an application by the end of June 2016 as projects that will become invalidated. Therefore, we estimated that projects with a total capacity of 27GW will become invalidated.

However, a considerable number of projects that applied for connection in or after July 2016 could actually sign a connection contract with a power company by the end of March 2017, which was the deadline for submission of the contract.

We could not imagine this kind of flexible response at these sites at the formal calculation in April last year. Many of the projects that succeeded in signing a contract by submitting an application for connection in or after July 2016 were low-voltage projects for business use.

The period from application for connection to signing of a contract is normally shorter for low-voltage projects, compared with extra-high-voltage projects and high-voltage projects. This indicates that the ratio of low-voltage projects is high in the solar power market in Japan.

Q: The total capacity of certified solar power projects is approximately 71GW, according to the latest announcement (end of March 2018). What do you think will be the final capacity?

Yamazaki: The latest value of 71GW was obtained by deducting the projects that became invalidated by March 2017. As I explained earlier, however, projects that became invalidated among the projects to which the transitional measures are applied are currently being counted.

The total capacity of solar power projects covered by the transitional measures is about 4 to 5GW, and the capacity of projects that became invalidated is included in the value (Note of editorial office.

At a committee meeting, which was organized by METI and held on August 29 after the interview, it was announced that 2MW or higher output solar power projects with a total capacity of 1.26GW became invalidated among the projects covered by the transitional measures).

We want to finalize the values by this autumn, when the Procurement Price Calculation Committee meeting will be restarted.

Penelitian Japan Renewable Energies as Main Power Sources

Q: Even if half of the projects covered by the transitional measures become invalidated, the certified capacity of solar power projects will be between 65GW and 70GW, which is higher than the target value set for the energy mix, 64GW.

Yamazaki: When you look at the certified capacity only, the possibility of attaining the energy mix target value is high. However, the total capacity of the projects that are in operation is only about 42GW.

A great number of projects with a total capacity of about 30GW have yet to start operation. We cannot be optimistic about how many of the projects that have yet to be operated will start operation. Compared with two years ago, when I was transferred to the New Energy Section, the criticism of solar power generation is becoming severer.

Solar power generation is facing strong headwinds arising from safety issues including damage caused by strong wind or heavy rain, failure to perform sufficient inspection and maintenance, and small returns to local communities with high returns to large companies outside the communities.

Coordination with local communities is essential for large projects, many of which have yet to start operation. The number of projects that are forced to give up being constructed may increase consequently.

However, in Japan, improvement in the ratio of renewable energies will be impossible unless construction of a significant number of solar power plants is expected.

Q: The surcharge imposed on the public under the FIT scheme is a very serious problem. The total purchase cost reached 3.1 trillion yen in fiscal 2018. How far do you think the cost will increase?

Yamazaki: The total cost for purchase is 3.1 trillion yen (US$27.7 billion) in fiscal 2018, and the surcharge imposed on the public is 2.4 trillion yen, deducting an avoidable cost from 3.1 trillion yen. It is not easy to give the figures because the level of future increase in the cost has to be given with some preconditions.

The figure changes significantly depending on the capacity of projects that will become invalidated among certified solar power projects and biomass power projects, which are large in the certified capacity, as well as the percentage of projects that will start operation among the projects that have yet to start operation.

What I can say at this stage is that the ratio of renewable energy was increased by only about 5 percentage points from 10% to 15% at a cost of 2 trillion yen. The national burden of 2 trillion yen is equivalent to 1% of consumption tax. It is true that people are very critical because of this sense of burden.

When the increasing rate of renewable energies per surcharge in Japan is compared with other countries that incorporate the FIT scheme, "5% per 2 trillion yen" in Japan is much higher than other countries, and Japan is inferior to others in cost-benefit performance. We need to keep this in mind in working out plans for the future.

Q: The government sets the total purchase cost for achieving a 24% renewable energy ratio to "4 trillion yen" in the National Energy Plan. Roughly speaking, renewable energies will be increased by 10 percentage points, two times the conventionally increased amount, by adding another 2 trillion yen. Based on the fact that the cost has increased to 3.1 trillion yen, the cost may exceed 4 trillion yen depending on the situation in introduction of solar power projects in the early stage of the FIT scheme and biomass power plants featuring a high equipment use rate. What kind of measures are you going to take responding to such cases?

Yamazaki: The goal of "limiting the total purchase cost to 4 trillion yen" was decided by the government. Measures need to be taken to keep the cost within the range, but it is not a must. However, it is not acceptable that the cost reaches far beyond the limit.

It is not easy to estimate the cost for the future because of many uncertain elements, but we estimate that it is unlikely that the cost will far exceed 4 trillion yen, based on the fact that projects with a total capacity of 16GW became invalidated and the assumption that additional projects will become invalidated in the future, while some of the projects will be given up before operation.

However, the cost has already reached 3.1 trillion yen and the remaining "margin" is small. Therefore, it is possible that the cost will exceed 4 trillion yen.

The measures responding to the situation will vary depending on the degree of the actual amount that exceeds the limit. The measures will be decided upon discussion involving the public, depending on the amount.

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Q: If the certified projects start operation smoothly in the future, the determined purchase prices will be applied and the surcharge will automatically increase. If such situation arises, will the projects that were certified in the early stage of the FIT scheme and have yet to start operation, as well as imported biomass, be reviewed?

Yamazaki: We have not discussed the detailed measures responding to such cases at all. If the period before start of operation is too long, however, such projects do not satisfy the primary purpose of the FIT scheme and will be criticized as unfair for sure, because solar panel prices dropped rapidly after the certification.

The theme needs to be discussed from the viewpoint of the national economy. I would like to say again that "24%" set for the energy mix and "4 trillion yen" set for the total purchase cost are not for restriction of renewable energy introduction. The bidding system was not incorporated to restrict the introduction capacity. The purpose of the system is normalization of the purchase price.

Renewable energy power plants can be constructed without worrying about these restrictions if they do not rely on the FIT scheme and do not increase the surcharge. In the first place, power sources that rely on the FIT scheme cannot be called "main power sources." The trend is observed in some foreign countries. We would like to realize good examples in Japan.

Q: The concept of the "technical self-sufficiency rate" in the energy supply chain was included in the new National Energy Plan. Foreign brand solar power generation equipment including panels and PV inverters are increasing and the technical self-sufficiency rate has been declining rapidly.

Yamazaki: We know it is a very important point. Countries throughout the world are stepping up efforts to support domestic industries through their own technologies. The same applies to the energy industry.

In the solar power generation field, Chinese manufacturers dominate the world in solar panel production. It may be difficult for us to compete with China in solar panel technologies at this stage.

Japanese companies will have to work out strategies for finding markets in foreign countries by developing new technologies to win the game and create innovative and unique technologies in the field of EMS (Energy Management System) combined with storage batteries and EVs (electric vehicles).

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