The policies under discussion have a number of components, all of which interconnect with each other. One might even say that energy policy is a seamless web. No, as every lawyer knows it is law that is a seamless web. Energy policy is more like an interconnected grid.
One of the key decisions for a new Japanese energy policy is some kind of idea of what the future "energy mix" should be. This is crucial, given the need for government policy to support development infrastructure, markets, technologies and other building blocks to achieve any particular mix. It is even more crucial given Japan's unique circumstances as
(1) already one of the most efficient consumers of energy among developed nations so less "low hanging fruit" from adopting conservation practices already in use elsewhere,
(2) almost utterly lacking domestic fossil fuel resources, (3) lagging behind in many of the deregulatory steps taken in other developed nations over the past 20 years and still captive to a system of nine regional electric utility monopolies, and, of course (4) having poured huge resources into nuclear power and with pre-2011 plans calling for an expanded nuclear role in order to reduce dependence on imported fossil fuels and to cut CO2 emissions ... but forced to revisit that strategy after the Fukushima accident. METI and its advisory committees have put forth a massive number of documents in recent months, culminating on June 19 with the publication of a draft report on the choice of "Energy Mix" for Japan to the year 2030. The intent is to solicit public comments of various types on several alternatives and in August to reach some conclusion which can inform actual legislation, rule-making and investment thereafter.
Whatever choice is adopted, the METI draft suggests policy will include several core elements:
1. Strengthen efforts at energy conservation.
2. Accelerate the development and use of renewable energy sources to the maximum extent possible.
3. Beginning with a shift to natural gas, and with careful consideration of burden on the environment, promote the efficient and "clean" use of fossil fuels.
4. Reduce reliance on nuclear energy to the maximum extent practicable.
There are 3 alternatives for the 2030 energy mix being put forward for public debate:
- Alternative 1: Nuclear Power 0%, Renewable Energy 35%, Fossil Fuels (coal, LNG, gas) 50%, Cogeneration 15%.
- Alternative 2: Nuclear Power 15%, Renewable Energy 30%, Fossil Fuels (coal, LNG, gas) 40%, Cogeneration 15%.
- Alternative 3: Nuclear Power 20-25%, Renewable Energy 25-30%, Fossil Fuels (coal, LNG, gas) 35%, Cogeneration 15%.
For comparison sake:
- The actual mix in 2010 was Nuclear Power 26%, Renewable Energy 11% (of which all but 1% was large hydro), Fossil Fuels (coal, LNG, gas) 60%, Cogeneration 3%.
- The 2010 energy plan for 2030 was to get to Nuclear Power 45%, Renewable Energy 20%, Fossil Fuels (coal, LNG, gas) 27%, Cogeneration 8%.
METI's draft report takes the view that there will be some serious negative consequences to the shift away from nuclear power in terms of reducing GDP, increasing electricity rates and hindering Japan's efforts to cut CO2 emissions.
According to the report, under the "no nukes" option the impact would be the greatest, with GDP at 2030 reduced somewhere between 1% and 5%, household consumption reduced between 0.9% and 6%, and electricity rates increased from 2010 by somewhere between 41% to 102%. And under the "no nukes" plan CO2 emissions would be reduced by 16% from 2010 (and would remain 5% higher than in 1990), as compared with a 31% reduction from 2010 (27% reduction from 1990) in 2030 under the pre-Fukushima energy plan.
In Japanese, you can download the draft report here, and many other documents linked to the advisory committee meetings on June 19, 2012 ... and more and more documents linked from other subsequent meetings.
A few themes that stand out to me are that, under any of these plans:
1. Renewable energy (other than large hydro) is supposed to go from under 1% of the mix to between 15% and 25%. A 1500% to 2500% increase over 17 years. Japan needs AS MUCH NEW RENEWABLE ENERGY AS POSSIBLE under any of these plans. This dovetails perfectly with the adoption of a feed-in-tariff structure.
2. Efficient cogeneration is to go from 3% to 15% of supply, a 500% increase. Of that, natural gas cogeneration is to go from 2% to 12% -- a 600% increase, even as other LNG based fossil fuel generation decreases from its 2010 share of 27% to somewhere between 8% and 17% by 2030.
And it is a safe bet that the public will not choose the 20-25% nuclear option, but instead will on a total phase-out or, if not, then on a gradual phase-out for many years ... to be revisited when memories of Fukushima have faded and a new generation of plants has developed an excellent track record in other countries.
So for any company or entrepreneur, foreign of local, considering investments in electric generation in Japan, this gives you some very clear guidance.
Of course, the actual increase (or decrease) in cost of electricity under any new plan will depend entirely on how expensive (or cheap) the key sources -- renewable energy and LNG/natural gas for cogeneration -- are in the future.
When Japan starts out with some of the highest electricity rates in the developed world, and Japanese importers of LNG are paying something close to $15 per MMBTU whereas U.S. domestic natural gas prices this year moving between $2 and $3 per MMBTU, and at a time when one of the main themes of the global economy over the past couple of years is that cheap gas is here to stay for a long, long time ... it is difficult to see how increasing reliance on gas cogeneration should not cut Japan's cost of electricity. And given that natural gas cogeneration is targeted to increase from 2% to 12% of supply under ANY scenario, now would be a good time to get into the natural gas cogeneration business in Japan -- whether selling cogeneration turbines, or developing projects.
And as for the cost of renewable sources, the key is whether Japan can manage quickly to push down the cost of solar PV toward "grid parity" from the initial world's highest feed-in-tariff rate of 42 yen per kWh, and whether it can implement at a large scale the most efficient and low cost types of renewable energy -- geothermal and large wind farms situated either offshore or in Hokkaido/Tohoku areas.
In the solar PV area, Japan benefits from what has happened in global pricing for PV equipment over the past few years, and from the promise of future technical advances. If only there can be increased competition and a quick scale-up in the domestic system of EPC providers and systems integrators, and if land use and other regulations can be reformed quickly enough, then costs should come down dramatically based upon these factors and the pressure of much lower global pricing for equipment that is now, in many respects, commoditized, or at least for which there are very attractive, low cost sources outside Japan.
In geothermal, regulatory reform has already moved ahead to allow development of resources in national park areas, but there either needs to be a change in attitude among those who can block projects (i.e. hot spring resort owners), or new laws, regulations and practices need to somehow remove their veto rights. (I have not heard ANYONE in the Japanese government or bureaucracy suggest that veto rights of hot spring owners over geothermal projects, or veto rights of fishing associations over offshore wind projects, should be eliminated. These are, I guess, sacred. Or maybe sacred cows. Or at least very politically powerful, well-connected groups.)
In order to expand wind energy, there needs to be a major investment in transmission and interconnection -- an investment which, based on informal conversations with bureaucrats and Diet members, the government seems likely to commit to as part of other announcements in coming months. It also would help if there were a further reduction in the amount of time needed for environmental impact assessments for wind farms -- recently cut from 5 years to 3, but typically closer to 1 year in most other jurisdictions. Wind is a mature enough technology so that the impact should be capable of being assessed -- and the project either allowed or prohibited -- much more quickly.
And there needs to be flexibility to place modern wind farms -- with their massive machines that soar into the sky -- on land that has other uses, such as agricultural land, instead of just on mountaintops.
What could possibly increase Japan's already very high costs of energy?
Well, ... of course, there is the risk that oil prices go up as we enter a "peak oil" era and demand continues to grow in Asia, especially China and India.
And how about spending hundreds of millions of dollars per year on the Monju fast breeder reactor, more on nuclear fuel reprocessing schemes that are necessitated by the lack of any long term nuclear waste storage solution, and way, way more on long term clean up and compensation to Fukushima and surrounding areas, plus decommissioning the Fukushima Dai-ichi reactors (and other reactors)?
How about ill-fated efforts to "pick winners" and subsidize some technologies that seem to have powerful backers, but do not look very likely to provide cheap electricity in my lifetime -- the Enefarm program residential fuel cell subsidies, or the effort to build massive fixed on-grid Li-Ion battery storage (instead of focusing on a smart grid system that would use electric vehicle and plug-in hybrid batteries for on-grid storage -- an idea being promoted here for "smart houses", but not as a way to balance supply on the broader grid). Why not let Japan's battery suppliers develop their technology through supplying the automobile industry, and give consumers a chance to make some money from purchasing an electric or plug-in hybrid, instead of throwing massive subsidies at them to build fixed storage?
And how about domestic systems integrators and suppliers of equipment who interpret the feed-in-tariff pricing scheme as METI having "blessed" their pricing at its early 2012 level, rather than as intended to aggressively drive down costs? (Yes, we have actually heard it -- systems integrators suggeset that since METI's pricing committee agreed that solar PV systems cost 325,000 yen per kW of peak installed capacity, integrators are "correct" to charge that much, taking advantage of a market in which there are too few experienced providers and they are positioned to try to capture any fruits of declining module and inverter costs, rather than passing through such declines to project owners and, via the FIT's price adjustment mechanism ... eventually to the impoverished ratepayer.)
NHK had a program Saturday evening with various panel members -- professors and think tank types -- supporting each of the options, and others offering general commentary, and with selected/edited public online comments running across the bottom of the TV screen. Not only I, but the public generally, seem suspicious of government projections of how much electricity is going to cost under the various proposals. Also, the panel member advocating Alternative #3, the 20-25% nuclear option, made his point and then sat quietly, pretty much left out of the conversation as the program went on. The only other member who was supportive was the Keidanren (big business group) representative, but he also seemed marginalized, as the discussion continued over renewables and how Japan can try to get cheaper, more secure natural gas. There did not seem to be interest from anyone else in Alternative #3. Of course, it was just one panel discussion, but NHK, as the national broadcaster, had invited a group that reflects a pretty broad spectrum of "elite" opinion, so I found it telling.
I also found it of interest that one reason for rejecting Alternative #1 (zero nukes) was U.S.-Japan relations, and the various intergovernmental agreements that support Toshiba's acquisition and ownership of Westinghouse, GE's cooperation with Hitachi, and joint efforts to promote nuclear power in other countries. This actually seemed to get more than just lip service -- hard to imagine if a similar debate were to go forward in the U.S. or Europe.