Tuesday, November 11, 2014

Stop the Bullying, Please!

Japanese media from time to time turns its focus inward and looks at the phenomenon of "ijime" in Japanese society.   Ijime is usually translated as "bullying" and most commonly thought of as a middle/high school phenomenon.  Sometimes a more granular approach identifies types of "harassment" such as "power harassment" (boss to subordinate) or "pregnancy harassment" (company to female employee) in the workplace, or bullying/hazing type tactics by athletic team coaches.  I guess this type of thing, common in almost any society in some or another form, comes with the territory in a society like Japan that is full of hierarchical/vertical relationships.

Last week, I was talking with a prominent Japanese lawyer who handles many project financings, including solar power projects.  He asked me (in Japanese) "why is the Nikkei Shimbun bullying solar power developers"?

Indeed, the past year there has been a massive campaign in the Nikkei and some other outlets (Yomiuri, and presumably also Sankei commentators and other more conservative outlets I do not usually read), to demonize solar power.  It is clearly driven by the utilities, their supporters in the LDP and the government and industry, and it is transparent.  I have not commented before, but it struck me that this lawyer had it right.  What is going on a type of "ijime" or bullying.

Upon passage of the FIT legislation in August 2011 - happy faces on Kan and Son.
Solar PV is never mentioned in the Nikkei or Yomiuri without the adjectives "expensive, unreliable".  Okay, to be completely fair, maybe they substitute "unstable" or "intermittent" for "unreliable" but always include "expensive." And the media continues to repeat, ad nauseum, the allegation by someone (never named) that developers are "sitting on" approvals waiting for module prices to go down before building projects -- in fact, as the yen has plunged (again down more than 5% the past few weeks), module prices have increased in local currency terms and as a percentage of project income.

Recently there was an article in Nikkei about the relevant METI study committee wanting to reform the system to prevent 不当利益 -- illicit profits.  There was another one about how METI wants to block sellers of retail power from marketing to consumers as "100% green" or "all renewable" when their generation is sold (with subsidies) under the FIT.  Of course, if it turned out consumers all want, and are willing to pay more for, "all renewable" power, then that would not be a good result for the existing utility industry or other suppliers.

This whole campaign reached its low point, for me, in a large article on page 2 of the Nov 4, 2014 Nikkei entitled 「蹉跌再生エネルギー」("Failure of Renewable Energy, Part 1") -- apparently the first in a series.

The large headline, in the middle of the page, was 「国民に6.5兆円の請求書」, which translates roughtly as a "6.5 trillion yen bill for the Japanese people!"  That is over $50 billion a year.  Except the headline was more like this:
A business newspaper, Nikkei is not known for inflammatory headlines.  I do not see in Nikkei a similar headline about the "20, 30 or 40 trillion yen bill for the Japanese people!" from the Fukushima accident and related cleanup, decommissioning and retrofitting of nuclear reactors.  How much is Japan's total cost of electricity in a year?

Nor does Nikkei "call a spade a spade" when one of the utilities refuses to decommission a reactor that has a less than 1% chance it will ever reopen ... just to keep the asset on a balance sheet and avoid, or at least delay, potential insolvency.  And when METI and other regulators get together to change the electricity ratebase accounting calculations so that operators can recover costs from their ratepayers and amortize even non-functioning or prematurely decommissioned reactors, I see only a polite article discussing the idea, not really anything to indicate the painful numbers involved -- a trillion yen?  10 trillion yen?, and certainly not in 30 point typeface.

How did the Nikkei writer arrive at the 6.5 trillion yen figure?   What is the basis?  The Nikkei article does not say.

It is actually very difficult to know the cost of the FIT, as compared to an alternate world where the FIT had not been adopted.  This is even more so in a country where there are not transparent, liquid markets in electric power.  In Germany, solar looks expensive, but it actually pushes WAY down the cost of wholesale power during peak periods (daytime).  If a user gets cheaper power, but pays a bit renewable surcharge, the user is no better or worse off economically than before, but solar looks "expensive", and the competing coal generator is extremely unhappy at the low prices it gets for its output.

But in Japan, one key assumption is how much of the approximately 70GW of "METI certified" solar projects will actually be built.

METI produced some materials for the committee now considering the future of the FIT on this very subject, dated September 30, 2014.  You can find them here.  (Materials #8).

What the METI submission to the committee says is that the annual "surcharge" amount for the projects operating under the FIT as of June 30 2014 is around 650 billion yen, or just under US$600 million.  The anticipated figure if ALL METI-certified projects were to start operations?  Around 4 times that amount, or 2.7 trillion yen per year.  But of course, the very same METI chart warns that THIS WILL NOT HAPPEN.  METI realizes that no one expects this, as projects will NOT go forward for any number of reasons, some of which are listed in the chart.

In fact, Japan implemented 7GW of solar in 2013, will implement around 10GW in 2014.  My guess is that there will be similar numbers next year and perhaps a bit less in 2016 (to the extent we can know).  These will be a mix of 40-yen, 36-yen and 32-yen approved projects.   The total that will be built from the 69GW that has been certified?  Probably around half, or less.  The short term economic burden on consumers will be real (as compared with coal or even gas-fired generation), but very manageable.  A few hundred yen per month for the average consumer ... much of whose bill is going to pay the cost of other, opaque mistakes and errors by the suppliers over past decades.  And many of these facilities will continue to produce electricity, selling at and pushing down market rates, for 5, 10 or even 15 years after the FIT purchase obligation ends.

But this is a very scary world for the utilities.  Each GW of solar means a loss of peak electric sales for them, and more trouble justifying their existing generation expansion plans.  Each household that implements solar with storage in the future ... means a permanent lost customer.  They will either embrace these changes and preserve an interesting, if very different, business, or will go the way of the dinosaurs.

When I first started to work on solar PV projects in Japan, I can remember several meetings with a major Japanese institution when I would explain what we were trying to do -- bring the best of the world's experience to Japan and accelerate implementation of solar PV here, including the Moore's Law-like cost reductions seen elsewhere in the world.  The counterparties would warmly thank us for our efforts to develop such a business to help expand renewables in Japan.

That was before the change in government, and the utilities realizing that solar PV and other renewables under the feed-in tariff is an existential threat to their business models.  That was before the nuclear restart fell 12-18 months behind its initial schedule.   Indeed, now as Japan heads into its winter peak electricity use period having survived a second consecutive zero nuclear power summer, and with no specific government conservation targets for large users, AND as oil and gas prices plunge to their lowest levels in many years, the utilities and government might be worried about people starting to ask questions such as "is there really a crisis that requires the nuclear restart?"

Do we really need new large coal-fired plants ... or won't we have access in the future to cheaper LNG?   Shouldn't we plan future electric capacity based upon the "Moore's Law" characteristics of technology-driven renewables like solar and storage?

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