Japan's Feed-in Tariff Program: First Year's Impact 2/2

The earlier post introduced the basic concept and scheme of Japan's feed-in tariff (FIT) program for renewable energy, along with the level of renewable energy deployment after the program launch in 2012. This blog post now takes a closer look at the program's impact on fuel mix for electricity generation, grid stability, the economy, and program's future.

National Fuel Mix

The data presented in the earlier post reveals that the FIT program triggered a massive investment in renewable energy, mostly on utility-scale PV (solar). The impact on the national fuel mix for electricity generation was however minimal in the first year. The below figure shows that the share of renewable energy (excluding large-scale hydropower) increased only by 0.2% in FY 2012 relative to the previous year, from 1.4% to 1.6%. Such level of increase can be easily offset by the restart of one mid-size nuclear reactor, so the FIT program overall seems to have produced little impact on Japan's fuel mix.

(Source: Federation of Electric Power Companies in Japan)

There are two likely causes for the contradictory result: the commissioning timing and the capacity factor of renewable energy. A graph in the earlier post shows that more than 10GW worth of renewable energy was authorized after the program launch, but most facilities were still under construction or in design process at the end of FY 2012 (Mar 2013). This implicates that despite the small impact in the first year, the impact this year could be substantially larger.

The capacity factor, a ratio of its actual output over a period of time (e.g. kWh) to its potential output (e.g. kW), is however a more fundamental problem. Since the output of solar and wind is dependent on weather conditions, the capacity factor of solar and wind is much lower than traditional electricity generation facilities such as hydropower and thermal plants fueled by natural gas, coal, geothermal, biomass, etc. For example, a study by the Cabinet Office of Japan over the lifecycle costs of electricity generation assumes the average capacity factor to be 12% for PV plants and 80% for thermal plants. This means that on average, a 100MW PV plant can generate only 12MWh of electricity in one hour, while a thermal plant fueled by biomass with the same scale would generate 80MWh. This capacity factor problem caused the disparity between the investment level (installed capacity) and actual contribution to the fuel mix, and it will continue to be a matter of concern for a foreseeable future.

Grid Stability

The impact on the grid stability is also a concern for electric utilities. Weather-dependent energy sources cannot always produce electricity when needed, and overproduction is also a threat to the grid stability from power frequency perspective. For this reason, the current grid system can take a limited amount of variable energy sources such as solar and wind.

This problem surfaced this spring in Hokkaido, a northern island in Japan with 5.5 million residents (roughly equal to Finland). Hokkaido Electric Power Company, a sole electric utility covering the entire region, recently announced that it will accept only 400MW of utility-scale PV to prevent potential collapse of its power supply system. 2GW worth of utility-scale PV plants are planned in Hokkaido at this moment, so roughly 75% of them is likely to be rejected from the grid.

Grid System in Hokkaido
(Source: Hokkaido Electric Power Company)

There are of course various mitigation measures proposed to solve this problem. Increasing flexible energy sources such as natural gas and hydropower and demand management strategies including smart grid can improve utilities' ability to respond to a sudden change in weather conditions. Having energy storage technology such as utility-scale battery and pumped hydropower can also help utility absorb such shock. These solutions however are either costly and/or yet-to-be proven to work, and it would take some time for cash-strapped utilities to adopt these measures.


The impact on the economy is controversial. On one hand, it arguably improves the trade balance through the reduction in fossil fuel import and creates construction and manufacturing jobs related to renewable energy investment. On the other hand, it could compromise economic competitiveness through increased electricity prices, particularly in energy-intensive sectors such as the steel industry.

The reported costs of the FIT program amount to 130 billion yen (US$1.3 billion) for FY 2012, and the anticipated costs for FY 2013 amount to 480 billion yen (US$4.8 billion). When subtracting the reduced costs of fossil fuel, the added costs for the average household is estimated to be only about 120 yen per month (US$1.2). This is probably not a meaningful figure for average household, but as more renewable energy is deployed, the economic burden will certainly increase, and some energy-intensive industries may not be able to absorb the added costs and adversely affect their output level.

FIT's Future

The future of the FIT program is yet to be determined. The program is currently authorized for three years, ending in FY 2014, and there will be political obstacles for extension, primarily coming from electric utilities and manufacturing sectors. The FIT program will certainly play a crucial role in deploying renewable energy in Japan for the time being, but it is important to note that FIT is not the only policy option to promote renewable energy, and other policy options such as CO2 emission standard for power plants and an increase in carbon tax should be revisited upon extension.