Japan's Electricity Consumption Continued to Fall: Questioning the Rationale for New Power Sources

According to the latest statistics released from the electric utilities's association, Japan’s electricity consumption in FY 2013 (Apr 2012 – Mar 2013) dipped three years in a row after the earthquake and subsequent nuclear accident in Mar 2011. While the percentage change relative to previous year was only -0.4%, the decline was a surprise to many energy analysts and planners due to various unfavorable factors such as severe weather conditions and economic growth associated with Abenomics. In addition, the consumption tax increase this month caused unusual front-load of spending on all kinds of goods and services at the end of FY 2013, and the reconstruction demand in earthquake-stricken regions certainly contributed to the increasing activity in energy-intensive industries such as steel and cement.

Figure 1: Japan's Total Electricity Consumption
(Source: Federation of Electric Power Companies of Japan)

These unfavorable conditions were perhaps not strong enough to offset more fundamental changes taking place in Japan. One of such changes is the sustained nationwide energy saving campaign to avert the electricity shortage after the nuclear accident. Although many argued that the radical campaign at the expense of comforts and convenience would not remain effective for long, a survey shows that many consumers have permanently altered the energy consumption behaviors. Another fundamental shift is demographic transition; the total population began to decrease gradually around 2008, and the decline has accelerated in the past few years as a result of fewer births. Lastly, technology obviously has played a crucial role in curbing the demand. Technological breakthroughs and improvements in the past decade are finally paying off, and the rising electric rates may have become a major incentive for the consumers to accelerate investment on energy-saving devices such as LED light bulb and energy-efficient air conditioner.

Figure 2: Electricity Saving Campaign Website
(Source: Ministry of the Environment) 

The decreasing demand is certainly good news to avert electricity shortage and curb greenhouse gas emissions. In the long run, it also has profound policy implications that could trigger fundamental changes in energy planning. In the past, the electricity demand was assumed to grow every year, except for when mild weather sustains and/or economic recession occurs, and utilities have been encouraged to constantly plan and build new power stations to meet the increasing demand. The forecast is still made using this assumption, showing upward trend for a foreseeable future (see graph below), and the electric utilities are planning to build new power stations, mostly coal-fired plants. For example, the Tokyo Electric Power Company (TEPCO), the largest electric utility in Japan and responsible for the accident in Fukushima, projects 5% increase in electricity demand between 2013 and 2023, and the utility giant is currently soliciting 6GW worth of power developments under the conditions favorable to coal-fired plants.

Figure 3: Electricity Consumption Forecasts
(Source: Energy Data and Modeling Center for 2010 and 2013 forecast,
Electric Supply Plans from all electric utilities for 2014 forecast)

The problem is that the predictions not only lack accuracy but also always overestimate the future demand. The current forecast model is mostly determined by macroeconomic factors such as GDP and population and does not account for efficiency improvement or changes in industrial structure. This is why the forecasts have been revised downward repeatedly in the past, and the needs for the new power source are questionable at best. While electric utilities argue that the planned power stations will be state-of-the-art and reduce the emissions by replacing inefficient plants built in the 1960s and 1970s, the sustained decrease in electric demand along with the rapid development of renewable energy and restart of nuclear reactors make them unnecessary to begin with. Furthermore, the cheap and abundant supply of electricity from the new coal-fired plants takes away incentives to save electricity, and in contrast to the utilities’ argument, this could induce more demand for electricity and cause more air pollution and climate change.

To avoid the devastating scenario, the electric utilities and policy makers should first and foremost reflect the downward trend and likely efficiency gains into the forecast. In addition, the utilities should also adopt so-called Least Cost Planning (LCP) principle, which looks at not only the costs and benefits of individual projects but also those of alternatives, including demand reduction measures such as subsidy for consumers to purchase energy-efficient home appliances. The bottom line is the latest statistics should be a signal for utility planners and policy makers to take a look at the fundamental changes and begin to better manage the limited economic and natural resources.

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