Feed-in Tariff Program in Japan: 2nd Year Evaluation

Japan launched the feed-in tariff program in July 2012 to accelerate renewable energy development. The previous post discusses its scheme and initial impact, arguing that the program had limited impact in the first year and exhibited various problems such as the added costs and grid instability caused by skewed investment on photovoltaics (PV). Now that the second fiscal year had ended (Japan’s fiscal year ends in March), let’s take a look at the latest statistics.

Cumulative Renewable Energy Installation

(Source: Agency for Natural Resources and Energy)

According to the Agency for Natural Resources and Energy (ANRE), the cumulative renewable energy in operation jumped from 22GW in March 2013 to 29GW in March 2014. Considering 2GW of renewable energy was added to the electric grid in the first year, the second year seems to have shown much better performance. This is largely because many developers obtained the permit (certification) in the first year were simply unable to complete their projects by year-end.

Photovoltaics were again responsible for most of the growth, suggesting limited electricity production due to its low capacity factor, and adverse impact on electric bills caused by its high installation costs. Looking at the projects in the pipeline (projects certified by ANRE), it is good to see renewable energy is likely to triple on a capacity basis in the coming years, but the skew toward photovoltaics will remain, or even get worse.

Cumulative Renewable Energy Installation and Projects in the Pipeline

(Source: Agency for Natural Resources and Energy)

The expert panel at ANRE has reviewed the tariff structure and cut the tariff rate (guaranteed purchase price) for utility-scale photovoltaics by 24% in two years, which may slow down the photovotaics boom for now. The certified projects in the pipeline however are guaranteed to obtain power purchase agreement with utilities at a rate when the project was certified, so these will be likely to be built quickly to cash in on the favorable conditions.

Tariff Rates for Renewable Energy

(Source: Agency for Natural Resources and Energy)

The program has entered the third year, and the Abe administration is discussing the possibility of scaling back the program amid its rigorous attempt to reboot nuclear reactors. The program itself is likely to continue in less attractive ways for renewable energy developers, which is arguably good given the inherent drawbacks of the scheme. In order to seek more balanced growth in renewable energy at least costs on the economy, the government needs to explore better supporting schemes for more reliable, cost effective renewables such as offshore wind, small hydropower, biomass, geothermal, and possible marine energy.

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.

Celebrating the 35th Anniversaries of the Energy Conservation Law

The Energy Conservation Law has been the primary policy instrument to propel energy efficiency investment since the oil crisis in the 1970s. The law was first enacted in 1979 and amended in 1998, 2002, 2005, 2008, and 2013 to expand the target and enhance the requirement and enforcement mechanism, and as a result Japan achieved top-tier energy efficiency in the world. The law not only targets specific machines and devices such as truck and refrigerator but also requires businesses to draft and implement an energy conservation plan for their factories, buildings, and fleet. For example, proprietors recording the total energy use of 1,500 L in toe per year must draft and implement a long-term plan to improve the efficiency by 1% or more annually, and the latest amendment in 2013 encourages “peak cut” – curbing electricity demand during peak hours through measures such as demand shift, cogeneration, and storage battery installation.

For individual machines and devices, the law establishes the “Top Runner Program,” which sets energy efficiency standards based on the performance of the best available technologies (“top runners”) for each item. The program began in 1999 with standards for 11 items, and expanded the coverage over time to 27 items. The focus of the program has been on automobile and office and home appliance, but the latest amendment in 2013 added building material as an auxiliary item to save energy used in other devices. The impact of the program has been eminent; for instance, the energy use of standard air conditioner decreased by 43.3% between 1995 and 2012, and the average fuel efficiency of passenger car rose by 58.5% between 1993 and 2012.

Table: Target Items in the Top Runner Program

To take advantage of the program, a new labeling system was also created to enable consumers to understand and compare the energy performances of various products. The label includes (1) a colored symbol showing whether or not the product meets the standards, (2) achievement rate relative to the standard, (3) energy efficiency, mostly represented as expected annual electricity bill, and (4) standard fiscal year. It is now a popular decision-making indicator for many consumers, and its importance continues to grow with the rise in electricity rates.

Figure: Sample Label

The regulatory approaches under the Energy Conservation Law has made unique success in Japan in the past 35 years due largely to the cooperative relationship between businesses and regulators, and the law gained popularity among the general public as a plain and transparent regulation. Nonetheless, the uniform reduction mandate on commercial energy use is said to be unfair as the difficulty in achieving the target depends on the baseline energy use. At the same time, the Top Runner Program now covers roughly half of the energy use in residential and commercial sector, but misses some energy-intensive appliances and devices such as washer/dryer and commercial refrigerator/freezer. Furthermore, the program also sets separate standards for each size-based subcategory, and it could possibly be discouraging downsizing of several items such as passenger car and television. These instances suggest that the 35-year-old law has made important contributions to energy conservation in Japan but still has space for improvement.

Figure: Energy Use per Nominal GDP in 2010

(Source: Energy Data and Modeling Center)

References:

Nordqvist, Joakim (2006). Evaluation of Japan's TopRunner Programme.

Agency for Natural Resources and Energy (2010). TopRunner Program. 

2013 Energy News Roundup

2013 was a relatively calm year for energy and climate policy, but there has been a number of significant advances and setbacks around the globe. Overall, the progress is seen at individual policy or technology levels, but the world is in desperate need of political leadership to set stringent targets and develop a comprehensive policy package amid rising worldwide GHG emissions.

* The news roundup below is completely based on my personal interests and selection, with focus on the news in Japan and the US due to my limited time and expertise.

LED Post-Top Lighting

(Source: USDOE, SSL Program)

Thumbs up:

• (Japan) Renewable energy deployment accelerated thanks to feed-in tariff (FIT). The skewed tariff structure however caused unbalanced growth of renewables.
• (Japan) The government finally decided to end highway toll discount (March 2014). It was introduced as an economic stimulus measure, only causing a shift from public transit to automobile and thus more traffic congestion and GHG emissions.
• (Japan) A carbon tax took effect in October. It gives good incentives for people and businesses to save energy and shift to cleaner energy source.
• (Japan) The Energy Conservation Act was amended to broaden its target. The world's toughest mandate now covers building materials and technologies leading to cut power consumption during peak periods.
• (Japan) JR Central geared up to start work on maglev train construction. The actual construction is expected to kick off in fall 2014. It could further reduce air and auto trips along the most populated urban corridor in Japan.
• (US) EPA finalized a new GHG emission standard for new power plants (mostly to regulate coal power plants), and is looking at making a similar regulation for existing ones.
• (US) Most traditional light bulbs are now banned (Canada as well). LED and CFL are expected to replace them.
• (US) Power providers continued to retire coal-fired power plants due to the shale gas boom. This is currently a major driver in reducing GHG emissions in the US.
• (US) 2012 GHG emissions were the lowest in nearly 20 years, due to more renewable energy, natural gas, and energy efficiency.
• Shale gas may not as bad as previously suggested. It could be a good stopgap measure until more energy efficiency and renewable energy are deployed.
• Offshore wind development and demonstration is picking up the pace in Europe, Japan, and the US. It may be the next primary renewable energy source as photovoltaic and traditional wind power development saturates.

Thumbs down:

• The world continues to make very little progress toward legally-binding GHG reduction reduction target or policy.
• (US) Congressional gridlock continued on almost anything. The Obama administration suggested incremental, patch-work policy approach in its Climate Action Plan, but ultimate solutions such as a carbon tax require congressional approval.
• (US) Cellulosic ethanol continues to be unsuccessful in commercial production, clouding the future of the Renewable Fuel Standard.
• (US) High-speed rail projects continued to face difficulties, most notably in California. It is time for the government to focus on supportive roles and let private developers build the system as in Japan's maglev train and Florida's All Aboard Florida.
• (Japan) The Abe administration lowered its GHG reduction target based on the assumption that no nuclear power will be available and energy demand will decline only by a small margin in 2020. However, the previous target of 25% reduction from the 1990 levels is still achievable in my view, as both assumptions are flawed. 
• (Japan) TEPCO's answer to the nuclear accident and subsequent power shortage is to build more coal power plants, while electricity demand continued to fall and renewable energy development accelerates.
• (Japan) National GHG emissions continued to rise. Electric sector sans nuclear power is to be blamed, offsetting reductions in other emission sources.
• (China) China became the largest GHG emitter in the world in 2007 (or 2010), and the emissions just kept rising. In addition to the notorious dependency on coal for power generation, the inefficient and ever-growing steel industry is becoming more problematic.
• Electric vehicle sales are yet to catch fire. While Tesla is thriving, other ventures such as Fisker struggled and filed for bankruptcy. Let's see how things turn out over the next several years.

Neutral:

• (US) California is about to launch its own cap and trade program. Due to the failure in Europe, its effectiveness is doubtful at best.
• (US) Energy Information Administration (EIA) finally revised its long-term energy demand forecast up to 2040. The key changes are the downwardly revised demographic, economic, and vehicle miles traveled (VMT) forecasts. I still think it overestimates the energy demand, but the revised forecast could deter some highway and power plant construction.
• (US) Nuclear power plants face difficulties in maintaining competitiveness, and some utilities decided to phase out the aged reactors. 
• (Japan) Electric utilities made a move to restart a number of nuclear reactors. The Nuclear Regulatory Authority is taking a rigorous look at the safety enhancements, and is likely to authorize restarts for several reactors in spring 2014.
• (Japan) New national energy plan now position nuclear power as an important base load source. This is a dramatic shift from the previous administration's decision to phase out all nuclear power by sometime in the 2030's.

* I labeled nuclear-related news neutral, as it is good from climate policy perspectives, but not so good from general policy perspectives.