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. 

Western Energy Policy Research Conference

As I announced before, I presented my work on a carbon tax at 2013 Western Energy Policy Research Conference in September with my former colleagues at the Washington State Dept. of Commerce. The presentation material is now online at the conference website. Please click here to see the slides.

Overall, the conference covers various topics on energy policy issues, and it seemed that a panel on shale gas and another one on renewable energy attracted lots of attentions and interests. It was also much more international and larger than I had expected, and I was able to establish new research connections. Here is the list of interesting presentations given at the conference, and I would recommend you to check if the title and short description stimulate your interests:

• Will Carbon Prices Reduce Emissions in the US Electricity Industry?: a quantitative analysis of a carbon tax's impact on electricity generation fuel mix, particularly on the trade-off between coal and natural gas   
• Determining Energy Load Requirements of an Electrified Transportation Sectors in Los Angeles: a quantitative analysis of the potential impacts on LA's electric grid and its associated GHG emissions from mass-scale electric vehicle introduction
• Energy Efficiency Power Purchase Agreements: an introduction and discussion on an innovative energy efficiency incentive mechanism slated for pilot in Oregon and Washington state
• Putting Down a Coal Plant: an overview of coal power plants' status in the US and early retirement drivers and processes

Shale Gas Boom: The Angel or Devil for Earth? Part II

Previously on this blog, I discussed the potential impact of shale gas boom on global climate, and in short, I concluded that the net impact could be either positive or negative. While shale gas emits far fewer GHG emissions than coal and petroleum to produce heat or electricity, some believe that its extraction process is associated with a large volume of fugitive methane emissions, another major cause of climate change. At the same time, the low costs of shale gas can keep the electricity prices low, which could possibly slow down the renewable energy development and curb the incentives for energy efficiency.

Shale Gas Well (Source: Bureau of Labor Statistics)

A recently published study seems to have solved one of the concerns; the fugitive methane emissions measured at various shale gas wells are NOT significantly higher than the ones from traditional gas wells. The study was funded and carried out by the Environmental Defense Council, a prominent environmental organization in DC, and nine gas/petroleum producers, and the authors are prominently researchers in this field, so the scientific basis and neutrality seem to be solid.

This study's findings may put an end to the age of coal in the US much sooner than expected. When EPA is planning to launch a new CO2 regulation on new and existing power plants, the findings verify that shale gas not only costs less than coal but also emits far fewer emissions, and thus no power generators would wish to operate coal power plants under such condition in the US. The last hope for the mining companies is to export the excess coal to Asia (mostly China), but the unexpected shrink in Asian demand for coal is likely to nullify the last ditch effort by the American coal industry.

Of course, the impact of shale gas wells on the local environment remains a major concern, as the chemicals used for the hydraulic fracturing process are believed to result in groundwater contamination. At the same time, some report that the investment on renewable energy is slowing down in the US, possibly due to the rise of the inexpensive gas.

However, even with such possible negative impact, a push for shale gas with the CO2 regulation on power plants may be an effective and only viable policy option for the Obama administration to achieve its 2020 GHG emission target at a time the Congress cannot take any meaningful actions on climate change.

Carbon Tax Presentation

I am happy to announce that my former colleagues and I will be presenting my paper on the impact analysis of a regional carbon tax at the Western Energy Policy Research Conference in Portland, Oregon. The conference will be held on September 5-6, and our presentation will take place in the afternoon on the first day.

The presentation will feature my previous work on developing a simulation model called C-TAM (Carbon Tax Analysis Model). It is mostly a duplication on my publication on a journal called Energy Policy, but my former colleagues and I updated the baseline forecast and made some additional twists on the simulation model.

If you are able to attend the conference, please come and listen to our presentation; otherwise, please feel free to check the presentation materials, which should be posted on the conference website sometime after the presentation.

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.

Economy

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.