Japan: climate change and energy round-up
Published 24 September 2014
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This article is no longer current. Please refer to Overseas Business Risk – Japan
Summary
- Nuclear: Nuclear fuel cycle discussions look at the future of JNFL.
- Energy Security: Subcommittee on gas liberalisation looks to UK for expertise and experience, as discussions of system design begin in earnest.
- Climate Change and Energy Policy: Government considers how to respond to international expectations at the UN Climate Summit which PM Abe intends to attend.
- Low Carbon Growth: Government and business make steady effort to further renewable deployment in Japan.
Detail
Nuclear & Energy Security
Analysis – nuclear: Japan’s nuclear fuel cycle future
On 16 September, METI’s nuclear subcommittee discussed Japan’s nuclear fuel cycle. Some members of the committee suggested that the government should lead on nuclear fuel cycle matters and proposed Japan Nuclear Fuels Limited (JNFL) be nationalised. There are questions about the shape and form of JNFL in the future deregulated market.
JNFL runs a large site in Rokkasho Village, Aomori Prefecture which includes waste storage and disposal centres, spent fuel storage pools, a uranium enrichment plant and two plants that are not yet operating: a reprocessing plant and a MOX fabrication plant. Rokkasho’s Reprocessing Plant began construction more than 20 years ago in 1993 and is yet to commence operations. JNFL admit that the process of ensuring they could conduct reprocessing successfully has been difficult, but now consider gaining NRA (regulator) approval as the foremost challenge to beginning operations. .
JNFL have invested a lot in developing the site at Rokkasho and also the local area – housing, community and sporting centres have all been funded and developed by JNFL in an area that before 1980 was fields. The area has become a mini energy hub with the national crude oil storage centre located alongside JNFL’s site as well as a large wind farm and the construction of a solar farm.
JNFL’s current major shareholders are the 10 Japanese utilities – given the utilities’ financial situations, JNFL’s ability to borrow from financial institutions is becoming increasingly difficult. Furthermore, JNFL needs to convince investors that it will start reprocessing operations at Rokkasho. While government taking on the company could see JNFL relinquishing some control, borrowing money would become much easier due to government debt guarantee – it will be interesting to see how this discussion develops.
Analysis – energy security: gas system liberalisation in Japan
Since November 2013, METI’s subcommittee on Gas System Reform has been discussing gas market liberalisation. They have four objectives: 1.To create new businesses and services through easier market entry for energy companies and more partnerships with non-energy companies; 2. To restrain gas price increases through greater competition; 3. To encourage capital expenditure on gas supply infrastructure - particularly LNG stations and pipelines – by ensuring government policy helps businesses recoup their investment; and 4. To ensure safety and protect consumers.
Gas market liberalisation started in 1995, and has been gradually progressing since then. So far, deregulation only applies to consumers using more than 100,000 m3 per year (around 60% of the market). Of this market, 15% are new entrants. 40% of whom are big electricity utilities who deal with large volumes of imports and storage. The commercial and household markets haven’t benefited from any of the liberalisation so far.
The subcommittee issued an interim report on full liberalisation and re-design of the system this summer, based on hearings from various gas suppliers around the country. It suggests a number of reviews, including on the wholesale price setting system. The current system uses a fuel cost adjustment system to regulate monthly electricity fees, reflecting power generation fuel cost variance (e.g. from foreign exchange rate and crude oil price changes). The benefit of this system is that it helps neutralise the impact of price fluctuations. But it relies on a market monopoly by the big supply companies, which is not compatible with a fully liberalised market.
On 5 September, the subcommittee, presented comparisons of Japan’s current gas market with other markets (including the UK). The discussion on gas market liberalisation is now focussed on learning from other countries. There is particular interest in promoting business competition and how to regulate to maintain healthy competition. There is interest in UK expertise and experience on gas market liberalisation.
News
Fukushima agrees to host interim storage facility: Government aims to open it in January but needs to persuade 3,000 landowners first. The Japanese government is planning to store nuclear waste at the site for a maximum of 30 years, before transferring them to a final disposal site outside of the prefecture. The government will invest JPY 300 billion during the years of operation to support the local community. Climate Change and Energy Policy
Analysis: UN Climate Summit
Japan sees the UN Secretary General’s Climate Summit as a key event to set the scene towards COP 21 in Paris next year. Prime Minister Abe is expected to give a speech. Minister Mochizuki, new Minister for Environment, will also attend.
The content of PM Abe’s speech is yet to be finalised.
Four ministries, MoE, METI, MFA and the Finance Ministry, together have produced a draft text. At the moment, it includes highlighting Japanese climate policies, support for mitigation and adaptation actions in developing countries, Japan’s $16 billion financial contributions to developing countries over three years (2013-2015) and the importance of innovation to effectively reduce global GHG in the long term. Japan may include a reaffirmation of their 80% emissions reduction by 2050 and an indication that they will make a suitable commitment to the GCF. It is not yet clear whether itwill say anything about either the level or timing of their 2030 target
Low Carbon Growth
Analysis: Renewable deployment in Japan
METI’s new energy subcommittee is currently reviewing Japan’s generous feed in tariff (FIT) scheme which has increased the cost to consumers and is imposed through electricity bills. In 2013, the additional costs to households were on average 120 yen per month; this increased to 225 yen/month in 2014. The subcommittee have focused on how to optimise the FIT scheme while taking balance between increasing renewable electricity generation and ensuring affordable costs that consumers can accept. At the subcommittee meeting in August, METI introduced their findings from visits to Denmark, Spain and Germany (regarded as leading countries with ample experience of renewables deployment using FIT) which underlined the importance of taking the balance.
Japanese industry associations on solar and wind power presented the latest data on how they have expanded renewable deployment, while suggesting changes to the electrical grid that would enable further development. The current grid doesn’t have enough capacity for all the electricity that would be generated by the renewables projects that are currently being planned. Hokkaido and Tohoku (north east Japan) have great potential for large-scale wind and solar projects. However, weaknesses of grid connections and capacity, together with a mismatch in frequency between east and west Japan, need to be solved in order to enable nationwide connection.
The government’s new Basic Energy Plan released in April encourages wide deployment of wind power, particularly offshore. METI is implementing four offshore wind projects including a floating offshore wind farm in Fukushima. Successful UK policy and business successes including the Contract-for-Difference (CfD) scheme, grid development, successful offshore wind projects and infrastructure development (such as vessels and ports specifically to support offshore wind development) attract METI officials who continuously show interest in learning about EU and UK policy design. There is opportunityfor UK policy makers and business to support further renewable deployment in Japan.
News
METI will conduct a study to find potential CCS storage sites in waters around Japan. METI will also conduct an offshore boreing study starting 2017. METI aims to apply CCS in practice by 2020.
Orix Corporation will invest JPY 300 billion in the next 5 years to construct new renewable energy infrastructure including solar. This will expand Orix’s renewable capacity by 12 times make them the largest renewable power generator.
ANRE provides a grant to build more than 100 fuel supply stations for FCVs in metropolitan areas within the next 12 months
MOE has developed a technology to capture CO2 emissions from incineration, to be deployed from next year. The technology will separate CO2 from other gases and so that it can be stored underground or used to grow plants.
KEPCO have installed more than 3 million smart meters in the Kansai region, and is planning to install a further 10 million by the end of FY2020.
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