Renewables Update

Great Achievements of Feed-in Tariff and Challenges for Japan’s Renewable Energy Policy in Japanese

5 September 2014 Mika Ohbayashi, Director, Japan Renewable Energy Foundation

Two years have passed since Japan introduced a Feed-in Tariff (FiT) system in July 2012. In this summer, the government set up a sub-committee on new energy to start discussing the renewable energy target and the current status of the FiT. There are, however, some problems. One of the defects is the membership of the sub-committee, which does not include experts familiar with renewable energy policy. Another problem is the misleading of direction of discussion. The unknown issue such as “total volume control of renewables,” which has not been mentioned at the sub-committee, has repeatedly appeared in the media and has been referred to by the chairperson of the sub-committee. This is generating a false impression that a decision has been made that the FiT should be totally revised. What we need to do now is improve Japan’s FiT system for further deployment of renewables, by recognizing what we have achieved over the last two years.

Japan Renewable Energy Foundation (JREF) has published a discussion paper to review the achievements of the FiT system and point out the problems of Japan’s renewable energy policy. This article provides a summary of the paper. ⅰ 

According to the latest available data on the installed capacity by the end of April 2014, approximately 10 GW (precisely 9.77 GW) of renewable energy capacity has been installed and started operation in less than two years under FiT. Renewables have been deployed at a much faster pace than in the previous ten years, the fact that demonstrates big influence of the FiT to stimulate the market.

Under the Renewables Portfolio Standard (RPS) system started in 2003 in Japan, an estimated capacity of approximately 7.8 GW has been installed for ten years, of which some 5 GW come from solar PVs. ⅰ  In the FY2013 only, Japan’s FiT helped install a capacity of more than 7 GW, roughly the same as what the RPS has achieved so far.

During the ten years from FY2001, renewables and other new energies made only a slight increase in the share of total power generation, with growth up 0.4 percentage points from 0.7% to 1.1%. After the introduction of the FiT, their share went up to 2.5% in FY 2013, and reaching 4.4% in April-May 2014.

The increase of renewables also helped restrain the increase of electricity from fossil fuel. In FY2013, renewables brought reduction effects of 325.7 billion JPY fuel cost and 12.34 million tons of CO2 emissions (both in oil-equivalent terms). It is estimated that renewables also created approximately 280,000 new jobs.

That has also come with significant RE system cost reductions. The system cost of solar PV, which was said to be relatively higher than other energy sources, has declined by 30 to 40 percent. The installation cost for residential solar PV less than 10 kW, which stood at 598,000 JPY/kW in the 1st quarter of 2010, has declined by as much as 33% to 394,000 JPY/kW in the same quarter of 2014. The trend can be also seen for more than 10 kW systems. The installation cost for the 10-50 kW band, which stood at between 600,000 JPY/kW and 700,000 JPY/kW in both FY2009 and FY2010, falling dramatically in FY2012 and FY2013 to 421,000 JPY/kW and 383,000 JPY/kW, respectively. This downward trend is assumed to continue and indicates that rooftop solar PV will possibly cost less than the residential electricity utility rate by 2016.

As seen in previous examples in other advanced countries, the FiT made the active participation of a diversity of players, such as business operators coming from outside the conventional energy sector, as well as local governments and citizens in Japan. It has turned renewables that take root in local communities into a business accessible to general public.

Meanwhile the limits of “Japan’s FiT system” are coming to the surface.

The serious problem is little growth in renewables other than solar PVs. Especially, onshore wind power, a source of electricity already comparable to fossil fuel overseas as one of the most competitive, shows no increase in deployment, or rather some decline after the FiT system having come into operation: a puzzling situation.

One of the issues that has much to do with the growth of wind power is the “grid connection.” Operation of grids by power utilities that own generation facilities is obviously problematic in securing fair management in grid connection. JREF considers that grid connection may be restricted by a limited capacity of power grid systems, but under the current Japan’s situation, the rules for grid operation play a very important role and have greater influences on connecting renewables to the grid.

Another problem lies in the facilities approval process that has so far granted as much as 70 GW capacity of solar PV systems. At present, once they are approved, there is no specified deadline for them which must come into operation. The process allows a large number of projects that obtained approval with past high feed-in tariffs to be put in mothballs long time. This situation is feared to weaken the incentive to reduce cost.

To catch up with the rapid falls in the costs stated above, improvements must be made in the disclosure of information about present installed capacity and costs, as well as accounting information of surcharges for flexible operation of the scheme.

Another point which is quite critical for the improvement of the FiT system is setting a high renewable energy target for a comprehensive and unified policy for renewables. Together with FiT system, the ambitious target works as a guide for market formation to develop conditions that make the market easier for potential operators to participate in.

In addition, to prevent high cost introduction of renewables, “avoided costs” must be adjusted appropriately, reduction and exemption schemes of surcharges must be revised. Some measures must be taken for quicker reflection of renewables system cost reductions to the tariff. The approval process and the actual state of facilities that have yet to come into operation also need to be assessed.

As described above, the discussion paper confirms the achievements of the Japan’s FiT system and points out the challenges of making renewable energy more prevalent in Japan.

Based on the discussion paper, JREF will exchange opinions with a diversity of stakeholders to propose more specific improvement measures.

 ⅰ  The discussion paper is only available in Japanese.
“固定価格買取制度2年の成果と自然エネルギー政策の課題,” JREF, 2014
 ⅱ With no uniform data publicly available, the figure was estimated based on several sources of data. For PVs, the “EDMC Handbook of Energy & Economic Statistics in Japan,” the Institute of Energy Economics, Japan, 2013, and “Shipment Statistics of PV Modules” by the Japan Photovoltaic Energy Association; for wind power, “Trends in the Introduction of Wind Power in Japan,” the New Energy and Industrial Technology Development Organization, 2014; for medium & small hydropower, data from the Agency for National Resources and Energy, 2014; and for biomass and others, he “EDMC Handbook of Energy & Economic Statistics in Japan,” the Institute of Energy Economics, Japan, 2013, and data from the Agency for National Resources and Energy, 2014.