Renewables Update

How fast can costs come down in Japan? in Japanese

8 May 2017 Tomas Kåberger, Chair of Executive Board, Renewable Energy Institute

Off-shore wind power has been expensive. More expensive than producing electricity from fossil fuels, and sometimes compared to new nuclear power in Europe. However, in the last year, several European countries have been procuring electricity from off-shore wind at rapidly falling prices.

In July 2016, Danish power company Dong won the competition to build off-shore wind by the Dutch coast at a price of just 70 €/MWh. At the time this was considered very cheap. Two months later in September Swedish Vattenfall won a similar bidding process by the Danish west coast by ordering electricity at around 60 €/MWh, and another two months later won the bidding by the Danish east coast offering power at less than 50 €/MWh.

In April 2017 the German tendering process ended for some areas off the German north coast. The lowest bid for two of these areas came from Dong offering power at market price, they intend to out-compete other power plants anyway. It is difficult to know what they expect the market price to be. But available market future prices are in the order of 30-40 €/MWh.

From a Japanese perspective these costs all appear incredibly low. Current feed-in tariff for off shore wind in Japan is 36 yen per kWh, which is 290 €/MWh. Why does European offshore wind power cost less than 20% of the Japanese?

There are three categories of reasons: Grid owners in Europe have the task of helping new generators in order to provide electricity to the customers. Authorities in Europe are instructed to proactively find areas suitable for offshore wind power. And finally European offshore wind energy industry has had the opportunity to practice and is quickly learning to build with efficiency and to utilise economy of scale during construction and operation of the plants.

In Japan the situation is almost the opposite: Grid owners are the owners of the old power stations that do not want competition from new generators with low costs. Authorities are restrictive and potentially competing interests are left to fights with unpredictable while authorities demand extensive investigations by the potential investors – again with unpredictable outcomes as legislation is unclear.

But the most important factor is industrial competence. The special costs created by grid owners and authorities in Japan has effectively hindered the Japanese industry from practicing and learning to provide low cost electricity from offshore wind power.

As a result Japan’s electricity consumer will not enjoy low cost electricity and Japanese industry will not gain the experience to contribute to the growing global market for off-shore wind power installations.

This may be changed. In fact, global industrial competition will force Japan to provide low cost sources of power, sooner or later, in order for Japan to stay competitive and wealthy. Let it be sooner!