Japan’s Renewable Energy Policy

Takuya YAMAZAKI

DirectorRenewable Energy Division

Agency for Natural Resources and Energy (ANRE)Ministry of Economy, Trade and Industry (METI)

< 1 >

Japan’s Electricity Market after the Great East Japan Earthquake in 2011

Big Policy Changes after 3.11 : FIT to Renewables

2

FIT was introduced in 2012 and power generated by renewables has rapidly increased.

FIT (¥)

SolarNon-residential

Wind> 20kW

Geo> 15MW

Biomasswood

20162012

40 21

22

26

24

Source: Agency for Natural Resources and Energy

Power generation ratio (%)

25% 28% 32%

29%42%

42%7%

18% 9%29%

2%2%

10% 10% 15%

0%

20%

40%

60%

80%

100%

2010 2012 2016

RenewablesNuclearOilLNGCoal

(Regionally-Segmented Market before 3.11)

3

Japan is divided into 10 regions, each of which is operated and controlled by a regional electric power company with little cross-regional demand-supply coordination.

Hokkaido5 GW

Tohoku14 GW

Kansai26 GW

Hokuriku5 GW

Kyushu15 GW

Chugoku11 GW

Shikoku5 GW

5.57GW16.66GW

5.57GW 2.4GW

5.57GW0.3GW

0.6GW

12.62GW

1.2GW

DC Tie line

BTB

DC Tie lineChubu25 GW

Tokyo50 GW1.4GW

Frequency in West: 60Hz

FC

*DC: direct current, FC: frequency conversion

Frequency in East: 50Hz

*The figures below indicates the maximum electricity demand in 2015.

Big Policy Changes after 3.11: Market Reform

4

Power Generation

Transmission &Distribution

Retail

Big EPCOs will be mandated to unbundle

T&D sector in 2020

Power Generation

Transmission &Distribution

Retail

Retail market was fully deregulated in 2016

Hokkaido

Tohoku

Kansai

Hokuriku

Kyushu

Chugoku

Shikoku

Chubu Tokyo

Okinawa

Established OCCTO* in 2015 to promote cross-regional

electricity transmission

*Organization for Cross-regional Coordination of Transmission Operators

Renewables in Japan< 2 >

Trend of Renewables since 2003

6

RES, particularly solar, have rapidly increased since FIT introduction in 2012.

0

1000

2000

3000

4000

5000

6000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Solar PVWind powerMiddle and small hydropowerGeothermalBiomass

39GW

3.4GW

9.9GW

0.5GW3.2GW

Average annual growth rate

5%

Average annual growth rate

9%

Average annualgrowth rate

26％

Source: Agency for Natural Resources and Energy

Capacity of renewables (GW)60

50

40

30

20

10

0

New Political Targets on Renewables

7

0%

20%

40%

60%

80%

100%

2010 2016 2030

Renewables incl.hydro

Nuclear

Thermal64%

26%

10%

83.8%

1.7%

15%

56%

20-22%

22-24%

Japan will aim at increasing power generated by renewables up to 22-24% by 2030 and “will make renewables primary generation source”.

Hydro: 8.8-9.2%Solar: 7.0%Wind: 1.7%Biomass: 3.7-4.6%Geothermal: 1-1.1%

Power generation ratio (%)

Challenges< 3 >

Challenge #1: High Cost

9

6

122

5

2

3

0

5

10

15

20

Euorpe Japan

Equipment cost• High FIT allows multiple intermediaries

to join the market, creating multi-layered distribution system.

Construction cost• Little flat land and insufficient

construction industry system make construction cost high.

Operation & maintenance• Few experts and little use of big data

lead to high operation and maintenance cost

¥10

¥20

Cost of solar (¥/kWh, 2016)

Source: Agency for Natural Resources and Energy’s analysis based on data by Bloomberg New Energy Finance

It costs a lot to produce power by renewables in Japan.

Challenge #2: Grid Constraints

10

While power generated by renewables greatly vary due to geographical and climate reasons, regional monopoly, which prevents national-level demand-supply adjustment, creates overcapacity in some regions.

Hokkaido

Tohoku

Kansai

Hokuriku

Kyushu

Chugoku

Shikoku

Chubu Tokyo

Okinawa

6.45GW 81% of

demand

Power generated by solar reaches 80% in Kyushu area.

Challenge #3: Unbalanced Mix

11

94.1%

2.1%3% 0.04%

SolarWindBiomassGeothermal

RES integration after FIT started (%)

Source: Agency for Natural Resources and Energy

Unbalanced introduction of renewables has proceeded after FIT started in 2012.

Responses to Challenges

12

High cost

Grid constraints

Unbalanced mix

Introduce auction system to FIT.• Solar : introduced (¥21/kWh → ¥17/kWh)• Biomass : planned

Promote further cross-regional adjustment through OCCTO Introducing implicit auction for interconnections Started the “Connect & Manage” scheme

Set three-year tariffs for geothermal and biomass Promote offshore windmill through providing rights to use

sea area to lowest-bidding power generators• Submitted the bill to the Diet to be discussed

13

Current Status of Bioenergy

0.05 0.160.42 0.240.640.48

0.37

1.89

1.24

0

1

2

3

4

5

6

7

Before FIT(2012)

After FIT(2017)

2030

Municipal wasteConstruction wasteGeneral woodThinned woodMethane gas

Installed Capacity of Biomass (GW)

Introduce more biomass without subsidies (→ combined heat and power (CHP), larger scale development)

Ensure stable procurement and sustainability(→ stringent verification)

2.3

3.5

6.0-7.3

2.7-4.0

Thank you very much