Japan Should Continue Its Road Towards Renewables

The power sector crisis in Japan has entered a new stage. The recent refusal of Japanese utilities to grant grid access to new renewable energy projects should not be seen as a failure of Japan’s renewable energy policy, but as a consequential and necessary phase to extend Japan’s technological leadership into the power sector.

Through its feed-in tariff for renewables projects, Japan catapulted from a laggard into a frontrunner of renewable energy deployment in less than two years. From July 2012 to the end of June 2014, more than 11 gigawatts (GW) of renewables were installed and an additional 60 GW of renewable projects have been approved. In comparison, Japan’s total installed power generation capacity equates to around 280 GW.

At a national level, the renewables contribution (4 percent) is also much lower than the renewables contribution to power production in other countries. Although Japan’s grid infrastructure is unique, small countries like Denmark (47 percent), industrial power houses like Germany (25 percent), and relatively isolated countries like Portugal (58 percent) have achieved much higher annual penetration shares.

So why are Japanese utilities calling for an indefinite time-out to review the impacts of renewables on the stability of the grid? The main technical challenge for Japan lies in its grid infrastructure, which is essentially broken up into 10 separate grids, each operated by a separate monopolistic utility. Although there are interconnections in place, the utilities have traditionally tried to balance supply and demand within their own region and cross-regional trade accounts for less than 5 percent of all power consumed. A more formidable technical barrier is the fact that half of the country operates at 50 Hz while the other half operates at 60 Hz electricity frequency.

Indeed, with large wind resources in northern Japan and demand centres in the South, new grid extensions are needed to ensure that the almost zero-cost production of wind can be used to replace the expensive and import-reliant coal, gas and oil-fired power stations in the South. However, such extensions are also expensive and unaffordable for those utilities that are already cash constrained. The imminent establishment of a national grid operator, which will take over the responsibilities for operating the grid and supporting interregional trade in March 2015, adds to the inaction of utilities today.

However, this is not the full picture. Only 0.074 GW of wind has been installed in the last two years and only 1 GW of wind capacity is in the pipeline. Almost all (98 percent) of newly installed projects in the last two years are solar photovoltaics (PV). Solar PV can be installed locally and its production patterns, especially in summer, are perfectly compatible with the peak in electricity demand for air conditioning on hot days when the sun is shining. Residential rooftop PV, which accounts for 2.4 GW or 22 percent of installed capacity in the last two years, perfectly matches demand profiles and can reduce the need for more expensive options to balance the grid. Furthermore, community-scale systems (up to 50 kW) require certified inverters, and installations above 50 kW are subject to a permitting and consultation process with the local utility to determine the connection to the grid and inverter choice.

In essence, this means that grid operators have a number of possibilities to ensure that solar PV systems and other renewables are adequately integrated into the grid. Moreover, Japanese companies are technology leaders in a whole suit of technical solutions that can aid utilities in the integration of renewables into the grid. These technological solutions include smart grid technologies, electricity storage solutions like batteries and flywheels, fuel cells and microgeneration to name a few. Widespread deployment of such advanced technologies at home will open up markets abroad.

But the challenge is not only a technical one. Japan’s Diet passed the Electricity Business Act on 11 June. This Act fully opens the retail electricity market to so-called Power Purchaser and Supplier in 2016. This means that any company is now allowed to sell electricity, including to households. This opens up a new market for companies like real-estate companies, IT suppliers, gas suppliers and other service providers to 84 million customers. Together with the rise of independently owned generation capacity, this could mean that utilities are caught between a rock and a hard place.

In all, it seems that the 10 utilities are currently caught in a perfect storm. They have experienced an influx of companies developing new power generation, they are cash constrained due to the shutdown of their nuclear power stations after Fukushima in 2011, they face imminent investment to ensure interconnection options and upgrades of their existing grids, they will be subject to economic competition from newcomers on the market, and there are also plans to unbundle them.

Now, the question is whether one-sided action from the utilities to refrain from connecting new renewables projects to the grid will remove these clouds? An alternative is to take a longer-term perspective. This means that the short-term commercial constraints of the utilities need to be recognised, but that all stakeholders need to work together towards a 21st century grid that will turn Japan from a resource-importing country to one that will be relying on its own natural resources.

Because progress on renewables is expected to continue. Before 2016, solar PV panels on Japanese households may be cheaper than buying electricity from the grid. Wind resources are abundant and can considerably contribute to the cheap power needed to maintain a competitive industry. The many existing small hydro plants can be upgraded to provide reliable and flexible back-up generation, biomass and geothermal resources are available to provide low-cost heat, and Japan’s oceans provide abundant natural resources through offshore wind and ocean energy technologies. Japan has 25 GW pumped hydro electricity storage capacity that is idling due to the nuclear shut down, perfectly suited for storage of surplus solar PV electricity.

Considering this future, it is important that instead of a stand-off all stakeholders come together to resolve the current issues and look forward towards a bright future. The engagement of Japanese academics in a new Committee examining the grid stability issue is indeed a good start. Important lessons can be drawn from best practices abroad where grid issues have been resolved, for example in Germany and Italy. And once the current situation is resolved, Japan should take its experience and manufacturing know-how and bring its solutions to other countries that soon will also be transforming their power sector.

Lead image: Japan flag via Shutterstock

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