Issues and Challenges to
the Basic Energy Plan of Japan the Basic Energy Plan of Japan
Presentation at Session 1 in Korea-China-Japan Joint Energy Conference For KEEI’s 28th Anniversary Celebration
September 25th, 2014 Ken Koyama, PhD Ken Koyama, PhD
Chief Economist, Managing Director Institute of Energy Economics, Japan
©2014 Institute of Energy Economics, Japan
Emerging landscape with Emerging landscape with
regard to energy security/sustainability
Over 100$ crude oil price after 2011
Growing energy demand in Asia and its implication to global g gy p g energy security
Emerging concerns for energy supply constraints
Geopolitical risks, resource nationalism and issues of market power
O i “MENA i i ” “I i i i ” Uk i i i t
Ongoing “MENA crisis”, “Iranian crisis”, Ukraine crisis, etc.
Lack of timely investment in resource development
Importance of stability of energy transportation
Environmental challenges for sustainability
Environmental challenges for sustainability
Climate change and global environmental problems
Local and regional environmental problems
Unprecedented impacts of “March 11th” p p (East Japan Great ( p Earthquake and “Fukushima Daiichi accident”)
2
Impacts of Unconventional Oil & Gas Development
Impacts of US Shale Gas Revolution
Impacts of US Energy Independence
Energy challenges for Japan Energy challenges for Japan
ft
ft “ “M M h 11th h 11th” ” after
after “ “March 11th March 11th” ”
Top priority: stabilization of “Fukushima Daiichi”
Restoration and reconstruction of damaged energy related facilities/infrastructure
Power shortage: emerging serious problem
To increase power supply capacity
To enhance energy (power) saving and efficiency improvement gy (p ) g y p
To secure fuel procurement for increased fossil fuel power generation
Negative Impacts on Japanese economy (Increased outflows
Negative Impacts on Japanese economy (Increased outflows of National wealth, hollowing out of industry, etc.)
Re establish Mid and Long term energy policy/strategy
Re-establish Mid and Long term energy policy/strategy
Need to establish contingency planning
LNG-fired power generation accounts for 50% in FY2014 accounts for 50% in FY2014
Share of coal-fired generation also increases to 29%. Thermal power generation in total, however, is slightly below than the peak in FY2013.
LNG generates 20% more electricity in FY2015 than before the earthquake although share of thermal power generation shrinks to 76%
Power generation mix for utilities
100%
although share of thermal power generation shrinks to 76%.
17% 13% 10%
31%
12%
2% 1% 2%
15%
8% 9% 8% 8% 9% 9%
80%
100%
New energies Hydro
49% 50%
6%
13% 6%
31%
60%
Hydro Nuclear
32%
43% 48% 49% 50%
42%
40% Oil, etc.
LNG
23% 24% 25% 28% 29% 27%
20%
LNG Coal
（Source） IEEJ Short-term energy outlook for Japan (July 2014) 4
0%
2010 2011 2012 2013 2014 2015
Current Situation on the ３ Es and macro economy
Reduced nuclear power generation resulted in substantial increase in fossil fuels use and imports, which has serious implications on:
fossil fuels use and imports, which has serious implications on:
Energy Security
→
Fossil fuel imports increase leads to lower energy self-sufficiency (Down from 18% in FY 2010 to 7% in FY 2013 in TPES)Higher import dependency, in particular on Middle East (Qatar) LNG
Power supply reserve margin remain low while thermal power plants in full operation Power supply reserve margin remain low, while thermal power plants in full operation
Environment
→ Increase in fossil fuel use leads to higher CO2 emission
(Up from 1.12 billion ton in FY 2010 to 1.22 billion ton in FY 2013)
Macro Economy
→
Fossil fuel imports increase leads to higher import bill for fuels (Up from 18.1 trillion yen in FY 2010 to 28.3 trillion yen in FY 2013) Increased cost for power generation(Up by 4.4 yen/kWh in FY 2013 as compared to that in FY 2010) I t t d d fi it
Impacts on trade deficit
(5.4 trillion yen trade surplus in FY 2010→Trade deficit of 13.8 trillion yen in FY 2013)
Agenda for Energy Policy
d b /
under PM Abe/LDP Government
Re-start of nuclear power
Best Energy Mix
Cabinet Decision on revised “Basic Energy Plan”
Power Market System Reform
Security of Supply for Fossil Fuels
P ti f R bl E d f th
Promotion of Renewable Energy and further Enhancement of Energy Saving
6
Etc.
Nuclear re-start makes difference Nuclear re start makes difference
Fossil fuel import spending decreases by JPY1.4 trillion if nuclear power generation increases by 120 TWh. Real GDP and gross national income increase by 0.14% and 0.23%, respectively.
Power generation cost decreases by JPY1 600/MWh reducing the risk of further electricity price
Impacts of nuclear power plants’ restart
Power
Power generation cost decreases by JPY1,600/MWh, reducing the risk of further electricity price hike.
Nuclear power generation
(TWh)
generatio costn (JPY/kWh
)
Fossil fuel import spending (JPY trillion)
CO2 emissions
(Mt) importsLNG
(Mt)
14 30
300 ) 95 1 220
13.0 12 3
13 14
27.3 26.7
28
288 30
210
250 300
91
90 89
95
1,193
1 180 1,200 1,220
No Operation Low level 12.3
11.3
11 10.7
12 26.725.8
25.324.8
24 26
124 162 210
150 200
80 77
80
85 1,171
1,140 1,160
1,180 Low-level
Mid-level
10.2
9 10
20 22
42 124
50 100
71
77
70 70
75 1,123 1,133
1,115 1,095
1,100 1,120
,
High-level
Full Operation
7 8 8.2
2010 2014 2015
18 18.1
2010 2014 2015 0 0
2010 2014 2015
65
2010 2014 2015
1,095
1,080
2010 2014 2015
Operation
Proposed Role of Each Energy Source p gy
Primary energies
Despite various issues in terms of supply stability and cost renewables are a (1) Renewable
energies
Despite various issues in terms of supply stability and cost, renewables are a promising, diverse and important low-carbon domestic energy source with no GHG emissions.
Nuclear is a low-carbon quasi-domestic energy with excellent supply stability (2) Nuclear and efficiency which will continue to contribute to supply stability, premised
strictly on safety, as an important baseload source of electricity.
(3) Coal
Coal is an important baselead source of electricity with low geopolitical risk and price per calorie which will continue to be used while efforts are (3) Coal risk and price per calorie, which will continue to be used while efforts are
made to reduce its environmental impact.
(4) Natural gas
Accounting for 40% of electricity sources and playing a central role among intermediate power sources, natural gas is an important energy source whose role will grow as the shift to natural gas accelerates.
(5) Oil
Accounts for slightly over 40% of the primary energies with the highest geopolitical risk, high portability and abundant stockpiles; an important energy source that will continue to be used
energy source that will continue to be used.
(6) LPG
Is a distributed-type and clean gaseous energy source that can be used as an intermediate power source, with relatively low GHG emissions and a closely-integrated supply and storage infrastructure, which will be useful in
Source: “Basic Energy Plan”, April 2014 8
case of emergency.
Discussion on Energy Mix gy
Energy Mix:
Sh ld b tl d h th f t it ti b
Should be promptly announced when the future situation becomes reasonably clear,
taking into consideration the positioning of each energy source, and judging from the situation such as the restarting of nuclear power plants,
introduction of renewable energies based on the feed-in tariff and g international discussions on global warming.
The government will immediately launch an organization to tackle the The government will immediately launch an organization to tackle the specific issues presented in the new Basic Energy Plan and start
discussion.
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Policy Challenges for Nuclear Power y g
Restructuring of nuclear policy
1. Starting point of nuclear policy – sincere regret for accidents at nuclear power plants
• Mistrust and opposition toward the government and operators
2. Efforts to revitalize and restore Fukushima
• The government should take the lead in decommissioning and contaminated water issues. …
For technology and insights, … framework for multinational cooperation with IAEA, OECD/NEA, and others … share with the global community through framework for bilateral cooperation … contribute to enhanced safety …
3. Continuous improvement of safety in using nuclear power and establishment of 3. Continuous improvement of safety in using nuclear power and establishment of
stable business environment
• Break with the “safety myth” … continuous pursuit of safety … conduct probabilistic analysis (PRA), etc. …
• Revising the nuclear damage compensation system from a comprehensive perspective
4 St d l ti f i t ti ti b t th
4. Steady resolution of issues, not procrastinating about them
• Spent fuel is a global common challenge … actions for spent fuel should be drastically reinforced and comprehensively promoted.
• Technological development including reduction of volume and harmfulness of radioactive waste should be encouraged
encouraged.
• The problems of Monjumust be dealt with satisfactorily under government leadership.
5. Establishment of relationships of trust with the public, local governments and global community
Source: “Basic Energy Plan”, April 2014 10
y
• Making use of the opportunities such as the IAEA in response to significant anxiety we have caused in the global community … enhanced dialogue with the global community … ensuring safety while referring to the IAEA standards and the Convention on Nuclear Safety, etc.
Expansion of Renewable Energy and Rising Electricity Tariffs
①Installed Capacity
(MW) ②Purchased power (GW)
③Purchased price (100 million Y )
④Licensed capacity
(MW) power (GW) Yen) (MW)(MW)
After the introduction of FIT
Before the introduction of FIT
After the
introduction of FIT After the
introduction of FIT After the
introduction of FIT
Solar power(residential) 2210 4670 7747 7 3445 2800
Solar power(residential) 2210 4670 7747.7 3445 2800
Solar power(non-residential) 7360 260 5366.4 2227 65620
Wind power 110 2530 8223.7 1712 1070
Medium- and small-scale 10 210 116 3 29 300
Medium and small scale
hydraulic power 10 210 1167.3 297 300
Geothermal 0 0 7.2 3 10
Biomass 90 1130 3713.2 694 1210
Total
9970 8800 26005.6 8377 71010 Consumer burden related to renewable electricity generation is soaring.
Th l b d f h 20 ill h 47 illi b i j h 71 GW
* The figures for each energy are rounded up, and may not add up to the total.
The total consumer burden for the next 20 years will reach 47 trillion yen by operating just the 71 GW capacity installed and licensed as of the end of April 2014. This inevitable burden is equivalent to a 2.7 yen/kWh rise in tariffs, or 16% for industrial and 11% for residential sectors.
The rapid increase in solar power with high purchase price is greatly increasing the burden. The burden will grow further as power sources with longer lead times such as wind power start operation in addition to solar grow further as power sources with longer lead times, such as wind power, start operation in addition to solar power.
Source: Agency for Natural Resources and Energy, “Status of Introduction of
Differences from the Previous Basic Energy Plan (2010) gy ( )
1. From 3E (Energy Security, Environment, Economic Efficiency) to 3E+S (safety) The awareness of S increased significantly after the Great East Japan Earthquake and Tsunami and the Fukushima Daiichi accident
Tsunami and the Fukushima Daiichi accident.
2. From quantitative targets to qualitative policies
Unlike the existing Basic Energy Plan which sets a clear energy mix, the Draft decided not to do so until “the future becomes foreseeable to a certain extent”. Neither do the Opinions include any independent development or GHG reduction targets.
3 Priority in electricity/gas markets reform and restructuring of oil industry 3. Priority in electricity/gas markets reform and restructuring of oil industry
Emphasis put on promotion of domestic competition
4. Energy System resilience
For fossil fuels, the Plan highlights, in addition to efficiency improvement, importance of supply resilience at the time of emergency.
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Japanese Electricity Market Reform Step Japanese Electricity Market Reform Step
2015 2016 2018-2020
First Stage Second Stage Third Stage
2015 2016 2018 2020
National Independent
Transmission National reliability assessment, Nation-wide transmission planning process Nation wide coordination in emergency situation
Organization
Capacity Capacity Obligations and Capacity Market process, Nation-wide coordination in emergency situation
Legal unbundling of
Mechanism Capacity Obligations and Capacity Market
Gas Market Reform
also on the agenda
Transmission Sector and Distribution SectorRegulation tariffs Non-Regulated tariffs
also on the agenda
Full retail market opening
Regulation tariffs Non-Regulated
tariffs
Non-Regulated tariffs (excluding last resort
service) New Regulation
Authority
Conclusion Conclusion
1. The Basic Energy Plan can be credited for redefining the position of each energy and setting the policy direction taking into account the “3E+S” policy and the international perspectives.
2. However, there are outstanding issues. In particular, it is essential to present . oweve , e e e ou s d g ssues. p cu , s esse o p ese the energy mix promptly.
3 For nuclear power to avoid emotional and ideological arguments it is essential 3. For nuclear power, to avoid emotional and ideological arguments, it is essential
to quantitatively and objectively analyze the economic impacts of nuclear utilization.
4. It is critically important to restore confidence in nuclear safety and nuclear policy in Japanese society, and thus, the myth of safety should be abandoned.
5. For Japan, there is no perfect energy source in terms of the “3E+S”. The
