While industry bulls continue to point to Asia as the new frontier for coal, a report published today by the Institute for Energy Economics and Financial Analysis (IEEFA) forecasts that Japanese thermal power generation could decline to 40% below 2015 levels by 2030, and that many of the 45 coal-fired power stations currently in the pipeline will not get built.
Once again, the transition will be predicated on renewable growth, most especially offshore wind and solar, and declining demand.
The consequences will be most keenly felt in the thermal sector and of course by those countries such as Australia for whom Japan is a major export market for fossil fuels.
Government policies adopted in the wake of the Fukushima disaster in 2011 have favored replacement of nuclear baseload with fossil fuel baseload—a strategy that has proven costly and resulted in lost opportunities in the development of increasingly available renewable energy.
At stake in Japan’s energy transition are issues that transcend economics as Japan’s energy security is at risk. Before Fukushima, Japan had enough nuclear fuel to ensure nuclear power played an important role in long-term domestic production of electricity.
Since Fukushima and the reactor shutdowns, the country has become deeply reliant on fossil fuel imports. This has contributed to a reversal in trade balance from 30 years of trade surplus to a deficit that reached US$116 billion in 2014.
However, Japan is in a position now to adopt prudent policy decisions that can attract vast capital to renewable infrastructure in support of true national energy security in a way that can materially reduce its long-term reliance on imported fossil fuels and nuclear production.
This month the Environment Minister flagged the business risk of coal fired plants and the Ministry of Environment recently announced the draft Long-term Plan to Reduce Greenhouse Gas Emissions in which it moots increasing the ratio of low-carbon power sources, including renewable energy to 90% or higher.
Fundamental to IEEFAs assessment is the fact that increases in energy efficiency have driven down electricity demand in Japan over the past six years and will continue to do so.
Energy efficiency in Japan supports the expansion of renewables. Falling demand, despite the probable strong uptake of electric vehicles, creates an ideal scenario for greater renewable energy investment.
Japan stands to gain enormously and in a myriad of ways by adopting an electricity-transition model built on renewables. By taking the renewable energy path forward, it will have overhauled its electricity system by 2030 in a way that will have drastically increased its energy security, reduced its current account deficit and built long-lasting technology capacities in modern industries.
Main findings in the report:
Energy productivity gains will drive down electricity demand from 1,140 terawatt hours (TWh) in FY2010 to 868TWh in 2030. With population decline limiting economic growth and Japan’s world-leading energy efficiency driving further energy productivity gains, electricity demand is set to decrease until at least 2030, as it has done for the past six years.
As Japan reconfigures its electricity industry, solar PV could account for 12% of its electricity-generation mix by 2030, up from 4% at present. Japan was the second largest installer globally of solar PV from 2013-2015, but new policy support by the Japanese government will be required to perpetuate solar growth. A recent move towards reverse auctions for large-scale solar suggests Japan can realise significant further solar cost reductions, like those currently being achieved around the world. If introduced, a policy focus on rooftop solar and ongoing market reforms will expand Japan’s renewables footprint, while large pumped hydro storage capacity and greater regional grid connectivity will help integrate increased solar PV into the still largely regional grids.
Japanese offshore wind-power resources have tremendous potential as technology costs rapidly deflate, and can viably contribute to baseload power demand. While onshore wind development has been slow due to Japan’s lengthy approvals process for the limited suitable land available, significant and overlooked opportunities exist in offshore wind development. Japan has one of best manufacturing industries in the world and one that is becoming more suited to wind-turbine production. Mitsubishi Heavy Industries is currently researching and developing offshore wind technology as well as supplying offshore turbines via its joint venture with MHI Vestas Offshore Wind. Offshore wind’s inherent absence of land constraint issues works in its favour, as do its utilization rates of 45-50%, which indicate it can contribute to baseload power. IEEFA sees 10 gigawatts (GW) of offshore wind in Japan by FY2030.
Japan can meet 35% of its electricity needs with renewables by 2030. Assuming a much-needed policy push to increase solar and offshore wind capacity, and factoring in the country’s probable electricity demand reduction, Japan’s total renewable energy share will double to a 35% share of generation by 2030. IEEFA sees this including hydro and biomass and acknowledges that it depends on the Japanese government delivering on its COP21 pledge. It will require a major lowering of regulatory and grid barriers to renewable energy projects, changes that will allow Japan to tap capital markets to support national renewable energy programs.
Japan’s nuclear industry, mothballed after the Fukushima disaster, will probably not recover. IEEFA sees less than a quarter of Japan’s 40GW of offline nuclear power capacity coming back into service by 2030. Although Japan is seeking to restart nuclear production as a way to diversify its generation mix and improve energy security, the industry will face strong headwinds, as financially distressed operators struggle to achieve new safety standards before reactors reach their retirement dates.
Japan will very likely scale back plans to construct a new fleet of coal-fired power plants. Most of the 45 new coal-fired power plants Japan is proposing to build are still in the planning stages and — because of Japan’s declining electricity demand — many will not reach the construction phase. Whether the proposed coal fleet expansion would add overall capacity or merely replace existing thermal capacity is unclear anyway, and momentum for the initiative is fading. Japan’s major electricity power companies (EPCOs) have recently started to reassess their coal-fired generation plans.
Tim Buckley is Director of Energy Finance Studies, IEEFA