Post-Fukushima Renewable Energy Market in Japan – Red Hot

Francisco A. Laguna & Wojciech Kornacki

This week, we start a three-part series on the Post-Fukushima energy market in Japan.  This week, we focus on opportunities in the renewable energy sector; the following blogs will look at general energy security.

On March 11, 2011, a powerful earthquake and tsunami with 13 feet high waves caused significant flooding at Fukushima I Nuclear Power Plant.  The following day, the plant began releasing radioactive materials into the environment.  This was the largest nuclear disaster since Chernobyl in 1986.  The Japanese government has evacuated approximately 300,000 people from the affected area.  In early 2013, the World Health Organization reported that the general population in and outside of Japan had little-to-no health risks associated with the nuclear disaster.  However, the nuclear disaster prompted the Japanese government and businesses to look for other sources of energy, thus creating opportunities for entrepreneurs in the renewable energy and energy conservation market in Japan.

According to the Brookings Report, “After Fukushima: What’s next for Japan’s Energy and Climate Change Policy?”, in 2012, approximately 9 percent of all energy in Japan was generated by renewable energy.  At the same time, nuclear energy was used to meet approximately 30 percent of the total energy demand in Japan.  Mainichi Weekly reports that as of December 2013, all 50 commercial nuclear power plants are shut down and undergoing safety inspections.  Chart 1 “Electricity Production in Japan” shows a dramatic decline in nuclear energy production following March 2011.

UntitledChart 1: The opportunity for renewable energy production and energy conservation is created by three main factors: (1) the shutdown of 50 nuclear plants after 2011; (2) the dramatic increase in the imports of fossil fuels; and (3) no domestic reserves of fossil fuel.  Courtesy of www.wikipedia.org.

By 2020, the Japanese government aims to increase its use of renewable energy sources to meet 20 percent of the total energy demand.  Recently, the Japanese government has legislated that electric utilities must purchase energy from renewable energy suppliers, and it set the payments for renewable energy extraordinarily high.

The Feed-In-Tariff

Untitldfsfed According to the Agency for Natural Resources and Energy’s briefing, the Japanese government established the feed-in tariff that requires the electric utilities to purchase renewable energy from suppliers at a fixed price.  The Government-initiated tariff will force electric utilities to pay to renewable energy suppliers approximately ¥ 42 (~ US$ 0.41) per kWh for the next 20 years.  According to the Japan Times, this is twice the rate in Germany, which makes it very profitable for suppliers. The cost will be transferred to the customers.  The tariff mandates the purchases of the following types of renewable energy: (1) solar PV: (2) wind power; (3) hydraulic power; (4) geothermal power; and (5) biomass.  This tariff created the mandatory demand for renewable energy.  It has already had the effect.  In 2012 alone, Japan created 7,000 MWp of solar energy – the greatest number in the last decade.

The Government initiated tariff will force electric utilities to pay to renewable energy supplies approximately ¥ 42 per kWh for the next 20 years.  According to the Japan Times, this is twice the rate in Germany, which makes it very profitable for the renewable energy supplies.

Photovoltaic power

The use of photovoltaic power has been steadily increasing across Japan.  Photovoltaic power converts solar radiation into direct current electricity.  The Agency for Natural Resources and Energy reports that approximately 90 percent of the total combined renewable energy capacity has been created by photovoltaic power facilities.  Since this is the primary capacity source of Japanese renewable energy, the photovoltaic power energy sector is expected to grow in the future.

Wind, Hydraulic, and Biomass power

vvUntitled Wind power is difficult to harness in Japan because of the changing winds and strict environmental protections.  While Japan has over 1,000 wind turbines, placement restrictions and other factors adversely affect the growth of the wind power industry in Japan.  Japan is also one of the leading hydraulic energy producers in the world.  However, hydraulic power requires significant upfront resources, and the equipment must be replaced every 40 to 60 years. Thus, any expansion in the wind and hydraulic sectors would require significant up-front investments.

On the other hand, biomass uses organisms or plant-derived materials that absorb carbon dioxide.  Japan has a sizable population located in high density areas and approximately 70 percent of consists of forests.

Japan lacks natural resources, has high electricity demands, and seeks to limit its reliance on nuclear resources by relying more on renewable energy.  This creates numerous opportunities for investors and entrepreneurs in the energy market.  While photovoltaic power capacity has increased dramatically in the last year, biomass energy has a promising future in Japan as well.  Contact TransLegal to learn the details about the renewable energy opportunities in Japan.

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