The need for a market access system for renewable energy
Japan’s Feed-in tariff system will soon mark its third year, with a new price setting introduced from April. Since the introduction of the system, there has been great growth in solar power generation in Japan. According to currently available data up to November 2013, Japan’s power generation through renewables excluding large-scale hydropower exceeded 27 GW. Solar power generation greatly increased, from 5.6 GW before the introduction of the feed-in tariff, to 6.26 GW 16 months later.
The introduction of the Feed-in tariff has attracted a wide variety of businesses to renewable energy, which has expanded the market and activated the community power movement in local areas. Solar power generation in Japan, which was previously mostly for individual residences, has finally become a business aimed at selling generated electricity. As Michael Rogol wrote recently, the activation of the domestic market enabled Japan’s solar sector to achieve significant revenue.
But the growth of renewable energy other than solar power remains stopped. In the case of wind power, growth in FY2013 will likely be the lowest in ten years, a situation difficult to believe.
The feed-in tariff system obliges electric power suppliers and transmission companies to buy electricity generated by renewables at a specific price for a certain period. In countries and regions which have been successful in introducing renewable energy through feed-in tariffs, a necessary condition has been stable continuation of purchase (that is, mandatory purchase), to ensure long-term feasibility. This began with the example of the combination of the Public Utility Regulatory Policies Act (PURPA) and the fixed tarrif of the State of California, a pioneering prototype which enalbed California as the leader of wind power in several decade.
It is an old story, but in the mid-1990s, when wind power generators began to appear in Japan, electric power companies overturned the previous “surplus electricity purchase menu” i and introduced a new system that set the buying price of surplus electricity from wind power generators for business purposes at 15 yen, and reviewed the purchase contract every year (at that time, the purchase price was lower than the current fixed price, because then there were subsidies available for installation of wind power). Although there have been no cases of refusal of contract, an annually reviewed contract leads to the impression of business instability, which makes financing difficult. At the time, as wind power generation in Germany grew through the Feed-in Law, the prototype of the current Renewable Energy Act (EEG), we began a movement to call for the introduction of a feed-in tariff along the lines of California and Germany. Long-term connection of power system was an important condition.
At this time, renewables began to gain momentum in Japan, influenced by factors including the Kyoto Conference of the Parties to the United Nations’ Framework Convention on Climate Change (COP3). Urged by these discussions, the power companies introduced a “long-term purchase menu.” This set that the utilities would buy all electricity generated by wind power generators for business purposes for 15 or 17 years, but the purchase price was significantly decreased to 11 yen. What happened as a result? Even at that price, many wind power generators rushed to the long-term purchase menu of Hokkaido and Tohoku. Surprised by the response, the power companies soon abolished the unconditional purchase menu, imposed limits on connection to the power system, and thus restrained the growth of wind power generation. They announced purchase limits and implemented lotteries or public biddings accordingly. The national government concurrently introduced the purchaser-oriented renewable portfolio standard (RPS) system, not mandatory purchase by the feed-in tariff. Japan’s RPS system, obliged the power companies to supply or produce renewable electriciy at very low level (e.g. 1.34%), forcing each renewable energy source into competition with one another under the level.
Today, a similar situation is being repeated. A survey by our Foundation clearly shows problems for solar power generation for business purposes, caused by negotiations with power companies over connection to the power system. These are cases such as refusal of connection, being forced to review business plans including possible scale-down and retreat of business because of prohibitively high construction costs, or overly slow responses or construction meaning business operations could not start. The introduction of solar power is now also beginning to face limitations.
Looking back on only two years’ experience of the unrestricted long-term purchase menu, I can say that a high purchase price alone cannot guarantee the deployment of renewables, and a secure connection to the power system must be assumed before business can be started.
Overseas, the feed-in tariff means mandatory purchase. Revision of Japan’s feed-in tariff should not be limited to price. Information disclosure and upgrading of power grid are of course important, but first, it is necessary to to improve conditions for connection to power systems.
i Voluntary efforts by electric power companies to purchase electricity from renewable energy sources, assuming primarily solar (excluding self-consumed amount) aboveat 20 yen, the same price as the electricity rate. The menu obligated generators to self-consume more than 51% of the electricity generated, so they tried hard to consume electricity, by for example building greenhouses beside windmills.