[Column Series] Key Issues to Address in Japan's Strategic Energy Plan (No.12) Strategic Energy Plan for 2040: Three Main Challenges for Japan

in Japanese

[Special Contents] Key Issues to Address in Japan's Strategic Energy Plan

(Japanese original published on 23 January 2025)

This weekend, Sunday, January 26, public consultation on the 7th Strategic Energy Plan (draft), Plan on Global Warming Countermeasures (draft), and the GX2040 Vision (draft) will conclude.

In this column, we would like to compare the Draft 7th Strategic Energy Plan issued last December with the 2040 scenario of the Renewable Energy Institute in order to promote understanding of the future it indicates.

1. Issues of the Draft Strategic Energy Plan: Self-sufficiency, Cost, and Uncertainty

We believe there are three issues with the current draft of the 7th Strategic Energy Plan. They are self-sufficiency, cost, and uncertainty.

(1) Self-sufficiency

According to the government's draft, the self-sufficiency rate will increase to 30-40% in 2040, compared to 13% as of FY2022, when it is considered as primary energy. On the other hand, under the Renewable Energy Institute's scenario, the self-sufficiency rate in 2040 is about 75%. A high self-sufficiency rate is important for energy security in the face of increasing geopolitical risks.

Figure 1　Primary Energy: Comparison of Government draft and REI (Renewable Energy Institute) Scenario for FY2040

The difference in self-sufficiency is largely due to the difference in the share of renewables in power generation. The government's draft calls for a 40-50% share of renewables, a ratio that has already been achieved in Europe by 2024. According to the IEA's forecast in 2023, the share of renewables in China's power supply mix will reach around 50% by 2028¹, and the 40-50% share of renewables in the power supply mix in FY2040 is very low by international standards.

Figure 2　 Electricity generation mix in the government draft and the REI scenario in FY2040

Wind power generation is particularly small in the government's draft. According to Mitsubishi Research Institute (MRI), the area of potential sea area with a power generation cost of less than 10 yen/kWh, which is assumed to be highly feasible, is estimated to be equivalent to 70 GW of implantable type offshore wind and 1,477 GW of floating type offshore wind by 2050.

Figure 3 shows the results and comparison of the model analysis presented by the six organizations at the Strategic Policy Committee meeting to discuss the Strategic Energy Plan. The amount of wind power installed in the government draft (the range of light blue horizontal wide bars) is lower than the minimum of any of the six agency scenarios where the installed capacity is disclosed².

Figure 3　 Comparison with government draft, 2040 scenario by 6 organizations presented at the council, and REI scenario: wind power capacity

REI used Hitachi Energy's PROMOD, which was used to study the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) Master Plan, to perform hourly simulations for one year (8760 hours), taking into account various constraints in the power system. One finding derived from this is that a balance of solar and wind power, rather than solar power alone or wind power alone, together with other flexibility such as storage batteries, transmission lines, and demand responses will provide an efficient and stable supply of electricity supplied mainly by renewables.

(2) Power Generation Cost: Government’s draft is high due to high ratio of “Zero Emission Thermal Power”

Finally, power generation costs were calculated for the government draft and the REI scenario. The cost assumptions used are those of the government's Working Group on the Cost of Electricity Generation, excluding “policy costs”. For more information on the issues around the result of the Working Group on Power Generation Cost Verification, please refer to the presentation by Prof. Keiji Kimura (p. 19-), Researcher of REI, and Associate Professor of  Osaka Sangyo University from REI's New Year Seminar held on January 21, 2025. He explained that the historical cost estimates of solar and wind by the working group has been higher than the actual result of cost, and it is likely that cost estimates by the working group this time is also going to be higher than the future actual costs of solar and wind.

Even using these conservative assumptions for the cost of renewables, the overall cost of electricity generation in the government proposal would be higher than in the REI scenario（Figure 4). The cost of hydrogen and ammonia does not take into account the cost of hydrogen-specific facilities, such as newly developed hydrogen combustors and hydrogen storage tanks, and assumes that “various factors such as capital cost and operation and maintenance costs are the same as for LNG-fired power plants.”³ Therefore, we see a high possibility that the actual cost will rise. Even with that lower cost assumption, the cost would be higher than in the case of mainly renewable energy.

Figure 4　 Comparison with government draft and REI scenario: Power Generation Costs 

The rightmost bar in Figure 4 also shows the added storage battery, transmission line, and pumping costs (orange shaded area). On the other hand, the draft Strategic Energy Plan document states that the “integration cost” of solar power is more than twice the cost of solar power when the integration cost is added. This integration cost allocates the entire increase in system costs to solar when a small increase in solar is added to an imaginary future power supply mix, and this estimate does not take into account demand response, an important flexibility that is key to the integration of renewables into the power system.

The cost of the energy system as a whole is clearly lower in the scenario centered on renewables, as evidenced by the fact that the “More RE Case” in the government's draft estimates has lower emission reduction costs than the “More Hydrogen Case” and “More CCS Case”.

(3) Uncertainty

How much renewable energy can be introduced will largely depend on policies. On the other hand, solar and wind power (especially onshore wind power and implanted offshore wind power) are already being introduced in many parts of the world, and are proving to be mature technologies with low costs if the policy conditions are right. In other words, the only uncertainty lies in the amount of introduction through policy.

On the other hand, hydrogen and ammonia-fired power plants and CCS-equipped power plants are still in the demonstration stage, and there is a high degree of uncertainty not only about the constraints on their introduction, but also about their costs. The actual cost of CCS may be far from the current cost estimates, as it will require storage sites and monitoring to prove that there is no leakage.

As for nuclear power, there is a high degree of uncertainty about the realization and cost of both restarting and replacing nuclear power plants due to local opposition and new upgraded safety regulations.⁴

2. Now is the time to gear up toward future with high energy self-sufficiency and regional development through renewable energy

Budget and policy resources are limited. In a net-zero emissions world, hydrogen and ammonia-fired power plants will be needed as high value power plants that will be needed several times a year. However, we are at the crossroads of whether to expect a large amount of them, 30-40%, or whether to steer the system toward a focus on inexpensive domestic renewables while implementing a coal phaseout as policy, along with solid compensation and reskilling programs.

The number of companies participating in SBTi (Science-Based Targets initiative) has exceeded 10,000 worldwide, and since scope 3 is a standard part of SBTi targets, in order to be selected as a supplier and a customer, we need to achieve reduction targets in line with 1.5°C, In the future, we will also need to achieve them. It is hard to argue that the same decarbonization would be preferable in the direction of lower costs and greater self-sufficiency. Even in simulations that include quantitative power system constraints, supply can be primarily from renewables.
 

[Special Contents] Key Issues to Address in Japan's Strategic Energy Plan