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Clean energy to Japan

(Last updated: 08 Oct 2013)

Trends and opportunities

The market

The devastating earthquake in the east of Japan on 11 March 2011 and subsequent tsunami has caused major disruption and changes to the country’s sources of energy. Japan has faced a serious energy shortage during the past two years due to the complete shut-down of all but two nuclear power reactors (which on 15 September 2013 were also closed-down for scheduled maintenance). Energy costs have surged as a result of the rapidly increased short-term demand for liquefied natural gas (LNG) and coal. The government’s policy in response to this is to restart the operation of suspended nuclear power plants, once they are confirmed as meeting revised, higher safety standards. The timing and extent of recommencement is still unknown. The table below demonstrates the historical importance of fossil fuels to Japan over three decades and the sharp increase in natural gas usage commensurate with the decline in nuclear.

Sources of electric power generation in Japan

Sources of electric power generation in Japan

(Source: The Federation of Electric Power Companies)

 

To diversify its energy mix, the government is moving towards bolstering renewable energy usage. In order to increase supply, a generous Feed-In-Tariff (FIT) regime for renewable energy was introduced by the Japanese government in July 2012. The FIT has sparked a boom in activity. Some projects have already been deployed and there are many more in the pipeline. To date, most announced projects rely on solar PV generation and are based in northern Japan. Investment into projects utilising other renewable energy sources is likely to pick-up speed from a very low starting point. In the longer term, growth in renewable energy may moderate depending largely on Japan’s ability to recommence electrical generation at its nuclear reactors, and the relative cost of fossil fuel alternatives.

The impact of Feed-in-Tariffs

The big impact has been in the sharp increase in renewable energy capacity across Japan, with solar being the predominate source. The FIT regime has triggered a 13GW increase in total renewable energy capacity commitment in the eight months to February 2013 (latest available figures). Of this total capacity, 12GW comes from solar PV power generation. Solar PV projects have been the easiest to deploy quickly as environment approvals are relatively straightforward and there is little, if any, community opposition.

The dominance of solar PV generation is likely to continue despite a recent small downward adjustment to the FIT price for solar, with other tariffs remaining unchanged and still commercially attractive. Japanese government policy is that FIT will remain in place for at least three years and this will ensure continued solid growth.

An on-going challenge facing many of the mega-solar projects in Japan is access to the transmission grid. The issues are both technical (eg. grid stability) and structural. Japan’s Ministry of Economy, Trade and Industry (METI), is working on policies that will separate electrical power production from power distribution and transmission but progress to date has been slow.

Nuclear power generation is likely to be restarted as a means of reducing overall soaring generation costs, and consequently renewable energy will be forced to compete directly. To do so, the renewable energy sector in Japan must both reduce generation costs and increase productivity.

Opportunities

Australian firms, including those with solar PV related technologies, products and services, or other renewable energy technologies such as bioethanol and electricity storage, should consider Japan an attractive market. Additionally, the Japanese market holds potential for Australian firms looking to participate in joint R&D, demonstration projects or even outward investment in the renewables energy sector.

Solar

The biggest winner since the start of the FIT has been the non-residential mega-solar sector. However, less than four per cent of approved non-residential solar capacity has been deployed. There are a number of reasons for this low figure. Some project owners are waiting for the prices of solar PV panels (and other inputs) to drop further. The overall complexity of some of the larger projects means the roll out is more gradual. There is also a general hesitancy amongst some who are waiting for more cost-saving and competitive technologies to emerge. Yet the Japanese Government appears determined to move ahead with renewables. To hasten deployment, it has announced that the approved projects must commence construction within one year, otherwise they will face cancellation.

Australia has started to capitalise on the move towards solar energy in Japan. For example, one Australian company has already succeeded in selling PV mounting systems for non-residential mega-solar projects in Japan. This company’s advantage is their significantly reduced operational costs as their products require minimal on-going maintenance. Current trends demonstrate that it should not stop here for Australia. Australian solar power-related equipment or services that reduce total project costs or improve overall efficiency would be enthusiastically considered by Japanese project owners yet to deploy their projects.

Residential solar is the second biggest growth area in renewables and is an area where Australia has commercial advantage that is of interest to Japan. Australian companies should see this as an opportunity. Under the current FIT regime, each owner may sell only surplus electricity, with the duration of purchase agreements limited to ten years. Given Australia’s extensive experience in deploying and managing residential solar with proven technologies, services and solutions, Australian expertise would be of serious interest to Japanese companies.

There are certain solar sectors not subject to the FIT which do not stand to benefit from the recent renewable energy push. For example, solar thermal is not subject to FIT and thus no significant growth is anticipated (the only possible exceptions might be public facilities or high-density housing). Similarly, large scale concentrated solar power (CSP) is not subject to FIT and is not likely to expand domestically due to the high cost of land and limited sunshine in Japan. However, some large Japanese firms, particularly those with expertise in large lenses and mirrors, and speciality construction are looking to expand into CSP projects overseas, including in Australia. Interest in overseas expansion presents possible inward investment opportunities for Australia in attracting Japanese direct investment into the domestic CSP sector.

Wind

There are a number of wind projects being progressed due to introduction of the FIT. The difficulty with wind projects in Japan is finding onshore locations that are suitable in terms of the wind resource whilst satisfying environmental assessment requirements. The offshore wind model is therefore considered to have greater long term potential, and METI has released their funding plans to explore future potential and prospects in this area.

It does seem that wind projects will remain important to the Japanese energy mix. Japan’s New Energy Development Organization (NEDO) is now funding R&D into next generation wind technologies and offshore wind power generation. Such R&D may lead to the possibility for R&D collaborations with Australian firms and research groups on demonstration projects. For now, Australian firms should watch the wind space in Japan with interest.

Biomass

The FIT is sufficiently attractive to have generated biomass electricity generation projects, complemented by the fact that Japan has identified under-utilised biomass resources. There are five categories of FIT and the price varies depending on the material being used. For example, forestry resources are eligible under the FIT, and companies in the paper and lumber industries are developing profitable business models to enter the electricity market.

Current interest in biomass in Japan is broad, with bioethanol, biogas, algae biofuel, bio-crude oil, and biofuel cells all being considered for projects. Similar to solar and wind, Australian companies with relevant technologies and solutions will find a receptive marketplace in Japan interested in their understanding more about their capability. Research and development will be equally important in this area as well, and there is ample potential for research collaborations in the biomass arena between Japanese companies and Australian institutions. Based on the current trends, commercial and R&D opportunities in biomass appear promising for Australian companies and institutions alike.

Hydro and geothermal

Whilst hydro and geothermal are both areas that stand to benefit from the FIT, policy and legal difficulties in establishing such projects will most likely see developments in these areas remain limited in the near term. Small and medium size hydro generation are the beneficiaries of a generous FIT, with the Japanese government stating it supports its increased adoption. However, in reality, unwieldy water rights laws and complex approvals processes are a significant impediment to conceived projects becoming reality. Similarly, for geothermal generation, despite the abundant geothermal resources in Japan and very generous FIT, conflicts with local onsen (hot spring resort) business operators and local communities have been a major obstacle to growth in this sector. For now, these sectors remain of limited interest to Australian companies with relevant capabilities.

Storage solutions

As most renewable energy sources suffer from intermittency, the development of suitable storage solutions is central to increasing reliance on renewables as an alternative source of dependable “base load” generation in Japan.

Japan is already a global leader in fuel cell technologies and the Japanese automotive industry in particular has driven the development of storage technologies around fully-electric and hybrid vehicles. However, there are still many opportunities remaining to improve the reliability and efficiency of the Japanese grid, particularly as new renewable energy projects come on-line.

Japan is looking seriously at hydrogen-based technologies as a solution to the storage problem. This includes hydrogen production, transportation, and energy conversion from hydrogen. Japan is also working on hydrogen infrastructure and effective usage models. NEDO funds a number of R&D projects opening-up the possibility for Australian technology owners and research institutions to collaborate in R&D projects and in demonstration projects.

How does Australia leverage these opportunities?

Initial growth in Japan’s renewable energy sector has been impressive. What has been witnessed to date is only the first phase of a long-term realignment of the country’s energy sources and infrastructure. Australian renewable technology solution and services providers and research organisations cannot afford to ignore Japan, the third largest national economy in the world with impressive technological capabilities of its own.

Australian companies should be aware that Japanese companies tend to work in a very planned and methodical way. From afar, it can appear to be at times a consuming process, but it is critical to be patient and focus on the building the relationship as well as addressing the detail. Australian companies have been doing successful business with Japanese partners for many years.

Japan is very serious about becoming a major force in the world of renewable energy. We know from the long and successful commercial relationship that Australia has enjoyed with Japan, that those companies who engage early with the right partners build strong long term businesses. It is the time for the Australian renewable energy sector to seize the opportunity in Japan, whilst the opportunity still exists to enter the market at its nascent stage.

Tariffs, regulations and customs

In July 2012, GOJ introduced a Feed-in-Tariff (FIT) regime for renewable energy power fed into the national grid at fixed prices per kilowatt hour (kWh). The goal of this FIT is to encourage investment in renewable electricity generation by ensuring that providers of such electrical power can run their operation profitably over a certain period of time, and that prices will remain stable for the purchases required by the utilities. The FIT rates are deliberately set at a price higher than the cost of producing renewable energy and are based on the cost of setting up production and distribution systems, thus reducing the investment risks posed by building facilities to generate renewable power. FIT rates are set for five specific renewable sources; solar, wind, small hydro, geothermal and biomass – which are some of the highest in the world. For example, small wind farms (under 20kW) hold the highest tariff rates in the world. FIT rates for larger-scale wind farms and smaller solar tariffs are over twice that paid in France and Germany. For mega-solar power, where many Japanese firms are making plans to operate, the tariff is almost three times higher than in France and Germany.

Feed-in Tariff for each renewable source FY 2012 and 2013

 

Price

Yen/kWh

(FY 2012)

Price

Yen/kWh

(FY 2013)

Period

(years)

Status of introduction for each facilities (kW) as of December 2012
Solar (10kW or higher) 42 37.8 20 911000
Solar (less than 10kW) 42 38 10 208000
Wind (20kW or higher) 23.1 23.1 20 34000
Wind (less than 20kW) 57.75 57.75 20  
Small Hydro (1,000kW or higher, less than 30,000kW) 25.2 25.2 20 1000
Small Hydro (200kW or higher, less than 1,000kW) 30.45 30.45 20 2000
Small Hydro (less than 200kW) 35.7 35.7 20  
Geothermal (15,000kW or higher) 27.3 27.3 15 0
Geothermal (less than 15,000kW) 42 42 15  
Biomass (Methane Gas) 40.95 40.95 20 22000
Biomass (Unused wood products) 33.6 33.6 20  
Biomass (General wood) 25.2 25.2 20  
Biomass (Waste-related) 17.85 17.85 20  
Biomass (Recycled wood products) 13.65 13.65 20  

(Source: Agency for Natural Resources and Energy)

 

On April 2, 2013, the Cabinet of the Government of Japan approved the Policy on Electricity System Reform, which will ensure the implementation of electricity system reform by uniting efforts across government agencies. This reform aims to:

  • secure stable electricity supply
  • control electricity costs
  • provide consumers with choices and business operators with opportunities to expand their businesses

To achieve these objectives, the reform focuses on:

  • expanding operations of wide-area electrical grids before 2015
  • full liberalisation of the retail market and power generation before 2016
  • further securing neutrality of the power transmission/distribution sector through the legal structural separation method and fully liberalising electricity rate by 2018-2020

Marketing your products and services

The energy sector in Japan has come into focus as part of Japan’s economic revival plan and social sustainability and further change is likely in the industry. It is expected that the GOJ will revise regulations and supporting plans to restructure power resources and networks on the basis of sustainability and competition. Any such changes will need to be closely monitored for the energy industry.

While Japan is recognised as a technology-oriented market, renewable energy or efficient energy usage will require further development to ensure technology remains competitive.

The time span of technology development is likely to shorten to meet market demand timely and competitively. This trend should provide business opportunities for Australian companies with competitive technologies and services. There are also a number of opportunities for Australia and Japan to collaborate with each other at different phases or stages of technology development including research, demonstration development and commercialisation.

To make the most of commercial opportunities in the Japanese renewable energy sector, it is important to understand where and how a particular Australian solution fits into Japan’s renewable energy equation. As with all commercial undertakings in Japan, it is crucial to identify only the best qualified partners, and then work patiently with them.

Links and industry contacts

Clean energy-related resources

Agency for Natural Resources and Energy – www.enecho.meti.go.jp/english/index.htm
Japan Council for Renewable Energy – www.renewableenergy.jp/council/english/
Japan Photovoltaic Energy Association – www.jpea.gr.jp/08eng.html
Solar System Development Association – www.ssda.or.jp/
Japan Wind Power Association – http://jwpa.jp/index_e.html
Japan Wind Energy Association – www.jwea.or.jp/
Japan Small Wind Turbines Association – www.jswta.jp/
Japan Bio industry Association – www.jba.or.jp/pc/en/
Japan Geothermal Association – www.chinetsukyokai.com/
Fuel Cell Commercialisation Conference of Japan – http://fccj.jp/eng/index.html
Reconstruction Agency – www.reconstruction.go.jp/english/
The Institute of Energy Economics Japan – http://eneken.ieej.or.jp/en/
The Federation of Electric Power Companies of Japan – www.fepc.or.jp/english/
New Energy and Industrial Technology Development Organization – www.nedo.go.jp/english/index.html
Ministry of the Environment – www.env.go.jp/en/
Japan Wind Power Association – http://jwpa.jp/index_e.html
Ministry of Agriculture, Forestry and Fisheries – www.maff.go.jp/e/
Japan Small Hydro Power Promotion Bureau – http://j-water.jp/conference/
Japan Geothermal Association – www.chinetsukyokai.com/

Government, business and trade resources for Japan

Ministry of Economy, Trade and Industry – www.meti.go.jp/english/index.html

Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.

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