Masakazu Toyoda of the Institute of Energy Economics, Japan, discusses the key factors shaping Japan’s energy future, and the challenges that lie ahead.
1. Japan is aiming for an increase in non-fossil fuel-based power to 44 % by 2030. Could you share more about Japan’s energy policy and its plans to reach this ambitious target?
There is no magic wand. Continuous efforts by both the private sector and the government are indispensable.
Regarding the renewable energy portion of the non-fossil fuel-based power, the target is 22 to 24 per cent of the total power generation and should not be difficult to meet. Japan introduced a Feed-in-Tariffs (FIT) for renewable energy (except hydro) in 2012 and it worked remarkably well. The licensing of renewable energy power generation capacity has since increased from almost zero to around 100 GW. The challenges are costs and the uneven concentration of solar PV compared to wind power generation. A shift from Feed-in-Tariffs to Feed-in-Premiums (FIP) for solar PV generation is under review to reduce price levels through auction. If all the licensed capacities were to materialize under the current rules, the power rates will be raised for household by 13 per cent and for industries by 18 per cent.
With respect to nuclear, the other non-fossil fuel-based power, the target is set at 20 to 22 per cent of total generation. So far, there has been a slow but steady progress in re-starting operations of nuclear reactors under the new and more stringent regulatory scheme. Currently, nine out of the 30 reactors required to meet the target are in operation. The views about nuclear are still divided among the general public and communication among residents, industries and government remains essential. As such, the Economic Research Institute for ASEAN and East Asia (ERIA) has been helping in the dialogue not only among the Japanese, but also between leaders in Japan, the US and major European countries. A Finnish leader recently said that nuclear power is indispensable for energy security as well as for addressing Climate Change. He added that we must accept and treat nuclear waste if we use nuclear for power generation in our respective regions.
2. What is the potential for hydrogen in Japan?
Zero-carbon hydrogen could be produced through various methods; for instance from fossil fuels with Carbon Capture and Storage (CCS) or from renewable energy with electrolysis. Hydrogen could be the another form of zero-carbon energy available in large quantity, next to renewable and nuclear energy.
However, as there are no good storage sites to pursue CCS inside Japan and as renewable energy costs in Japan are expensive, we are considering jointly producing hydrogen abroad (jointly) with companies in the Middle East and/or Australia. We will then import the final product. By 2030, zero-carbon hydrogen should be commercially available not only for transportation and power generation but also for heating and industrial use. It is encouraging to know that an ever-increasing number of countries are showing interests in this form of energy, but to accelerate the process toward a hydrogen society, we need to strengthen international cooperation. The Tokyo Statement issued at the inaugural Hydrogen Ministerial Conference held in Japan, called for international collaboration to promote more research and development, harmonisation of regulations and standards and for safety enhancements.
3. What role does natural gas play in Japan’s future energy landscape?
Natural gas is the cleanest fuel among fossil fuels and Japan is the biggest importer of liquid natural gas (LNG). Japan will continue to use LNG but will progressively decrease its use after 2030. The challenges associated with LNG are related to costs and its limitations for stockpiling or storage. Emerging countries in Asia, including ASEAN, are price sensitive, but Japan is also becoming more price sensitive because of the near completion of its market reform. Japanese companies, together with Asian companies, are working on the development of an Asian LNG trading hub and on the formulation of an Asian price index. To realise this objective, more transparent and flexible LNG transactions as well as the removal of destination restriction clauses are required. Fortunately, the Japanese Fair-Trade Commission reported that destination restriction clauses could be a violation of Anti-Competition Law and the JFTC report also emphasized that existing contracts need to be reviewed to take away those restrictions. Japanese companies have largely succeeded in eliminating those restrictions from new contracts and are now renegotiating with sellers their removal from existing contracts.
In fact, destination restrictions can be harmful not only for buyers, but also for sellers because they prevent the establishment of a transparent and predictable LNG market in Asia and prevent LNG prices from no longer being oil-indexed. Without the Hub, price-sensitive buyers in emerging Asian countries would be reluctant to purchase at high LNG prices relative to renewable energy and coal. If demand for LNG in Asia does not increase, sellers would face many difficulties in finding new markets. Traditional LNG buyers such as Japan, Korea and Taiwan are not expected to substantially increase demand because they are becoming matured societies with declining populations. Thus, the removal of destination restriction clauses would be mutually beneficial for buyers and sellers.
4. Please share your views on how digitalisation and electrification could impact energy transformation in Asia.
Digital technologies are advancing rapidly and are now contributing to energy conservation and decentralization. First, as a management tool, the Internet of Things (IOT) will soon report on energy consumption on an appliance by appliance, room by room, house by house, building by building and factory by factory. After analysing and identifying where energy is being wasted, further digitalization could automatically adjust energy consumption to preset specifications. But digitalization is not restricted to home, building or factory energy management. It could contribute to significant energy savings in the transportation sector, for example, by minimising or even eliminating traffic jams through the efficient control of traffic signals.
Digitalisation could most efficiently connect energy conservation or demand restraints activities with intermittent renewable energy, such as solar PV and wind power. It would also be most efficient in linking energy producers with consumers through newly developed blockchain technology that would help to decentralise the energy system.
Electrification can play a very important role in emerging economies not only to improve living standards but to leap-frog to digital life and/or society.
5. The theme for SIEW 2019 is Accelerating Energy Transformation. What do you look forward to being discussed at SIEW this year?
Among the wide-ranging and interesting issues that will be discussed, I am looking forward to hearing not only about zero-carbon energy such as renewable and nuclear but I am particularly interested in the “new” zero-carbon energy such as hydrogen and ammonia. In terms of new technologies that should be of great interest to all, I want to learn about carbon recycling and digitalisation.
Perhaps we could talk more about the stimulating issues surrounding the 4Ds: Decarbonization, Deregulation, Digitalisation and Decentralisation.
About Masakazu Toyoda, Chairman & CEO of the Institute of Energy Economics, Japan (IEEJ)
Masakazu Toyoda has been Chairman and CEO since 2010 at the Institute of Energy Economics, Japan (IEEJ) which has been ranked among Top-3 energy and resource policy think tanks for five consecutive years, in Global Go To Think Tank Index Reports by University of Pennsylvania.
In addition, as a member of Strategic Policy Committee of Agency for Natural Resources and Energy (ANRE) of Ministry of Economy, Trade and Industry (METI) of Japan, he contributed compiling the Fifth Strategic Energy Plan which was approved by the Cabinet in July 2018.
Making good use of these experiences, he lectures about Energy Study as an Adjunctive Professor at National Graduate Institute for Policy Studies (GRIPS) in Tokyo.
He also serves as an international advisor to a number of institutions such as the King Abdullah Petroleum Studies and Research Center (KAPSARC), Accenture, the Oxford Institute for Energy Studies (OIES), the Pacific International Center for High Technology Research Center (PICHTR), and the Brunei National Energy Research Institute (BNERI).
Prior to joining IEEJ, he served at the Ministry of Economy, Trade and Industry (METI) of Japan where he held prominent positions, namely Vice-Minister for International Affairs.