This project has been commissioned by Greenpeace Japan and Greenpeace Energy Germany. The share of "green" electricity retailors (i.e. those retailors with high shares of Variable Renewable Energies, VRE, in the portfolio) in Japan is still rather low. Taking the Paris Climate Change Agreement as a reference point the report asks what electricity market regulations need to be changed so that new green retailers could contribute to this goal. That is, the study analyses the necessary changes in the Japanese electricity market design to enable more green retailers to enter the market and sell green electricity products to consumers.
Apart from the fact that neither the current targets for Renewable Energy Sources (RES) nor the actual capacity addition rates suffice, the report shows how much current regulation is still skewed towards the so-called "big utilities" (the former ten regional monopolies). As a legacy of the slow liberalization in Japan, the big utilities have basically been left untouched so that 75% of the capacity is still in their hands (including hydro, an important RES in Japan and the windfall profity resulting from it). On top of that, the system is skewed towards securing capacity instead of relying on energy trade as would be the case for a liberalized market. Therefore, the regulation to secure supply capacity puts an unnecessary high burden on green retailers, in particular when they have large shares of VRE in their portfolios. This leads to the situation that the green retailers have to procure these high amounts of backup capacity mainly from the big utilities.
Another major problem is the unequal distribution of existing renewable capacities, incl. hydro energy, as well as the lack of new renewable capacities. A political discussion on the distribution of the large windfall profits from hydro is necessary and already ongoing. The current RES-policy is also intermingled with problems of public acceptance of the increasing FIT-surcharge and with political reactions to it. The system of Non-Fossil Fuel Certificate (NFFC) has been created by the Japanese Government that i) allows the inclusion of large old hydro and nuclear in the same certificate scheme and ii) allows the re-sell of the environmental value from the FIT facilities as a financing mechanism to reduce the FIT-surcharge in order to maintain acceptance. Since this does not further contribute to the energy transition, it cannot be called additional and it remains unclear whether this measure will increase or actually decrease accpetance in the end. For green retailers, transparency is a key so that they can communicate about the additionality of their specific product.
The report proposes a range of measures. Immediate measures should be implemented right away to overcome the current market barriers for green retailers:
- Abolish the obligation for retailers to secure capacity and its conservative calculation method (grid operators may contract a small amount of reserve capacities as backup)
- If the first measure cannot be implemented, at least the calculation method for secure capacity should be more balanced
- If retailers have the capabilities, they should choose real-time balancing instead of the current common mode of the FIT special treatment
- Do not introduce capacity market
- Improve access to hydro for all retrailers
- Create a fund for the environmental value of hydro: this would lead to a more even distribution of the environmental value and its use for energy transition thereby introdusing additionality
- Specify NFFC with location and source: increase transparency in the green electricity market
- Introduce varios short-term flexibility options: flexible system services, flexible demand and better grid management based on technologies already available
Mid-term measures should be implemented by 2025:
- Abolish baseload market and promote forward market: the liberalized electricity system should rely on its market mechanism
- Create framework for more balanced RES-capacity additions: in patricular, more capacity additions with regard to wind are needed
Long-term measures should be implemented by 2030:
- Introduce further flexibility options: power to heat and power to gas
- Grid expansions: periodically updated grid planning taking into account the future growth of renewable energy necessary for the Paris Agreement
Report "Analysis of Framework Conditions for Founding of Green Retailers in Japan", July 2019
IZES was involved in two other projects dealing with the Japanese role in energy transition. One compared the Japanese and German electricity system with regard to the energy transition (>> here) and the other compered socio-cultural aspects of the energy transition in Japan and Germany (>> here).