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e-Magazine (For the Japanese version of this article)

Series: Understanding Japan through Key Words (Part5) Renewable Energy Feed-in Tariff Scheme [Date of Issue: 28/November/2014 No.0237-0953]

Date of Issue: 28/November/2014

Series: Understanding Japan through Key Words (Part5)
Renewable Energy Feed-in Tariff Scheme

A scheme obligating major electric utilities to buy back the power produced from solar, wind, geothermal and other such renewable energy sources. As the purchase cost is added to electricity charges, it is ultimately the public who pays. With the accident at the Tokyo Electric Power Company's Fukushima Dai-ichi Nuclear Power Station increasing pressure for Japan's reliance on nuclear power to be reviewed, the scheme was introduced in July 2012 with the aim of hastening the dissemination of renewable energy.

Renewable energy producers are checked to ensure that they have the necessary land and that their facility plans meet requirements, whereupon they are granted government approval. The producer then applies to the relevant electric utility for connection to the transmission grid, with the buyback price to which the electric utility commits at that stage to be maintained for a maximum of 20 years. The government reviews the baseline tariff each fiscal year, setting a level which will ensure power producers a certain level of profit given power generation costs.

There is a reason that this mechanism favors power producers. Because the amount of power generated by renewable energy sources such as solar, wind and geothermal power fluctuates according to meteorological conditions and other environmental changes, it is difficult to determine business viability. A guarantee that the power produced will be purchased at a fixed price makes it easier to create business plans and encourages market entry.

As the government hoped, this scheme has indeed created a mega-solar power plant construction boom among businesses across a whole range of industries from general contractors to telecommunications firms, giving a solid boost to the introduction of renewable energy. At the same time, there has also been a steep rise in producers focused on solar power, which has a relatively high buyback price. As the tariff is gradually reduced in response to falling prices for photovoltaic panels and other facilities, there have been cases of application rushes at the end of the fiscal year.

As a result, in just two years since the scheme was launched, some electric utilities are beginning to receive purchase applications far in excess of the amount of power they supply. Because the input of a huge amount of power beyond the capacity of the transmission network threatens to cause contingencies such as large-scale power cuts, five major electric utilities including Tohoku Electric Power Company and Kyushu Electric Power Company have suspended the receipt of new applications.

This has upset businesses which were aiming to enter renewable energy production, and electric utilities suspending new applications were asked by the Ministry of Economy, Trade and Industry to provide a "proper explanation", resulting in briefings being held for businesses in the various service areas. In many cases, the number of participants has been greater than the venue capacity, with those attending expressing vigorous dissatisfaction that they weren't told earlier and that utilities could spring this suspension on them so suddenly.

In Fukushima Prefecture, where the nuclear power accident caused severe damage, the dissemination of renewable energy has been positioned as a major pillar in the prefecture's recovery, and this recent turn of events has consequently prompted great unease. In early October, then-Governor Yuhei Sato, whose term was due to expire in November, met with then-METI Minister Yuko Obuchi at METI, pressing strongly for electric utilities to be encouraged to resume accepting applications. In search of a breakthrough, METI began looking at ways to improve the scheme in the New and Renewable Energy Subcommittee of the Committee on Energy Efficiency and Renewable Energy under the Advisory Committee for Natural Resources and Energy. A working group of five academics and professionals has been established under the Subcommittee to undertake technological verification work on whether the amount of power bought back by electric utilities can be increased under the current scheme.

In parallel with this, METI has also begun reviewing the scheme. Consideration will be given to temporary suspension of government approval and to priority intake of geothermal and small-scale hydropower as offering more stable production levels than solar power. METI is also working to create the conditions for weeding out operators who receive approval but don't begin producing power because of a capital shortfall and abusive operators who have received approval solely for the purpose of selling on the land.

Under the current scheme, the tariff is determined when the connection application is made to the electric utility, which means that if construction is delayed until the photovoltaic panel price drops, operators will make more profit, and this is one factor prompting operators to delay launching power production. The working group will therefore discuss setting the price at the point when the operator begins producing power rather than at the time of application, as well as a major reduction in the price itself. METI plans to put together its conclusions by the end of the year.

(original article : Japanese)

*This article was written by a specialist journalist.
(For the Japanese version of this article)


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