Issues and Challenges to the Basic Energythe Basic Energy ... · Growingggy p g energy demand in Asia and its implication to global energy security Emerging concerns for energy supply

Issues and Challenges to the Basic Energy Plan of Japanthe Basic Energy Plan of Japan

Presentation at Session 1 in Korea-China-Japan Joint Energy ConferenceFor KEEI’s 28th Anniversary Celebration

September 25th, 2014

Ken Koyama, PhDKen Koyama, PhD

Chief Economist, Managing DirectorInstitute of Energy Economics, Japan

©2014 Institute of Energy Economics, Japan

All rights reserved

©2014 IEEJ, All rights reserved

Emerging landscape with

Ken Koyama, September 25th, 2014

Emerging landscape with regard to energy security/sustainability

Over 100$ crude oil price after 2011 Growing energy demand in Asia and its implication to global g gy p g

energy security Emerging concerns for energy supply constraints

Geopolitical risks, resource nationalism and issues of market powerO i “MENA i i ” “I i i i ” Uk i i i t Ongoing “MENA crisis”, “Iranian crisis”, Ukraine crisis, etc.

Lack of timely investment in resource development Importance of stability of energy transportation

Environmental challenges for sustainability Environmental challenges for sustainability Climate change and global environmental problems Local and regional environmental problems

Unprecedented impacts of “March 11th” (East Japan Great p p ( pEarthquake and “Fukushima Daiichi accident”)

2

Impacts of Unconventional Oil & Gas Development Impacts of US Shale Gas Revolution Impacts of US Energy Independence


Energy challenges for Japan Energy challenges for Japan ftft ““M h 11thM h 11th””


after after ““March 11thMarch 11th””

Top priority: stabilization of “Fukushima Daiichi”

Restoration and reconstruction of damaged energy related facilities/infrastructure

Power shortage: emerging serious problem To increase power supply capacity To enhance energy (power) saving and efficiency improvementgy (p ) g y p To secure fuel procurement for increased fossil fuel power

generation

Negative Impacts on Japanese economy (Increased outflows Negative Impacts on Japanese economy (Increased outflows of National wealth, hollowing out of industry, etc.)

Re establish Mid and Long term energy policy/strategy

3

Re-establish Mid and Long term energy policy/strategy

Need to establish contingency planning

©2014 IEEJ, All rights reservedKen Koyama, September 25th, 2014

LNG-fired power generation accounts for 50% in FY2014accounts for 50% in FY2014

Share of coal-fired generation also increases to 29%. Thermal power generation in total, however, is slightly below than the peak in FY2013.

LNG generates 20% more electricity in FY2015 than before the earthquake although share of thermal power generation shrinks to 76%

Power generation mix for utilities100%

although share of thermal power generation shrinks to 76%.

17% 13% 10%31%

12%2% 1% 2%

15%

8% 9% 8% 8% 9% 9%

80%

100%New energiesHydro

49% 50%6%

13% 6%31%

60%

Hydro

Nuclear

32%43%

48%49% 50%

42%40%

Oil, etc.

LNG

23% 24% 25% 28% 29% 27%20%

LNG

Coal

4（Source） IEEJ Short-term energy outlook for Japan (July 2014)

0%2010 2011 2012 2013 2014 2015


Current Situation on the ３Es and Ken Koyama, September 25th, 2014

macro economy Reduced nuclear power generation resulted in substantial increase in

fossil fuels use and imports, which has serious implications on:fossil fuels use and imports, which has serious implications on:

Energy Security→Fossil fuel imports increase leads to lower energy self-sufficiency

(Down from 18% in FY 2010 to 7% in FY 2013 in TPES)Higher import dependency, in particular on Middle East (Qatar) LNGPower supply reserve margin remain low while thermal power plants in full operationPower supply reserve margin remain low, while thermal power plants in full operation

Environment→ Increase in fossil fuel use leads to higher CO2 emission

(Up from 1.12 billion ton in FY 2010 to 1.22 billion ton in FY 2013)

Macro Economy→ Fossil fuel imports increase leads to higher import bill for fuels

(Up from 18.1 trillion yen in FY 2010 to 28.3 trillion yen in FY 2013)Increased cost for power generation(Up by 4.4 yen/kWh in FY 2013 as compared to that in FY 2010)I t t d d fi it

5

Impacts on trade deficit(5.4 trillion yen trade surplus in FY 2010→Trade deficit of 13.8 trillion yen in FY 2013)


Agenda for Energy Policy d b /


under PM Abe/LDP Government

Re-start of nuclear power

Best Energy Mix Cabinet Decision on revised “Basic Energy Plan”

Power Market System Reform

Security of Supply for Fossil Fuels

P ti f R bl E d f th Promotion of Renewable Energy and further Enhancement of Energy Saving

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Etc.


Nuclear re-start makes differenceKen Koyama, September 25th, 2014

Nuclear re start makes difference Fossil fuel import spending decreases by JPY1.4 trillion if nuclear power generation increases by

120 TWh. Real GDP and gross national income increase by 0.14% and 0.23%, respectively. Power generation cost decreases by JPY1 600/MWh reducing the risk of further electricity price

Impacts of nuclear power plants’ restartPower

Power generation cost decreases by JPY1,600/MWh, reducing the risk of further electricity price hike.

Nuclear power

generation(TWh)

generation

cost(JPY/kWh

)

Fossil fuelimport

spending(JPY trillion)

CO2emissions

(Mt)

LNG imports

(Mt)14 30300 95 1 220)

13.0

12 3

13

14

27.326.7

28

30288

210

250

300

91

8990

95

1,193

1 180

1,200

1,220

No Operation

Low level12.3

11.3

10.711

1226.7

25.825.324.8

24

26

124

162

210

150

200

80

77

80

85 1,171

1,140

1,160

1,180 Low-level

Mid-level

10.2

9

10

20

22

42

124

50

100

71

77

7070

75 1,123

1,133

1,115

1,0951,100

1,120

,

High-level

Full Operation

7

8.282010 2014 2015

18.1182010 2014 2015

002010 2014 2015

652010 2014 2015

1,095

1,0802010 2014 2015

Operation

（Source） IEEJ Short-term energy outlook for Japan (July 2014)


Proposed Role of Each Energy SourceKen Koyama, September 25th, 2014

p gyPrimary energies

Despite various issues in terms of supply stability and cost renewables are a(1) Renewable energies

Despite various issues in terms of supply stability and cost, renewables are a promising, diverse and important low-carbon domestic energy source with no GHG emissions.Nuclear is a low-carbon quasi-domestic energy with excellent supply stability

(2) Nuclear and efficiency which will continue to contribute to supply stability, premised strictly on safety, as an important baseload source of electricity.

(3) CoalCoal is an important baselead source of electricity with low geopolitical risk and price per calorie which will continue to be used while efforts are(3) Coal risk and price per calorie, which will continue to be used while efforts are made to reduce its environmental impact.

(4) Natural gasAccounting for 40% of electricity sources and playing a central role among intermediate power sources, natural gas is an important energy sourcewhose role will grow as the shift to natural gas accelerates.

(5) OilAccounts for slightly over 40% of the primary energies with the highest geopolitical risk, high portability and abundant stockpiles; an important energy source that will continue to be usedenergy source that will continue to be used.

(6) LPG

Is a distributed-type and clean gaseous energy source that can be used as an intermediate power source, with relatively low GHG emissions and a closely-integrated supply and storage infrastructure, which will be useful in

Source: “Basic Energy Plan”, April 2014 8

case of emergency.


Discussion on Energy MixKen Koyama, September 25th, 2014

gy

Energy Mix:

Sh ld b tl d h th f t it ti bShould be promptly announced when the future situation becomes reasonably clear,

taking into consideration the positioning of each energy source, and judging from the situation such as the restarting of nuclear power plants, introduction of renewable energies based on the feed-in tariff and ginternational discussions on global warming.

The government will immediately launch an organization to tackle theThe government will immediately launch an organization to tackle the specific issues presented in the new Basic Energy Plan and start discussion.



Policy Challenges for Nuclear PowerKen Koyama, September 25th, 2014

y g

Restructuring of nuclear policy1. Starting point of nuclear policy – sincere regret for accidents at nuclear power plants

• Mistrust and opposition toward the government and operators

2. Efforts to revitalize and restore Fukushima• The government should take the lead in decommissioning and contaminated water issues. …

For technology and insights, … framework for multinational cooperation with IAEA, OECD/NEA, and others … share with the global community through framework for bilateral cooperation … contribute to enhanced safety …

3. Continuous improvement of safety in using nuclear power and establishment of3. Continuous improvement of safety in using nuclear power and establishment of stable business environment

• Break with the “safety myth” … continuous pursuit of safety … conduct probabilistic analysis (PRA), etc. …• Revising the nuclear damage compensation system from a comprehensive perspective

4 St d l ti f i t ti ti b t th4. Steady resolution of issues, not procrastinating about them• Spent fuel is a global common challenge … actions for spent fuel should be drastically reinforced and

comprehensively promoted.• Technological development including reduction of volume and harmfulness of radioactive waste should be

encouragedencouraged.• The problems of Monju must be dealt with satisfactorily under government leadership.

5. Establishment of relationships of trust with the public, local governments and global community


y• Making use of the opportunities such as the IAEA in response to significant anxiety we have caused in the global

community … enhanced dialogue with the global community … ensuring safety while referring to the IAEA standards and the Convention on Nuclear Safety, etc.

©2014 IEEJ, All rights reservedKen Koyama, September 25th, 2014

Expansion of Renewable Energy and Rising Electricity Tariffs①Installed Capacity

(MW)②Purchased power (GW)

③Purchased price(100 million

Y )

④Licensed capacity

(MW)(MW) power (GW) Yen) (MW)

After the introduction of FIT

Before the introduction of FIT




Solar power(residential) 2210 4670 7747 7 3445 2800Solar power(residential) 2210 4670 7747.7 3445 2800

Solar power(non-residential) 7360 260 5366.4 2227 65620

Wind power 110 2530 8223.7 1712 1070

Medium- and small-scale 10 210 116 3 29 300Medium and small scale hydraulic power 10 210 1167.3 297 300

Geothermal 0 0 7.2 3 10

Biomass 90 1130 3713.2 694 1210

Total 9970 8800 26005.6 8377 71010

Consumer burden related to renewable electricity generation is soaring.Th l b d f h 20 ill h 47 illi b i j h 71 GW

* The figures for each energy are rounded up, and may not add up to the total.

The total consumer burden for the next 20 years will reach 47 trillion yen by operating just the 71 GW capacity installed and licensed as of the end of April 2014. This inevitable burden is equivalent to a 2.7 yen/kWh rise in tariffs, or 16% for industrial and 11% for residential sectors.

The rapid increase in solar power with high purchase price is greatly increasing the burden. The burden will grow further as power sources with longer lead times such as wind power start operation in addition to solar

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grow further as power sources with longer lead times, such as wind power, start operation in addition to solar power.

Source: Agency for Natural Resources and Energy, “Status of Introduction of Renewable Electricity Generation Facilities (end of April, 2014)”


Differences from the Previous Basic Energy Plan (2010)


gy ( )

1. From 3E (Energy Security, Environment, Economic Efficiency) to 3E+S (safety)The awareness of S increased significantly after the Great East Japan Earthquake and Tsunami and the Fukushima Daiichi accidentTsunami and the Fukushima Daiichi accident.

2. From quantitative targets to qualitative policiesUnlike the existing Basic Energy Plan which sets a clear energy mix, the Draft decided not to do so until “the future becomes foreseeable to a certain extent”. Neither do the Opinions include any independent development or GHG reduction targets.

3 Priority in electricity/gas markets reform and restructuring of oil industry3. Priority in electricity/gas markets reform and restructuring of oil industryEmphasis put on promotion of domestic competition

4. Energy System resilienceFor fossil fuels, the Plan highlights, in addition to efficiency improvement, importanceof supply resilience at the time of emergency.

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Japanese Electricity Market Reform StepKen Koyama, September 25th, 2014

Japanese Electricity Market Reform Step

2015 2016 2018-2020First Stage Second Stage Third Stage

2015 2016 2018 2020

National Independent Transmission National reliability assessment, Nation-wide transmission planning

process Nation wide coordination in emergency situationOrganization

Capacity Capacity Obligations and Capacity Market

process, Nation-wide coordination in emergency situation

Legal unbundling of

Mechanism Capacity Obligations and Capacity Market

Gas Market Reform also on the agenda Transmission Sector and

Distribution Sector

Regulation tariffs Non-Regulated tariffs

also on the agenda

Full retail market opening

Regulation tariffsNon-Regulated

tariffs

Non-Regulated tariffs(excluding last resort

service)

New Regulation Authority

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ConclusionKen Koyama, September 25th, 2014

Conclusion

1. The Basic Energy Plan can be credited for redefining the position of each energy and setting the policy direction taking into account the “3E+S” policy and the international perspectives.

2. However, there are outstanding issues. In particular, it is essential to present . oweve , e e e ou s d g ssues. p cu , s esse o p esethe energy mix promptly.

3 For nuclear power to avoid emotional and ideological arguments it is essential3. For nuclear power, to avoid emotional and ideological arguments, it is essential to quantitatively and objectively analyze the economic impacts of nuclear utilization.

4. It is critically important to restore confidence in nuclear safety and nuclear policy in Japanese society, and thus, the myth of safety should be abandoned.

5. For Japan, there is no perfect energy source in terms of the “3E+S”. The rational approach is to “ensure balance” and “diversify”. 14

Documents

Issues and Challenges to the Basic Energythe Basic Energy ... · Growingggy p g energy demand in Asia and its implication to global energy security Emerging concerns for energy supply