IEEJ e-NEWSLETTER No.1：April 2012

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IEEJ e-NEWSLETTER
No. 1(Based on Japanese ver. No. 103)

Published: April 13, 2012
The Institute of Energy Economics, JapanIEEJ e-Newsletter Editor: Yukari Yamashita, Director
IEEJ Newsletter Editor: Ken Koyama, Managing Director
Inui Bldg. Kachidoki, 13-1 Kachidoki 1-chome, Chuo-ku, Tokyo 104-0054
Tel: +81-3-5547-0211 Fax: +81-3-5547-0223

Contents
Summary【Energy Policy in Japan】
1. Discussions at the Fundamental Issues Subcommitteeof the Advisory Committee for Natural Resources and Energy
2. Reform of the Electric Power System
3. Nuclear Security Summit
4. Japanese Renewable Energy Industry Exploring New Frontiers【Our View on Global Situations】
5. ME Watching: Behind-the-Scenes Maneuvers in MENA
6. Russia Watching: How to Align with Russia’s
Asia-Pacific Strategy
7. China Watching: 12th Five-Year Planfor the Photovoltaic Power Facility Industry

IEEJ e-NEWSLETTER No.1：April 2012

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Summary
1. Discussions at the Fundamental Issues Subcommittee of the Advisory
Committee for Natural Resources and Energy
Different energy mix options were discussed. In consideration of the 3E policy andfeasibility, IEEJ Chairman & CEO Masakazu Toyoda suggested that the desirable mix of
power sources for 2030 should be 25% nuclear power, 25% renewable energy, 35%
thermal power, and 15% energy conservation and cogeneration.
2. Reform of the Electric Power System
Since presentations by the electric power companies took longer than planned, theSecond Expert Committee on Electric Power System Reforms had little time to discussdemand-side measures. Attention should be paid to the possibility of new entries to thepower generation market regarding LNG procurement, the merits and demerits ofcomplete deregulation, and whether consumers have freedom of choice of powersources.
3. Nuclear Security Summit
The second Nuclear Security Summit was held in Seoul, South Korea. It is importantfor Asia to strengthen safety measures for nuclear power including nuclear security,
since the number of nuclear power stations is expected to increase significantly. Japan
must cooperate and make full use of the lessons learned from the Fukushima Daiichi
accident.
4. Japanese Renewable Energy Industry Exploring New Frontiers
Full-scale experimental research on floating wind turbines is due to start this year.
Japan, which lags behind other countries in land-based wind power, will explore thisnew frontier. Japan also intends to catch up in the area of solar panels, which iscurrently dominated by China, with the next-generation technology.
5. ME Watching: Behind-the-Scenes Maneuvers in MENA
The situation in the MENA countries remains uncertain. Concerns include the split ofrebel forces in Syria, the relations between Syria and Iraq, anti-government
movements in Bahrain and Saudi Arabia, the domestic situation under the new Yemeni
government, and the presidential election in Egypt.
6. Russia Watching: How to Align with Russia’s Asia-Pacific Strategy
The new Putin administration which will start in May this year aims to strengthen its
presence in the Asia-Pacific region, taking advantage of the APEC meeting in
Vladivostok in September. Its most powerful driving force is its energy industry. Japanneeds to align and integrate its energy strategy with its diplomatic strategy toward
Russia, considering the whole of Asia.
7. China Watching: 12th Five-Year Plan for the Photovoltaic Power Facility
Industry
The Ministry of Industry and Information Technology of China announced the 12thFive-Year Plan for the Photovoltaic Power Facility Industry on February 24. The Plan
sets targets and policies for technological development and cost reduction, and willencourage the domestic generation of photovoltaic power and turn it into a new
strategic industry capable of competing on the international market.

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1. Discussions at the Fundamental Issues Subcommitteeof the Advisory Committee for Natural Resources and Energy
Shigeru Suehiro, Manager, Senior Economist
Energy Demand Supply and Forecast Analysis Group
Energy Data and Modelling Center
The Fundamental Issues Subcommittee held its 14th to 17th meetings between March 7 and 27, andcontinued to discuss revisions to the Basic Energy Plan. At the 14th meeting, the progress of deliberations
at the New Framework for Nuclear Energy Policy meeting of the Atomic Energy Commission was reported.
From the 15th meeting, various power source mixes were discussed. The options will be quantitatively
analyzed using economic models, and submitted in draft form to the Energy and Environment Council after
the Golden Week holidays.
At the 14th meeting, AEC Chairman Shunsuke Kondo gave a presentation and was asked manyquestions regarding responsibility, safety, waste disposal and recycling. He pointed out that despite
differences in opinion concerning nuclear policy, we unanimously agree that utmost effort is needed to: (1)strongly support the residents affected by the disaster by providing quick, thorough health control anddecontamination, (2) decommission the reactors that caused the accident and provide compensation fordamages, and (3) identify the causes of the accident and improve the safety mechanisms.
At the 15th meeting, each Subcommittee member proposed a draft energy mix as inputs to the final
energy mix options, and the members agreed that both quantitative and qualitative aspects should be
discussed. At the start of the meeting, several members opposed the inclusion of quantitative options,
stating that the policy review should set qualitative guidelines for the options and directions of the policy.
In response, many argued that a quantitative analysis is essential for meaningful discussions, and that it is
not possible to establish a policy based only on qualitative options. Consequently, the members agreed that“the limitations of models must be taken into account when conducting quantitative analyses.”
Masakazu Toyoda, Chairman & CEO of the IEEJ, suggested a power source mix with 25% nuclear
energy, 25% renewable energies, 35% thermal power (with accelerated shift to LNG) and 15% energy
conservation and cogeneration for 2030 as a desirable scenario in view of the 3E policy and feasibility.
In the 16th meeting, the energy mix proposals from the members were consolidated based on similarity
to reduce the number of options. One member pointed out that “most proposals are very similar regarding
the handling of energy conservation and cogeneration, despite significant differences of opinion concerning
nuclear power and renewable energies”.
In the 17th meeting, the final energy mix option was presented by the organizer in draft form. Several
members opposed quantitative discussions, and so the meeting agreed to discuss both quantitative andqualitative aspects and incorporate their results into the energy mix option. The participants agreed toprepare three options, each with a different percentage of nuclear power of 0%, 20-25% and 35%, but allwith the same ratio of energy conservation of 10% and in-house power generation and cogeneration of 15%.
The Subcommittee plans to submit these energy mix options to the Energy and Environment Council after
the Golden Week holidays after analyzing qualitative scenarios and economic models.
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2. Reform of the Electric Power System
Junichi Ogasawara, Senior Economist, Manager
Electric Power Group, Electric Power & Coal Unit

On March 6, the Expert Committee on Electric Power System Reforms held its second meeting todiscuss the utilization of demand-side measures. The agenda, which consisted of (1) new measures toreduce demand (flexible tariff system), (2) measures to facilitate consumers’ choice, and (3) universal
services, was hardly discussed due to lack of time, since the presentations by the Tokyo Municipal
Government and the representatives of suppliers and consumers and questions to the electricity companies
took longer than planned. As a member of this Expert Committee, I summarize the opinions expressed at
the meeting below.

Firstly, regarding consumers’ choice, it is necessary to check the conditions for entering the Japaneseelectric power market. When deregulating the electricity industry, it is important to create a solid
foundation for competition, as happened in the UK where opening of the electric power market encouraged
highly cost-competitive gas thermal power companies to enter the power generation sector. However,prospects for new entries in the Japanese power generation sector are limited since Japan imports fossil
fuels and so a company must be able to import LNG directly in order to enter the market.

Secondly, cost-benefit analysis shows that market full opening incurs a high cost of migration yet
produces only limited results in enhancing competition. However, it is difficult to find objections to market
full opening to reverse the government’s policy of boosting consumers’ choice of energy, as stated in the
Energy and Environment Council.

Thirdly, regarding energy conservation by consumers, the results of corporate power-saving measures
show major differences in spending by each company on power-saving, and so requiring the same level ofpower-saving could impose a substantial burden on some companies. Unlike the popular image, there arerules in the current system that make it difficult for wholesale power markets and consumers to trade theelectricity that has been saved, and thus efforts should focus on electric power companies providing
flexible programs to help companies implement low-cost power-saving measures.

Lastly, while whether or not consumers should have the right to choose a power source is itself a topic
for discussion, consumers actually already can choose renewable energies by using Tradable Green
Certificates (TGC). I am involved in the authorization process, but TGCs are seldom chosen in practice.

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3. Nuclear Security Summit
Tomoko Murakami, Group Manager
Nuclear Energy Group, Strategic Research Unit

On March 26 and 27, the second Nuclear Security Summit was held in Seoul. At the Summit, the headsof various companies reported on their progress and future plans for enhancing nuclear security, as agreed
in the first Summit held in Washington DC in April 2010. Comprehensive means to ensure nuclear safety,
including the prevention of radiation terrorism, were also discussed.

South Korea, which hosted the event and is striving to reduce the nuclear threat on the Korean Peninsula,chose to focus the Summit on “reducing the quantity of plutonium and enriched uranium inventory of eachcountry with unspecified control status”, thus sending a strong message to North Korea without specificallynaming it. South Korea’s message was timely since North Korea ranked the lowest among 32 countries in
the Nuclear Materials Security Index, which was a survey conducted by an American NGO, the Nuclear
Threat Initiative (NTI), prior to the Summit in January 2012. In the survey, 6 of the 10 lowest-ranking
countries were in Asia, including, in addition to North Korea which ranked 32nd, Pakistan at 31st, Vietnam
at 29th, India at 28th, China at 27th, and Japan at 23rd. Clearly, American and European countries have low
opinions of nuclear management systems in Asia.

Japan considered this Summit an occasion to share knowledge and lessons learned from the Fukushima
Daiichi nuclear accident with the international community to enhance nuclear security, and to explain
measures taken and future initiatives for international cooperation and strengthening ties with othercountries. Japan is keen to play a greater role in the nuclear security of Asia, especially as the country
responsible for the Fukushima accident that triggered discussions not only on the safety standards ofnuclear plants worldwide but also on armed threats including terrorism. Accordingly, Prime Minister
Noda’s presentation included the establishment of the Integrated Support Center for Nuclear
Nonproliferation and Nuclear Security in December 2010 as well as the major achievements of the
US-Japan Nuclear Security Work Group, which held three meetings from January 2011.

With more countries, especially emerging nations, expected to introduce nuclear power, there areconcerns over the risk of nuclear terrorism by non-government groups. Safety verifications conducted in
major countries after Fukushima and comparison between those countries revealed much greater
differences in awareness and attitude toward antiterrorism measures than the safety standards of their
nuclear plants. Antiterrorism is an issue of national security and defense rather than energy, and thus it isharder to build international cooperation among countries on this issue compared with energy. To improve
the nuclear security of Japan and other countries in Asia, it is vital to recognize such difficulties and tocontinue to share information, engage in dialog, and send messages accompanied by action.
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4. Japanese Renewable Energy Industry Exploring New Frontiers
Hisashi Hoshi, Board Member, Director
New and Renewable Energy & International Cooperation Unit
Full-scale experimental research on floating wind turbines has started in Japan. In March, a consortiumof 10 Japanese companies including Marubeni and the University of Tokyo was awarded a contract forexperimental research by the Ministry of Economy, Trade and Industry. In the first phase of the project
which will start this year, a 2 MW floating wind turbine and a floating transformer station will be installed
off the coast of Fukushima prefecture. Two 7 MW wind turbines will then be added in the second phasefrom 2013 to 2015. The research aims to establish a business model for floating offshore wind power
generation and to develop it into one of Japan’s major export industries.
Offshore wind turbine projects are becoming a centre of focus these days, mainly due to reduced
availability of space onshore and technological limit of enlarging turbine sizes for efficiency. Large-scale
offshore projects are already ongoing in Europe, particularly in the UK.

China also launched a 100 MW

wind farm after the Shanghai Expo, and aims to achieve 5 GW by 2015.
It may, however, look quite challenging for Japan, which only has limited experiences of offshore
technologies as opposed to international rivals, to attempt to establish floating offshore wind turbine
technologies.

For one thing it is because Japan must use the floating type to utilize offshore windresources since the deep seas surrounding Japan limit the installation of bottom-fixed systems. In fact at thetest sites 20 to 40 kilometers offshore, the water is as deep as 100 to 150 meters.
Another reason strategically more important is that Japanese turbine makers are far behind major
competitors in the land based turbine market. Japanese turbine manufacturers have only a 3% share of theworld market and only 20% even in the domestic market.

Challenging the virgin frontier will be the only

way to allow Japan to start from the same position as rival countries.
It is the case with solar panels as well. Following the Sunshine Plan of the 1970s, Japan was a world
leader in the solar panel industry until the early 2000s, but now lags far behind China which was late toenter this business. It looks as far as crystalline silicon based technologies dominate the solar panel market,
chances are very slim that Japanese players would overcome the situation. Japan, therefore, must seek
opportunities in the field of next generation technologies such as quantum dot and dye-sensitized solar cells.
Good news is that the University of Tokyo has recently set new records for conversion efficiency in theareas.
Japan’s future in renewable energy industry lies in the new frontiers.

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5. ME Watching: Behind-the-Scenes Maneuvers in MENA
Koichiro Tanaka, Board Member
Director of JIME Center

The Arab Spring of 2011 is now a year old and renewed troubles are emerging in countries such as Iraq,
Syria, Egypt, and Yemen.

Iraq, which has been relegated to a corner of the Arab World since the end of the Gulf war, successfully
hosted the Arab League Summit in its capital, Baghdad, on March 29. However, the Summit scarcely
helped solve Iraq’s need to improve relations with Gulf nations including Saudi Arabia and Qatar becauseof differences in attitude towards the Assad regime of Syria. Iraq remains vulnerable to domestic andexternal shocks, and the current Syrian crisis could spread and cause difficulties for Lebanon and Turkey as
well.

While the United Nations’ peace plan for a ceasefire is heading towards failure, there are deep rifts

among the Syrian opposition parties. The Friends of Syria meeting is unlikely to eliminate concerns overthe prevailing situation.

Of the participating countries of the Gulf Cooperation Council, Bahrain and Saudi Arabia are still beset
by domestic tension. Bahrain has embraced the first anniversary of the crackdown of protesters by national
security forces; although it appeared to have domestic order under control, anti-government protests have
surged in recent months, with rising casualties in conflicts between demonstrators and armed security
forces. On March 9, a rally attracted tens of thousands of anti-government demonstrators. Clearly, thepolitical and security reforms promised by Bahraini King Hamad are insufficient to stop the unrest.
Meanwhile, in Saudi Arabia’s Eastern Province Shia Muslim residents of Qatif City started a sporadic
series of protests, resulting in clashes with security forces and reports of casualties among thedemonstrators.

In Yemen, President Abd Rabu Mansour Hadi took over from Ali Abdullah Saleh in the recent national
election, but faces bleak prospects. His new cabinet, which is dominated by officials from the south of thecountry, is facing boycotts led by supporters of the previous president, as well as other domestic crises:
Al-Qaeda in the Arabian Peninsula has been carrying out armed attacks in what used to be South Yemen,
and the Houthi group is stoking anti-government activities near the northern border with Saudi Arabia. The
future of Yemen is highly uncertain.

On May 23 and 24, Egypt will hold its first-ever presidential election with genuine multiple candidates,
marking a step toward reform for the country. Nevertheless, there is a growing wary of the Islamists
becoming more influential and increasing their presence following the recent parliamentary election.
Elections in Tunisia and Egypt are anticipated to become role models for free and fair elections.

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6. Russia Watching: How to Align with Russia’s Asia-Pacific Strategy
Shoichi Itoh, Senior Researcher
International Strategy Analysis Group, Strategy Research Unit
Vladimir Putin, Russia’s incumbent prime minister, was re-elected as president in the general election on
March 4 as expected, and will be inaugurated in May. According to constitutional amendments introduced
at the end of 2008, the presidential term is six years, with a maximum of two consecutive terms, if
re-elected. Russia intends to accelerate its advance into Asia Pacific, using the 2012 APEC Russian summit
in Vladivostok in September as a stepping stone. Japan must therefore urgently clarify its strategy toward
Russia.
About a week before the presidential election, Putin wrote an article entitled “Russia and the Changing
World” for a major Russian newspaper in which he failed to mention Japan at all. Putin seeks to elevate
Russia’s role in the Asia-Pacific region, emphasizing that China’s economic expansion is not a threat to
Russia, but that Russia needs to strengthen cooperative relations with China to boost economic
development in Siberia and the Far Eastern region. However, in the context of current Sino-Russia relations,
it would be premature to assume that he places more weight on China than Japan at face value.
Russia knows that increasing exports of petroleum and natural gas are its biggest leverage for reinforcing
its presence in the Asia-Pacific region. Russia has no choice but to depend on energy development foreconomic progress in Siberia and the Far Eastern region which border on China. Since his 2000 presidential
inauguration, Putin has consistently warned that leaving these far-flung Russian territories in a backward
state would be a great loss of geopolitical advantage that would benefit China with her enormous
population.
Russia is keen to strengthen its economic relations as well as diplomatic relations with China, which has
become its biggest trade partner. But this link creates an enormous dilemma for Russia in its Asia-Pacificstrategy. Stronger economic relations between nations do not necessarily increase diplomatic trust. Moscow
is concerned that China is overshadowing Siberia and the Far Eastern region. On the other hand, it should
be noted that as Russia increasingly focuses on relations with China, the country must strengthen their ties
with China’s neighboring countries, including Japan, from a geopolitical standpoint.
Gazprom and the Russian Ministry of Energy are hurriedly revising the Eastern Gas Program, and Russia
is urging Japan to invest in the natural gas fields in Sakhalin, the Far Eastern inland region, and eastern
Siberia. One of them is Kovykta, the biggest gas field in eastern Siberia, which will be the key to Russia’s
economic development once the export route from its wells to China has been obtained, while it is reported
that Russia is reluctant to let China’s CNPC take part in developing the Kovykta gas field.
Russia’s diplomatic and energy strategies are two sides of the same coin. Japan must analyze Russia’s
geopolitical game, and then coordinate its energy strategy and diplomacy toward Russia in view of securing
the stability of the entire Northeast Asian region.

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7. China Watching: 12th Five-Year Plan for the Photovoltaic
Power Facility Industry
Li Zhidong, Visiting Researcher
Professor at Nagaoka University of Technology
Chinese Premier Wen Jiabao announced in the Report on the Work of the Government 2012 that thecountry will focus on developing renewable energy and a strong photovoltaic power facility industry. The
report was adopted by the National People’s Congress which ended on March 14. Prior to theannouncement, the 12th Five-Year Plan for the Photovoltaic Power Facility Industry was published by the
Ministry of Industry and Information Technology on February 24. The aims of the Plan are to support the
installation and expansion of photovoltaic power generation in the country, and to enable it to compete on
the international market. The Plan expressly sets targets for technological development and cost reduction,
as well as relevant policy measures. In addition, the National Energy Administration, which is responsible
for managing domestic energy targets, is considering raising the country’s solar energy generation capacity
to 50 GW by 2020.
A key index of the technological performance of solar cells is the efficiency of converting solar energy toelectricity. The total area conversion efficiency of solar cells (how much energy is captured per unit area ofcell surface) manufactured by medium-sized Chinese manufacturers is 17-19% for monocrystalline siliconsolar cells, 15-17% for polycrystalline silicon cells, and 6-8% for thin film solar cells. The National Energy
Administration and other agencies are promoting distributed photovoltaic generation, termed the “Golden
Sun Project”. In this project, candidates for financial aid for 2012 include crystalline silicon solar cells witha total area conversion efficiency of 14.5% or more and non-silicon thin film cells with at least 7%
efficiency (of which CIGS accounts for 10%). The Plan also proposes raising the conversion efficiency to
21% for monocrystalline silicon cells, to 19% for polycrystalline silicon cells, and to 12% for thin film cells,
by 2015.
The biggest challenge for photovoltaic power generation is price competitiveness. In the Golden Sun
Project, the Chinese government is granting a subsidy of 7,000 yuan per kW of distributed photovoltaic
power generation in 2012, and has set the standard sale price of electricity (equivalent of FIT) of 1 yuan per
kWh for the power grids of non-subsidized large-scale photovoltaic power plants. Standard sale prices ofelectric power generated by other sources are: 0.46 yuan per kWh for coal-fired (which is kept low as apolicy price), from 0.57 yuan (Beijing, fueled by pipeline gas) to 0.72 yuan (coastal regions, fueled by
LNG) for gas, 0.54 yuan for onshore and 0.62–0.74 for offshore wind power. The Plan also suggests
lowering the cost of solar cells to 7,000 yuan per kW in 2015 and 5,000 yuan in 2020, the cost of cell
installation to 13,000 yuan in 2015 and 10,000 yuan in 2020, and the cost of power generation to 0.8 yuan
per kWh in 2015 and 0.6 yuan in 2020. If achieved, China will be even more cost competitive in both
domestic electric power and on the international solar cell market.
As policy measures, the Plan promotes the development of core technology through collaboration
between industry and academia, as well as product standardization for solar cell panels and inverters, andgrid connection standards. Other aims include participating in establishing international standards, as well
as reforming domestic systems for quality authentication and production monitoring. Moreover, the Plan
aims to nurture industry-leading manufacturers with an annual capacity of 5 GW, and to help midsize
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such as the Golden Sun Project and supporting a financial policy for them. Regarding the increasing trade
friction with the West, China has identified the causes as the price advantage of its products and thecountry’s high dependency on overseas markets. The Plan argues that the problem should be addressed byincreasing domestic demand, strengthening domestic industrial organizations, enhancing independent
managerial ability, and readjusting the Chinese export insurance mechanism.

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