IEEJ: January 2014. All rights reserved.

The 414th Forum on Research Work

20th December 2013

Economic and Energy Outlook of Japan for FY2014—Japan is reaching a crucial moment—
YANAGISAWA Akira, T. Yoshioka, H. Suzuki, Choi J. W., R. Ikarii, S. Iwata, Y. Shibata, K. Ito
The Energy Data and Modelling Center
The Institute of Energy Economics, Japan Executive summary of topics
1. Impacts of restarting nuclear power plants – swift approval procedures must
follow the completion of the rigorous assessment pp.17-19•

The application of the new regulation standard for the safety assessment of nuclear
power plants, which entered into force in July 2013, requires more time than was
originally anticipated. The current assumption is that the first group will need aboutnine months to complete the assessment and receive the assent from the local
governments, resulting in no nuclear power plant restarts within this fiscal year (FY2013).
Assuming a six months assessment period for the second and following groups, amaximum of 16 plants would restart and operate on average for eight months during the
FY2014 [Nuclear Mid-level Case].

•

During FY2014, the power generation cost will rise by JPY3,500/MWh, compared to
FY2010, reflecting the additional spending on fossil fuel imports of JPY7.3 trillion
required to replace the loss of electricity generated using nuclear power. Nuclear power
generation will be about 30% of what it was in FY2010. The energy-related carbon
dioxide (CO2) emissions will increase by 46 Mt-CO2, or 4.1% higher than during FY2010.

•

Assuming a much longer (one-year) assessment period, no more than six plants would
restart by the end of FY2014, generating electricity on average for nine months during
FY2014 [Low-level Case]. If the Authorities could increase their staff as of April 2014 andif utilities submit the required materials smoothly and on time [High-level Case], up totwenty-two plants could restart and operate on average for eight months during FY2014.
The hypothetical “Full Operation Case,” assumes that the 22 plants of the “High-level
Case” do generate electricity throughout the period rather than just for eight months.

•

The extent to which the nuclear power plants can restart and operate has huge impacts
on the Japanese economy. The difference in spending on fossil fuel imports between theHigh- and the Low-level Case is JPY1.5 trillion for FY2014. Lower spending means thatpower generation cost is reduced by JPY1,500/MWh, minimising the risk of further rises
in electricity tariff while accelerating GDP by 0.17%. In the Full Operation Case, thespending on fossil fuel imports drops by JPY2.4 trillion, reducing power generation costby JPY2,500/MWh while expanding GDP by 0.28%.

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IEEJ: January 2014. All rights reserved.

Impacts by nuclear power plants’ restart (FY2014)
Electricity
generated by
nuclear (TWh)300

Power generation Total spending on
cost
fossil fuel imports(JPY/kWh)(JPY trillion)
12.9

13

288

28

CO2 emissions(Mt-CO2)
1,220

26.6

250

200

189

150

12

11.7

26

11

11.4

24

10

10.4

25.4
25.1
24.2

22

1,205

1,200

1,180

1,170

1,160
1,157

114

100

9
8.2

82

50
0

20

8
23

2010 2014

18

7

1,140

1,120

16
2010

2014

1,125

1,100
2010

2014

Low-level
Case
Mid-level
Case

High-level
Case

1,123

18.1

2010

Full
OperationCase2010 2014

2. Effects and adverse effects of FIT – immediate improvement of the program isrequired for the proper and sustainable introduction of renewables pp.19-21•

Solar PVs, with short lead-times and high purchased prices, accelerated the introductionof renewable power generation. The operating capacity of renewable power generation
will reach 36.6 GW by the end of FY2014, an increase of 6.8 GW in FY2014.

•

By the end of July 2013, a total capacity of 43.8 GW has been authorized under the FIT
program. The cumulative burden over the next 20 years on electricity consumers of thiscapacity, if it all starts to operate, will total as much as JPY19 trillion and rise electricity
tariffs by as much as JPY1,100/MWh – equivalent to 6.6% for industry and 4.6% forresidential use. The burden rises with the penetration of renewable power generation.

3. Impact of TPP – energy demand increases led by an expansion of the economy
pp.21-22•

The establishment of the Trans-Pacific Strategic Economic Partnership Agreement, or
TPP, will smooth market access via foreign trade and investments. The removal of duties
will expand the Japanese economy by 0.9% as a whole.

•

As a result of the TPP, total primary energy supply and total final energy consumption
will both increase by 0.6%. Consumption will increase in almost all sectors andsubsectors. Although electricity and fuel oil sales will increase, city gas sales will
increase the most due to its higher share of industry use.

•

If Japan depends too much on imported fossil fuel, has concerns over electricity supply
and uses expensive electricity, the anticipated benefits of the TPP will be lower than
anticipated. Japan needs to adopt a proper energy system to profit completely from theforthcoming economic partnership agreement.
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IEEJ: January 2014. All rights reserved.

 Executive summary of economic and energy outlook for FY2014
1. Macro economy – growth slows down due to downturn following the last-minutedemand pp.6-7•

Although external demand and public demand grow in real GDP in FY2014, private
demand drops due to the downturn following the last-minute demand increase prior tothe consumption tax increase. GDP growth in real terms slows down from 2.6% in
FY2013 to 0.8% while in nominal terms it slows down from 2.3% to 2.0%.

2. Energy supply and demand – while total energy consumption decreases, natural
gas and coal hit historical high•Total primary energy supply decreases (-0.3%) due to a stagnant economic activity,
electricity saving and energy conservation. While oil shows a steep decrease of 8.8%
being pushed out by nuclear, natural gas and coal hit historical high. Japan’s
self-sufficiency rate is up to 10%, still lower than before the Great East Japan Earthquake(18% in FY2010). pp.9-10•

Total final energy consumption falls by -0.4%. Energy consumption in all sectors, namely
industry, buildings including residential and commercial, and transport, remain below
the pre-earthquake’s levels. The buildings sector shows the largest decrease at 0.8% due
to milder temperature in summer and winter, electricity savings and energy
conservation. pp.11-12

3. Energy sales – city gas increases steadily, electricity rises slightly and fuel oil
drops sharply•

The supply and demand of electricity will be more in balance due to the operation ofsome nuclear power plants. Electricity sales by utilities increase for the second year in arow, for the first time since the earthquake, led by a recovery of production activities ofthe manufacturing sector in the second half. As in the previous year, sales to large
industrial users drive total sales (+0.3%), although sales for lighting contract for the
residential sector do not grow (-0.2%). pp.12-13•

City gas sales by general gas utilities increase by 1.1%, recording an historical high forthe fourth year in a row. Sales for industrial use show steady growth of 2.1% due to fuelswitching and new demand for power generation. Sales for residential, commercial andothers stay almost unchanged from FY2013, supported by more water-heating demand
due to cooler summer than the previous year and penetration of gas cogeneration
systems. pp.14-15•

Fuel oil sales fall below 190 GL for the first time in 28 years (-5.8%). Fuel oil C drops
sharply due to the restart of some nuclear power plants (-52.9%) whilst all petroleum
products but naphtha decrease. pp.15-16-3-

IEEJ: January 2014. All rights reserved.

4. CO2 emissions – decrease in FY2014 after recording new high in FY2013
pp.10-11•

Energy-related CO2 emissions hit the new high of 1,221 Mt in FY2013 due to theintensive operation of fossil fuel-fired power plants, an increase of 1.5% from FY2005.
The restart of nuclear power plants leads to a decrease of the emissions by 4.2% in
FY2014. Although energy consumption is less than before the earthquake by 5%, CO2
emissions are up by 4%.

•

It is no easy matter to achieve simultaneously an expected full-scale economic recovery
and the new emission reduction target for FY2020 from FY2005 of -3.8% for GHGs and of+0.4% for energy-related CO2 emissions, which heavily depends on energy conservation.
The introduction of more low-carbon energy should also be promoted.
Summary (Reference Scenario)
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014
Primary energy supply (Mtoe)1
2

Oil (GL)
Natural gas2 (Mt)
Coal2 (Mt)
Nuclear3 (TWh)Final energy consumption (Mtoe)

Energy indicators

Industry4
Buildings
Transport
Petroleum products
Natural gas and city gas
Coal and coal productsElectricity
Electricity sales (TWh)City gas sales5 (Billion m3)
Fuel oil sales (GL)
Energy-related CO2 emissions (Mt-CO2)(FY2005=100)

Importprices

Crude oil, CIF ($/bbl)
LNG, CIF ($/t)
Steam coal, CIF ($/t)

Economic
indicators

Nominal GDP (JPY trillion)
Real GDP (JPY2005 trillion)
Industrial production index (CY2010=100)
Exchange rate (JPY/$)

514.1
232.2
73.2
184.6
288.2
343.6
162.9
97.3
83.4
178.1
35.0
38.0
88.9
942.1
35.28
196.0
1,123
93.4
84
588
115
480.2
512.5
99.4
85.7

491.1
238.5
85.8
175.1
101.7
334.4
159.0
93.8
81.7
172.1
36.3
37.8
84.8
894.8
35.91
196.1
1,173
97.6
114
819
143
473.7
514.0
98.8
79.1

484.3
242.1
89.4
183.3
15.9
329.9
156.0
92.5
81.4
168.8
36.3
37.7
83.9
886.7
36.32
197.5
1,207
100.3
114
859
127
472.6
517.5
95.8
83.1

487.7
241.8
90.2
189.5
9.3
331.5
157.4
91.8
82.2
169.4
36.5
37.8
84.6
890.0
36.67
196.4
1,221
101.5
107
819
107
483.6
530.8
99.0
99.4

486.1 -1.4% 0.7% -0.3%
220.4 1.5% -0.1% -8.8%
91.1 4.1% 0.9% 1.0%
191.1 4.7% 3.4% 0.8%
82.1 -84.3% -41.6% 782.3%
330.3 -1.3% 0.5% -0.4%
157.5 -1.8% 0.9% 0.0%
91.1 -1.3% -0.8% -0.8%
81.6 -0.4% 1.0% -0.7%
167.9 -1.9% 0.3% -0.9%
36.6 -0.2% 0.6% 0.4%
37.8 -0.3% 0.4% 0.0%
84.8 -1.0% 0.8% 0.2%
890.9 -0.9% 0.4% 0.1%
37.08 1.1% 1.0% 1.1%
184.9 0.8% -0.6% -5.8%
1,170 2.8% 1.2% -4.2%
97.3
105 -0.2% -6.3% -1.7%
784 4.9% -4.7% -4.2%
110 -11.5% -15.3% 2.4%
493.1 -0.2% 2.3% 2.0%
535.0 0.7% 2.6% 0.8%
101.0 -3.0% 3.3% 2.0%
100.0 5.1% 19.7% 0.6%

Notes:
1. Mtoe = 1013 kcal
2. Conversion factors for Oil: 9,126 kcal/L; Natural gas: 13,043 kcal/kg; Steam coal: 6,139 kcal/kg; Coking coal: 6,928 kcal/kg
3. The Mid-level Case
4. Industry includes non-energy use.
5. Conversion factors; 1 m3 = 10,000 kcal

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IEEJ: January 2014. All rights reserved.

1. Introduction
Expectations on the future course of the Japanese economy are growing thanks to favourable
effects of Japanese Prime Minister Shinzo Abe’s “Abenomics” economic policy and an
overseas economic recovery forecast. However, an earlier-expected expansion in exports has
yet to emerge, with wage improvements remaining uncertain. Under such situation, theJapanese economy is feared to slump due to a consumption tax hike planned for April 2014.
It is plagued with a mountain of energy problems including the tight electricity supply anddemand balance, safety assessment on nuclear power plants, risks of renewable energy
diffusion concentrating in solar photovoltaic power generation, growing energy costs andrising dependence on energy imports. In a bid to contribute to analysing immediatechallenges and considering a more desirable energy mix in Japan, we have projected theJapanese economy and energy supply and demand in a critical stage through FY2014 andanalysed various implications of the projection.

2. Major assumptions in the Reference Scenario(1) World economy
We assume that the world economy will continue recovery until the end of FY2014. Despite
risks regarding the debt limit issue and monetary policy changes, the U.S. economy may log
a growth rate of 2.5% or more in FY2014 due to firm private consumption and residential
investment. The European economy, though still seeming stalled, may recover slowly as
financial markets stabilise. The Asian economy may retain a firm economic growth rate of
6% or more as the Association of Southeast Asian Nations economy remains buoyant despite
slower growth in China and India.
(2) Oil, LNG and coal CIF prices
We have assumed an average oil import CIF price for Japan at $105/bbl in FY2014 in view ofa moderate easing in the supply and demand balance (Koyama K., “International Oil
Situation and Oil Price Outlook for 2014,” 2013). Applying the relationship between oil andliquefied natural gas (LNG) prices over the recent years to the assumed oil price, we haveassumed the average LNG price for FY2014 at $784/t (Morikawa T., “International Gas
Market Trends,” 2013). Reflecting the tightening international markets for coal, we haveassumed an average price of steam coal at $110/t for FY2014 (Sagawa A., “Coal Situation
Outlook for 2014,” 2013).
(3) Exchange rate
We have assumed an average dollar-to-yen rate at JPY100/$ for the second half of FY2013 andthe whole of FY2014.

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IEEJ: January 2014. All rights reserved.

(4) Taxes
We have assumed that the consumption tax will be raised to 8% in April 2014, while
additional JPY96 per tonne of carbon dioxide equivalent will be placed on the oil and coaltax.
(5) Nuclear power generation
We have assumed that each nuclear power plant will take some six months to clear theassessment of its conformity with new regulatory standards under a setup of threeassessment teams and get approval by relevant local governments before restarting
operation. Given data submission and assessment progress in the past, however, the firstgroup of plants is expected to take about nine months before restarting operation. Thismeans that it is difficult to expect any plant to restart operation within FY2013. In FY2014, up
to 16 plants are assumed to restart operation. They are estimated to operate for eight months
on average, generating 82.1 TWh [Nuclear Mid-level Case] (see pp.17-19 for the impact of
nuclear power plants’ restart).
(6) Electricity supply and demand
Based on discussions at the government’s Electricity Supply-Demand Verification
Subcommittee, we have assumed that each electric utility will secure a reserve capacity of atleast 3% through capacity enhancement and electricity saving.
(7) Temperatures
Based on the three-month weather forecast by the Japan Meteorological Agency, we haveassumed a warmer winter for FY2013 than in the previous year (+0.6 degrees Celsius) and anormal summer and winter for FY2014, which means a cooler summer (-1.4°C) than in theprevious year and a slightly warmer winter (+0.2°C).

3. Macro economy
The Japanese economy will recover thanks to the Abenomics policy and other factors, withreal gross domestic product growing by 2.6% in FY2013.
Among private demand components, final consumption expenditure will increase due to thegovernment’s economic measures and consumer sentiment improvements amid asset effects.
Residential investment will increase thanks to last-minute demand before the consumption
tax hike. Non-residential investment will expand due to business confidence improvements.
Public demand will increase as public investment for reconstruction after the Great East
Japan Earthquake and infrastructure renovation, and expenditure expand. Exports will
recover in line with a weaker yen mainly for manufacturers, while imports will continue
increasing on brisk domestic demand.

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IEEJ: January 2014. All rights reserved.

Real GDP growth in FY2014 will decelerate to 0.8% (2.0% in nominal terms) as private
demand decreases despite expanding external and public demand.
Among private demand components, non-residential investment will increase thanks to thedepreciation of the yen, tax incentives and subsidies. Final consumption expenditure andresidential investment will decrease due to a purchasing power drop by the consumption tax
hike and demand fall following last-minute demand before the tax hike. The whole ofprivate demand will log a slight decrease. Public demand will expand as social security
expenditure increases with public investment remaining unchanged under an economic
stimulus package as much as JPY5 trillion. Exports will continue to increase thanks toemerging effects of the depreciation of the yen and an overseas economic recovery, while
import growth will slow down. External demand will thus make a positive contribution to
GDP growth for the first time in four years.
The trade balance will improve in line with the export expansion under the depreciation of
the yen and a decrease in fossil fuel imports. The trade deficit will rise to a record
JPY9.8 trillion in FY2013 before falling back in FY2014 to JPY6.2 trillion, still the third largest
in history. “Kuroda's Bazooka,” the Bank of Japan’s unusual monetary easing, will exert some
impact on the economy. However, it will not be easy for the central bank to achieve an
inflation rate of 2% (excluding the impact of the consumption tax hike) in a little more than
one year.
Table 1: Macroeconomic indicators
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014
Real GDP (JPY2005 trillion)
Private demand
Private consumption
Private residential investment
Private non-residential investment
Public demand
Government consumption
Public investment
Net exports of goods and services
Exports of goods and services
Imports of goods and services
Nominal GDP (JPY trillion)
Balance of trade (JPY trillion)
Exports
Imports
Fossil fuels
Domestic corporate goods price index (CY2010=100)

Consumer price index (CY2010=100)
GDP deflator (CY2005=100)

512.5
377.2
299.8
12.5
64.9
118.5
97.9
20.7
16.8
83.6
66.8
480.2
5.3
67.8
62.5
18.1
100.2
99.9
93.7

514.0
383.2
303.8
12.9
68.0
119.2
99.1
20.1
12.0
82.3
70.3
473.7
-4.4
65.3
69.7
23.1
101.6
99.8
92.2

517.5
388.7
308.5
13.6
68.5
120.9
100.6
20.3
8.3
81.3
73.0
472.6
-8.2
63.9
72.1
24.6
100.5
99.5
91.3

Notes: GDP components may not add up to the total GDP due to minor data deviations.

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530.8
397.0
316.4
14.6
69.0
125.7
102.5
23.2
8.7
84.7
76.1
483.6
-9.8
72.2
82.0
27.1
102.4
100.0
91.1

535.0 0.7%
396.3 1.4%
313.8 1.5%
13.6 5.3%
71.4 0.7%
126.7 1.4%
103.5 1.5%
23.1 1.3%
12.4 -30.3%
90.2 -1.2%
77.7 3.8%
493.1 -0.2%-6.2 84.9%
77.7 -2.1%
83.9 3.5%
25.4 6.6%
106.3 -1.0%
102.7 -0.3%
92.2 -0.9%

2.6% 0.8%
2.1% -0.2%
2.6% -0.8%
7.1% -6.7%
0.7% 3.5%
4.0% 0.8%
1.9% 1.0%
14.0% -0.3%
3.7% 43.4%
4.2% 6.4%
4.3% 2.2%
2.3% 2.0%
20.3% -37.4%
12.9% 7.7%
13.7% 2.3%
10.0% -6.1%
1.8% 3.8%
0.5% 2.7%-0.2% 1.2%

IEEJ: January 2014. All rights reserved.

4. Industrial production
Crude steel production will recover in FY2013 on a domestic demand expansion led by thecivil engineering and construction sectors and remain high in FY2014 on an export recovery.
In FY2013, crude steel output will increase by 2.1% from the previous year, supported bybrisk new residential construction and non-residential investment. In FY2014, domestic
demand will decrease in reaction to last-minute demand before the tax hike. External
demand will score a limited rise though exports recovery supported by the continued
depreciation of the yen. Output will level off (+0.0%).
Ethylene production will continue to recover thanks to an end to a domestic demand fall
and a gradual rise in external demand.
In FY2013, ethylene production will expand by 5.3% from the previous year thanks to adomestic demand recovery and an export rise, posting the first upturn in four years. In
FY2014, imports will decrease due to the continued depreciation of the yen, while exports
will increase slightly. Domestic demand will remain firm. Production will continue to rise
despite a decrease in capacity through ethylene plant shutdowns, logging a 0.4% increase
from the previous year.
Cement production will be brisk due to expanding domestic demand including post-disasterreconstruction demand.
In FY2013, cement production will increase by 1.0% from the previous year due topost-disaster reconstruction and a recovery in residential and non-residential investment. In
FY2014, domestic demand will be potentially firm due to a production carryover from theprevious year and progress in disaster prevention and reduction programs. However,production will level off at 60 million tonnes under capacity and personnel constraints.
Paper and paperboard production will turn up due to the depreciation of the yen in FY2013
before falling back.
In FY2013, paper and paperboard production will increase by 2.0% from the previous year,
helped by last-minute demand before the tax hike and the depreciation of the yen, logging
the first rise in three years. In FY2014, paper production will decline as a shift to electronic
media coincides with a consumption drop following the last-minute demand. Paperboard
production will also decrease due to a shift to thinner and lighter products. Paper andpaperboard production in FY2014 will thus turn down with a 0.8% fall.

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IEEJ: January 2014. All rights reserved.

Automobile production will decrease in reaction to last-minute demand before the tax hike,even though robust export growth will help cover a domestic demand drop.
In FY2013, automobile production will rise by 1.4% from the previous year, supported by thelast-minute demand. In FY2014, exports will continue to increase under the weak yen, while
domestic demand will fall in reaction to the last-minute demand. Production will decreaseby 0.8% to 9.61 million units. However, the level will still be the second largest since after the
Lehman Shock, following the previous year’s record.
Table 2: Industrial activities
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014
Crude steel (Mt)

Production

Ethylene (Mt)
Cement (Mt)
Paper and paperboard (Mt)
Automobiles (Million units)

Production indices

Mining and manufacturing (CY2010=100)
Food
Chemicals
Non-ferrous metals
General and electrical machinery, etc.

Tertiary industry activity index (CY2005=100)

110.8 106.5 107.3 109.5
7.00
6.47 6.26
6.59
56.1
57.6 59.5
60.1
27.3
26.5 25.7
26.2
8.99
9.27 9.55
9.69
99.4
98.8 95.8
99.0
98.1
97.3 96.7
99.0
99.8
98.3 96.5
99.6
98.9
97.5 96.6
98.6
101.3 100.3 93.1
97.3
97.8
98.4 99.2 101.2

109.6
6.62
60.1
26.0
9.61
101.0
99.7
100.9
99.1
99.5
102.2

0.8%
-3.3%
3.3%
-3.0%
3.1%
-3.0%
-0.6%
-1.9%
-1.0%
-7.2%
0.8%

2.1%
5.3%
1.0%
2.0%
1.4%
3.3%
2.4%
3.3%
2.1%
4.5%
2.0%

0.0%
0.4%
-0.0%
-0.8%
-0.8%
2.0%
0.7%
1.3%
0.5%
2.2%
1.0%

Note: Chemicals include chemical fibre.
Note: General and electrical machinery includes general machinery, electrical machinery, information and telecommunications equipment,
electronic parts and devices, precision machinery and metal products.

5. Primary energy supply
Primary energy supply in Japan will increase for the first time in three years before fallingback in FY2014. However, natural gas and coal demand will reach record levels.
Primary energy supply in Japan in FY2013 will increase by 0.7% from the previous year. In
FY2014, primary energy supply will fall by 0.3% due to effects by a reaction to last-minutedemand before the consumption tax hike as well as electricity and energy conservation,although manufacturers’ production will recover in the second half of the year.
Coal demand in FY2013 will increase beyond the level before the Great East Japan
Earthquake, scoring a 3.2% increase from the previous year and a 2.0% rise from FY2010.
FY2014 will see rising coal prices amid the tightening international markets and the oil andcoal tax hike. However, coal demand will expand by 0.9% from the previous year to a record
level, marking the fourth straight annual rise. Demand for power generation increases on arise in coal-fired power generation capacity and industrial demand soars from cement
producers retaining robust output and steelmakers supported by a recovery in-9-

IEEJ: January 2014. All rights reserved.

manufacturing industry output. Coal’s share of primary energy supply will exceed a quarterfor the first time in about half a century.
Oil demand excluding heavy fuel oil C for power generation in FY2013 will increase slightly
from the previous year. However, total oil demand will post a small fall of 0.1%. In FY2014,
demand for oil for petrochemical will continue to increase. Demand for expensive oil-fired
power generation will drop as some nuclear power plants restart operation. As a result, oil
demand will plunge by 20 million tonnes of oil equivalent (Mtoe) or 8.8% from the previous
year to 201 Mtoe, a level seen before the first oil crisis.
Natural gas demand in FY2013 will increase by 0.9% from the previous year as demand rises
for both power generation and city gas. In FY2014, demand for power generation will remain
firm even with nuclear power plants restarting operation. City gas demand will increasesteadily due to large-scale fuel switching. Overall natural gas demand in the year will
expand by 1.0% from the previous year, rewriting a record for the second straight year. A
natural gas demand increase (from FY2010) after the Great East Japan Earthquake will total
17.8 million tonnes of LNG equivalent.
Nuclear in FY2013 will decrease by 41.6% from the previous year as no nuclear power plant
has been in operation in Japan since the Oi nuclear plant’s shutdown in last September for
regular inspection. Nuclear will gradually increase with some plants restarted one after
another in FY2014. Total nuclear power generation in the year will still be limited to less than
30% of the FY2010 level. Nuclear power generation will gradually contribute to reducing
fossil fuel consumption and improving energy self-sufficiency rate.
Table 3: Primary energy supply
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014
Primary energy supply (Mtoe)
Coal
Oil
Natural gas
Hydro
Nuclear
OthersSelf-sufficiency
Energy intensity (FY2005=100)
Energy-related CO2 emissions (Mt)
(FY2005=100)

514.1
119.1
211.9
95.5
18.2
60.7
8.7
18%
94.1
1,123
93.4

491.1
112.8
217.6
112.0
18.5
21.4
8.8
11%
89.6
1,173
97.6

484.3
117.7
220.9
116.6
16.7
3.4
9.1
7%
87.7
1,207
100.3

487.7
121.5
220.6
117.6
16.7
2.0
9.3
7%
86.1
1,221
101.5

486.1 -1.4% 0.7% -0.3%
122.5 4.3% 3.2% 0.9%
201.1 1.5% -0.1% -8.8%
118.8 4.1% 0.9% 1.0%
17.1 -9.3% -0.2% 2.0%
17.3 -84.3% -41.6% 782.3%
9.4 2.5% 2.3% 1.6%
10%
85.2 -2.1% -1.8% -1.1%
1,170 2.8% 1.2% -4.2%
97.3

Note: “Others” include geothermal, new energies, etc.

Energy-related carbon dioxide emissions in FY2013 will hit a record 1,221 million tonnes of
CO2 equivalent, up 1.2% from the previous year and 1.5% from FY2005. In FY2014, theseemissions will decrease by 4.2% from the previous year for the first drop in five years as
fossil fuel-fired power generation decreases with some nuclear power generation restarted.
- 10 -IEEJ: January 2014. All rights reserved.

Nevertheless, the emissions in the year will be far above levels before the Great East Japan
Earthquake.

6. Final energy consumption
Japan’s final energy consumption as well as its primary energy supply will increase in
FY2013 for the first time in three years before turning down in FY2014.
Final energy consumption in FY2013 will increase by 0.5% from the previous year, marking
the first rise in three years, before falling by a slight 0.4% in FY2014. The industrial sector will
expand final energy consumption in FY2014 for the second straight year as its production
recovers in the second half of the year following a slump resulting from the consumption tax
hike. The buildings sector – residential and commercial sectors – will cut energy
consumption in FY2014 for the fourth straight year due to electricity and energy conservationand mild temperatures. The transportation sector will expand energy consumption in
FY2013 from the previous year for the first time in three years, due to last-minute demand
before the consumption tax hike. In reaction to the last-minute demand, the sector’s energy
consumption will fall back in FY2014. All sectors will see energy consumption drops fromlevels before the Great East Japan Earthquake. Their consumption will decrease by 2.2-6.6%
from FY2010.
The industrial sector will expand energy consumption in FY2013 by 0.9% from the previous
year as economic activities recover thanks to greater domestic demand, including
post-disaster reconstruction and disaster prevention/reduction measures, as well as risingexternal demand under the weak yen. FY2014 will see correction phase in post-disasterreconstruction demand and a reactionary demand drop after the consumption tax hike in its
first half. But a recovery in manufacturers’ production in the second half will allow the sector
to offset an energy consumption fall in the first half. The sector’s energy consumption in thewhole of FY2014 will thus level off from the previous year.
The residential sector will reduce energy consumption in FY2013 by 0.8% from the previous
year as a warmer winter reduces space and water-heating demand. In FY2014, mild
temperatures, rising electricity saving consciousness and the diffusion of energy-efficientequipment will allow the sector to cut energy consumption by 1.3% from the previous year.
It will thus reduce energy consumption for the fourth straight year.
The commercial sector will reduce energy consumption in FY2013 by 0.8% from the previous
year due to a warmer winter, and electricity and energy conservation efforts, despite spacecooling demand increased under summer heat waves. In FY2014, the sector will post a small
fall of 0.1% from the previous year in energy consumption due to milder summer and wintertemperatures and continued electricity and energy conservation efforts, with the fallconcentrating in space-heating and cooling demand. Like the residential sector, thecommercial sector will thus reduce energy consumption for the fourth straight year.
- 11 -IEEJ: January 2014. All rights reserved.

The transportation sector will expand energy consumption in FY2013 by 1.0%, marking thefirst increase in three years in line with more robust economic activities and risingtransportation demand. In FY2014, the sector will reduce energy consumption by 0.7% fromthe previous year due to a reactionary decline in transportation demand after last-minutedemand before the consumption tax hike, a plateauing vehicle fleet and continuous
improvements in fuel and transportation efficiency resulting from eco-friendly and minivehicles’ expanding share of the vehicle fleet. Its energy consumption will go back into a long
downward trend.
Table 4: Final energy consumption
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014
Final energy consumption (Mtoe)
Industry
Buildings
Residential
Commercial
Transport
Coal and coal products
Petroleum products
City gas and natural gas
Electricity
Others343.6 334.4 329.9 331.5 330.3
162.9 159.0 156.0 157.4 157.5
97.3 93.8
92.5 91.8
91.1
54.6 52.8
52.0 51.6
50.9
42.7 41.0
40.5 40.2
40.2
83.4 81.7
81.4 82.2
81.6
38.0 37.8
37.7 37.8
37.8
178.1 172.1 168.8 169.4 167.9
35.0 36.3
36.3 36.5
36.6
88.9 84.8
83.9 84.6
84.8
3.7
3.4
3.3
3.2
3.2

-1.3%
-1.8%
-1.3%
-1.5%
-1.1%
-0.4%
-0.3%
-1.9%
-0.2%
-1.0%
-4.1%

0.5%
0.9%
-0.8%
-0.8%
-0.8%
1.0%
0.4%
0.3%
0.6%
0.8%
-1.2%

-0.4%
0.0%
-0.8%
-1.3%
-0.1%
-0.7%
0.0%
-0.9%
0.4%
0.2%
-1.8%

Note: Industry includes non-energy use.

7. Electricity sales (electric utilities)
Electricity sales will turn up in FY2013 for the first time since the 2011 disaster and riseslightly in FY2014.
The electricity supply and demand balance in FY2013 will ease slightly from the previous
two years thanks to electricity saving efforts and a supply increase through the expansion offossil fuel-fired power generation capacity. Electricity sales in the year will rise by 0.4% fromthe previous year, the first increase after the 2011 disaster. The balance will ease further in
FY2014 as some nuclear power plants restart operation. Electricity sales in FY2014 will scorea small rise of 0.1% from the previous year as manufacturers’ production recovers in thesecond half after a reactionary drop following last-minute demand before the consumption
tax hike. The FY2014 sales will still be far less than levels before the disaster, posting a 5.4%
decrease from FY2010.

- 12 -IEEJ: January 2014. All rights reserved.

Table 5: Electricity sales (electric utilities)
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014

942.1
304.2
637.9
300.2
251.3
28.1
53.3
74.6

Total (TWh)Lighting contracts
Power contractsof which: Large-scale industrial users
Mining and manufacturing
Chemicals
Iron and steel
Machinery

894.8
288.9
605.9
290.8
244.6
27.2
53.2
71.6

886.7
286.2
600.5
284.0
237.9
26.3
52.6
69.0

890.0
286.3
603.7
285.5
238.8
26.4
53.1
69.6

890.9
285.8
605.0
286.4
239.3
26.4
53.2
69.8

-0.9%
-0.9%
-0.9%
-2.3%
-2.7%
-3.1%
-1.1%
-3.8%

0.4%
0.0%
0.5%
0.5%
0.4%
0.3%
0.9%
0.9%

0.1%
-0.2%
0.2%
0.3%
0.2%
0.1%
0.2%
0.3%

Note: Power contracts and total include specified-scale demand.

Fossil fuel-fired power generation will hit a record in FY2013 and post a still-high level in
FY2014.
Electric utilities’ fossil fuel-fired power generation will hit a record 740 TWh level in FY2013.
In FY2014, oil-fired power generation will decrease substantially as nuclear power
generation increases. Coal-fired power generation will expand by 1.5% in the year as
capacity factors rise for coal-fired power plants recovering from the disaster, with theaddition of the unit 2 at the Hitachinaka Thermal Power Station and the unit 6 at the Hirono
Thermal Power Station (in December 2013). Natural gas-fired power generation will increaseby 1.7% to as much as 400 TWh as capacity expands on the launch of the units 1 to 3 at the
Himeji Daini Thermal Power Station (in August 2013, and March and April 2014) and three
generators of the unit 3 at the Chiba Thermal Power Station (in April, June and July 2014).
Table 6: Power generation mix (electric utilities)
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014
Electricity generation (TWh)918.2 857.4 822.0 825.9 827.2

Share
Hydro
Fossil fuel thermal
Coal
Natural gas and city gas
Oil, etc.
Nuclear
Others

-4.1%

0.5%

0.2%

Year-to-year changes

8%
60%
23%
31%
5%
31%
1%

9%
78%
24%
42%
11%
12%
1%

8%
89%
25%
47%
15%
2%
1%

- 13 -

8%
90%
27%
48%
15%
1%
1%

8% -0.5p
81% +10.4p
27% +1.5p
48% +4.8p
5% +3.7p
10% -9.9p
1% +0.0p

-0.1p
+0.8p
+1.7p
+0.6p
-0.2p
-0.8p
+0.1p

+0.2p
-9.0p
+0.4p
+0.7p
-9.8p
+8.8p
+0.1p

IEEJ: January 2014. All rights reserved.

8. City gas sales (general gas utilities)
City gas sales in FY2013 will rewrite an annual record for the fourth straight year. In
FY2014, city gas sales to the industrial use will surpass 20 billion cubic metres for the firsttime.
City gas sales in FY2013, though affected by higher temperatures in summer and winter, will
increase by 1.0% from the previous year due mainly to fuel switching. In FY2014, sales toresidential, commercial and others – medical and public – uses will level off from theprevious year, with water-heating demand in summer increasing due to lower temperatures
than in the previous summer. Sales to the industrial use will increase firmly due to fuelswitching and power generation demand. Overall city gas sales in FY2014 will increase by
1.1% from the previous year for the fifth straight year of growth. Particularly, city gas sales tothe industrial use in the Kanto region will expand remarkably.
City gas sales to the residential use in FY2013 will drop by 2.0% from the previous year
because of higher summer and winter temperatures. In FY2014, sales to this use will level off,
as water-heating demand will increase due to summer temperatures that are lower than theprevious year. While the number of contracts for sales to the residential use will increase by asteady 0.5% annually due to the expansion of gas utilities’ service areas and fuel switching,
they will see a continuation of a long-term trend in which sales per contract decline due tothe penetration of more efficient equipment and shrinking household sizes. The residentialuse, which had accounted for the largest share of city gas sales until 2000, will see its shareshrink to less than a half of that for the industrial use.
Sales to commercial and others uses in FY2013 will decrease slightly (by 0.9% and 0.6%,
respectively) from the previous year due to a plunge in water-heating demand under thetemperature change as well as energy and electricity conservation. In FY2014, city gas sales
to these uses will increase slightly (by 0.1% for each use) from the previous year because of
greater water-heating demand under the temperature change, continued energy andelectricity conservation and the further penetration of gas-fuelled air-conditioning andcogeneration systems under business and living continuity plans (BLCPs)1. While switching
to city gas for water heating and air-conditioning has been making progress, the impact has
been offset by the termination or bankruptcies of small enterprises. Therefore, city gas sales
to these uses will continue the levelling-off trend that has remained since FY2004.
Sales to the industrial use in FY2013 will increase by 3.2% from the previous year thanks to
new demand arising from fuel switching, making it the only use to which city gas sales will
expand in the year. Sales to the use will post a slower rise in the first half of FY2014 as some

The business and living continuity plan, or BLCP, aims to improve the energy independence and thereliability of energy supply through multiplexing and has attracted attention particularly since theGreat East Japan Earthquake.

1- 14 -IEEJ: January 2014. All rights reserved.

manufacturers cut operating rates on a reactionary demand decline following the last-minutedemand before the consumption tax hike. However, factors such as manufacturers’
production recovery and the launch of major LNG-fired combined cycle power generators
including the unit 3 at the Chiba Thermal Power Station in the second half will lead city gas
sales to the use in the whole of the year to rise by 2.1% from the previous year for the fifth
straight year of increase. The FY2014 sales to the industrial use will exceed 20 billion cubic
metres for the first time ever.
Table 7: City gas sales (general city gas utilities)
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014
Total (Billion m3)
Residential
Commercial
Industrial
Others35.28 35.91 36.32 36.67 37.08
9.79
9.79 9.80
9.60 9.60
4.74
4.48 4.50
4.46 4.46
17.63 18.67 19.03 19.63 20.04
3.13
2.97 3.00
2.98 2.98

1.1%
0.1%
0.4%
1.9%
1.0%

1.0%
-2.0%
-0.9%
3.2%
-0.6%

1.1%
-0.0%
0.1%
2.1%
0.1%

Notes: Converted at 1 m3 = 41.8605 MJ (10,000 kcal)

9. Fuel oil sales
Fuel oil sales in FY2013 will decrease for the first time in four years. They will decline in
FY2014 as well, slipping below 190 GL for the first time in 28 years.
Total fuel oil sales in FY2013 will drop by 0.6% from the previous year, the first decrease infour years. Excluding heavy fuel oil C for power generation, however, fuel oil sales will
increase by 0.3%, the first rise in three years. In FY2014, heavy fuel oil C sales for power
generation will decline substantially as some nuclear power plants restart operation. The
year will also see continuous fuel switching, energy conservation progress including
improvements in vehicle fuel economy, and a reactionary demand drop after the last-minutedemand before the consumption tax hike. As a result, total fuel oil sales in FY2014 will
decline by 5.8% from the previous year, slipping below 190 GL for the first time in 28 years.
A year-on-year gasoline sales fall in FY2013 will be limited to 0.2% as summer heat waves
offset the impact of improvements in vehicle fuel economy. In FY2014, gasoline sales will
drop by 1.4% from the previous year due to the greater impact of the fuel economy
improvements that will accompany the further penetration of eco-friendly vehicles and minivehicles. The year’s sales will fall to 55 GL level for the first time in 16 years.
Naphtha sales in FY2013 will rise by 3.0% from the previous year, the first increase in four
years. In FY2014, naphtha sales will score a small increase of 0.3% from the previous year
despite a drop in ethylene production capacity as domestic and overseas demand firms for
petrochemical.

- 15 -IEEJ: January 2014. All rights reserved.

Kerosene sales in FY2013 will decrease by 3.0% from the previous year as space andwater-heating demand fails to grow under a milder winter. In FY2014, kerosene sales will
decline by 2.7% from the previous year in line with a long-term downward trend: sales perhousehold in the second half of the year fall below 30 litres per month. The year’s sales will
slip below 18 GL for the first time since FY1971.
Diesel oil sales in FY2013 will increase by 0.9% from the previous year thanks to post-disasterreconstruction demand. In FY2014, diesel oil sales will fall by 0.8% from the previous year
due primarily to a slowdown in post-disaster reconstruction demand and a decline indiesel-fuelled vehicles.
Heavy fuel oil A sales in FY2013 will decrease by 2.9% from the previous year due mainly tofuel switching. In FY2014, they will continue a downward trend despite a rise in demand forfuel for auto-generation of electricity amid a recovery in manufacturers’ production, logging
a year-on-year fall of 3.7%.
Heavy fuel oil C sales for power generation will accelerate their decline in line with an
expansion in LNG- and coal-fired power generation and the restart of some nuclear power
plants, dropping year-on-year by 9.0% in FY2013 and by 52.9% in FYT2014. Nevertheless, theFY2014 sales will still exceed the level before the disaster. Heavy fuel oil C sales for otheruses will also decline due mainly to fuel switching and energy conservation efforts.
Liquefied petroleum gas, or LPG, sales will roughly level off despite fuel switching. In
FY2013, LPG sales will fall by 4.5% from the previous year as sales for industrial use fail toincrease. In FY2014, however, they will increase by 2.3% from the previous year due
primarily to an industrial production recovery in the second half.
Table 8: Fuel oil sales
Historical
Projection
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2012 FY2013 FY2014
Total (GL)
Gasoline
NaphthaJet fuel
Kerosene
Diesel oil
Heavy fuel oil A
Heavy fuel oil B and C
For electric utilities
For other users
LPG (Mt)

196.0 196.1 197.5 196.4 184.9 0.8% -0.6% -5.8%
58.2 57.2 56.4 56.3 55.6 -1.3% -0.2% -1.4%
46.7 43.7 43.2 44.6 44.7 -1.1% 3.0% 0.3%
5.2
4.2
4.0
5.0
5.0 -5.8% 26.2% -0.3%
20.4 19.6 19.0 18.4 17.9 -3.3% -3.0% -2.7%
32.9 32.9 33.4 33.7 33.5 1.8% 0.9% -0.8%
15.4 14.7 13.7 13.4 12.9 -6.3% -2.9% -3.7%
17.3 23.7 27.7 25.0 15.5 16.8% -9.7% -38.1%
7.7 14.9 19.5 17.7
8.3 30.8% -9.0% -52.9%
9.7
8.9
8.3
7.3
7.1 -6.7% -11.5% -2.2%
16.5 16.4 16.6 15.8 16.2 1.0% -4.5% 2.3%

- 16 -IEEJ: January 2014. All rights reserved.

Topic 1: Impacts of nuclear power plants’ restart on the economy and energy
supply and demand
The assessment of nuclear power plants’ conformity with new regulatory standards, thoughdifficult, will be completed in the not-so-distant future. What would the next challenges
be toward restarting nuclear power plants?
The assessment of nuclear power plants’ safety is ongoing under new regulatory standards
that took effect on 8 July 2013. When the new standards were implemented, the assessmentof each plant was expected to take six to 12 months. Some plants were thus expected torestart operation in early 2014 if early.
Slight time gaps between submissions of requests for the assessment had been feared toresult in wide gaps between assessment starting points. Such result has been avoided
through parallel assessment of plural plants. In the unprecedented assessment, however,regulators and electric utilities have been groping their way forward in proceeding withassessment meetings. Utilities have been requested to provide additional information. As
massive requests have come for data that only pressurised water reactor makers can provide,
utilities are consuming much time on preparing such data for assessment. It would be
difficult for regulators to complete assessment of any plant by early 2014.
In the Nuclear Mid-level Case, we assume that three teams will conduct the assessment, witheach capacity covering up to two plants simultaneously. Each plant is assumed to restart
operation after spending six months for regulators’ assessment and the relevant local
governments’ approval on the restart. Given data submissions and progress in theassessment in the past, the first group of plants is assumed to take nine months before
restarting operation. This means that it would be difficult for any plant to restart operation
before FY2013 ends on 31 March 2014. In this case, up to 16 plants will restart operation by
the end of FY2014, with each operating for eight months on average during the year,
generating 82.1 TWh in electricity for the year. We have also set the Low-level Case in which
each plant will take one year from the launching of the assessment to its restart. In this case,up to six plants will restart operation by the end of FY2014, with each operating for ninemonths on average during the year, generating 23.7 TWh in electricity for the year. In
addition, we have set the High-level Case in which each assessment team will be expanded
to cover up to four plants simultaneously with utilities providing data smoothly. In this case,up to 22 plants will restart operation within FY2014, with each operating for seven months
on average during the year, generating 114.5 TWh for the year. Furthermore, we have set theFull Operation Case in which the 22 restarted plants in the High-Level Case will be in fulloperation during the year, analysing effects.

- 17 -IEEJ: January 2014. All rights reserved.

Figure 1: Timetable of activities after the new regulation standard
FY2013Jul

Low-levelAug

FY2014
Sep

Oct

Nov

Dec

Jan

Feb MarApr

May JunJul

Aug

Assessment

Oct

Nov

Jan

Feb

Mar

Operation
Assessment

Operation
Assessment

Assessment

Operation
Operation

Assessment
High-level

Dec

Operation

Assessment
Mid-level

Sep

Operation

Assessment

Operation
Assessment

Operation
Assessment

Fossil fuel costs in FY2014 in the Mid-level Case will be JPY1.14 trillion less than in the
Low-level Case. In the High-level Case, these costs will be JPY1.48 trillion less than in the
Low-level Case. These costs in the Full Operation Case will be JPY2.35 trillion less. The unit
electricity generation cost will be cut by JPY1,200/MWh from the Low-level Case for the
Mid-level Case, by JPY1,500/MWh for the High-level Case and by JPY2,500/MWh for the Full
Operation Case. While the unit cost in FY2014 will rise by 57% in the Low-level Case fromindicative JPY8,200/MWh in FY2010, the rises are reduced to 43% in the Mid-level Case, to
38% in the High-level Case and to 27% in the Full Operation Case. The GDP growth rate in
FY2014 will be raised by 0.13 percentage points from the Low-level Case for the Mid-level
Case, by 0.17 points for the High-level Case and by 0.28 point for the Full Operation Case.
CO2 emissions will be reduced by 2.9%, 4.0% and 6.7%, respectively. Local pollutant
emissions will also be cut.
Assessment arrangement problems, which had been a matter of concern earlier, are nolonger viewed as any major constraint on smooth checks. Utilities are focusing on securing
the safety of plants and strict assessment, while consuming much time on preparing massive
data. The assessment of the first group of plants might have passed the halfway mark andmay end by and by. Once safety is reaffirmed for a plant, the next step will be approval by
the relevant local governments and prefecture. Even if the NRA reaffirms the safety of aplant, excessive time consumption in the following procedures may reduce the advantage ofthe efforts to secure safety as early as possible. Collected decisions looking at the whole
picture should be made.

- 18 -IEEJ: January 2014. All rights reserved.

Table 9: Impacts of nuclear power plants’ restart (FY2014)
FY2014FY2010
Historical
Cumulative number of restarted
nuclear reactors
Average period for operation (months)
Electricity generation by nuclear (TWh)288.2

Low-level
Case

Mid-level
Case

High-level
Case

Full
OperationCase

6
at most9
23.7

16
at most8
82.1

22
at most7
114.5

22
at most12
189.4

FY2014 (Changes from FY2010)
FY2010
HistoricalLow-level
Case

Mid-level
Case

High-level
Case

Full
Operation
Case

Real GDP (JPY2005 trillion)
512.5
+21.8
+22.5
+22.7
+23.3
Changes against FY2010+4.25%+4.39%+4.43%+4.54%
Power generation cost (JPY/kWh)
8.2
+4.7
+3.5
+3.2
+2.2
Primary energy supply
Oil (GL)
232.2
+2.5
-11.9
-12.2
-12.9
Natural gas (Mt of LNG equivalent)
73.2
+20.2
+17.8
+13.7
+3.0
Total fossil fuel imports (JPY trillion)
18.1
+8.5
+7.3
+7.0
+6.1
Oil
12.3
+4.9
+3.9
+3.9
+3.8
LNG
3.5
+3.5
+3.3
+3.0
+2.2
Trade balance (JPY trillion)
5.3
-12.3
-11.5
-11.2
-10.6
Energy-related CO2 emissions (Mt-CO2)
1,123
+82
+46
+34
+1
Changes from FY2010
+7.3%
+4.1%
+3.0%
+0.1%
Local pollutants by electric utilities (kt)
NOx
148
+73
+12
+8
-2
SOx
136
+79
+3
+2
-3
PM
3.8
+1.2
+0.2
+0.1
+0.1
Note: Thirty-nine reactors operated at the end of 2010.
The 22 reactors at most of the High-level Case are assumed to operate throughout FY2014
in the Full Operation Case.
Power generation cost in FY2010 is for the general electric utilities, estimated based on
their profit-and-loss statements.
Local pollutants are estimated based on emission intensity by Keisuke Nansai and Yuichi
Moriguchi (2012), "NOx, SOx and PM emissions factors of Japanese stationary sources,"
National Institute for Environmental Studies.

Topic 2: FIT system effects and burdens
Renewable power generation capacity will reach 36.6 GW. Cumulative burdens for
authorised projects alone will reach JPY19 trillion.
One and a half years have passed since Japan launched the feed-in-tariff, or FIT, system inwhich utilities purchase electricity generated with renewable energy sources at fixed prices,in July 2012. During the period, renewables have diffused rapidly. Great expectations areplaced on renewables that are purely domestic resources and emit no carbon dioxide.
However, various relevant challenges have emerged.

- 19 -IEEJ: January 2014. All rights reserved.

Renewable power generation capacity in operation in FY2014 will increase by 6.8 GW fromthe previous year to 36.6 GW. Remarkable growth will emerge in solar photovoltaic power
generation that features shorter lead times and higher prices. After the residential sector
accounted for two-thirds of solar PV generation capacity in July 2013, the non-residential
sector (including “Mega-solar” systems) will surpass the residential sector in solar PV
generation capacity by the end of FY2013 and expand its capacity to 11.5 GW by the end of
FY2014. As some five years are required for any wind power generation project to start
generation, wind power generation capacity at the end of FY2014 will still be limited to
3.5 GW. Renewable power generation in FY2014 will total 88.1 TWh including 20.6 TWh bysolar PV and 6.1 TWh by wind.
Consumers’ burdens for renewable power generation have also expanded rapidly. Even if
only capacity that had been authorised by the end of July 2013 becomes operational,
consumers’ cumulative burdens for the next 20 years will reach as much as JPY19 trillion2.
The inevitable burdens amount to a hike of JPY1,100/MWh in electricity bills – 6.6% and 4.6%
for the industrial sector and for the residential sector, respectively. The rapid expansion ofsolar PV generation subject to higher prices has substantially pushed up the burdens.
Particularly, higher prices are fixed for FIT contracts that will be concluded by 2015. The
burdens will increase as wind power and other renewable power generation capacity withlonger lead times become operational following solar PV.
Figure 2: Installed capacity of renewable
power generation(Operation start basis)

Figure 3: Cumulative burdens of FIT
over the next 20 years(capacity authorised as of the end ofeach month)
20

14
11.5

12

Solar PVfor nonresidence

18

4

2
0

5.3

6.8

2.9
2.6

3.5

Solar PVforresidenceWind

JPY trillion

GW

6

8.2

6.9

3.3

1.6

Solar PV for
non-residence

15

10

8

19

Biomass

Solar PV for
residence

10

Hydro
7

5

Geothermal
Wind

4
2

Biomass

2010 2011 2012 2013 20140
2012/7 10 2013/1 4

As of the end of FY

Of which:
operating

7

The remaining FIT periods for capacity introduced before the FIT system launching are taken into
account. The marginal avoidance cost at JPY10,400/MWh is assumed.

2- 20 -IEEJ: January 2014. All rights reserved.

One problem under the current situation is that renewables in areas far from those withstrong electricity demand have failed to be used efficiently due to insufficient capacity forlinking grids of utilities. But massive costs and time are required for increasing capacity tolink grids of utilities. In order to fully utilise renewables, low-cost and practical measures
including temporary restrictions on output may have to be taken. It is important to smartly
diffuse renewables while setting appropriate prices to rebalance among renewables.

Topic 3: TPP’s impact on the economy and energy supply and demand
Customs repeal will work to expand the Japanese economy by 0.9%. Primary energy supply
will increase by 0.6% due partly to an energy consumption rise in the industrial sector.
Negotiations on the Trans-Pacific Strategic Economic Partnership, or TPP, are entering thefinal stage. The TPP talks pursue high-level trade liberalisation and are expected to achievesmooth market access for trade and investment and improve social utility. We havedeveloped a scenario in which customs will be repealed under a TPP agreement for trade
between the TPP participants including Republic of Korea seeking to take part in the talks.
We have then assessed the impact of the scenario on the Japanese economy and energy
supply and demand3.
The Japanese economy will expand by 0.9% thanks to the facilitation of market accessbetween TPP participants 4 . While some industries will be affected by cheaper imports,
internationally competitive industries will be able to expand exports of goods and services
and their production. Employment environment improvements through production
expansion and purchasing power growth through lower prices of imports will work to
expand consumption, inducing a further economic expansion.
Primary energy supply will increase by 0.6% due to the economic expansion. Coal andnatural gas demand will expand substantially thanks to growth in industrial production andelectricity generation demand. The industrial sector, including manufacturers that will
increase production, will exert a great impact on final energy consumption. Greater freight
movement will prompt the transportation sector to raise energy consumption by 0.4%. CO2
emissions will increase by 0.6% due to growth in fossil fuel-fired power generation and in
final energy consumption.

The government’s unified estimation of customs repeal’s economic effects (in March 2013) also
covered only the effects of customs repeal. The government estimation was for the case where Japan
would join 11 then participants in the TPP talks.
4 The effect is for the time when economic and industrial structure adjustments accompanying thecustoms repeal are completed for a new medium to long-term equilibrium. The expansion is from thecase without the customs repeal.
3- 21 -IEEJ: January 2014. All rights reserved.

Electricity and city gas sales will increase, supported mainly by the industrial sector.
Particularly, city gas sales will receive a great impact due to the industrial sector’s large shareof the sales. Fuel oil sales will also increase due to growth in those for transportation, despitea decline in those for agriculture.
Figure 4: Impacts of TPP
Real GDP
Primary energy supply
Coal
Natural gas
Oil
Final energy consumption
Industry
Transport
Buildings
City gas sales
Electricity sales
Fuel oil sales
CO2 emissions
0.0%

+0.9%
+0.6%
+0.9%
+0.8%
+0.4%
+0.6%
+0.8%
+0.4%
+0.3%
+0.6%
+0.5%
+0.4%
+0.6%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

As far as Japan heavily depends on imported fossil fuels and uses high-cost electricity withconcerns lingering on electricity supply, the TPP’s economic benefits will be limited. Japan
will have to develop a better energy system to secure the full benefits of the forthcoming
economic partnership agreement.

Contact: report@tky.ieej.or.jp- 22 -