IEEJ © December 2020. All rights reserved.

24 December 2020
The 437th Forum on Research Work

Economic and Energy Outlook of Japan for FY2021
On the way back to a normal energy situation while ending the COVID-19 pandemic

ETO Ryo, H. Okabayashi, N. Aizawa, C. Onda, T. Iwata, Y. Shibata, S. Suehiro, A. Yanagisawa
and K. Ito

Summary of economic and energy outlook [Reference Scenario]
Macro economy | GDP growth will be +3.4%, but GDP will be lower than FY2019
While real GDP growth in FY2021 will achieve a high growth rate of +3.4%, GDP will remain lower than before
COVID-19 due to the large fall of FY2020. Industrial production will increase (+7.5%) in heavy electricmachinery, automobile and other manufacturers with the recovery of world and domestic economy but theindustrial production will be only higher than the level of FY 2009 after the Lehman shock.

Total energy consumption will increase while natural gas (LNG) will significantly fall
Total energy consumption will increase (+2.6%) with recoveries in industrial production and transportation
demand. Except for the previous year, it will be the lowest level since FY1987. For the second consecutive year,improvements of total energy consumption per GDP will slow down to less than 1%. With an increase innuclear generation, LNG imports will fall for the first time since the earthquake to the same level as in FY2010.
While CO2 will increase to 955Mt (+1.6%) due to the recovery of economic activities, the reduction rate of CO2
relative to FY2013 will be -22.7%, fulfilling more than 90% of the Paris commitment. Note that identifying
progress toward achieving the Paris reduction target is difficult because of the energy consumption decrease
due to temporal downturn of economic activities

Energy sales | Lighting services will remain high and power services will recover, city
gas sales will be higher than in FY2019, fuel oil sales will increase for the first time innine years but the long-term decrease trend continues
Although electricity sales in FY2021 will increase by 1.2%, it will be 0.4% lower than FY2019 before COVID-19.
Sales for power services will grow with production recovery in machinery and other industries (+1.8%) butthey will be 2.5% lower than FY2019. Sales for lighting services will slightly decrease due to less Working From
Home and the diffusion of rooftop PV and energy efficient technologies such as LED (-0.1%) despite thehigher electrification rate for cooking and heating water due to the increase of all-electric home.
Overall total city gas sales will be 40.6 billion m3(+3.8%) in FY2021 and higher than FY2019. Note that thedemand in FY2019 was lower due to the hottest winter since the availability of statistics in FY1897. While salesof general industry and commercial will increase in FY2021, they will be lower than FY2019.
Fuel oil sales in FY2021 will increase 3.1% with the recovery of industrial production and transportation
demand from FY2020 but decrease 3.6% from FY2019. Sales of kerosene and heavy fuel oil A will fall due toenergy saving and fuel switching with little effects from changes in temperature. Sales of naphtha will increase
with less regular ethylene plant repairs. Sales of heavy fuel oil C will continuously decrease due to fuelswitching, energy saving for industries and a lower availability of oil-fired power generation in Tokyo andChubu area, the result of a long shut-off plan for after FY2020.

Economic and Energy Outlook of Japan for FY2021| 1

IEEJ © December 2020. All rights reserved.

Renewable power generation | The FIT power generation capacity will reach 87 GW
at the end of FY2021
The facilities under construction are expected to become operational, boosting installed renewableenergy-based power generation capacity (including capacity subject to FIT contract expiration) to 86.8 GW by
the end of FY2021. With a slowdown in the installation pace of solar PV, capacity will expand to 53.0 GW by
the end of FY2021. Less opportunity to communicate with local people and difficulties in securing workers
under COVID-19 will cause delays in construction work. Wind capacity will remain at 5.3GW because of thelong time lead operation due to environmental assessment etc. Renewable energy-based power generation
in FY2021 will total 166.2 TWh (including 79.8 TWh for solar PV, 39.9 TWh for small and medium-sizedhydroelectric plants, 32.7 TWh for biomass, 10.1 TWh for wind etc.), accounting for 17% of Japan’s total power
generation.
Table 1 | Summary of Reference Scenario
HistoricalPrimary energy supply (Mtoe)

1Oil2 (GL)Natural gas 2 (Mt of LNG equiv.)
Coal2 (Mt)

EnergyNuclear (TWh)Renewable electricity3 (TWh)FIT generation (TWh)Self-sufficiency ratio
Electricity sales 4 (TWh)City gas sales 5 (Billion m3)
Fuel oil sales (GL)
Energy-related CO 2 emissions (Mt)
(Changes from FY2013)

Prices

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

EconomyReal GDP (JPY2015 trillion)
Industrial production (CY2015=100)
Balance of trade (JPY trillion)
Fossil fuel imports (JPY trillion)
Exchange rate (JPY/$)
Cooling degree days
Heating degree days

FY2018

Projection
FY2019FY2020

FY2021Year-over-year

FY2010FY2017FY2019FY2020

FY2021

515.9
232.3
73.3
184.7
288.2
111.2
63.2
20.2%
(926.6)39.28
196.0
1,137-8.0%
84
11.3
114
175
512.1
101.2
5.3
18.1
86.1
559
1,079

465.1 455.4 444.4 420.0 431.0 -2.4% -5.5%
2.6%
202.8 192.8 186.1 170.8 176.0 -3.5% -8.2%
3.1%
85.6
81.6
78.3
77.5
73.1 -4.0% -1.1% -5.6%
192.2 188.2 187.5 177.9 184.3 -0.3% -5.1%
3.6%
31.3
62.1
61.0
44.2
79.7 -1.7% -27.5% 80.0%
169.4 177.1 187.9 197.8 205.6
6.1%
5.3%
3.9%
123.2
133.9
146.2
155.7
166.2
9.2%
6.5%
6.8%
9.4% 11.7% 12.1% 12.2% 14.4%
0.5p
0.1p
2.2p
863.2 852.6 836.0 823.1 832.7 -1.9% -1.5%
1.2%
42.43 41.58 40.40 39.07 40.55 -2.8% -3.3%
3.8%
174.7 167.7 161.6 151.2 155.9 -3.6% -6.5%
3.1%
1,110 1,065 1,029
939
955 -3.4% -8.8%
1.6%-10.1% -13.8% -16.7% -24.0% -22.7%
-2.9p
-7.3p
1.3p
57
72
68
43
52 -6.2% -36.0% 19.4%
8.5
10.5
9.5
6.8
7.3 -9.8% -28.6%
8.1%
103
121
101
81
93 -16.2% -20.4% 14.8%
147
160
137
102
115 -14.2% -25.8% 12.3%
553.1 554.8 552.9 522.4 540.4 -0.3% -5.5%
3.4%
103.5 103.8
99.9
90.1
96.8 -3.7% -9.9%
7.5%
2.4-1.6-1.3
2.7
10.6 -20% -311.0% 289.6%
16.3
19.1
16.6
10.2
11.8 -13.2% -38.4% 15.4%
111.1 110.6 108.8 105.8 105.0 -1.7% -2.7% -0.8%
397
489
439
442
383 -10.2%
0.6% -13.5%
1,071
865
818
998 1,014 -5.5% 22.1%
1.6%

Notes:
1. Mtoe = 10 13 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 until FY2012.
2. Conversion factors for oil: 9,145 kcal/L; Natural gas: 13,016 kcal/kg; Steam coal: 6,203 kcal/kg; Coking coal: 6,877 kcal/kg since FY2013.
2. Conversion factors for oil: 9,139 kcal/L; Natural gas: 13,068 kcal/kg; Steam coal: 6,203 kcal/kg; Coking coal: 6,866 kcal/kg since FY2018.
3. Including large hydro 30 MW or more. 4. Figures in parentheses are old statistical figures. 5. Conversion factor: 1 m 3 = 10,000 kcal

Economic and Energy Outlook of Japan for FY2021| 2IEEJ © December 2020. All rights reserved.

Topic |
1 Transportation energy consumption by mode
Transportation energy consumption in FY2020 is expected to fall by -10.2% the most largely since FY1953
when comparative data began to be statistically available. It will be lower than 70 Mtoe for the first time after
1988. This is due to the fact that passenger transportation sharply falls due to the popularity of Working From
Home and the avoidance of unnecessary outings. Freight transportation also drops reflecting the lower
activities in industrial production and the service industry affected by COVID-19. With some recovery of bothpassenger and freight transportation in FY2021, consumption will increase by 5.5% while remaining 5.2%
below FY2019. It will be lower than 70 Mtoe for the second year in a row.

2 Impacts of fading-out inefficient coal-fired power plants
The Energy Basic Plan outlines the main policies and measures the government should take, including
considering a mechanism to encourage efficiency by fading out the coal-fired power plants with thegeneration efficiency below-Ultra-Supercritical by FY2030. If the 30GW of inefficient coal capacities areremoved, that would be equivalent to reduce generation by 165 TWh. As generation from renewables andthe nuclear restarts is assumed constant, any loss of coal-fired power generation would be substituted by
gas-fired power generation. As joint thermal power plant and plants owned by manufacturers consume heatfrom power plants, gas-fired power generation will be assumed to be newly built to replace of coal-fired
power generation. CO2 emissions would fall by 87Mt, the equivalent of 7.1% of 2013 while only fuel costs
would rise JPY0.23/kWh (6.7%).The construction costs of 1.8 trillion for gas-fired power generation are added
separately and costs for processing byproducts in another way will be plus. As this fading-out should beconsidered as one of the measures to reduce CO2 emissions, the condition of each plant should be taken intoaccount. Setting targets for coal-fired power generation efficiency including biomass, heat utilization andbyproducts as well as regular reporting are required. Evaluating and preparing fading-out plans by operators
are required irrespective of FY 2030. Reviewing in the macro view is important with whole CO2 reduction
progress and the impacts of fade-out based on the reports and plans.

Economic and Energy Outlook of Japan for FY2021| 3IEEJ © December 2020. All rights reserved.

3 Impacts of the completion of counterterrorism facilities and of thedelays in nuclear plant restarts
We assessed the impacts of nuclear power generation on 3Es – economy efficiency, energy security andenvironment. In the High Case, where more plants would be in full operation with their counterterrorism
facilities completed within their respective deadlines, the cost of fossil fuel imports would be reduced by
JPY100 billion, the self-sufficiency rate would be improved by 1.2 points, and CO2 emissions would be reducedby 7 Mt. The number of plants which have a deadline for the completion of their counterterrorism facilities
after FY2021 will increase. Smoothing the restart of the nuclear power generation with the consideration ofeach plant contributes to achieving 3Es.
Figure 1 | Effect of the nuclear power generation [FY2021, compared with the Reference Scenario]

150 Best Mixed Case 138-50

61.0-1720172018201920202021

120.7

0.4

0.2

0-0.4-0.69

Energy self-sufficiency
rate

0.8

JPY trilion

Lowcase-0.10-0.5-1

Real GDP
62.3

31.3

1800.09

JPY/kWh0Low Case

0.1

-0.1

10.2

84

1.2

0-4

-1.1

0.07

0-0.07-0.08-0.1

Energy-related CO2
emissions200-20-40
-60
-80
-100

MtCO2

79.7
62.1

High Case

50

Unit electricity cost

0.5
JPY trillion

100TWhHigh
97.9
case

Fossil fuel imports
spending%point

TWhNuclear power generation

6-7-81| 4

Economic and Energy Outlook of Japan for FY2021
Contact: report@tky.ieej.or.jp