Proposal for Future Energy Policy-For a Rich and Vigorous Economic Society【Outline】
November 14, 2017

Basic structure of Japan’s energy policy

Basic Act on Energy Policy (enacted in 2002）
April 2014（Fourth）Strategic Energy Plan

○A plan for the long-term, comprehensive, systematic energy policy○Consideration in the Advisory Committee for Natural Resources and Energy→ Cabinet decision
Government○Reviewed every three years (revisions made as required)review launchedin August 2017

July 2015 Long-term Energy Supply and Demand Outlook (the “Energy Mix”)○Outlook and best energy mix for fiscal year (FY) 2030 based on the Strategic Energy Plan
○Consideration in the Advisory Committee for Natural Resources and Energy→ approved by the Minister of Economy, Trade and Industry○Reviewed as required along with the Strategic Energy Plan
Formulated based on the envisioned Energy Mix

July 2015 Submission of Japan‘s INDC to UN (FY2030 GHG reduction target)＊a reduction of 26% compared to FY2013

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Ⅰ．Energy policy supportive of a rich and vigorous economic society

1. Basic approach regarding energy policy and current energy situation(1) The new energy policy must balance the goals of stable supply, economic efficiency,
and environmental suitability based on the premise of ensured safety (S+3E).
Energy sources should be diversified (best mix)
(2) We will demand that the government enhance efforts towards achieving the FY2030“Energy Mix.”
Japan’s energy mix in FY2030 (formulated in 2015)

Energy demand and primary energy supply

Self-sufficiency rate

24%: Higher than before theearthquake (around 20%)

Electricity rates

Lower from aftermath of theearthquake

Electric power mix

GHG emissions

26% reduction target notinferior to US and EU levels

2Ⅰ．Energy policy supportive of a rich and vigorous economic society<Reference> Status of 3Es in Japan⃝ Self-sufficiency, CO2 emissions and cost levels have improved to a certain extent
from the aftermath of the 2011 earthquake, but enhanced efforts are called for.
Electricity rate trends

Energy self-sufficiency and CO2 emission trends(％)

Higher than
before theearthquake (24％)

2520

2010
(before2013

Fuel costs
(T¥)

5.0

9.2

4.2Concerns

5.30

0.6

2.0

(from energy use)

Renewableenergycosts (T¥)*１

3.8～
4.1

Ambitious
reductions(-26％)

Cost ofelectricity
(T¥)

5.0

9.8

6.3

 Higher oil prices
 Continually highrenewable energy
costs, etc.

30

Electricity
demand
(TWh)

1,029

967

928

Electricity
rate(¥/kWh)(Household)

20.4

24.3
17.5

22.4
15.6

 Nuclear power stoppage
 Increased thermal power

15

Energy selfsufficiency

1051300(Mt-CO2)
01200

Fiscal year

CO2 emissions

1100

power  Decreased demand1000  Nuclearstoppage
 Operation of
900 aged thermal
power plants

800

 Deployment ofrenewables
 Restarting of nuclear
power plants

2030

2015

2014

2013

2012

2011

2010

(fiscal year)

2016(earthquake (statusquo)
earthquake) aftermath)

13.7（Industrial）*1: Purchasing price electricity Concerns
under FIT scheme.
*2: Confirmed figures for 2015

*２

…

2030

(target)

9.2～
9.5
981

 Will the international
competitiveness of electricity
rates be secured?
(Compiled based on government material)

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Ⅰ．Energy policy supportive of a rich and vigorous economic society

2. Japan’s future energy policy from an energy price perspective⃝ The policy package should, as a whole, aim to supply energy at internationallycompetitive prices with a view to promoting domestic investment.
Key contributing factors toelectricity price changes

Industrial electricity prices inmajor countries (2016)<Price lowering factors>⇒ steady implementation（JPY/kWh）
16• Use of economically efficient energysources(Proactive utilization of baseloadpower)• More efficient and optimal power
generation & transmission• Electric power system reform→morecompetition

x1.5 x２

128Internationally competitiveelectricity prices<Price raising factors>⇒ maximized mitigation of impact

40JapanJapanKorea

US

France Germany

UK

Asia-Pacific region(Compiled based on UK Department for Business, Energy and Industrial,
International industrial energy prices)• Subsidies for energy sources with lower
economic efficiency• Updates and new installations &reinforcement of power transmission anddistribution infrastructure• Increased backup costs for wind and solar
power

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Ⅰ．Energy policy supportive of a rich and vigorous economic society

3. Enhancing investment in energy technologies and overseas deployment(1) The environment and energy sectors are promising investment destinations.
(2) In addition to R&D support measures, measures to facilitate investment by users (taxbenefits, etc.) can also be effective.
(3) Japan should deploy its sophisticated energy technologies overseas. It is important toencourage the economic growth of developing countries and absorb their growthpotential.

4. Establishing a new energy system under Society 5.0(1) Society 5.0, which harnesses big data, AI, IoT, etc. will improve energy efficiency.
⇒ advancement towards overcoming energy constraints(2) Promoting efforts towards the realization of Society 5.0 (continuing technologydevelopment, flexible system design and operation) will be important.
Robot

Physical SpaceSensor

Automated driving(Relieving trafficcongestion)

Society 5.0

AI

Cyber SpaceBig Data

Optimal adjustmentof air conditioningand lighting

Improvedenergyefficiency
5Ⅰ．Energy policy supportive of a rich and vigorous economic society<Reference> The World of Society 5.0
Going beyond individual optimization to realize the optimization of society as a whole
Breaking free of various restraints with the aim of resolving social issues and creating
abundance for society and its citizens

Society 4.0
Invention of theInformation
computerStart of information society
distribution
Second half of 20th century

Individual
optimization throughapplication of ICTSociety 5.0
Use of IoT and AI
Advances inbiotechnology

Super-smartsociety

From early 21st century

Optimizing society as awhole through integrationof cyberspace and physicalspace (total optimization)

Society 5.0
Super Smart Society
Invention of a computer
Start of distribution ofinformation

Invention of a steam
locomotive
Start of mass production

Coexistencewith nature

Development of irrigation
techniques
Firm establishment ofsettlement
Agrarian Society

Information Society

Industrial Society

Hunter Society
The birth of human beings

5 million years

13000 BC

15000 years

End of 18th century

250 years

End of 20th century From 21st century

50 yearsPresent6

Ⅱ．Approaches toward different energy sources and policy issues

1. Energy conservation(1) Energy conservation is an important challenge that basically covers all 3Es.
(2) The Japanese business community will continue to pursue voluntary approaches
under Keidanren’s Commitment to a Low-Carbon Society.
(3) We expect the government to support proactive efforts by business operators byperforming fair evaluations based on the actual situation of business operations andtaking support measures including tax benefits.
Keidanren’s Commitment to a Low-carbon Society:the 4 pillars for reduction of global GHG emissions

Industries use PDCA
cycles to set andimprove own targets
and reduce CO2
emissions insideJapan.

Contributing tocarbon emission
reductions throughcross-sector
cooperation acrossthe value chain.

Contributing tocarbon emissions
reduction overseas
through low
carbon/energy
efficient technologies.

Pursuing
innovation as the key
to drastically reduce
global GHG emissions
in the long term.

7Ⅱ．Approaches toward different energy sources and policy issues

2. Fossil fuels(1) Fossil fuels remain important. The continued effective use of fossil fuels requires
efficiency improvements and decarbonization.
(2) The government should make efforts to procure stable and inexpensive resources
through proactive resource diplomacy and the provision of support for overseas
resource development.
＜Basic approaches by fuel type＞

Petroleum Important energy source with a wide range of uses.
 “Last resort” of energy supply in natural disasters.
 Important to maintain a resilient supply system.

Naturalgas

 Well-balanced in terms of 3Es. A promising energy source for a wider
range of uses.
 Cogeneration systems are highly efficient distributed energy sourcesthat can be flexibly operated. Promises to be bear an important rolein BCP design.

Coal While CO2 emissions remain a challenge, economic efficiency andstable supply are coal’s strong points that make it a promising fuelfor power generation etc.
 Japan can contribute to countering global warming on a global scaleby deploying its high-efficiency coal use technologies globally.
8Ⅱ．Approaches toward different energy sources and policy issues<Reference> Role of coal-fired thermal power generation
Prospects for highly efficient, low-carbon next-generation
thermal power generation technologies

World electric power
generation (by fuel)4

Otherrenewables
3Hydro(Source: Agency for Natural Resources and Energy, Japan’s Energy Plan 2015)

Coal-fired thermal in 2040
 Ratio to total electric power
generated: 28％(Largest ratio among fuels forpower generation)
 Power generated: 11,000TWh(10% increase from currentlevels)

Efficiency improvements in coal-fired
thermal power

are of key importance.

（10,000TWh）

Nuclear

2

NaturalgasPetroleum

1Coal02014

2040(Compiled based on IEA World Energy Outlook 2016. 2040 outlook based on New Policies Scenario)

9Ⅱ．Approaches toward different energy sources and policy issues

3. Nuclear power(1) Securing safety and restoring public trust are of key importance.
(2) Should be utilized as baseload power with high 3E performance.
⇒Ensured restart and plant lifetime extensions to 60 years are needed.
(3) A certain level of nuclear power remains indispensable for long-term global warming
countermeasures etc.
⇒ Replacements and building new or additional reactors should be included
among government measures.
(100 GWh)
3000

Nuclear power generation trends in Japan without
replacement or new/additional construction of reactors
60-year lifetime<power generated>

2000

Ratio of nuclear
20～22％

40-year lifetime(envisioned ratio in the“Energy Mix”)

1000（direction of goal）

GHG
reduction
target
0-26％-80％(year)

20152020

2025*Based on assumption that all 45 plants will be in operation, includes3 plants under construction; utilization rate: assumed to be 70%;

2030

2035

2040

2045

2050

(Source: material from the Federation of Electric Power Companies of Japan(with additions by Keidanren secretariat))10

Ⅱ．Approaches toward different energy sources and policy issues

4. Renewable energy ①(1) In the long term, renewable energy is expected to bear an important role in Japan’s energy supply.
(2) Japan is currently faced with two major challenges towards increased deployment of renewables, which
require the collective efforts of industry, government and academia to overcome.
 Challenge ① stabilizing supply: Wind and solar power depend on thermal backup to minimize the effects of
their intermittency.
 Challenge ② costs for power generation etc. : While the world introduces renewables less expensive thanthermal power, Japan’s power generation costs for renewable energy remain high.

Solar and wind power generation costs
by country
Power generation

cost ($/MWh)
250

200

Solar
150

Power generation
costs in Japan:
twice the cost of
global standards

Comparison of the renewable energy ratio
in the generated electric power amount218155WindLNG

Coal

100500(Compiled based on material from the eighth meeting of the Subcommittee for
Reforming Systems Related to Introduction of Renewable Energy, etc.)(Ref.)
Thermalpower inJapan(Source : Agency of Natural Resources and Energy, Japan’s Energy 2016 edition)

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Ⅱ．Approaches toward different energy sources and policy issues

4. Renewable energy ② (Feed-in-tariff scheme)(1) Feed-in-tariff (FIT) imposes a high surcharge on users due to high purchase prices.
Scheme should be rationalized to reduce public burden (expanding eligible bidders,committing to information disclosure).
(2) Fundamental system review is required. Setting up a maximum purchasing costs that iscompatible with the “Energy Mix.” Law provides for the fundamental review by FY2020.
※Feed-in-tariff scheme： A scheme where electric power sourced by renewable energy is bought at ahigh fixed price for a period of 10-20 years.

Surcharge trends after introduction of FIT

3.7～4.0

Surcharge per unit

Tril. yen

2.64

JPY/kWh*No differentiation between industryand household. Burden is reducedfor energy-intensive factories.

Publicburden×12

Purchasing costs

2.7 Tril. yen
Surcharge

0.22

2.1 Tril. yen

JPY/kWh2012

2013

2014

2015

2016

2017

(Compiled based on material from the 30th meeting of the Procurement Price Calculation Committee)

2030

2030
(governmentassumption)

(FY)

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Ⅱ．Approaches toward different energy sources and policy issues

5. Energy network(1) We should consciously continue to use large-scale centralized power supplies while
also harnessing distributed power supplies in our energy networks encompassing
electric power, gas and heat.
(2) Japan’s energy demand is not forecasted to increase drastically, but power transmission
and distribution networks that are determined truly necessary based on cost-benefit
analysis should be installed for the realization of a new energy system.

Large-scalecentralized
power supplies

Electricity supply areas in Japan

Distributed
power supplies
Expanded use

Continued use
Balanceduse ofboth types

Cogeneration systems,
rooftop PV systems, etc.

：direct current：alternate current

Kyushu area

Thermal, nuclear, etc.

 Japan is divided into 9 regional service
areas, each with a power transmissionand distribution operator (monopoly).
 Cross-regional interconnection lines
have relatively small capacity.
Hokuriku
area

Hokkaido
area＋300MW

Tohokuarea＋3800
MW

Chugokuarea
Kansaiarea
Shikoku
area

Chubu
area

Tokyo
area＋1800
MW50Hz ←*Underlined interconnection lines are being reinforced.

→ 60Hz13

Ⅱ．Approaches toward different energy sources and policy issues

6. Electric power market(1) As a part of electric power system reform the Japanese government is currently
designing a baseload power market, a capacity market and a non-fossil value tradingmarket.
(2) For the business community, it is most important that “electric power users canenjoy the benefits of lower electricity prices and a secure supply” as a result ofreforms.

Require former general electricity utilities to offer a part of the baseload power sources in their possession for afair price to enable purchases by PPSs (Power Producer and Supplier).
↓PPSs will gain access to inexpensive and stable baseload power.
⇒ Affordable electric power supply, more options for users

Required power generation capacities (kW) are secured through a call for bids to power generation operators.
Costs are shouldered by retailers.
↓By securing prospects for investment recovery, tight supply-demand balances can be avoided in the future.
⇒ Stable electricity rates
The non-fossil value of renewable and nuclear power is written out on a certificate which is traded separatelyfrom the power generated.
↓① Encourages the achievement of electric power retailer targets under the Act on Sophisticated Methods ofEnergy Supply Structure (ratio of non-fossil fuel power sources: 44%).
② Reduces FIT scheme-induced public burden.
③ Provides more options for users who appreciate environmental value.

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Conclusion

Conclusion: In view of 2050 and the future beyond(1) The Paris Agreement invites countries to formulate their long-term climate strategies for2050. The Japanese government aims to reduce GHG emissions by 80% in 2050.
(2) 90% of Japan’s GHG emissions are from energy use; and therefore, global warming
countermeasures need to be underpinned by energy policy.
(3) Energy supply-demand will largely impact future industrial structure.
(4) Responsible discussion regarding the long-term climate and energy strategy needs to be
deepened based on a vision of an industrial sector that can enrich national life.
＜Japan’s GHG emissions＞(10 Bil tons-CO2)
Total:14.1
15

Other gas 1.7
Household 0.6
Commercial andother 0.7
1050

Transportation 2.2

Energy conversion
5.4

Industrial
3.6

2.5～2.8

FY2013

FY2050FY2050(80％ reduction case)In order to achieve 80% GHG
reductions by 2050 relying only on
domestic efforts,
 Households, offices andtransportation must be fully
electrified Electric power:
renewables + nuclear = 100%＋
 Drastically shrinking orwithdrawing manufacturingindustry
Discussions should be based onsuch realities.
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