IEEJ e-NEWSLETTER
No. 218(Based on Japanese No. 217)

Published: October 18, 2021
The Institute of Energy Economics, Japan(As of October 18, 2021)

Sources:(1) Ministry of Finance "Japan Trade Statistics"(2) Ministry of Economy, Trade and Industry (arrival month basis)(3) Estimated by World Bank (Netherland Title Transfer Facility)(4) DOE-EIA, NYMEX (Front-month Futures)

Sources:(1) DOE-EIA(2) Investing.com

Sources:

Source: x-rates.com(1) Finance. Yahoo.com(2) Investing.com

Contents
Summary【Energy Market and Policy Trends】
1. Energy Policies
2. Developments in Nuclear Energy
3. Recent Developments in the Oil and LNG Markets
4. Update on Policies Related to Climate Change and Energy Conservation
5. Update on Renewable Energies

1Summary【Energy Market and Policy Trends】
1. Energy Policies
The discussions on the Sixth Strategic Energy Policy have closed and the Policy is due to beapproved by the Cabinet in autumn following a public comment period. METI has begun to
examine a new framework for meeting the reduction target that involves companies.
2. Developments in Nuclear Energy
Financially-troubled nuclear power plants in Illinois that were on the verge of being retired
can now continue to operate. A new PWR was launched in the UAE and a demonstration hightemperature gas-cooled reactor was introduced in China. Japan’s Shimane Unit 2 obtained
permission for changes in reactor installation.
3. Recent Developments in the Oil and LNG Markets
In Europe, soaring gas prices are starting to hurt the economy. Energy majors are turning
toward two types of investment strategy: combining fossil fuels and renewables as a package,and selecting and concentrating on the decarbonization of fossil fuels.
4. Update on Policies Related to Climate Change and Energy Conservation
EU-ETS carbon prices may be contributing to soaring natural gas prices in Europe. China
and the United States each unveiled their climate-related support policy for other countries at
the UN General Assembly.
5. Update on Renewable Energies
Amid calls to accelerate the introduction of renewable energy, a METI Subcommittee
clarified the system design policy for transforming the electricity networks nationwide intonext-generation networks to address grid constraints.

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1. Energy Policies
Seiya ENDO, Economist
Econometric and Statistical Analysis Group (ESA)
Energy Data and Modelling Center (EDMC)

The Strategic Policy Committee discussions on the Sixth Strategic Energy Policy that began
in October last year closed in August, and the draft proposal is being offered for public comment
until October 4. Thereafter, the final proposal is scheduled to be created and approved by the
Cabinet in time for COP26 in November. Meanwhile, the leadership election of the ruling
Liberal Democratic Party is scheduled for September 29, with the results due to come out on
the same day. The results and subsequent appointment of the new prime minister and cabinet
deserve attention, and their impact on future energy policies must be carefully analyzed.
The Agency for Natural Resources and Energy has also published a document detailing
specific grounds for the figures in the 2030 power mix and the means to achieve them. The key
challenges are the ambitious introduction of non-fossil power sources and energy conservation,
as has been pointed out in the discussions to date.
Non-fossil power sources account for 59% of the proposed 2030 power mix, a sizeable jumpfrom 44% in the previous plan. These consist mostly of renewable energies (36–38%), withsolar PV, with its short lead-time, showing a particularly large increase in its target (14–16%)
backed by the positive zoning initiative under the revised Act on Promotion of Global WarmingCountermeasures and its active adoption in the public sector and at airports. The share of
nuclear is unchanged at 20–22% but to meet this target, 17 nuclear power plants must be
restarted in addition to the ten that are now back in operation. The target for hydrogen andammonia was set to around 1%. If this target is to be met with ammonia alone, it would benecessary to introduce 20% mixed combustion at about six 1000 MW coal-fired thermal plants
and build a supply chain to provide 3 million tonnes of ammonia each year.
Meanwhile, the target for energy conservation was raised by approximately 20% from theprevious mix to approximately 62 million kL (crude oil equivalent), anticipating the potential
to further explore cost-effective initiatives. However, the amount of energy saved from FY2013
to FY2019 was only 16.55 million kL, just 30% of the original target before it was raised. To
complete all necessary cuts by 2030, energy conservation must accelerate by 1.5 times fromcurrent levels. The document presents a detailed breakdown of the energy savings, with notable
increases in the targets in the following areas: improved equipment efficiency and energy
conservation for houses and buildings under the Top Runner Programs in the residential andbusiness sectors; efficient truck transport in the transportation sector backed by policy support;
and low-carbon furnaces, more efficient motors, and introduction of inverters in the industrial
sector. Both the public and private sectors are required to step up their efforts.
In August, the Ministry of Economy, Trade and Industry proposed a framework to get
companies voluntarily involved in the effort to achieve this target as well as the 2050 carbon
neutrality target. A “carbon-neutral top league (tentative name)” of companies will be launched
for companies that voluntarily set high goals and disclose them in the capital market. In addition,a “carbon credit market (tentative name)” for companies to globally trade offset credits is being
considered. The Ministry aims to start a demonstration program in FY2022 following a study
by experts. While the carbon neutrality target could increase costs for companies, it could also
be an opportunity to display their ambitious efforts widely to the market.
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2. Developments in Nuclear Energy

Kenji KIMURA, PhD
Senior Researcher, Nuclear Energy Group
Strategy Research Unit

The comprehensive energy package bill SB2408 passed the Illinois Senate in the UnitedStates on September 13 and was signed into law by the governor on the 15th. The bill includes
a support program – a credit program for clean energy – for nuclear power plants in financial
crisis that would save Byron and Dresden, Exelon-owned nuclear power plants in Illinois, frombeing retired.
Exelon, the owner of Byron and Dresden Nuclear Power Stations, had announced that it
would have to retire those plants prematurely unless the support program bill was passed.
September 13, the day the bill was passed, was the deadline by which Exelon had to decide
whether to continue to operate Byron or to close it. According to Exelon, the support program
may also enable the Braidwood Generating Station, which is also struggling financially, tocontinue operations, and the LaSalle nuclear power plant to operate for at least five more years.
As reported in the July edition of this Newsletter, Byron and Dresden are among the top US
nuclear power plants in terms of operational record. This decision, which has successfully
rescued a large-scale, highly-efficient, stable, CO2-free electricity supply, is highly significant.
On September 14, Barakah Unit 2, a pressurized water reactor (PWR) in the UAE, went
online and began to transmit electricity. Together with Unit 1, it is hoped the plant will boost
the contribution of nuclear power to a stable energy supply and a departure from fossil fuels in
the Middle East.
On September 12, HTR-PM, the demonstration high-temperature gas-cooled reactor plant
which had been under construction in Shandong Province, China since 2012, achieved the firstcriticality. China also plans to construct HTR-PM600, a larger demonstration plant. The country
is rapidly building PWRs, and recently surpassed Japan to become the third largest nuclear
powerhouse in terms of domestic installed capacity. China is also steadily achieving results inthe development of new reactors, as shown by this demonstration plant.
On September 15, the Nuclear Regulation Authority (NRA) of Japan issued permission forchanges in reactor installation for Chugoku Electric’s Shimane Unit 2. It is the fifth boilingwater reactor (BWR) to receive such a permit following Kashiwazaki-Kariwa Units 6 and 7,
Tokai Daini Nuclear Power Plant, and Onagawa Unit 2. The plant still needs to constructnecessary safety measures and gain the consent of the hosting community to actually restart.
As the only nuclear power plant located at the prefectural capital (Matsue city), the plant has alarge number of stakeholders. A meeting has also been set up for the prefecture to exchange
opinions with the three surrounding cities that do not have the right to give consent to importantmatters. Efforts for gaining public understanding are expected to increase momentum hereon
for the plant to actually restart.
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3. Recent Developments in the Oil and LNG Markets
Yoshikazu KOBAYASHI
Senior Economist, Manager
CCUS Group, Fossil Energies &International Cooperation Unit
Spot LNG prices continue to climb. The spot price for Asia began to rise in spring andsurpassed $20/Mbtu in September. Alongside the growth in gas demand in Europe and Asia
owing to the economic recovery from Covid-19, rising prices are being driven by higher
demand for gas-fired thermal in Europe due to a drop in wind power generation and the delayin the launch of Nord Stream 2 connecting Russia and Germany, fueling concerns over a supply
crunch in Europe and pushing up the spot LNG price for Asia, which is increasingly linked with
Europe’s.
In Europe, consumer energy prices are much more susceptible to higher gas prices in theinternational market than in Japan, where gas prices are linked closely with oil prices. One gas
company in the UK has gone bankrupt because of surging gas prices, and the impact isspreading to other areas of the economy, including agriculture and the livestock industry, where
fertilizer plants have been forced to reduce operations due to the high price of gas, from which
fertilizers are made. Given the serious circumstances, the International Energy Agency took theextraordinary step of requesting Russia to increase production. The situation remains
unpredictable as stock levels in Europe are low as the winter demand peak approaches. The
focus hereafter is the extent to which prices can be controlled by factors such as the timing ofstarting Nord Stream 2, Russia’s production increase, and climate factors including windconditions that affect wind power.
Oil and gas majors are facing stronger calls for decarbonization amid growing interest in
carbon neutrality, and in this context, TotalEnergies’ investment in Iraq announced on
September 6 deserves attention. The company announced a major investment plan that includes
enhancing oil production by injecting water into oil reservoirs, collecting and utilizing the gasthat is currently flared, and investing in 1.0 GW of solar PV. The deal combines investments infossil fuels and renewables as a package, funding renewable energy while simultaneously
boosting oil and natural gas output. This type of package investment helps reduce emissions
while maintaining the existing business, and this mode of investment may also give an
advantage to majors that can deal with diverse areas of investment with their business portfolio.
There was another notable investment by an energy major: on September 14, Chevron
announced a decarbonization business plan to invest over $10 billion in renewable fuels,hydrogen, and carbon capture by 2028. The key point of this plan is that it does not include
investments in renewable energy such as wind and solar power, but consists mostly of fossil
fuel decarbonization centered on hydrogen and CCUS. In short, Chevron has opted to selectand concentrate on its business strengths while TotalEnergies chose the packaging strategy. It
will be interesting to see how these different choices play out in the business and profitabilityof these companies.

54. Update on Policies Related to Climate Change and Energy Conservation
Naoko DOI, PhD
Senior Economist, Manager
Energy Efficiency Group
Climate Change and Energy Efficiency Unit

EU-ETS carbon prices may be one of the causes of soaring natural gas prices in Europe. The
EU-ETS carbon price fell to 20 euros/tCO2 in the first half of 2020 due to the pandemic, butthen surpassed 50 euros/tCO2 in May 2021 and reached 60 euros/tCO2 in early September as
demand recovered and the EU’s 2030 target was strengthened (from an emission reduction of
40% from 1990 levels to 55%). The soaring EU-ETS price has led to a rise in the upper limit
for gas prices, which is determined by the supply-demand balance, as coal and natural gas-fired
thermal power compete in the electricity sector. However, European Commission Executive
Vice-President Frans Timmermans considers that this explains just one-fifth of the increase in
prices at most, and that the rest is a consequence of supply shortages.
As the price of natural gas rises, there is much debate on the costs of Fit for 55, which theEuropean Commission announced in July to achieve the emission reduction target, rather thanits benefits. As an economic measure, Fit for 55 includes revising the EU-ETS and newly
adding suppliers of transport fuels and building heating fuels to its scope from 2026. The
soaring gas prices have triggered strong opposition against this measure from France, Poland,
and Spain, which have always opposed EU-ETS revisions that would place a greater burden on
consumers.
On September 22, China and the United States each presented its climate-related support
policy for other countries at the UN General Assembly. Chinese President Xi Jinping said that
China will support other developing countries that develop clean, low-carbon energies and will
no longer fund coal-fired power plants abroad. Meanwhile, US President Joe Biden announced
a plan to provide $11 billion a year as financial aid to developing countries.
In July, Indonesia set a goal to explore opportunities to achieve net-zero emissions by 2060
in its long-term strategy submitted to the United Nations. The country will stop building newcoal-fired thermal plants from 2025 and will require existing coal-fired thermal plants tointroduce biomass mixed combustion, and consider introducing CCUS/CCS if costs permit. In
Thailand, a policy to achieve carbon neutrality between 2065 and 2070 was incorporated into
the National Energy Policy 2022, scheduled to be formulated by 2022. To help developing
countries that depend on fossil fuels become carbon neutral, assistance will be needed not only
for renewables but also for various technologies that minimize the economic burden in thetransition phase, such as the decarbonization of fossil fuels.
On August 11, the 2022 Building Energy Efficiency Standards were adopted in the state ofCalifornia. The bill encourages the use of heat pumps for space and water heating and obliges
the installation of cables and hot water pipes to make new houses electric-ready. In this revision,
the obligation to install solar PV facilities in new houses will be expanded to include high-riseapartments and commercial buildings (hotels, offices, educational institutions, public facilities,etc.). California’s land prices and construction costs are higher than in other states, with houses
themselves in short supply. Additional requirements to install solar panels and electrification
would impose a burden on low- and middle-income households. Discussions are also under
way on enhancing energy conservation measures in existing houses.
65. Update on Renewable Energies
Akiko SASAKAWA, PhD
New and Renewable Energy GroupElectric Power Industry & New and Renewable Energy Unit
On September 3, the Subcommittee on Mass Introduction of Renewable Energy and NextGeneration Electricity Network under the Electricity and Gas Industry Committee/Committee
on Energy Efficiency of the Advisory Committee for Natural Resources and Energy(“Subcommittee”) released an interim report on the next-generation electricity networks. Amid
calls to accelerate the introduction of renewable energy to meet the 2050 carbon neutrality target,
addressing grid constraints is considered crucial. Accordingly, to transform the electricity
networks nationwide into next-generation networks that are disaster-resilient and renewableready, the policy for designing the system in terms of reinforcement, connection, and rules foruse was clarified.
Regarding the electricity grid reinforcement, a “pull-type” approach is currently taken, which
processes reinforcement requests as they come in. This has resulted in a long lead-time until
completion and an inefficient grid structure. Thus, the Subcommittee adopted a policy to switch
to a “push-type” approach, and reinforce the grid systematically based on a master plan, duly
considering the future potential of power sources, including the locations of renewable sources,
and cost-benefit analysis. The Subcommittee agreed to formulate the master plan by around theend of 2022.
As large-scale reinforcement of transmission lines takes 10 to 15 years, initiatives for existing
grids, such as allowing renewables to connect to the grid under certain conditions, are also
underway to expand renewables in the interim. A trial run for non-firm connection ofrenewables has been underway since 2019, in which new renewable capacities are allowed toconnect on the condition that their output will be curtailed when the transmission network
becomes congested. Non-firm connection is slated for a nationwide rollout in 2021, and the
Subcommittee is also set to consider expanding the rollout to local networks and low-voltage
distribution networks in the future.
As for the rules for grid usage, for all electricity networks except inter-regional transmission
lines, grid connections have so far been allocated to applications on a first-come-first-served
basis regardless of the type of power source. One of the issues of this rule was that renewables
connected via non-firm connection are put behind thermal power capacities that gained accessto the grid earlier, and therefore face a higher risk of output curtailment during network
congestion. As such, the Subcommittee agreed to end the first-come-first-served rule and shift
to rules based on merit order in order to accelerate the introduction of renewables, and to carryout studies to swiftly formulate feasible usage rules.
These efforts to improve grid constraints require meticulous planning and steady executionof the plan based on a vision of the future energy mix and desirable electricity network system.
To achieve the 2050 carbon neutrality target, it is hoped that the necessary initiatives for
expanding the renewable capacity will be implemented very soon based on the interim report.

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