No.18:
March 2012

Japan Energy Brief

Published by The Institute of Energy Economics, Japan Editor-in-Chief: Kensuke Kanekiyo and Akira Ishimura
Inui Building Kachidoki, 13-1 Kachidoki 1-chome, Chuo-ku, Tokyo 104-0054 Japan
Homepage http://eneken.ieej.or.jp

Contents
1. Japan struggles to sort out energy policy after Fukushima accident
2. Asian premium on gas strikes LNG importing countries
3. Best-practice policy should be pursued deploying renewables, says IEA
4. Energy committee highlights- Energy Conservation Law revisions focused on cutting peak-demand

5. Energy news in Japan and Asia
6. APERC letter

Japan struggles to sort out energy policy after Fukushima accident
One year has passed since the Great East Japan Earthquake and Tsunami hit Japan on March
11, 2011. Except for the Fukushima Daiichi nuclear plant accident casting a gloomy shadow on
the electric supply throughout Japan, energy supply has been mostly restored. The Sendai
refinery of JX Nippon Oil & Energy Corporation has fully resumed its operation to restore thepetroleum products supply system in the Tohoku (Northeast) area to the pre-quake level.
Damaged thermal power stations are all back on-line except the Haramachi coal-thermal station(2,000MW), which is scheduled to restart in summer, 2013. City gas supply has recovered to
the normal level though provisional facilities are still used in several towns.
As the quake-stricken provinces are gradually settling down, 343,935 evacuees are still awayfrom home due to the horrible disasters. Only 6% of debris and rubble, amounting to morethan 22 million tons, has been disposed of. The central and local governments have beentackling reconstruction plans since late last year, but are yet to produce any realistic pictures as
the damage was overwhelming. In the energy field, treatment of nuclear power generation
remains the central issue for the national energy
Figure-1 Monthly Electricity Supply
policy. An immediate question is: whether or not(10 Power Companies)
Billion kWh
Japan can ride out the 2012 summer peak demand100.
season without nuclear power. For the longer run,90.
13.5% Reduction
where should Japan position nuclear in the energy
80.
70.
mix in its pursuit of energy security and low-carbon
60.
society? Of course, these problems will have to be
50.
solved keeping industrial activities and daily life at40.
30.
reasonably acceptable or comfortable levels.
20.

Government aims to prevent rolling
blackout
Nuclear power stations throughout Japan remain
dormant after routine inspections. As the No.6 unit

10.
.
10/4

10/7

Nuclear
PV

10/10

11/1

Hydro
Geothermal

11/4

ThermalBiomass

11/7

11/10

Wind
Wastes

Source: METI “Monthly report on electricity supply statistics-1-

of Kashiwazaki-Kariwa nuclear power station of Tokyo EPC was shut down on March 26, only
one reactor, Tomari #3 unit of Hokkaido EPC, is now in operation, and this is scheduled to be
shut down early May. The Nuclear and Industrial Safety Agency of the Ministry of Economy,
Trade and Industry (METI) appraised and gave a rating of “appropriate” to the primary stresstest reports on Oh-i #3 and #4 units of Kansai EPC in February, and on Ikata #3 unit of Shikoku
EPC in March. The Nuclear Safety Commission of the Cabinet Office re-examined the reports
and concluded on March 13 that reports on Oh-i #3 and #4 units were both “appropriate.”
The Japanese Government explains that, after making a political judgment on these results, they
will have talks with local governments and societies.
Junichi Ogasawara, Group Leader of Electric Power Group at IEEJ, however, warns that wecannot be optimistic on the outcome, analyzing the situation as follows: It is still uncertain if local governments and societies would accept restart of nuclear power
plants even if the Noda administration came to such a political judgment. There arevoices that call for new safety standards established based on lessons from Fukushima
Daiichi accidents before making judgments on restarting nuclear power plants, inevitably
entailing a much longer time and process while Fukushima Daiichi is under fullinvestigation. Then, as each local government has its own agenda, even if consent isobtained from one, it does not necessarily mean that others may follow suit to restart
nuclear power plants.
 Given the circumstances as above, METI is now struggling to work up conditions tomanage the electricity supply/demand balance for this summer without nuclear power.
Candidate measures under discussion include allowing greater power interchange
through flexible operation of regional interconnections, reviewing methods of estimating
peak supply capacity of pumped hydropower and solar PV, applying differentiated tariff
systems for day and night or by time zones, and promoting power savings throughnegative tariffs for peak cut efforts (Nega-Watt Trade), while none of them is decisively
effective.
 Power companies are scrambling to beef up thermal power capacity, while many others
are trying to reinforce own-generation plants. However, many thermal plants face
increasing risks of failure and dropout after prolonged continuous operation, andreactivated old thermal plants are often unable to produce the full name-plate output.
Availability of water will also have a substantial impact on the maximum supply capacity
during the summer period. It requires some more time to see more accurately how theseelements affect supply and demand balance of electricity in this summer.
Figure-2 Power Supply and Demand: Tokyo EPC

millon kW
60
21 MMkW dropped by
the earthquake and tsunami
55Power use
restriction by law

45

40%

Summer Peak at 49.00 MMkW
35%

Maximum after the quake
49.66 MMkW

Begin
Electricity
Forecast

50

30%
25%
20%

40
15%
35

10%
PlannedBlakouts

30

5%
0%

'3/23
'3/28
'4/4
'4/11
'4/18
'4/25
'5/2
'5/9
'5/16
'5/23
'5/30
'6/6
'6/13
'6/20
'6/27
'7/4
'7/11
'7/18
'7/25
'8/1
'8/8
'8/15
'8/22
'8/29
'9/5
'9/12
'9/19
'9/26
'10/3
'10/10'10/17'10/24'10/31'11/7'11/14'11/21'11/28'12/05'12/12'12/19'12/26
'1/2
'1/9
'1/16
'1/23
'1/30
'2/6
'2/13
'2/20
'2/27
'3/5

25
Before 3.11
'3/14

 Kansai EPC, whichused to be heavily
dependent on nuclear,
will find it hard to meetdemandwithout
nuclear this summer.
Likewise, even Tokyo
EPC may not be able tomeet the normal year
electricity
demandpeaks similar to thosein 2009, if not theinordinately
high

Supply Capacity

Max Demand

Reserve

Source: Tokyo Electric, “Electricity forecast” and other information-2-

demand of 2010 with a hot summer and cold winter, while the electricity demand within
its service area is on a recovering trend of late.
The Japanese government aims to announce its projection on this summer's supply anddemand outlook and power saving targets before the holiday spell of early May, as industries
request the government to indicate its policy for the summer season as soon as possible toadjust their business plans. The government wishes to avoid the “forced power saving”
invoking the Electricity Business Act as much as possible. Last summer, various measures
were employed for power saving, with their estimated costs ranging from only a few yen up toeven a few hundred yen per kWh. In other words, some measures were prohibitively costly
and inefficient. The government thinks it is necessary to build an appropriate system that
promotes a rational means for power saving rather than a forced one. Thus, METI is studyinga “Nega-Watt Trade” and other innovative programs, but it would have to go a long way inclearing many hurdles such as setting appropriate power saving goals as criteria to implement
effective yet workable systems.

How to decrease nuclear dependency practicallyAccidents at the Fukushima Daiichi nuclear power station prompted Former Prime Minister
Naoto Kan to declare last July that Japan would aim to be independent of nuclear power
generation. Prime Minister Yoshihiko Noda, who took over from Mr. Kan last September,committed more modestly to aim at a less nuclear dependent society as much as possible in a
mid-to-long term time scale. As a result, the Japanese government set up a ministerial-level
Energy-Environment Council last July. Then in September, the Japan Atomic Energy
Commission (JAEC) under the Cabinet Office put forth four options on utilization of nuclear
power generation: (1) restore it to the pre-accident level, (2) maintain it at a certain level with alowered rate of nuclear dependence, (3) gradually lower the level to abolish it within a certain
timeframe, and (4) eliminate it immediately, along with ten issues to be considered including
reprocessing of the spent nuclear fuel, safety regulations, waste disposal, and so on. The Basic
Energy Planning Subcommittee of the Advisory Committee for Natural Resources and Energy
has been actively debating future energy policy since last October. The Basic Energy Plan isscheduled for revision this summer based on these discussions and debates.
At the 12th Subcommittee meeting held on February 14, Mr. Masakazu Toyoda, Chairman
and CEO of IEEJ gave his views on the future energy policy; “While energy security of Japan isvulnerable to crises or uncertainties, risks on energy security are increasing. Market
mechanism alone is insufficient to guarantee energy security and we need to mobilize othermeasures including subsidies and grants on R&D, resource diplomacy, and safety regulations.
The contribution of nuclear energy to enhancing energy security is not small in view of its low
cost, large scale, and high energy density.” Mr. Nobuo Tanaka, Global Associate of IEEJ andformer Executive Director of IEA, recently said in an interview, “Japanese energy policy will
have significant effect on the world energy policy. Growing energy demand in China, India,
and other emerging countries has tremendous impact on the world energy supply and demand.
Competition over energy will be inevitably aggravated in the future, even thoughnonconventional oil and natural gas are now being actively developed. In other words,
abundant and cheap energy is a thing of the past now. Japan has to formulate its energy
policy based not solely on domestic context but on energy security for the whole of Asia. …
Capitalizing on the lessons learnt from the Fukushima Daiichi accidents, we should keep certain
amount of nuclear generation capacity."
The subcommittee will need to continue working for establishment of a viable growth path-3-

by examining and sorting out the following points and their mutual relationships
comprehensively, where position of nuclear energy in the mid-to-long term energy strategy willbe the central issue:
1) Nuclear energy: overall planning and approvals for construction, expansion, operation
extension, and decommissioning of nuclear power units; coordination with local
governments; safety regulations; nuclear fuel cycle; nuclear waste disposal; anddecommissioning of the Fukushima Daiichi station and clearing of contaminated areas.
2) Energy demand policy: peak cut measures and other energy and power savings; linkage andoptimized management of supply and demand via smart grids; reforms of urban structure,industries, and life style to establish a low-carbon society; innovative technology
development; and establishment of institutional systems and markets to ensure effective
implementation of these measures.
3) Electricity: reforms on the electric system such as unbundling of power generation anddistribution and creation of a rational electricity market; reinforcement of interconnection
among power companies; efficient use of fossil fuels; and flexible introduction of renewableenergies.
4) Gas: stable procurement of natural gas and elimination of the Asian premium via measures
such as joint procurement of LNG, LNG stockpiling, import of piped natural gas, andsecuring interests in development projects; construction of a trunk pipeline system; andrestructuring of the gas market through consolidation of small-scale distributors.
5) Oil: policy to secure resources to reinforce oil supply security; positioning of oil in theenergy mix; role of oil in responding to emergency events as well as addressing declining
population in rural districts; and refining and retail marketing plans under declining
demand environment.
6) Renewable energy: viability, introduction incentives, and innovative technology development
to achieve breakthrough including cost cutting, smoothing out intermittent power
generation, and securing supply capacities.
Immediate answers unfortunately are not readily available for most of the above issues. The
Fukushima Daiichi site is now under control but only with temporary facilities, while we are
yet to fully understand the status and conditions of the actual site; all requiring devising a
number of processes and countermeasures to resolve the situation. Not much progress has
been made in clearing of contaminated areas or preparing policies to reinforce other energies,
which the accident prompted the Japanese government to act on. The government plans toreform the Basic Energy Plan by this coming summer, but it would be a provisional one again in
the sense that it will have to be based on various uncertain assumptions as above. Althoughmuch of the present discussions are developed just on extensions of the past paradigm, we needto draw up an innovative grand design of the future society taking into account the primaryissues facing Japan such as hollowing out of manufacturing industries, declining birthrate aswell as aging population or depopulation of rural areas, in order to lay down energy andenvironment strategy accordingly. It is not an easy task that can be done in a short time. We
would have to proceed step-by-step to create a better society by examining the above points
and incorporating the results of progress in various research and development efforts.

Asian premium on gas strikes LNG importing countries
Japan’s LNG import increased significantly to 78.5 million tonnes in 2011 from 69.2 million
tonnes in 2010, reflecting continual shut downs of nuclear power plants one after anotherfollowing the Great East Japan Earthquake of March 2011. In addition to the 13.5% increase in
the import quantity, soaring LNG prices have boosted the monetary amount of LNG imports-4-

further. Japanese payment for LNG import increased by 37.5% to 4.8 trillion yen in 2011 from
3.5 trillion yen in 2010, or 52.0% in US dollar
Figure-1 LNG Import of Japanterms to $60.0 billion from $39.5 billion. In
Million ton$
Billionparticular, sharp increases were seen in the third
20.0
25.0
and fourth quarters of 2011. Although thisQuantity
20.0
15.0
increase was partially offset by appreciation of
the yen, Japan’s LNG import amount seems to
10.0
15.0
have exceeded 1% of the GDP for the first time in
5.0
10.0
history.
Amount0.0

5.0

In 2011, the world LNG trade amounted to
1Q
2Q
3Q
4Q
about 240 million tonnes, up 8% year-on-year.
2009
2010
2011
2009
2010
2011
On the demand side, LNG imports surged in Source: IEEJ, compiled from MOF Japan Tradre Statistics
Japan following the Great Earthquake, and also inother booming Asian countries. On the supply side, exports from Qatar shot up significantly
as its large-scale plants went on stream in sequence, , delivering nearly 12 million tonnes toJapan (up 4 million tonnes from the previous year) to account for the largest portion of theincrease in Japan’s LNG imports. Japan also increased its imports from the Atlantic region,
including West African countries, to 4.7 million tonnes in 2011 from 3.0 million tonnes in 2010.
By a closer look on the world gas markets, extremely high prices of LNG destined for Asia
stand out. World gas prices were once converging into a narrow range in the mid-2000s whengas shortage was anticipated in the United States, but they have shown varying trends in recent
years among the U.S., European, and Asian markets, as shown in Figure 2. For example, in the
U.S., where the impact of the shale gas revolution is now prevalent, natural gas prices expressedin US$ per million BTU were$/MMBTU
Figure-2 Asian LNG Price hit Historical Highonce equivalent to about 55%
25of that of West Texas
JCC(Japan Crude Import Cocktail)2005-06
Intermediate (WTI) during
20
Ukraine-Russia
2006–2008 (just before thegas disputeLehman Shock
Aug/05
Lehman Shock), but continued
15 Hurricane
2008-09
Japan LNG Import March/2011
decreasing to 32% in 2010, 25%
KatrinaUkraine-Russia
Fukushima Daiichi
gas disputein 2011, and even to below 20%
nuclear accident
10
after
November
2011.
UK NBP
Although current gas prices
5
are extraordinarily low, few
US Henry Hub
people would expect the U.S.
0natural gas prices to rise again
05-01
06-01
07-01
08-01
09-01
10-01
11-01
12-01
to about 50% of crude oil
Source: MOF, USEIA
equivalent in the near future.
Natural gas prices in Europe have been more or less following the crude oil price trends; after
the turbulent period of the Lehman Shock, they have been relatively stable at around 50% ofBrent crude prices on a million-BTU basis. In Europe, LNG imports from the Middle East andAfrica are on the rise, along with reinforced natural gas import from Russia after completion of
the Nord Stream pipeline, driving the market toward decoupling of gas and oil prices.
Natural gas supply to Europe is expected to remain stable for some time to come.
Meanwhile, LNG prices for Japan on long term contracts are mostly linked to crude oil prices.
Thus, LNG prices delivered into Japan, on a million-BTU basis, stood at about 90% (an averageof 91% between 2000 and 2005) of the Japan Crude Cocktail (JCC; the average crude oil import-5-

price CIF Japan) in the first part of the 2000s. However, as crude oil prices spiked, the priceratio had decreased to 55% just before the Lehman Shock suggesting a decoupling phenomenon
from oil prices. Thereafter, however, the ratio recovered to 69.5% in March 2011 just before theGreat Earthquake, and even to 83.8% in December 2011. As crude oil prices continued to riseduring the same period; crude oil and LNG import prices in December 2011 were up 11% and33%, respectively, from the March levels. As large nuclear power plants were running as thebase load electricity supplier at high operating rates before the Great Earthquake, their
sweeping shut-downs caused a dramatic increase in LNG imports to Japan.
Such a significant amount of the Asian premium on LNG is putting considerable pressure not
only on Japan but also on other Asian countries importing LNG from the same sources. If thenuclear power plants continue to sit idle for the rest of this year while the yen depreciates as
observed recently, the value of Japan’s LNG imports would shoot up from 3.5 trillion yen in2010 to more than 6.5 trillion yen in 2012, exceeding the previous estimate by IEEJ (see JEB
No.17, January 2012) by 1 trillion yen or more. In January 2012, Japan’s trade deficit hit arecord 1.48 trillion yen, no small part of which was owing to imports of LNG and other energy
commodities. Such situations will inevitably result in huge hikes in electricity and city gas
tariffs, dealing a serious blow to the Japanese economy as well as to the development of the
LNG market in Asia.
Given the circumstances discussed above, Hiroshi Hashimoto, Senior Analyst at IEEJ,
analyzes the mid- to long-term outlook of the world LNG market as follows:
1) Between now and through 2015, several Southeast Asian countries will emerge as new LNG
importers, while LNG demand in the existing markets will increase steadily. On the
supply side, however, only a small number of new projects are coming on line; these are the
Pluto LNG project in West Australia (starting up in 2012), the Angolan LNG project (2012),
and the Algerian LNG project (2012–2013).
Consequently, it is widely viewed that theworld LNG market will tighten up. However, there will be uncertainties to work either asplus or minus factors, such as the prevailing European economic crisis, to cause a sluggish
energy demand, or prolonged shutdowns of nuclear power plants in Japan to keep its LNG
demand high.
2) Final investment decisions (FIDs) were made in 2011 for several LNG plants in the Pacificbasin scheduled to go on stream in 2015 or later. These projects, if commissioned without
delay, would contribute to stabilize the LNG market in the long run. The overall LNG
production capacity of Australia - including the Ichthys LNG project, which was given thegreen light in early 2012 - will exceed 80 million tonnes a year around 2018, making thecountry the largest LNG exporter in the world. The Ichthys LNG project, to be operated
by INPEX with its primary export destination being Japan, is considered virtually aJapan-made project. As some of the Japanese buyers have formed a consortium for jointpurchasing, it could provide a model case for structuring future purchasing strategies. In
addition, new prospective supply sources are coming up in East African countries like
Mozambique.
At the same time, LNG export from North America is emerging rapidly as a next-generation
supply source. The Sabine Pass project, which has recently fixed sales agreements for 16
million tonnes, uses low-cost gas brought about by the shale gas revolution. Its cost is
estimated to be about 30% to 40% lower than the LNG procurement cost of Japan. Other LNG
projects coming up in North America, if materialized as proposed could have a sizeable impact
on the LNG pricing system in the Asia-Pacific region.

-6-

To date, Japan has been working on energy security concentrating on ensuring supply of oiland stabilizing its price. However, following the Great East Japan Earthquake, unexpected
problems have surfaced such as shutdowns of nuclear power plants and the huge Asianpremium on LNG prices. This made it necessary to rebuild Japanese energy policy carefully
re-examining what measures are practicable, feasible and effective. Nuclear option is now
diminishing and can no longer be considered as the single central pillar, while renewableenergy could not be a leading player. On balance, no special measures appear available otherthan those adopted during the oil crises in the 1970s. For example, if Japan had 170 days (as is
the case for oil) equivalent or 30 million tonnes of LNG stockpiling, Japan, even facing theearthquake-led crisis, would not have rushed to take up every spot cargo available in themarket. As LNG prices have soared significantly, relative costs of stockpiling facilities or long
haul transport are now lower compared to the value of LNG itself. Thus, stockpiling andsupply diversification of LNG have become realistic options in considering energy security.
Also possible as options are construction of domestic trunk gas pipelines as well as piped
natural gas import from Russia, though substantial reform of the Japanese gas and electricity
industries is needed to “bundle” the wholesalers and independent gas buyers as a prerequisite.
In this regard, particular attention will need to be paid to development of Japan-Russia relationsin the era of Putin’s new administration.

Best-practice policy should be pursued deploying renewables, says IEA
On March 7, Mr. Paolo Frankl, Head of Renewable Energy Division of the International
Energy Agency, made a presentation at the IEEJ Energy Seminar introducing IEA’s “Deploying
Renewables 2011, Best and Future Policy Practice”. With mounting interest in renewableenergies, the seminar was attended by an eager audience.
He explained that RE electricity generation is developing
remarkably and shifting its weight to Asia. The world wind power
generation has grown at a compounded annual growth rate of
26.5% between 2005 and 2010, and photovoltaics (PV) even at 50.8%.
Meanwhile, the cost for PV has recorded a significant reduction,with its learning curve, i.e., a cost reduction rate for each doublingof cumulative installed capacity, as high as 19.3% during the past 34
years. Citing policy costs of promoting onshore wind power invarious countries, he explained that cost-effective policy must be selected. So far, countries
which employed a fixed support system such as FIT (Feed-In Tariff) have been more successfulcompared with others who adopted a system based on market mechanisms such as RPS(Renewable Portfolio), because conditions are clearer for players to calculate project cost andprofit under a fixed support system.
However, the fixed support system also has its own shortcomings. For example, the gap
between FIT rates and costs are always large for the PV in Germany, suggesting that project
players are enjoying unreasonably high returns, leading to a higher burden of surcharges
imposed on electricity consumers. Quick adaptation to the rapidly declining PV cost istherefore essential. Although the German government cut the tariff for PV four times just in
the past two years, even this did not seem to be sufficient as a steep “sales rush” was seen in
every month just prior to the tariff revision while players were trying to secure advantageous
rates.
As RE electricity is expected to grow fast, Mr. Frankl discussed that flexibility is the key andfour resources are needed to enhance large scale integration of renewable energy in the-7-electricity supply system without causing electricity supply disruptions. They are 1)
Dispatchable power plants such as gas/biomass fired thermal and hydro power stations; 2)
Demand side response via smart grids; 3) Energy storage facilities such as pumped hydro andlarge scale batteries; and 4)Interconnection with adjacent markets, which allow power trade forfurther operational flexibility and smoothing effect of intermittent generation. He wasrelatively pessimistic about the integration potential of renewables in the Japanese electricity
market at present because: 1) rigid power sources such as nuclear and coal have high shares in
the power supply structure, 2) lack of international connection being an island country, and 3)
the electricity market is rigorously segmented by ten independent regional power companies;
indicating, in particular, the needs for the Japanese electricity market to be integrated removing
regional borders.
In concluding the discussion, Mr. Frankl described key policy principles for RE deployment
to be: 1) a predictable RE policy framework, 2) portfolio approach instead of concentrating on
particular incentives and technologies, 3) dynamic policy approach based on global market
trends, 4) removing non-economic barriers, and 5) addressing system integration issues
including unbundling of the power supply system. He suggested that, because of thesimilarity with his home country, Italy, in its geography and resource endowment, Japan may
be able to learn a lot from Italy on policies and institutions and their outcomes as well as
experiences in promoting renewables with sound development of the electricity market.

Energy Committee Highlights
Revision of Energy Conservation Law Focuses on Curbing Peak-Demand
As exhibited in the long history ofEnergy Intensity of Japanenergy efficiency in Japan, the energy
Energy: million kcal (=0.1 TOE) per capita
intensity per unit GDP decreased Crude CIF: 1000 Yen per kilo litter
Kcal/Yen
20
significantly after the oil crises of the 70 Energy/GDP(2000)
Burst of Bubble
1970’s.
However, the pace of 60
18
Economyimprovement began to stagnate in the 50
16
mid-1980’s when crude oil prices
Oil Shocks
14
remained low, thereby allowing energy 40
Per capita
Earthquake
EnergyConsumption
12
consumption per capita to expand by 30
some 40% in a decade. Since 2005, 20
10when crude oil prices started to rise 10
Crude Oil Price
8
CIF Japan
again, energy intensity and energy
06
consumption per capita have both been
1965 1970 1975 1980 1985 1990 1995 2000 2005
10 2012
on a modest declining trend. Although Source: Compiled from MOF and METI statistics, 2011/2012 are forecast.
Japan is said to have grown into theworld’s most energy-efficient country, its energy efficiency and conservation (EEC) status has
not really greatly advanced in recent years.
However, with the electric power crisis triggered by the Great East Japan Earthquake
showing signs of prolongation, demand-side measures pursuing the energy efficiency andconservation approach have increased their importance as a solution to energy supply-demand
problems. Meanwhile, it was also a fact last summer that power saving was taken a little too
far in some respects, e.g.- excessive cut-downs leading in part to restrained economic activities
and the “self-restraint” affecting personal amenity or even health.

-8-Given such circumstances, the Ministry of Economy, Trade and Industry (METI) resumed the
EEC Working Group meetings of the Advisory Committee for Natural Resources and Energy
on November 7 last year, and after five meetings announced an interim report at the end of
February setting out the framework for forthcoming amendments to the Law Concerning the
Rational Use of Energy (Energy Conservation Law). The recent review focused not only on
countermeasures for the short-term response to power shortage but also on how sustainable
EEC measures should be taken in the medium and long term future.
After the oil crises, Japan’s EEC policy has always focused on curbing the consumption of oil
and other fossil fuels. This time, however, an in-depth analysis of the energy supply-demandsituation following the Great Earthquake has led to emphasis on 1) measures to curb peakelectricity demand, and 2) promotion of EEC efforts in the housing and building sectors. The
outline of the report is as provided below:
First, to achieve reduction of nuclear dependency as voiced by Prime Ministers Naoto Kan
and Yoshihiko Noda, electricity requirement will have to be met with installations of new
thermal plants as well as reopening of old, low-efficiency ones, pushing up the expendituresignificantly. Lowering the peak demand should enable such incremental costs on the supply
side to be avoided, while enhancing energy security and climate change responses. Solutions
to peak-demand management may include energy storage via pumped hydropower andbatteries, building energy management systems (BEMS) and home energy management systems(HEMS), own-use power plants, air conditioning systems with thermal energy storage andgas-powered air conditioning, for which effects are evaluated as follows:

The storage battery market is still in its infancy and batteries presently cost as much as
400,000 yen per kWh. However, if mass production can effectively reduce the price to50,000-60,000 yen per kWh, demand can be sufficiently expanded.



BEMS and HEMS integrated with photovoltaic power generation and storage batteries canbe expected to effectively reduce the peak demand. Developing such systems will require
important elements such as timely information supplied by electricity companies about
ongoing supply-demand balance and visualization of energy consumption status by
individual appliances.



Own-use power plants are effective means to lower the peak demand for the power gridand promise significant energy savings when a cogeneration system is adopted. Storage
batteries and gas-thermal air conditioning systems can also shift peak demand effectively.

New measures addressing the peak demand control are required to be in alignment with theenergy conservation approaches under the current legislation. They should be designed toencourage reduction of grid-connected electricity usage during the peak hours, while making
the energy intensity goal at each entity more easily achievable by incorporating such efforts.
The calculation method of energy efficiency under the new formula will be stipulated in an
ordinance after the official revision of the Energy Conservation Law. Other points mentioned
in the report for further deliberation include amplification of the tariff menu to introduce, forexample, time-zone tariffs for different hours of the day or a special tariff for peak demand
hours, and dissemination of smart meters to link up supply-side and demand-side information.
The report considers these peak curbing measures as “the fundamental policy to improveenergy efficiency as a whole region or society through supply-demand collaboration.”
The second pillar places importance on the promotion of energy efficiency and conservationin the residential and commercial sector. A Committee member, and Chairman and CEO of
IEEJ, Masakazu Toyoda explains the rationale: “If we impose an excessive burden upon the-9-industrial sector, which has been proactively pursuing energy efficiency and conservation
measures since early times, we are risking a further hollowing-out of our industries. On theother hand, the residential and commercial sector holds much potential in reducing energy
consumption, suggesting that future energy efficiency and conservation measures should befocused on housing and buildings. Japan’s energy efficiency standards for buildings are not as
stringent as those implemented in other countries and currently serve only as guidance forbuilding design. In order to promote energy efficiency and conservation in this field,
mandatory energy efficiency standards and enhanced institutional aids are required, and, tothis end, corresponding revisions to the Building Standards Act must be considered.”With regard to the residential and commercial sector (houses and buildings), the reportconcludes that: 1) as energy consumption is growing significantly due to increased floor area
and the rising number of households, the sector is in urgent need of adopting EEC measures;and that 2) as the power-saving measures of last summer were in part dependent on excessive“self-restraint,” it is important to pave the way so that sustainable energy efficiency andconservation can be pursued through improved energy efficiency in equipment and appliances
at houses and other buildings. On this point, the report gives the following details:
The current energy efficiency standards for buildings, established in 1999, arenon-enforceable, and therefore only 5% of existing houses meet them. Even among newly
constructed buildings, only 30 to 40% of houses and about 70% of multi-storey buildings satisfy
them. Furthermore, these standards are much lenient compared to those implemented inother countries that have adopted legally-binding measures ahead of Japan. To address theforegoing issues the report recommends that 1) mandatory energy efficiency standards bephased in for all newly constructed houses and buildings by 2020 and such standards be
regularly upgraded at the same time. A roadmap of such measures for early implementation
should be formulated on a priority basis. Also, in order to promote such measures, 2) a
top-runner program should be introduced for building materials (i.e., windows, heat insulationmaterials, bathrooms, vanity units, and kitchen equipment) as their efficiency improvements
and effective application are essential for both new constructions and renovation.
On March 13, the Cabinet approved the revised Energy Conservation Bill which focused on 1)
measures to reduce peak demand and 2) measures to address the residential and commercial
sector energy consumption. After approval at the Diet in this April, the amendment isscheduled to be enacted one year later, in April 2013.

Energy News in Japan & Asia
JX Energy
starts up thetsunami hit
Sendairefinery

JX Nippon Oil & Energy Corporation announced on March 9 that thecompany has resumed full operation of the Sendai refinary (145,000bpd), which was seriously damaged by the Great Earthquake andTsunami last year; JX has been test operating the refinery since January .
It is the only refinery located in the quake-hit Tohoku (northeast)
region. Petroleum products supply for the disaster area will benormalized and reinforced with its reintegration. As JX had resumed
operations of another quake-hit refinery in Kashima last November; its
refinery lineup is now fully reinstated.

In the restoration program of the refinery, various measures have been taken to stand against
the potential threat from tsunamis, in such a way that important electric facilities including theoperation control systems are relocated at an elevated level and watertight construction is
widely adopted. In addition, the administration building is now equipped with new- 10 -

electricity sources such as solar PV panels, fuel cell generators and batteries to enhance energy
conservation and reduce environmental burden during ordinary operations, and to function as
the disaster response headquarters in case of a total blackout. Stockpiling and shipping
facilities for petroleum products have also been expanded and reinforced.
Presently, the Chiba refinery (220,000 bpd) of Cosmo Oil is the only one left among the quake
hit refineries yet to be restored to full operation. An operation of several plants such as thefuel oil desulfurization unit was resumed in January, and the crude distillation unit (CDU) is
expected to be restarted in March. However, operation of the CDU will for the time being
remain at around 40% capacity until the LPG tanks that exploded due to the earthquake arereconstructed.

Gasification
continues tosend oil and LPG
away for better
economics andefficiency

The East Japan Railway Company (JR East), with its service area
covering east Japan including the Tokyo metropolitan district,announced on January 23 its plan to replace the No.1 generation unit
burning kerosene at its own Kawasaki Thermal Power Station with agas turbine combined cycle (GTCC) generator to start operation in 2021.
With this replacement, the unit’s generating capacity will be raised to
200 MW from the current 144 MW and thermal efficiency to 50% from
41.3%.

JR East is already running No.2 and No.3 units on gas and presently working on thereplacement of the No.4 unit, switching from heavy oil fired turbine to natural gas IGCC, with acapacity increase from 125 MW to 200 MW. Upon completion of these replacement programs,
the generating capacity of the Kawaski Power Station will be raised to 786 MW from the present
655 MW. In 2010, its own thermal power station supplied 43.6% of the total electricity
consumption of 6.1 billion kWh. The thermal power capaciy will be reinforced with minimal
increase in fuel consumption through the use of GTCC, which is the most efficent technology
available now.
The Hokuetsu-Kishu Paper Company and Mitsubishi Corporation announced on January 16that they would jointly construct a gas co-generation unit of 40 MW with a heat recovery boiler
at the Niigata paper plant of Hokuetsu. Currently a quarter of the electricity demand at theplant is supplied with a gas turbine generator burning heavy fuel oil and the rest with smaller
steam turbine generators using natural gas, black liqueur and wood biomass, while low tariff
electricity is purchsed during the night time. Mitsubishi is promoting the so-called “on-site
generation” projects and this is its 7th project which qualifies for METI’s support program onenergy usage rationalization.
Meanwhile, in a similar move giving LNG a growing position vis-à-vis LPG, a petroleum
product by definition, Tobu Gas Company in early March made presentation to the Akita
prefectural government about its plan to construct a secondary LNG terminal in Akita, one ofits service areas located in northern Japan. Tobu plans to construct a 10,000 kl LNG tank, aberth for 100m class tankers, regasification and other related facilities to receive LNG via coastal
tankers from larger LNG terminals. Tobu is currently delivering city gas comprising locally
produced natural gas, synthesized natual gas (SNG) produced from LPG, and LNG railed from
Niigata. Tobu plans to discontinue the supply of SNG as its plant is aging, and plans toreceive 25,000 tonnes of LNG in 2016.
As observed in the above developments, there is still room for medium-scale gasification in
the Japanese energy market, even though the recent spike in LNG prices might hamper thesetrends. At the same time, development of a consolidated trunk gas supply network extending- 11 -

across Japan to help promote further gasfication is highly desired, which should ultimately
work to reinforce the energy security of the nation.

Private sector
efforts intensify
in developing
offshore wind
power farms

Earnest efforts are under way to develop wind power resources
available off the extensive Japanese coastline as well as in littoral
regions. In one such move a consortium made up of Marubeni Corp.
as the project integrator, Tokyo University as the technical advisor, andnine other prominent private sector firms is embarking on a project foran experimental offshore floating wind power farm.

The METI-backed project comprises three floating wind turbines totaling 16MW in capacity
and a world’s first 66kV floating power substation with an undersea cable to be emplaced 20 to
40 Km off the coast of Fukushima Prefecture. Starting in 2012, the project is expected to becompleted in a three-year period. It is further understood that one of the most important
objects of the project is to demonstrate that the offshore wind farms are compatible, andtherefore able to coexist, with the fishery industry.
Fukushima is one of the three prefectures situated in northeast Japan needing large-scale
recovery efforts in the wake of the devastating earthquake and tsunami of last March, and looks
to a future possibility of nurturing a robust wind farm industry along with other renewableenergies to create jobs.
Meanwhile, Mitsui Ocean Development and Engineering Company (MODEC), a renowned
expert in constructing offshore oil and gas development facilities for floating production,
storage and offloading (FPSO) operations, reportedly has developed the world’s first combined
wind and tidal power generating system. Equipped with a vertical axis wind turbine mounted
atop a simple floating structure and a tidal stream turbine underneath it to efficiently drive asingle generator unit by two sources of energy simultaneously, the unique configuration,
together with an economical anchor chain support, is expected to significantly cut down bothinstallation as well as generation costs. MODEC plans to complete the necessary fielddemonstration tests based on prototypes by 2014, and to come up with a commercial model
having a generation capacity of 1MW workable as a small scale distributed power source foruse in remote islands and the like.

APERC Letter
Peer Review on Energy Efficiency for Indonesia Focuses on Need for
Better Coordination
At the APEC Energy Working Group meeting held in March, the final report of the APEC
Peer Review on Energy Efficiency (PREE) for Indonesia was approved; Indonesia is the 8th
APEC economy to complete a PREE. Under APEC’s PREE initiative, any member economy
can volunteer to have its energy efficiency policies and programs reviewed by a panel of experts
from other economies, which facilitates sharing of best practices. APERC coordinates the
PREE initiative under the direction of the APEC Energy Working Group.
The review was conducted from October 10 to 14, 2011 in Jakarta, Indonesia. The review
team engaged in a number of discussions with senior government officials from the Ministryof Energy and Mineral Resources, including the Director General of New Renewable Energy
and Energy Conservation, the Energy Efficiency Clearing House (a joint initiative between theDanish Government and Indonesia), as well as private organizations such as the Green Building- 12 -

Council of Indonesia. The review team also visited a textile manufacturing company site near
Jakarta, and discussed energy efficiency practices employed at the factory and witnessed thesemeasures first hand.
The review team found that within Indonesian laws there are many references to theimplementation of energy efficiency policies. For example, companies that annually consume
energy more than 6,000 tonnes of oil equivalent must appoint an energy manager. A
voluntary energy auditing program organized by the government is also in place to offer
suggestions on how to reduce energy consumption and promote energy efficiency.
On the other hand, they have found a gap between the ambitious laws and actual
implementation programs, shortages in human and financial resources to effectively implement
and monitor the energy efficiency programs according to the laws, and a lack of coordination
among ministries and agencies to remove barriers. Altogether 49 recommendations were put
forward covering all aspects of energy efficiency policy. Not surprisingly, most of therecommendations relate to better coordination among ministries. However, some of therecommendations also related to building human capacity, by developing energy managers andauditors and further expanding training courses on energy efficiency across Indonesia andengaging the general public of all ages.
The draft PREE report was accepted by the APEC Energy Working Group, and will be madeavailable shortly for downloading at the APERC website: http://www.ieej.or.jp/aperc/

Acknowledgement
Kensuke Kanekiyo (right), Editor-In-Chief of the IEEJ Japan
Energy Brief, and Akira Ishimura (left), Editor, will retire fromthe Institute of Energy Economics, Japan, at the end of March
2012. We thank the readers most sincerely for the warm
support given us during our tenure. We hope the same will bekindly extended to our successors. We wish all the best for
those who continue to work in the energy and environment fields,looking forward to continued development of our society.

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