IEEJ e-NEWSLETTER No. 17:

July 12, 2013

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IEEJ e-NEWSLETTER
No. 17(Based on Japanese No. 118)
Published: July 12, 2013

The Institute of Energy Economics, JapanIEEJ e-Newsletter Editor: Yukari Yamashita, Director
IEEJ Newsletter Editor: Ken Koyama, Managing Director
Inui Bldg. Kachidoki, 13-1 Kachidoki 1-chome, Chuo-ku, Tokyo 104-0054
Tel: +81-3-5547-0211 Fax: +81-3-5547-0223

Contents
Summary
Energy Market and Policy Trends

1.

Discussions on Energy Policies in the General Subcommittee Meeting2.

Developments in Nuclear Power: Implementation of the New Safety Regulatory
Requirements and the Outlook for Restarting the Power Plants

3.

Launch of the “Council for Comprehensive Evaluation of the Voluntary Action Plans”
against Global Warming

4.

Rush for the Licensing of Solar Power Generation Plants and Issues of the FIT System

5.

Demand for Natural Gas Continues to Fall in Europe

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IEEJ e-NEWSLETTER No. 17:

July 12, 2013

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Summary
1. Discussions on Energy Policies in the General Subcommittee Meeting
The fourth meeting of the General Subcommittee was held on June 27. The discussions continued tofocus on: (1) the main issues in the production (purchase) and consumption stages of energy, and (2)renewable energies and energy conservation.
2. Developments in Nuclear Power: Implementation of the New Safety Regulatory Requirements
and the Outlook for Restarting the Power Plants
The new nuclear safety regulatory requirements incorporating the lessons learned from the Fukushima
Daiichi accident will come into effect on July 8. The power companies concerned are expected to apply
quickly to restart their plants, but the actual timing of the restart, including the time needed for the reviews,
remains uncertain.
3. Launch of the “Council for Comprehensive Evaluation of the Voluntary Action Plans”
against Global Warming
The Ministry of Economy, Trade and Industry has launched a council for evaluating the achievements ofthe voluntary action plans. It is important to objectively evaluate the effects of the program and share its
results both in Japan and abroad, in preparation for international negotiations and reviews of domestic
policies in the future. There are high expectations for the results of this meeting.
4. Rush for the Licensing of Solar Power Generation Plants and Issues of the FIT System
As of the end of February, the licensed capacity of solar power has reached 12 GW. However, there is
growing concern over the introduction of too much capacity too quickly, as happened in Europe. For thesystem to function steadily, measures such as setting an annual upper limit on new capacity may need to beconsidered.
5. Demand for Natural Gas Continues to Fall in Europe
The decline in demand for natural gas is accelerating in Europe. Natural gas is unlikely to regain its
competitiveness in the near future, and the trend toward diverting Europe-bound LNG to Asia and otherareas is likely to continue.

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1. Discussions on Energy Policies in the General Subcommittee Meeting
Akira Yanagisawa, Senior Economist
Energy Data and Modelling Center
The fourth meeting of the General Subcommittee was held on June 27. The discussions continued tofocus on: (1) the main issues in the production (purchase) and consumption stages of energy, and (2)renewable energies and energy conservation.
Regarding (1) the main issues, there are innumerable points noted under this topic since they have been
updated each time a member has made a comment. To avoid overlooking the key points, memberssuggested prioritizing the points. However, Subcommittee Chairman Mimura decided that it is preferable tolist as many items as possible for the moment, and prioritize them later on.
Regarding (2) energy conservation, there were few differences in opinion among the members. On theother hand, regarding renewable power generation, which has expanded sharply since the launch of the
Feed-in Tariff (FIT) system in July 2012, some members support promoting the system unconditionallywhereas others emphasize the need to consider the various aspects of the system and their pros and cons,
and to review the system as appropriate. Most members agreed on the need to focus more on heat in thearea of renewable energies.
Regarding the rise in energy cost under the FIT system, one member commented that energy should nolonger be considered as a cheaply available product, and that we should stop pursuing low prices. In
response, however, many members commented on the importance of pursuing this goal. Notably, Dr
Akimoto presented a highly-organized view that the rise in domestic energy prices stemming from issues
and systems peculiar to Japan should be handled separately from the rise in international energy prices,which affect all countries, and that measures to deal with the rise in domestic energy prices should besought individually. His detailed explanation was particularly impressive as it appeared to address not only
the committee members and the secretariat but also the general public both at the venue and across thebroadcasting network.
IEEJ CEO and Chairman Masakazu Toyoda commented in the meeting as follows:
Regarding the main issues, we need to clarify which of the items will or will not be changed in the new
Basic Energy Plan.
The FIT system has produced some clear effects (promotion of renewable energies), but there are also
various issues. The early adopters of the system are facing rising costs and some are being forced to freeze
the system. Germany is also suffering high costs, and is considering limiting the installation of new
capacity and adopting the Renewables Portfolio Standard (RPS). It is important to review the purchaseprice in a flexible manner.
Wind and geothermal power have not expanded as much as expected. Would relaxing the environmental
assessment be enough to accelerate their expansion? For geothermal power, a system for settling disputes
and redressing any unforeseen damage may be necessary.
Regarding energy conservation measures in the residential sector, it is necessary to analyze and quantify
the effects of the measures based on categories such as energy-consuming appliances, buildings and plants,
lifestyles, utilization of ICT, and region-wide response, and to share the results with the public together
with the price policies.
Under the former administration, the Growth Strategy Council and the Energy and Environment Council
used different values for the reference economic growth rate. The values should be unified, and we expect
substantial growth in energy consumption if the economy grows by 2% (per annum).
Due to the upcoming restructuring of the committees, the General Subcommittee will be renamed as the
Basic Policy Subcommittee from the next meeting.
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2. Developments in Nuclear Power: Implementation of the New Safety
Regulatory Requirements and the Outlook for Restarting the Power Plants
Tomoko Murakami, Group Manager
Nuclear Energy Group, Strategic Research Unit
On June 19, the new safety regulatory requirements incorporating the lessons learned from the
Fukushima Daiichi accident were finalized in the eleventh meeting of the Nuclear Regulation Authority(NRA). Accordingly, on June 21, the Cabinet approved the revisions to the Act on Regulation of Nuclear
Source Materials, Nuclear Fuel Materials and Reactors as well as the Electricity Business Act, which madethe new regulatory requirements mandatory, to go into effect on July 8. After 23 study team meetings in ten
months, the new safety regulatory requirements containing new countermeasures for severe accidents arenow set to be implemented starting July 8. Accordingly, nuclear power plants that wish to restart will be
reviewed based on applications received from electric power companies.
There are currently ten plants which the electric power companies “consider are in compliance with the
new requirements and for which they are preparing to apply promptly for restart”, including Takahama
Units 3 and 4 (Kansai), Ikata Unit (Shikoku) and Tomari Units 1-3 (Hokkaido). NRA Chairman Shunichi
Tanaka has stated that the “review period, which normally takes around six months, will be shortened asmuch as possible”, while Hideka Morimoto, Deputy Secretary-General of the Nuclear Regulatory Agency
has announced plans to increase the number of review personnel from the current 80 to about 130 in threeteams. Thus, the NRA is ramping up its organization to respond promptly to an expected rush of
applications for restart after the new regulatory requirements take effect on July 8. However, in the rush torestart the plants, anything other than a full review of compliance with the new requirements would
naturally be unacceptable. For the power companies that have had to cope with unplanned purchases oflarge amounts of fossil fuels, the brighter prospect for restarting their nuclear power plants is good news.
However, the actual timing of restart remains unclear and unforeseeable, considering the long review
period and the subsequent responses of the local communities.
Besides the group of plants that are expected to apply for restart first, attention must be paid to theprogress in discussions between the regulators and the power companies regarding (1) Tsuruga,
Higashidori and Shika Nuclear Power Stations where there will be inspections of the fractured zones in theplant premises, and (2) Hamaoka and Onagawa Nuclear Power Stations where large structures such as tidal
embankments are now under construction. Regarding the inspection of the fractured zones in the plantpremises, the power companies are arguing that there is no geological activity in any of the target sites,
disagreeing with the NRA inspection team which claims that the possibility of activity cannot becompletely denied. In particular, the fracture zone in the premises of Tsuruga Unit 2 is the only reason
stopping the Japan Atomic Power Company, which owns the power plant, from applying for restart
immediately. If JAPC decides to apply for restart, it will be interesting to see the NRA’s response andpotential impacts on the review for restart.
Internationally, the leading US power company Southern California Edison (SCE) announced on June 7that it would close Units 2 and 3 of the San Onofre Nuclear Power Station. This management decision was
based on the unexpected time and cost needed to deal with the extensive tube degradation identified in thesteam generator of Unit 3 and to restart the plant, taking into account the cost of fossil fuel that would be
required. Even though the regulators did not order the power station to close for safety reasons, San Onofre
is the third nuclear power plant in the US to be closed down by the power company after the Fukushima
Daiichi accident for reasons of economic efficiency. The situation must be monitored closely as similarcases could occur in Japan and other countries depending on the safety regulatory requirements that apply.
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3. Launch of the “Council for Comprehensive Evaluationof the Voluntary Action Plans” against Global Warming
Hiroki Kudo, Assistant to Managing Director
Global Environment and Sustainable Development Unit
On June 17, the Ministry of Economy, Trade and Industry held the first meeting of the “Council for
Comprehensive Evaluation of the Voluntary Action Plans”. With the migration of the Voluntary Action
Plan to Action Plan for Achieving a Low-Carbon Society in 2013, the Council will summarize and evaluate
the achievements of the voluntary action plans implemented from 1997 to 2012, and provide the results as
input to the studies and analyses on the voluntary action plans in Japan and abroad.
In Japan, the voluntary action plan of each industry has been reviewed each year since 2001 by agovernment-organized council to assess the volume of GHG emissions and the reasons for any increase or
decrease, and the possibility of achieving the target. As a result, many industries are close to achieving thetarget by 2012. The new Council will comprehensively evaluate the voluntary action plan program, as wellas its effectiveness and problems, by gathering and analyzing the data from the voluntary action plans todate.
The global warming countermeasures implemented in each country are selected from various measures
such as direct regulations on GHG emissions, economic policy measures (subsidies, environmental taxes,
emissions trading schemes), and voluntary efforts, depending on the situation and decisions of each country.
Voluntary measures were widely used in Japan, Europe and the US in the 1990s in the early stage of thefight against global warming. However, the effectiveness of Japan’s voluntary action plans has been widely
debated both within the country and abroad since, unlike their European counterparts, they are not based on
any agreement with the government.
There are two possible benefits in evaluating this program now. The first is that the voluntary policy
measures implemented by each country have attracted attention in the discussions of the UN climatechange framework. In the so-called Pledge and Review-type framework, the effectiveness of the policy
measure of each country is reviewed together with the country-specific target. In future negotiations, Japan
will need to clearly evaluate the program, which plays an important role in the country’s global warming
countermeasures, and to objectively substantiate its effectiveness. The second benefit is the opportunity toconfirm the program’s effectiveness with other parties inside the country in time for a study of domestic
policies in the future, and to identify any problems in the program. Voluntary efforts are likely to become
increasingly important in the process of formulating the policy measures to achieve the target for 2020,
which is due to be announced before COP19, and the domestic targets beyond 2020. In particular, at thefirst council meeting, experts cited the adequacy and impartiality of target setting and ensuringtransparency as key issues for the program in the future.
In reality, there have been few comprehensive evaluations of the voluntary action plans so far. Based on
the two benefits noted above, we hope that the evaluation by this Council will encourage the sharing of thefunctions, effectiveness and issues of the program among experts and negotiators both in Japan and abroad.
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4. Rush for the Licensing of Solar Power Generation Plants
and Issues of the FIT System
Hisashi Hoshi, Board Member, Director
New and Renewable Energy & International Cooperation Unit
The licensed capacity of solar power plants as of the end of February caused a stir when it wasannounced in May. While the estimated cumulative operating capacity at the end of 2012 was 7 GW, asmuch as 12 GW of additional capacity had been licensed for purchase at the full amount since July last year.
Although the extremely generous purchase price of 42 yen/kWh had been expected to attract muchinvestment, the figure of 12 GW was a shock. The 5.6 GW increase in licensed capacity in February
revealed a surge of last-minute applications.
However, not all the plants that have been licensed will start operating within this year. In addition to thelarger projects which naturally will not start until at least next year, bottlenecks such as the shortage ofpower conditioners (AC/DC converters) and skilled manpower are also hampering installation. Moreover,applications are not always made based on secured land; in one case, the same plot of land had been used
for as many as three applications. Further, some power companies are setting capacity limits on gridconnection, which could also reduce the new capacity to be installed. Overall, of the newly licensed
capacity (12 GW), only 5 to 6 GW are likely to start operating within this year, although even this is an
unprecedented scale of installation in Japan.
The problem is what lies ahead. The Feed-in Tariff system has without doubt driven the expansion ofrenewable energies, but various issues related to the FIT system have arisen in European countries. In manyof these cases, the amount of solar power connected to the grid exceeded the expected levels, causing theauthorities to stop or revise the system repeatedly due to concern over the rising social burden. The current
rush for licensing in Japan echoes the situation in Europe.
Furthermore, for renewable energies, installed capacity is not the only issue. To use a new power source,transmission lines connecting the power to areas of consumption may need to be built. In addition, thetechnology for absorbing the output fluctuations peculiar to renewable energies is still not mature.
Renewable energies cannot be used effectively without these other features.
It would be extremely difficult to control the installed capacity using economic incentives such as thepurchase price. The FIT system is like a strong medicine that works dramatically, but could cause severeside effects if misused. To suppress an excessive rush of new installations, considering the availability of
the complementary features noted above, it may become necessary to introduce restrictions such as setting
an annual limit on the amount of new capacity.
The law requires a “fundamental review” of the full amount purchase system before the end of 2020.
According to the legal system, revisions could be made at any time if necessary.

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5. Demand for Natural Gas Continues to Fall in Europe
Tetsuo Morikawa, Manager
Gas Group, Fossil Fuels & Electric Power Industry Unit
The decline in demand for natural gas is accelerating in Europe. According to Eurogas, an organizationof European gas companies, the demand for natural gas in the EU dropped from 522.1 billion m3 in 2010 to476.9 billion m3 in 2011 and 466.3 billion m3 in 2012. According to the IEA, the amount of pipeline gas
and LNG imported from outside the EU from January to April 2013 were 98.4 billion m3 and 13.3 billion
m3 (approx. 9.8 million tonnes), respectively, down by 4% for pipeline gas and by as much as 38% for
LNG year-on-year.
The main causes of the decline in demand and import of natural gas in Europe are the economic
slowdown of the region and the loss of price competitiveness of natural gas in the power generation sector.
The European Commission forecasts real GDP growth of the EU for 2013 at minus 0.1%, and the economy
as a whole is likely to remain sluggish, though the situation varies among the member countries.
The drop in price competitiveness of natural gas in the electricity generation sector is the flip side of therise in price competitiveness of coal fired power caused by the falling prices of emissions credit and coal.
Further, as the share of renewable energies continues to expand thanks to measures such as the FIT system,
natural gas is being forced out in power generation by both coal and renewables.
With the rejection of the draft revision for propping up the price of EUETS emissions credits (proposal
to reduce the short-term supply of emissions credits), and the slow economy, the price of emissions credit isunlikely to recover dramatically. As the shift from coal to natural gas looks set to continue in the power
sector in the US, albeit depending on the relative prices of the two fuels, the flow of coal from the US to
Europe is likely to continue. Although investment in renewable is slowing, the existing capacity willcontinue to account for a proportion of the electricity source portfolio as it requires no fuel cost.
The European Commission expects the EU economy to pick up gradually in 2014. However, due to theabove reasons, natural gas is unlikely to regain competitiveness so easily in the power sector. The demand
for natural gas remains generally flat in the industrial and residential sectors. On the supply side, decreasinggas production within the EU and decreasing LNG production in Egypt, Nigeria and Oman have nottightened the European gas market. The current trend of diverting Europe-bound LNG to areas such as Asia
and South America is likely to continue, at least till the end of the year. It is important to watch the impact
of LNG cargo diversion from Europe onto LNG balance in Asia.

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