Veriﬁcation of Electricity Supply-Demand
Balance and Costs in 2030

March 2021

Verification of Electricity Supply-Demand Balance and Costs in 2030

Acknowledgements
This study is the recipient of Grant-in-Aid for Scientific Research (A) (General) 20H00649.

AuthorKeiji Kimura

Senior Researcher, Renewable Energy InstituteTatsuya Wakeyama

Associate Professor, Global Energy Research Alliance Unit, Kyushu
University / Senior Research Fellow, Renewable Energy InstituteDisclaimer
The information contained in this report is based on information available at the time it was
written, but Renewable Energy Institute bears no liability with respect to its accuracy andcorrectness.

Renewable Energy InstituteRenewable Energy Institute is a non-profit think tank which aims to build a sustainable, richsociety based on renewable energy. It was established in August 2011, in the aftermath of the
Fukushima Daiichi Nuclear Power Plant accident, by its founder Mr. Son Masayoshi, Chairman& CEO of SoftBank Corp., with his own resources.

Table of Contents
Introduction: Background and Objectives ............................................................................... 1
1

2

3

4

Methods and parameters.................................................................................................. 3
1.1

Analysis based on an inter-regional supply-demand model ....................................... 3

1.2

Main inputs .............................................................................................................. 4

1.3

Sustainable energy mix evaluation parameters ......................................................... 4

Verification of supply stability .......................................................................................... 6
2.1

Electricity generation mix in FY2030 ........................................................................ 6

2.2

Electricity generation mix in FY2030 (by area) ......................................................... 6

2.3

Supply-demand structure during peak summer demand........................................... 7

2.4

Supply-demand structure during peak winter demand ........................................... 10

2.5

Supply-demand structure during minimum spring demand.................................... 13

2.6

Verification of supply stability ................................................................................ 15

Assessment of economic impacts (affordability assessment) ........................................... 16
3.1

Scope of electricity costs.......................................................................................... 16

3.2

Scope of electricity costs considered by this report .................................................. 17

3.4

Method used for considering electricity costs .......................................................... 18

3.5

Results of considering electricity costs .................................................................... 20

Conclusions and issues going forward ............................................................................ 25

References ............................................................................................................................. 27

[List of Charts]
Chart 1 Area Facility Capacity in the Sustainable Energy Mix..................................................... 5
Chart 2 Annual Electricity Generation Makeup (Transmission End) in Sustainable Energy Mix 6
Chart 3 Annual Electricity Generation Makeup (Transmission End) in Sustainable Energy Mix(Transmission end) ........................................................................................................................ 7
Chart 4 Japan’s Overall Supply-Demand Structure During Peak Sumer Demand ....................... 8
Chart 5 Area Supply-Demand Structure on Summer Day with Highest Demand ........................ 9Chart 6 Area Curtailments, Transmission to Other Regions, and Pumping Volume on Summer
Day with Highest Demand ............................................................................................................ 9Chart 7 Japan’s Overall Supply-Demand Structure During Peak Winter Demand ..................... 10
Chart 8 Area Supply-Demand Structure on Winter Day with Highest Demand ......................... 11
Chart 9 Area Curtailments, Transmission to Other Regions, and Pumping Volume on Winter Day
with Highest Demand .................................................................................................................. 12
Chart 10 Japan’s Overall Supply-Demand Structure During Minimum Spring Demand ........... 13
Chart 11 Area Supply-Demand Structure on Spring Day with Lowest Demand ........................ 14
Chart 12 Area Curtailments, Transmission to Other Regions, and Pumping Volume on Spring Daywith Lowest Demand .................................................................................................................. 14
Chart 13 Breakdown of Costs in Electricity Charges.................................................................. 16
Chart 14 Study’s Scope of Costs in Electricity Charges (red square) ......................................... 17
Chart 15 Assumptions for Acquisition Prices and Winning Bids by Certification Fiscal Year ... 19
Chart 16 FY2030 Average Wholesale Electricity Prices by Area ............................................... 20
Chart 17 Electricity generation mix by Area (FY2030) .............................................................. 21
Chart 18 Actual Procurement costs Under Renewable Energy Special Measures Act

andEstimates in Sustainable Energy Mix.......................................................................................... 22
Chart 19 FY2019 and FY2030 Electricity Unit Price Comparison (Tokyo, Chubu, Kansai Area)..................................................................................................................................................... 23
Chart 20 Comparison of FY2019 and FY2030 Electricity Costs ................................................ 24[List of Tables]
Table 1 Greenhouse Gas Reduction and Renewable Energy Deployment Targets of Major
Countries ....................................................................................................................................... 1
Table 2 Sustainable Energy Mix (TWh)........................................................................................ 2
Table3 Main Inputs........................................................................................................................ 4
Table 4 CO2 Social Cost Estimates (U.S. EPA) .......................................................................... 20

Introduction: Background and Objectives
March 11, 2021 marks ten years since the nuclear disaster at TEPCO’s Daiichi Nuclear Power
Plant. In these ten years, the state of nuclear power has changed significantly. Because of theaccident, nuclear power has not only forfeited the trust of the general public but also lost its
economic rationality because of the burgeoning cost of safety measures. Its supply capacity isalso in decline due to the decommissioning of old reactors. And the prospects are not high forsupply capacity in the future.
At the same time, globally, decarbonization is accelerating, with over 120 countries alreadydeclaring their commitment to carbon neutrality by 2050. Maintaining these commitments
requires increasing energy efficiency and ending adherence to energy systems that depend on
fossil fuels. Major countries in Europe and North America have announced plans to phase out
coal-fired power and substantially increase deployment of renewable energy by around 2030
(Table 1).
Table 1 Greenhouse Gas Reduction and Renewable Energy Deployment Targets of Major
Countries

Note: The EU’s 57% is a published estimate, not a target. In the U.S., one of the campaign promises of President Biden
is “to achieve a carbon pollution-free power sector by 2035.” In New Zealand, Prime Minister Arden has publicly
committed to 100% renewable electricity generation by 2030 (https://www.labour.org.nz/release-renewable-electricitygeneration-2030).
Source: Created by REI based on REI, “2030 RE Targets in Europe and U.S.” (January 15, 2021); REI, “The Quest to
Decarbonize Europe: 2020 Strategies towards 2050” (December 2020); REI, “RE Share in Electricity Consumption
2019” (June 25, 2020); and other documents from the countries’ governments.

1

Even in Japan, Prime Minister Suga, in a policy speech in October 2020, pledged that Japan
would reduce greenhouse gas emissions to net zero and achieve carbon neutrality by 2050.
Ahead of this speech, in April 2019, REI released its “Proposal for Energy Strategy Toward a
Decarbonized Society,” which puts forth five strategies for achieving net zero emissions by 2050.
After that, in August 2020, REI published “Proposal for 2030 Energy Mix in Japan (First Edition),”and explained how it would be possible to achieve a renewable energy share of 45% of total
electricity generation by 2030, provided policy measures are taken for this energy transition.
Based on this, we proposed a sustainable energy mix for 2030 of 45% renewable energy, zero
nuclear power and a phase-out of coal-fired power 1 (Table 2).
Table 2 Sustainable Energy Mix (TWh)Fiscal Year

FY2010FY2018

Electricity
configuration

FY2030Electricity demand

1,035

946

850

Electricity generation

1,149

1,051

890

Renewables

109

177

400

45%

Nuclear

288

65

0

0%

Coal

320

332

0

0%

Natural gas

334

403

480

54%

Oil etc.

98

74

10

1%

Source: REI (2020), “Proposal for 2030 Energy Mix in Japan (First Edition): Establish a Society Based on Renewable
Energy”

In accordance with REI’s policy recommendations, there has been a rapid rise in many Japanesecompanies and local governments calling for the FY2030 renewable energy target to be raised to40-50% 2.
A government committee (Advisory Committee for Natural Resources and Energy, Strategic
Policy Subcommittee) has been deliberating since summer 2020 on Japan’s energy policy toward
The definition of coal-fired power phase-out used here relies on the definition provided by Climate Analytics(2019). Which is reducing coal use in electricity without CCS by 90% or more below 2010 levels.
2 Designated City Council on Renewable Energy, “Proposal on Building a Sustainable Society with Renewable
Energy (July 20, 2020)”https://enekyo-city.jp/wp-content/uploads/20200720.pdf
Council on Renewable Energy, “Prescription for Lighting the Future with Renewable Energy” (July 29, 2020)
http://www.enekyo.jp/wp-content/uploads/2020/08/20200729.pdfJapan Association of Corporate Executives,“Toward 40% Renewable Energy by 2030: Path to Achievement and Overcoming Barriers” (July2020)https://www.doyukai.or.jp/policyproposals/uploads/docs/20200729.pdfNational Governors’ Association,“Urgent Proposal for Building a Zero Carbon Society” (August 24, 2020)
http://www.nga.gr.jp/ikkrwebBrowse/material/files/group/2/20200824_zc_shiryo01.pdfJapan Climate Initiative (JCI),“92 corporations calling on the Japanese government to raise its 2030 renewable energy target to 40-50%” (January
18, 2021)https://japanclimate.org/news-topics/re2030increment/
https://japanclimate.org/wp/wp-content/uploads/2021/01/JCICompany_RETarget_JP_20210118.pdf
122030 and 2050. In these discussions, some members have supported accelerating the energy
transition for decarbonization, but there have also been repeated assertions that the role ofrenewable energy is limited and an insistence on continued use of nuclear and coal-fired power.
In order to establish a precise strategy for carbon neutrality by 2050, the potential and role ofrenewable energy, the key to any such strategy, need to be further clarified and a target set for its
substantial expansion by 2030 3.
In the “Proposal for 2030 Energy Mix in Japan (First Edition)” released in August 2020, we
identified two issues requiring further consideration in connection with the sustainable energy
mix: stable supply at all hours, and affordable energy supply. Stable supply at all hours means
maintaining power supply to meet demand throughout all 8,760 hours of the year (which alsoentails maintaining a certain amount of reserve capacity for grid stability). Affordable energy
supply means that energy is supplied at prices that the general public and corporations are able topay. An important part of this is being able to estimate power procurement costs and renewableenergy surcharges, which together determine electricity prices. This study considers these twoissues in detail.

1

Methods and parameters

1.1

Analysis based on an inter-regional supply-demand model

We first conducted analysis using an inter-regional supply-and-demand model in order toanalyze the impact of the sustainable energy mix on supply stability. The model simulatesinterconnectors between Japan’s ten regional service areas. Based on this model, we calculate thesupply-and-demand patterns and interconnector currents for each area that will minimize total
power costs while upholding the conditions of hourly supply-demand balance for all 8,760 hours(one year) with adequate balancing and reserve capacity.
To build the model, we used PROMOD (made by Hitachi ABB Power Grids), a platform for
supply-demand modeling and power market evaluation. With PROMOD, we first created an
economical operating plan (unit commitment plan) that meets supply-demand balance and reserve
capacity requirements for each area based on data for each power plant, including start-stop times,
output change rates, partial load efficiency, and fuel consumption. Then, based on the unit
commitment plan, we calculated generation patterns (economic load dispatching) for each plant
to minimize total power costs. Based on these results, supply-demand and transmission patterns,
curtailments, and short-term marginal costs 4 were calculated for each area.
REI is planning shortly to publish a roadmap to 100% renewable energy for carbon neutrality by 2050.
Short-term marginal costs are the fuel costs and other variable costs required to raise generating output by, forexample, 1 kWh at a power plant. Based on the calculations for economic load dispatching mentioned above, the priceat the power plant with the highest marginal costs, among those supplying to each area, was set as the short-term
marginal cost price for that area. On the wholesale electricity market’s day-ahead market (spot market), bidding takes
place based on the short-term marginal costs at each plant, so the short-term marginal cost price, calculated as describedabove, is one indicator for analyzing the impact on the spot market.
3
4

3

1.2

Main inputs

The main data used to build the model is shown in Table 3. The data is taken from actual area
supply-and-demand figures released by general electricity transmission and distribution utilities,
interconnector data provided by the Organization for Cross-regional Coordination ofTransmission Operators (OCCTO), facility capacity and thermal efficiency figures published byindividual power plants, fuel prices based on Japan Ministry of Finance trade statistics, and othersources.

Electricity demand

Table 3 Main Inputs
Area electricity demand data

Nuclear power plants

Generation capacity, operating period, fuel, partial load efficiency,

Thermal power plants

maximum/minimum output, output change rate for each power plant

Geothermal power
plantsBiomass power plants
Solar power

Area generation capacity, hourly output data

Wind power
Hydropower
Pumped-storage

Maximum/minimum

generation

output,maximum/minimumhydropower

pumped-storage power, conversion efficiency, reservoir volume

Interconnectors

Interconnector capacity

Fuel prices

Monthly fuel prices for oil, coal, and natural gas

Balancing restrictions

Frequency restrictions, spinning reserve, amount of necessary supply
reserve

Source: Created by REI

1.3

Sustainable energy mix evaluation parameters

The sustainable energy mix in this model is based on the following assumptions.


Grid electricity demand assumed a 7% reduction compared to FY2018 levels based on thesustainable energy mix assumptions in the “Proposal for 2030 Energy Mix in Japan (First
Edition)” 5.



For conventional power source operations, zero nuclear power and zero oil-fired power are

5

The “Proposal for 2030 Energy Mix in Japan (First Edition)” assumes that electricity demand will decline by 10%
from 946 TWh in FY2018 to 850 TWh in FY2030, but this figure includes self-consumption and station service
power. Grid electricity demand in this model does not include station service power. Self-consumption power demandis included in grid electricity demand for FY2030 except for consumption of fuel generated secondarily at the power
plants.

4

assumed. The assumption for coal-fired power is that power plants other than ultra-super
critical (USC) in regions other than Hokkaido and Okinawa will be shut down by 2030. The
model assumes that USC will remain but will be positioned as reserve capacity and that theseplants will not generate electricity as long as adequate supply is secured with gas-fired plants
alone. In Hokkaido and Okinawa, it was assumed power plants with operating periods of 40
years or less, regardless of fuel, would be able to operate. Natural gas-fired plants with
operating periods of less than 60 years were assumed operational.
Based on industry forecasts, the model expects an increase in Combined Heat and Power(CHP) plants (14.3 GW in FY2030).



For renewable energy sources, hourly capacity factor for solar power, wind power, andhydropower was set at actual hourly figures from 2018, and capacity factor for biomass andgeothermal power uses annual figures. Capacity factor for solar power and wind power in
2030 was set for each region based on the current regional distribution of facility
certifications and environmental assessments (Chart 1).

Fuel prices are taken from IEA World Energy Outlook 2019; they are 9,460 yen/ton for coal,
52,070 yen/ton for LNG, and 60,884 for oil.

In the model, interconnectors are expected to be enhanced between Tokyo and Chubu andbetween Tohoku and Tokyo, and planning on them has already been completed.



Storage batteries of 10.9 GWh are expected to be deployed by FY2030 on a cumulative basis,a figure based on JEMA (2020), “Vision for Electricity Storage Ver. 5.”

Regarding adjustment restrictions in each area, the model’s assumptions are frequency
control of plus-minus 2% of area demand, spinning reserve that can handle 1 GW of powersources going down, and supply reserve of 5% of area demand. Frequency restrictions andspinning reserve, it assumed by the model, are supplied only from online power plants, andsupply reserve is secured with both online and offline plants.
Chart 1 Area Facility Capacity in the Sustainable Energy Mix

Source: Created by REI

5

2

Verification of supply stability

2.1Electricity generation mix in FY2030

The results of our analysis of the sustainable energy mix based on the above model, data andparameters are as follows. First of all, the percentages of the FY2030 energy mix (transmissionend) in Chart 2 show that renewable energy accounts for approximately 47.2% of total annual
electricity supply. This figure is after deducting curtailments on solar and wind power. In themodel’s analysis, there were curtailments of 1.9% on solar power and wind power 6. In thesecalculations, coal-fired power is retained as supply capacity in Hokkaido and Okinawa given theneed to ensure supply stability. As a result, total annual electricity generated from coal-fired poweris 8 TWh, but this represents a 98% decline compared to total electricity generated by coal-fired
power in FY2010, which meets the standard for coal phase-out.
Chart 2 Annual Electricity Generation Makeup (Transmission End) in Sustainable Energy
Mix

Source: Created by REI

2.2

Electricity genration mix in FY2030 (by area)

The FY2030 electricity generation mix (net-generation basis) in each grid area in thesustainable energy mix is shown in Chart 3. In the sustainable energy mix, a large amount of wind
power is expected to be deployed in the Hokkaido and Tohoku areas, so wind power accounts fora large percentage of the mix in these areas. As discussed above in connection with parameters,in our calculations, we decided to distribute future solar power and wind power based on thecurrent regional distribution of facility certifications and environmental assessments. As a result,renewable energy’s percentage of the mix is low in three areas of Tokyo, Chubu, and Kansai, andis high in the other areas of Hokkaido, Tohoku, Hokuriku, Chugoku, Shikoku, and Kyushu. In the
Hokkaido, Tohoku, and Hokuriku areas in particular, renewable energy, including hydropower,
6

Curtailment rate = Curtailment amount / (Total solar power generation + Total wind power generation).

6accounts for over 70% of total annual electricity generation. Chart 3 also shows curtailment rates
in each region. The curtailment rate is particularly high in the Hokkaido, Tohoku, and Kyushu
areas.
The renewable energy rate and curtailment rate in each area have a major impact on the
distribution of future deployments of solar and wind power, a precondition of the model. It is
possible that if this deployment distribution changes, the curtailment rate will decrease. At thepresent time, however, regional deployment trends for 2030 are not expected to change
significantly given the status of facility certification and environmental assessments, theassumptions used for this analysis.
Chart 3 Annual Electricity Generation Makeup in Sustainable Energy Mix(Transmission end)

Source: Created by REI

2.3

Supply-demand structure during peak summer demand

Japan’s overall supply-and-demand structure during the period of peak summer demand in
FY2030 with the model’s assumed sustainable energy mix is shown in Chart 4. The upper chartin Chart 4 shows electricity demand (red line) and output from each power source (color codedby fuel type), and the lower chart shows, as negatives, adjustments to supply capacity via pumpedstorage pumping, battery storage, and curtailments. In the sustainable energy mix, solar power’s
share of electricity supply is extremely high during daytime hours in the period of peak summer
demand. By contrast, it declines from evening through night, so substantial demand would need
to be met with natural gas-fired power. This is called the ‘duck curve’ phenomenon, and one issue
is how to avoid supply capacity shortages from evening through night at such times. The model’sanalysis found that supply capacity is adequately secured with adjustments using pumped-storage
pumping and battery charging during the day (light green section on the negative part of the lower
chart) and generating electricity from these sources from evening through night (dark purple
section on upper chart).

7

Chart 4 Japan’s Overall Supply-Demand Structure During Peak Sumer Demand

Source: Created by REI

The supply-and-demand structures for each area for one day at the highest peak of demand areshow in Chart 5 and Chart 6. Chart 5 shows demand (red line), supply from power sources (colorcoded by fuel), and supply from other regions via interconnectors for each area, and Chart 6 shows
adjustments via pumped-storage pumping, battery storage, and curtailments, and electricity
transmission to other regions via interconnectors. Based on these calculations, we compiledchanges in hourly capacity factor rates based on hourly output figures for solar and wind powerin each area in FY2018. On this day, solar plants in the Tohoku and Hokkaido and the Chugoku,
Shikoku, and Kyushu areas generated substantial output, but in the Kansai and the Hokuriku andChubu areas, solar output tended to be small. As a result, electricity flowed from regions with
supply surpluses to areas like Kansai and Hokuriku with low solar power output. This shows thatinterconnectors will be even more important for effective utilization of solar and wind power.

8

Chart 5 Area Supply-Demand Structure on Summer Day with Highest Demand

Source: Created by REI

Chart 6 Area Curtailments, Transmission to Other Regions, and Pumping Volume on
Summer Day with Highest Demand

Source: Created by REI

9

2.4

Supply-demand structure during peak winter demand

In winter, just as in summer, securing supply capacity in the ‘duck curve’ from evening throughnight is an issue, and, moreover, daytime supply from solar power is less than the summer, so
there is the possibility of higher reliance on natural gas-fired power. Japan’s overall structure of
supply-and-demand during peak winter demand in FY2030 with the model’s sustainable energy
mix is shown in Chart 7. In the sustainable energy mix, solar power is one of the main sources ofelectricity supply during the day, and during the day, pumped-storage pumping is conducted basedon daytime solar power, so it contributes to supply from evening through night as well. On days
when daytime supply from solar power is low, supply from wind power tends to rise, so increased
deployment of wind power helps to mitigate the risk of supply shortages in winter. With thesustainable energy mix, the model suggests that for the period of peak winter demand as well it
will be important to secure supply capacity through increased deployment of solar and wind power.
Chart 7 Japan’s Overall Supply-Demand Structure During Peak Winter Demand

Source: Created by REI

10

Chart 8 shows the supply-and-demand structure in each area for one day when solar power
supply is low during the period of peak winter demand. On this day, supply from solar poweraround the country is low and supply from natural-gas fired power is high. During such conditions,power supply in the Hokkaido and Tohoku areas, which, based on the assumptions, have extensive
deployments of wind power facilities, is extremely high, and electricity flows to the Tokyo area.
Chart 9 shows curtailments, transmission to other regions, and pumped-storage pumping on thesame day. On days of peak winter demand, electricity interchange through interconnectors plays
a more important role than supply-and-demand adjustments through pumped-storage in each area.
As we have seen, in the sustainable energy mix, supply capacity for peak winter and summer
demand can be adequately secured through increased deployment of solar and wind power. Output
from solar power and wind power at these times is very large, and it can be adequately andeffectively utilized through use of electricity interchange via interconnectors between regions andpumped-storage, which suggests a low level of curtailments. In this sustainable energy mix,
electricity demand is expected to be 7% lower than in FY2018. It is also possible that increases
in electricity demand, record-hot summers or extremely cold winters, could make it necessary toutilize the coal-fired power (USC) available as reserve capacity. To completely eliminate coalfired power will likely require further deployment of solar and wind power and government
policies for increasing energy use efficiency.

Chart 8 Area Supply-Demand Structure on Winter Day with Highest Demand

Source: Created by REI

11

Chart 9 Area Curtailments, Transmission to Other Regions, and Pumping Volume on
Winter Day with Highest Demand

Source: Created by REI

12

2.5

Supply-demand structure during minimum spring demand

In the spring, electricity demand is low compared to the rest of the year, and electricity
generated from solar power tends to increase, so there is the potential for major curtailments.
Japan’s overall structure of supply-and-demand during minimum spring demand in FY2030 in
the sustainable energy mix is shown in Chart 10. In the sustainable energy mix’s structure ofspring supply-and-demand, electricity generated from solar power greatly exceeds electricity
demand during daytime hours. Surplus electricity during the day is adjusted as much as possibleusing pumped-storage and then utilized as supply capacity from evening through night, but output
that cannot be fully adjusted in this way is restricted (Chart 10, lower: red section).

Chart 10 Japan’s Overall Supply-Demand Structure During Minimum Spring Demand

Source: Created by REI

Chart 11 shows the supply-and-demand structure in each area for one day with low solar power
supply during the period of minimum spring demand. On this day, electricity flows from Kyushu,
Chugoku and Shikoku areas where solar power supply is high to the Kansai area where it was
low. In the Hokkaido and Tohoku areas, supply of not only solar power but also wind power ishigh. Chart 12 shows curtailments, transmission to other regions, and pumped-storage pumping
on the same day. It shows large curtailments in the Hokkaido, Tohoku, and Kyushu areas, but the
surplus is adjusted through utilization of pumped-storage in the Tokyo, Kansai, and Chubu areas.

13

Chart 11 Area Supply-Demand Structure on Spring Day with Lowest Demand

Source: Created by REI

Chart 12 Area Curtailments, Transmission to Other Regions, and Pumping Volume on Spring
Day with Lowest Demand

Source: Created by REI

14

2.6

Verification of supply stability

Having verified the supply-demand structure in the sustainable energy mix in this model, theresults are as follows.


Stable supply is possible even when aiming for zero nuclear power and a coal phase-out by
FY2030.

The analysis of the supply-and-demand structure during peak summer demand suggests that
it is possible to secure supply capacity from evening through night in a ‘duck curve’ situation
by making adjustments with daytime solar power supply and pumped-storage and withelectricity interchange through interconnectors, and that it is possible to ensure supply
stability even in a model that has the preconditions of securing balancing capacity andreserve capacity.

It was shown that supply from daytime solar power is an important source of supply evenduring the period of peak winter demand. Supply from solar power decreases in the wintercompared to the summer, but supply from wind power also increases, so supply capacity canbe secured against maximum demand from evening through night. Supply from solar power
during the day is low, so compared to the summer interchange between regions via
interconnectors plays a more important role than pumped-storage.



From the analysis of the supply-demand structure in spring, it was shown that large
curtailments are necessary when demand is low. Predicting future deployment distribution
based on current certified capacity under FiT and capacity in the process of EIA, this period
is expected to require large curtailments in the Hokkaido, Tohoku, and Kyushu areas inparticular, but, on the other hand, in areas with high demand like the Tokyo, Chubu, andKansai areas, the amount of curtailment is expected to remain low. As a result, curtailments,
as a national average, are just 1.9%. Depending on the precision of solar and wind power
predictions, in actual operations, this figure may be larger. Going forward, efforts will beneeded to minimize the amount of curtailment by increasing predictive precision andimproving real-time control technologies.

15

3

Assessment of economic impacts (affordability assessment)

3.1

Scope of electricity costs

The government uses electricity costs as the standard to evaluate economy. According to thegovernment, electricity costs are the total of fuel costs (thermal, nuclear, etc.) and renewableenergy procurement costs. However, in terms of the component elements that determine
electricity charges, the scope is narrow. According to the breakdown of electricity charges
provided by the Agency for Natural Resources and Energy, of the elements shown that make up
electricity charges (Chart 13), the scope used for evaluation of ‘electricity costs’ is the part boxedin red 7. As shown in Chart 13, ‘electricity costs’ as defined by the government are only a portionof the various costs.
Chart 13 Breakdown of Costs in Electricity Charges

Source: Agency for Natural Resources and Energy, “Electricity Pricing Mechanism”
https://www.enecho.meti.go.jp/category/electricity_and_gas/electric/fee/stracture/pricing/Moreover, though not currently included in electricity charges, other important costs are thesocial costs of CO2 emissions (or, CO2 reduction costs). Climate change caused by CO2 emissions
is raising the risk of disasters like heatwaves, torrential rains, forest fires and draught andinflicting major damage on society. To what extent these social losses caused by CO2 emissions
constitute costs is currently being studied around the world. According to social cost estimates
made by the U.S. Environmental Protection Agency (EPA, 2013, revised 2016), average social
costs in 2020 per one ton of CO2 emissions were $12, $42, and $62 (2007 dollar value basis)(discount rates of 5%, 3% and 2.5%, respectively). However, it has been pointed out that the U.S.
government’s figures are underestimated compared to the estimates of nearly every climatechange expert 8.
Fuel costs are the portion of ‘fuel costs procured from internal power sources’ and ‘the cost of electricity purchasedfrom other companies’ power sources,’ and renewable energy procurement costs are the total of a part (avoidable costportion) of ‘the cost of electricity purchased from other companies’ and ‘renewable energy surcharges.’
8 Pindyck, R. S. (2019), “The social cost of carbon revisited,” Journal of Environmental Economics and716

While there is some variance in these estimates, the CO2 social costs should be included inenergy cost evaluations. In particular, the power sector accounts for approximately 40% of Japan’s
CO2 emissions from energy, and it is the largest emitter of all sectors, so it should be valid toinclude the cost of emissions in electricity costs.

3.2

Scope of electricity costs considered by this report

The scope of electricity costs as defined by the government does not include important aspects
that would normally be considered, so this study expands its scope. The scope is set at the mainelectricity procurement costs excluding regulated grid tariffs and taxes (aggregate of costs when
procured from internal power sources and when procured from other companies’ sources),
renewable energy surcharges, and social costs (in the red box on Chart 14). The reason regulated
grid tariffs (a transmission/distribution cost) are not included in this scope is that in the sustainableenergy mix the only enhancements expected are those to transmission grids that are alreadyplanned; it does not assume any new additional investment in transmission.
Chart 14 Study’s Scope of Costs in Electricity Charges (red square)

Source: Agency for Natural Resources and Energy, “Electricity Pricing Mechanism”
https://www.enecho.meti.go.jp/category/electricity_and_gas/electric/fee/stracture/pricing/

Management, 94, pp.140-160. The average of social costs (in the distribution with the highest coefficient ofdetermination) derived by 386 scientists has been compiled in Pindyck (2019). That figure is $291/CO2-ton.

17

3.4

Method used for considering electricity costs

Electricity procurement costs
Electricity is procured in various ways; providers use electricity they generate themselves, theypurchase electricity from other companies, and they purchase it on the wholesale electricity
market. Of these procurement methods, the one where prices are clear is the wholesale market.
Accordingly, this study calculates electricity procurement costs based on wholesale electricity
prices (spot prices). Wholesale electricity prices are determined every thirty minutes at the amountwhere demand and supply (marginal costs) meet (singe-price auction).
Wholesale prices in FY2030 in the sustainable energy mix are estimated by recreating thesingle-price auction using the same methods as currently used to determine prices. Fuel prices
use figures in 2030 for Japan in IEA (2019)’s ‘Stated Policies Scenario’ (2018 USD values) 9.
Renewable energy surcharges
Renewable energy surcharges are broadly collected from electricity consumers based on the
Renewable Energy Special Measures Act in order to offset the cost of electricity from renewableenergy sources. Specifically, the surcharge is renewable electricity 10 procurement costs minus
the portion borne by electricity providers (avoidable costs) and the unit price is determined by
Ministry of Economy, Trade and Industry ordinance 11 . For example, the FY2020 renewableenergy surcharge’s unit price has been set at 2.98 yen/kWh.
Procurement costs of renewable electricity under Feed-in Tariffs are derived by multiplying the
procurement price by the amount of electricity acquired. Assumptions for acquisition prices bycertification fiscal year (includes the prices of winning bids at electricity auctions) are shown inthe chart below. For the various power sources, we estimated generation unit prices at model
plants commencing operations in FY2025 and FY2030 and incorporated these into acquisition
prices. Estimated acquisition prices for power facilities going online in FY2030 are 7 yen/kWh
for solar power of less than 10 kW, 6 yen/kWh for solar power (commercial), 7 yen/kWh foronshore wind power, and 6 yen/kWh for offshore wind power. Unit prices for electricity generated
by model plants were estimated based on provider cost data and interviews for each cost
component. Considering the time lag until the start of operations, acquisition prices in thecertification fiscal year are assumed. The consumption tax is calculated at 10%.

IEA (2019) World Energy Outlook, p.756, B.4 Fossil fuel prices.10 More accurately, it is limited to electricity
generated by operationally certified facilities under the Renewable Energy Special Measures Act. For this reason,
residential solar (less than 10 kW), for which the acquisition period under the act has expired, is excluded from thescope of procurement costs.
10 More accurately, it is limited to electricity generated by operationally certified facilities under the Renewable
Energy Special Measures Act. For this reason, residential solar (less than 10 kW), for which the acquisition period
under the act has expired, is excluded from the scope of procurement costs.
11 Renewable Energy Special Measures Act: Article 31 and Article 32.
918

Chart 15 Assumptions for Acquisition Prices and Winning Bids by Certification Fiscal
Year
45
40
35

JPY/kWh

30
25
20
15
10
5
0

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

Solar power Less than 10kW
Solar power Commercial (auction eligible)
Wind power Onshore
Wind power Offshore (bottom-fixed)
Source: Created by REI

Renewable energy surcharges are acquisition prices net of avoidable costs. Avoidable costs arecalculated using FY2030 wholesale electricity prices, the same prices used when calculating
electricity procurement costs.
CO2 social costs
Though criticized as underestimated, we use the conservative estimates made by the U.S.
Environmental Protection Agency (EPA, 2016) (Table 3). Regarding the discount rate, we use thefigures with a rate of 3%. In this case, the figures for 2020 social costs ($42/CO2-tons) and 2030
costs ($50/CO2-tons) are converted to yen values in 2018 and these are multiplied by CO2emissions from the power sector in FY2019 and FY2030 to determine the costs. As a result, unitof CO2 social costs for 2020 were 5,598 yen/CO2-tons 12, and for 2030, 6,664 yen/CO2-tons.

12

Using the national average of CO2 emission factors for electricity providers in FY2019 (0.445 kg/kWh), the social
cost per 1 kWh of CO2 in 2020 comes to 2.49 yen/kWh. The national average of CO2 emission factors refers to
Ministry of the Environment (2021), “Announcement of Basic Emissions Factors and Adjusted Emissions Factors forElectricity Providers in FY2019” (http://www.env.go.jp/press/108826.html).

19

Table 4 CO2 Social Cost Estimates (U.S. EPA)
Revised Social Cost of CO2 2010-2050 (in 2007 dollars per metric ton of CO2)

Discount Rate

5.0%

3.0%

2.5%

3.0%

Year

Avg

Avg

Avg

95th

2010

10

31

50

86

2015

11

36

56

105

2020

12

42

62

123

2025

14

46

68

138

2030

16

50

73

152

2035

18

55

78

168

2040

21

60

84

183

2045

23

64

89

197

2050

26

69

95

212

Source: EPA (2016)

3.5

Results of considering electricity costs

The results are shown in Chart 16. There are regional differences in average wholesale
electricity prices, which show electricity procurement costs. Overall, wholesale electricity prices
in the East Japan area (Hokkaido, Tohoku, Tokyo) are low, and prices in the West Japan area are
relatively high.

Chart 16 FY2030 Average Wholesale Electricity Prices by Area

Source: Created by REI

20

Comparing the electricity generation mix in these regions, there are significant differences inwind power share between East and West Japan (Chart 17). In the sustainable energy mix, wind
power deployment is expected to make significant progress, but in the West Japan area, wind
deployment is less than East Japan, so electricity supply from wind power is also low. By contrast,in the East Japan area, many wind power plants are expected to be built in Hokkaido and Tohoku
areas, which have ample wind resources, and after that electricity supply from them will be
substantial. If electricity generated in East Japan can be supplied without restrictions to WestJapan, theoretically, price differences between the two regions would disappear, but in actuality,
there are capacity restrictions on interconnectors, so transmission restrictions occur. The
differences in renewable electricity supply volume and these transmission restrictions are related
to the price differences between areas.
Chart 17 Electricity generation mix by Area (FY2030)

Source: Created by REI

Renewable energy surcharges
Total procurement costs in FY2030 in the sustainable energy mix are expected to reachapproximately 4.8 trillion yen (with consumption tax, approx. 5.3 trillion yen). Renewable energy
surcharges excluding avoidable costs are 4.0 trillion yen with taxes. The surcharge unit price is
expected to reach 4.68 yen/kWh.
In the sustainable energy mix, total procurement costs of renewable electricity under FiT
exceed the 4 trillion yen upper limit set by the government for FY2030 by 0.8 trillion yen.
However, as shown in Chart 14, total procurement costs themselves are only a portion ofelectricity costs. What is important is whether or not total electricity costs put an excessive burden
on consumers. This point will be taken up below in conjunction with electricity procurement costs.
Also, as is shown below, procurement costs are highest in the early 2030’s; after this peak they
are projected to rapidly decline (Chart 18). This is because in 2030 solar power (10 kW and larger)
certified at the high prices of 40 yen/kWh or 36 yen/kWh in FY2012 or FY2013 is still being
purchased; from the mid-2030’s, the price declines sharply. This is why renewable energy
surcharges will be high only for a limited time, from the 2020’s to early 2030’s.
21Chart 18 Actual Procurement costs Under Renewable Energy Special Measures Act
and Estimates in Sustainable Energy Mix

Source: Created by REI

Total electricity costs
Wholesale electricity unit prices, discussed above, and electricity unit prices with the renewableenergy surcharge unit price (yen/kWh) are shown for each area (Chart 19). These are shown
together with FY2019 figures for three areas of Tokyo, Chubu, and Kansai. In the Chubu area,
wholesale electricity unit prices in FY2019 and FY2030 are nearly the same, but the increase inrenewable energy surcharges results in increasing the electricity unit price. In the Kansai area,
wholesale electricity unit prices themselves are also higher than in FY2019, so the increase inelectricity prices is relatively large. Conversely, in the Tokyo area, wholesale electricity prices are
significantly lower than FY2019, so regardless of the increase in the renewable energy surcharge,
the electricity unit price is more affordable than in FY2019.

22

Chart 19 FY2019 and FY2030 Electricity Unit Price Comparison (Tokyo, Chubu, Kansai
Area)

Note: Electricity unit prices do not include regulated grid tariffs or taxes.
Source: Created by REI

Along with electricity unit prices, we will also consider total electricity costs. Calculating
electricity procurement costs from estimated wholesale electricity prices, they came to 5.8 trillion
yen in FY2030. Renewable electricity surcharges, as stated above, are estimated at 4.0 trillion yen(procurement costs with tax are 5.3 trillion yen). CO2 social costs are reduced by 1.3 trillion yen(CO2 social unit cost of 6,664 yen/CO2-tons) through phasing out coal and promoting renewableenergy and totaled 11.1 trillion yen (Chart 20). Therefore in FY2030, renewable energy surcharges
will account for a large proportion of electricity costs, but around the mid-2030’s, as discussed
above, renewable electricity procurement costs are projected to decline rapidly. As a result, fromthe mid-2030’s, electricity costs are projected to decrease rapidly.
For comparison, electricity costs in FY2019 (electricity procurement costs + renewable energy
surcharges + CO2 social costs) were 12.7 trillion yen. Including social costs (CO2 social unit costs:
5,598 yen/CO2-ton), electricity costs in FY2030 are reduced by 1.6 trillion yen compared to
FY2019. Not including social costs, FY2030 electricity costs (9.8 trillion yen) were slightly lower
than the FY2019 figure (10.2 trillion yen).

23

Chart 20 Comparison of FY2019 and FY2030 Electricity Costs

Note: FY2030 (SDE) refers to the ‘FY2030 sustainable energy mix.’
Source: Created by REI

Electricity procurement costs in FY2019 are calculated by multiplying the hourly wholesale
electricity price in each area in 2019 by hourly electricity demand in each area. Procurement costs
for the portion of electricity consumed onsite are calculated by multiplying the annual averagewholesale electricity price in each area by consumption volume. As a result, electricity
procurement costs in FY2019 rise to 7.9 trillion yen. Renewable energy surcharges in FY2019
were 2.3 trillion yen 13.

13

Income on deposit payments received is from Green Investment Promotion Organization, “FY2019

Settlement of Accounts.”24

4Conclusions and issues going forward

As we have seen, the considerations here suggest that it is possible to overcome the two issues
raised in connection with ‘the sustainable energy mix’ proposed by REI in August 2020, supply
stability and economy (affordable energy supply).
First, on the issue of supply stability, this study suggests the possibility of maintaining thebalance of supply and demand in FY2030 by using renewable energy for 45% of electricity supply
and with virtually no reliance on nuclear or coal-fired power, once called baseload power sources.
In order to maintain an even more stable supply-and-demand balance, promoting further
deployment of wind power and other renewable sources and effectively utilizing interconnectors
will be extremely beneficial, and deployment of storage batteries will also be important. This
study has found that increasing wind power in particular, whose supply capacity is relatively
stable and increases in the winter months, will be extremely important for realizing stable supply.
Further issues in the analysis of supply stability in the sustainable energy mix include further
considerations for the establishment of concrete supply-and-demand operating methods.
First, the verification conducted by this study used a model simulating each electric grid area
and interconnectors between them. In order to analyze the complex processing of electricity
currents on intra-regional grids, concrete operating methods for ‘connect-and-manage,’ and theirimpact, all of which are currently being considered, analysis is needed using a model thatsimulates an intra-regional grid.
Secondly, this study set parameters for securing reserve and balancing capacity within a modelthat had the constraint of supply-and-demand balanced hourly. Further verification is needed on
the feasibility of maintaining stability when power sources go offline, or a grid accident occurs.
This would have to involve using a grid model to verify whether or not frequency and voltage
fluctuations could be kept within the scope of tolerance in the case of a down power source orgrid accident. To verify this using a grid model, more detailed data would be needed on intraregional grids and the balancing capacity of individual power plants, after incorporating thefrequency and voltage control functions of wind and solar power facilities. Currently, grid codes
are under consideration and progress is being made in releasing grid data, but going forward moredata disclosure and more studies based on this data are needed to more concretely verify issues
related to future supply stability.
From an economic point of view, it was found that even with zero nuclear power and a coalphase-out electricity costs in the sustainable energy mix (electricity procurement costs +renewable energy surcharges) could be lower than FY2019. Adding the CO2 social costs into theequation, it was found that the sustainable energy mix has the potential to reduce electricity costs
by 12% compared to FY2019.

25

We should note that achieving zero nuclear power and a coal phase-out, as assumed in thesustainable energy mix, will require additional policy measures by the government. It is possible
that, along with additional regulations, compensation will be needed for decommissioning power
plants, and if this is the case, additional policy costs would be incurred. On this point, further
considerations are needed on each policy option available.
Another point that should be noted is that the ability to rein in electricity costs in the sustainableenergy mix is premised on achieving steady cost reductions in renewable electricity. What needs
to be considered is wind power cost projections. There are various technologies used around theworld to reduce wind power generation costs, including larger turbines. This study makes priceestimates with the expectation that large wind turbines will be effectively deployed. Whether or
not these cost reductions can actually be achieved in Japan will require further detailed
considerations going forward.
Also, in the sustainable energy mix, natural gas will have a larger role to play for a period oftime. This study used fuel price projections from IEA (2019), but in reality, prices could be higher
or lower due to a variety of factors. Whether or not to incorporate these price fluctuations needs
to be separately considered.
Achieving carbon neutrality in 2050 is now finally Japan’s goal as established by thegovernment. To reach this goal will require raising the current target for renewable energy in 2030
of 22-24% by around twofold, as is being called for by many companies and local governments.
REI’s proposal in August 2020 and this study show that it is possible both technologically andeconomically to raise the target to this degree.
From the standpoint of power source development and power system conversion, the year of2030 is the immediate future. Ten years has passed since the Great East Japan Earthquake ofMarch 2011, and renewable energy development in Japan has made progress, as has the energy
transition, but ahead of 2030, we need to raise the pace of reform by two or three times with oureyes set on a sustainable energy mix. The government’s traditional energy policy which persisted
in nuclear and coal-fired power, must be fundamentally revamped. Doing so would be proof thatJapan is truly committed to the global effort to avert a severe climate crisis.

26

References
Climate Analytics (2019) Global and regional coal phase-out requirements of the Paris
Agreement: Insights from the IPCC Special Report on 1.5°C.
EPA: United States Environmental Protection Agency, (2016) EPA FACT SHEET: Social Cost of
Carbon.
IEA: International Energy Agency (2019) World Energy Outlook 2019.
Pindyck, R. S. (2019) The social cost of carbon revisited, Journal of Environmental Economics
and Management, 94, pp.140-160.
Renewable Energy Institute (2020) Proposal for 2030 Energy Mix in Japan (First Edition):
Establish a Society Based on Renewable Energy

27Veriﬁcation of Electricity Supply-Demand Balance and Costs in 2030

March 2021

Renewable Energy Institute11F, KDX Toranomon 1-Chome Bldg., 1-10-5 Toranomon, Minato-ku, Tokyo 105-0001 JAPAN
TEL：+81(0)3-6866-1020

info@renewable-ei.org
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