IEEJ: July 2014. All rights reserved.

The 416th Forum on Research Work

25th July 2014

Economic and Energy Outlook of Japan towards FY2015– Energy risk casts a shadow over the recovery of the Japanese economy –YANAGISAWA Akira, T. Yoshioka, H. Suzuki, R. Ikarii, S. Iwata, Y. Shibata, K. Ito
The Energy Data and Modelling Center
The Institute of Energy Economics, Japan Executive summary of topics
1. Impacts of restarting nuclear power plants – big advantages are expected froma swift completion of the rigorous assessment
Despite the request for priority treatment, the nuclear safety assessment process remains
behind its expected schedule, with the first restart not to occur until early autumn.
Following that first approval, the assumptions are that three teams will be provided forthe assessment and consideration of the observed developments, the necessity forlarge-scale construction, the order of the applications, etc…

Based on thoseassumptions, only a total of seven (7) units can be approved by the end of FY2014,
operating on average for three months. By the end of FY2015, 19 units, which had
already filed applications, can be restarted, for an average operating period of ninemonths [Nuclear Mid-level Case].


Under the Mid-level Case, the electricity generated using nuclear power for FY2015 isstill less than half of its FY2010 level, raising the average power generation cost by about
JPY3,000/MWh compared to FY2010; that’s equivalent to an increase in power tariff of
17% for industry and 13% for households. Relative to FY2010, total spending on fossil
fuel imports increases by JPY7.7 trillion, of which the LNG additional imports of 9.6 Mt
will account for JPY2.8 trillion. Under this scenario, the energy-related carbon dioxide(CO2) emissions increase by 10 Mt-CO2, or by 0.9%, while the self-sufficiency rate
decreases by 4.6% point.



If the assessment period turns out to be longer than the one assumed in the Nuclear
Mid-level Case, only nine plants (instead of 19) would be allowed to restart by the end of
FY2015, generating electricity on average for seven months during FY2015 [Low-level
Case]. If the Authorities were able to increase their staff and if more applications were
submitted, up to thirty-two (32) plants could restart and operate on average for sevenmonths during FY2015 [High-level Case].

The hypothetical “Full Operation Case,”

assumes that the 32 plants of the High-level Case do generate electricity throughout theperiod (rather than just for seven months on average) with an operating rate of 80%.
The “No Operation Case” assumes no restart by the end of FY2015.
The extent to which nuclear power plants can restart and operate has huge impacts on
the Japanese economy, with serious implications regarding the environment and energy

This outlook is based on the relevant information available at the time of estimation.

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IEEJ: July 2014. All rights reserved.

security.

For example, the power generation cost under the No Operation Case is

JPY2,800/MWh more expensive than under the Full Operation Case.

In the No

Operation Case the additional spending on fossil fuel imports reaches as much as
JPY2.5 trillion. The Full Operation Case accelerates GDP by 0.26% while decreasing
CO2 emissions by 98 Mt-CO2 and improving the self-sufficiency rate by 9.0% point. The
difference in LNG import volume between the two cases would reach 20.6 Mt. The
resulting significant decrease in Japan’s LNG imports, combined with the anticipated
LNG exports from the United States, beginning in 2016, would contribute to a morebalanced supply-demand of the international LNG markets in the future.
Impacts by nuclear power plants’ restart
Nuclear power Power generation Total spending
generationcost
on fossil fuel(TWh)
(JPY/kWh)
imports(JPY trillion)
300

14

288

250

13
210

200

162

150

13.0
12.3

12

11.3

11

10.7

124

100

10.2

10

50

42

0
0
2010 2014 2015

9

30

95

28

90

26

27.3
26.7
25.8
25.3
24.8

24

8.2

CO2 emissions(Mt-CO2)

1,220
91

Low-level

1,160

70

No
Operation

1,171

Mid-level

80

75

18.1
18
2010 2014 2015

1,193

1,180

85

77

22

1,200

89

80

20

8
2010 2014 2015

LNG imports
(Mt)

1,140

1,120
71

70

65
2010 2014 2015

1,100

1,133
1,123

High-level

1,115
1,095

Full
Operation

1,080
2010 2014 2015

2. Risk of higher energy prices – higher risk to be expected with higher
dependence on thermal power generation
International energy prices are highly dependent on the development of the Middle Eastand Ukrainian situations and may continue to increase. If oil prices increase by $10/bbl
and LNG price goes up by $50/t, the value of imported fossil fuels into Japan would
increase by JPY1.9 trillion. The resulting domestic energy price hike and reduction of
wage and profits would decrease real GDP by 0.2% and gross national income would
diminish by 0.3%.

A slowing down of the economic activity would also decrease total primary energy
supply.

Fuel oil sales would suffer the biggest decrease due to bigger influence on thedomestic prices. City gas and electricity would each experience 0.2% sales reduction
respectively because of the reduced production activities, income reduction and pricehikes.

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IEEJ: July 2014. All rights reserved.

3. Impact of the Yen depreciation – Higher economic growth induces slightdemand increase for city gas and electricity while export’s increase effectdiminishes
The Yen depreciation of JPY10/$ increases real GDP by 0.4% and expands the value ofexports by more than 7%. It also increases the value of imports by a similar amountowing to the price hike. Consumer prices should increase by 0.3%, more as the result of
the “cost-push” than the “demand-pull.”

Economic expansion induces an increase in energy demand while the JPY-based energy
price hike has a cancelling effect and thus total primary energy supply remains relatively
unchanged.

LNG import volume increases by 0.3%.

City gas and electricity sales

increase by 0.2% respectively due to production activity expansion while on the other
hand, fossil fuel sales, mainly gasoline, decrease by 0.5%.

 Executive summary of economic and energy outlook for FY2015 (Base Scenario)
1. Macro economy – sharp growth recovery as raised consumption tax effects reachsaturationDespite some downward influence from the consumption tax increase, Japan economy
grows by 0.9% in FY2014 due to active private non-residential investments and increases
in external demand.

The trade deficit diminishes to JPY12.1 trillion. For FY2015, theeconomy grows at 1.6%, higher than the potential growth rate.

This is due to higher

exports and private non-residential investments as well as to the recovery of private
consumption pushed by an improved labour environment.

2. Energy supply and demand – after marking a record high in FY2014, natural gas
demand is expected to decreaseTotal primary energy supply in FY2014 slightly decreases for the first time in two years
due to a mixed influence of economic, energy conservation and weather factors andremains substantially almost the same in FY2015. With the assumed return of nuclear
power plants as in the “Nuclear Mid-Level Case,” Japan’s self-sufficiency rate regains
13%. Fossil fuels decrease, with oil reaching levels lower than the 200 Mtoe recorded in
FY1969.

Total final energy consumption drops slightly in FY2014 and remains the same in
FY2015.

Industrial sector’s energy consumption increases due to more production

activities while consumption in residential and commercial sectors shows sign that thefall is ending, after decreases for four consecutive years since the Great East Japan
Earthquake. Transport energy consumption continues the near 1% annual decrease
due to fuel efficiency and transport efficiency improvement.

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IEEJ: July 2014. All rights reserved.

3. Energy sales – city gas goes strong while electricity regains. Tougher situation
for fuel oil
Electricity sales by utilities increase for three consecutive years, led by large industrial
users in manufacturing sector.

Even the sales for lighting contract mainly for the

residential sector grow after the third quarter in 2015, and for the first time since theearthquake.
City gas sales by general gas utilities increase, recording a historical high for the fifth
year in a row. Sales for industrial use show steady growth, remaining to be a key driver.
Except for the rebound from the hot summer, the residential sales keep a long
downward trend.



Fuel oil sales show a clear downward trend and may fall below 180 GL for the first timein half a century by FY2016.

Gasoline drops to 53 GL, which is the lowest level since

FY1996, immediately after the abolishment of Special Petroleum Act1.

4. Renewable Power Generation – operational capacities will soon be 55 GW. If all
the authorised 89 GW become operational, the accumulated cost burden
could be JPY44 trillionSupported by high fixed prices under FIT contracts, renewable power generation willcontinue to expand.

The capacities expected to be in operation by the end of FY2015,

mainly Mega-solar, will reach 55 GW. By the end of March 2014, 89 GW (of which
71 GW is solar PV) had been authorised. If all of this capacity becomes operational,
consumers’ cumulative burdens for the 20 years will reach JPY44 trillion.

5. CO2 emissions – decrease in FY2014 after recording new high in FY2013
Energy-related CO2 emissions in FY2014 will be less than 1,200 Mt, decreasing for the
first time in five years despite the new high consumption of natural gas.
in oil and coal consumption reduces the emissions.

The decrease

It is a decrease of 0.3% compared to

the FY2005 emissions while an increase of 13.2% compared to the FY1990 emissions.
The CO2 emissions will decrease even further in FY2015 due to the restart of nuclear
power plants. Energy consumption will be less than before the earthquake but the levelof CO2 emissions will remain high.

1

Act on Interim Measures concerning the Importation of Designated Petroleum Products-4-

IEEJ: July 2014. All rights reserved.

Summary (Base Scenario)
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Primary energy supply (Mtoe)1
Oil2 (GL)Natural gas2 (Mt)
LNG imports (Mt)
Coal2 (Mt)
Nuclear3 (TWh)Final energy consumption6 (Mtoe)
Industry4

EnergyBuildings
Transport
Petroleum products
Natural gas and city gas
Coal and coal productsElectricity
Electricity sales (TWh)City gas sales5 (Billion m3)
Fuel oil sales (GL)
Energy-related CO2 emissions6 (Mt-CO2)(FY2005=100)

Prices

Crude oil, import, CIF ($/bbl)
LNG, import, CIF ($/t)
Steam coal, import, CIF ($/t)

EconomyNominal GDP (JPY trillion)
Real GDP (JPY2005 trillion)
Industrial production index (CY2010=100)
Exchange rate (JPY/$)

514.3
232.4
73.2
70.6
184.6
288.2
343.6
162.9
97.3
83.4
178.1
35.0
38.0
88.9
926.6
35.28
196.0
1,123
93.4
84
584
114
480.2
512.4
99.4
86.1

491.1
238.4
85.8
83.2
175.1
101.7
334.4
159.0
93.8
81.7
172.1
36.3
37.8
84.8
879.5
35.91
196.3
1,173
97.6
114
823
144
473.7
514.1
98.8
79.0

484.6
242.4
89.4
86.9
183.3
15.9
329.9
156.0
92.5
81.4
168.8
36.3
37.7
83.9
870.9
36.32
197.8
1,207
100.3
114
866
127
472.6
517.5
95.8
82.6

486.4
234.6
90.1
87.7
194.2
9.3
331.5
158.2
91.5
81.7
169.2
37.6
38.5
83.0
871.5
36.69
193.5
1,218
101.2
110
837
108
481.7
529.4
99.0
99.7

485.0
225.0
92.4
89.3
193.4
14.1
330.5
158.2
91.3
80.9
167.6
38.3
38.3
83.0
873.0
37.48
187.9
1,199
99.7
110
821
101
492.8
534.4
100.1
102.0

486.8 0.4% -0.3% 0.4%
214.6 -3.2% -4.1% -4.6%
83.2 0.8% 2.6% -10.0%
80.2 1.0% 1.8% -10.2%
188.0 6.0% -0.4% -2.7%
124.3 -41.6% 51.9% 779.4%
330.7 0.5% -0.3% 0.1%
159.2 1.4% 0.0% 0.6%
91.2 -1.1% -0.3% -0.1%
80.2 0.4% -0.9% -0.8%
166.4 0.2% -0.9% -0.8%
39.2 3.6% 1.9% 2.4%
38.6 2.2% -0.4% 0.8%
83.3 -1.1% 0.1% 0.3%
876.8 0.1% 0.2% 0.4%
38.05 1.0% 2.1% 1.5%
181.7 -2.1% -2.9% -3.3%
1,133 0.9% -1.6% -5.5%
94.2
..
..
..
108 -3.6% 0.2% -2.1%
776 -3.3% -2.0% -5.5%
110 -15.1% -6.1% 8.6%
505.7 1.9% 2.3% 2.6%
542.8 2.3% 0.9% 1.6%
102.2 3.3% 1.1% 2.1%
102.0 20.6% 2.3% -0.0%

Notes:
1. Mtoe = 1013 kcal
2. Conversion factors for Oil: 9,126 kcal/L; Natural gas: 13,043 kcal/kg; Steam coal: 6,139 kcal/kg; Coking coal: 6,928 kcal/kg
3. The Mid-level Case
4. Industry includes non-energy use.
5. Conversion factors; 1 m3 = 10,000 kcal
6. Final energy consumption and CO2 emissions in FY2013 are estimation.

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IEEJ: July 2014. All rights reserved.

1. Introduction
Prospects for the Japanese economy, though being patchy, have brightened thanks to Prime
Minister Shinzo Abe’s Abenomics economic policy, business confidence improvements andgreater business efficiency. Regarding energy, however, there are many challenges including
the tight electricity supply-demand balance, continuously high fuel costs, the risk of
renewable energy power generation biased toward photovoltaics, and the destabilising
Middle East and Ukraine situations. These challenges must be mitigated or resolved forJapan’s sustainable economic growth. In order to contribute to analysing challenges for theimmediate future and considering a desirable energy mix, we have projected the Japanese
economy and energy supply and demand through FY2015 and assessed and analysedvarious implications of the projection.

2. Major assumptions in the Base Scenario(1) World economy
We assume that the world economy will continue a moderate expansion from FY2014
through FY2015. The United States economy will retain an overall upward trend due mainly
to a continuous increase in private consumption accounting for 70% of its gross domestic
product, boosting its annual growth rate to a 2.5-3.0% range in 2015. The European economy,
though plagued with uncertain factors such as tense relations with Russia and disinflation,
will achieve a moderate recovery with an annual growth rate in a 1.0-1.5% range on thestrength of stabilised financial markets. The Asian economy will maintain an annual growthrate of 6% or more, although China, India and some members of the Association of Southeast
Asian Nations will decelerate economic growth.
(2) Oil, LNG and coal CIF prices
We assume the oil import CIF price for Japan will rise to $112/bbl toward the end of this year
before averaging $108/bbl in FY2015. The liquefied natural gas import price will fall to $828/t
towards the end of this year before averaging $776/t in FY2015. The steam coal import pricewill rise to $110/t in FY2015 as the international supply-demand balance tightens. For details,
see “Latest International Oil, Natural Gas and Coal Market Outlook,” a report given at the415th Forum on Research Work.
(3) Exchange rate
We assume the average dollar-to-yen exchange rate at JPY102/$ in and after the second halfof 2014.

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IEEJ: July 2014. All rights reserved.

(4) Taxes
We assume the consumption tax will be raised to 10% in October 2015, with the corporate tax
rate beginning to be cut in FY2015.
(5) Nuclear power generation
Based on progress in the submission of data for the assessment of nuclear power plants’conformity with new regulation standards and in the assessment, we assume that nuclear
power plants will gradually restart from the second half of FY2014. In the Nuclear Mid-level
Case for the Base Scenario, seven nuclear reactors will restart by the end of FY2014. By theend of FY2015, 19 reactors will restart in FY2015, generating 124 TWh in the year.
(6) Electricity supply and demand
Based on discussions at the government’s Electricity Supply-Demand Verification
Subcommittee, we assume that the supply-demand balance in this summer will be tighter
than last summer, with Kansai Electric Power Co. and Kyushu Electric Power Co. failing tosecure a reserve capacity rate of 3%. Electric utilities in western Japan will enhance their
supply capacity by receiving supply from those in eastern Japan. But there are potential risks
including the unscheduled suspension of fossil fuel-fired power plants and temperaturechanges.
(7) Temperatures
Based on the three-month weather forecast by the Japan Meteorological Agency, we assume acooler summer for FY2014 than for the previous year (-1.3 degrees Celsius), a slightly colder
winter for FY2014 (-0.3°C) and average temperatures throughout for FY2015.

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IEEJ: July 2014. All rights reserved.

3. Macro economy
In FY2014, the Japanese economy will grow by 0.9% on robust non-residential investment
and exports despite the impact of the consumption tax increase
Among private demand components, non-residential investment will increase thanks togovernment economic measures and corporate earnings improvements through companies’
business efforts. Private consumption, though affected by the consumption tax increase, will
start to recover from this summer. Private demand as a whole will contribute to
0.6 percentage points of the FY2014 economic growth. Among public demand components,
public investment will peak out, while social security and other expenditures will increase.
Public demand as a whole will expand slightly. Exports will increase due to firm overseas
economies coupled with the depreciation of the yen. Imports will also rise in line with thedomestic demand expansion. As exports grow faster than imports for the first time in four
years, however, the trade balance will improve. Japan’s trade deficit in FY2014 will narrow to
JPY12.1 trillion from a record JPY13.8 trillion in FY2013. Even the narrower deficit will be thesecond largest ever. The Bank of Japan’s extraordinary monetary easing will exert some
impact on prices. Due partly to the consumption tax hike, nominal economic growth will
exceed real growth for the first time in 17 years. But it will not be easy for the central bank toachieve the target inflation rate of 2% (excluding the impact of the consumption tax hike)within FY2014.
In FY2015, the Japanese economy will grow by 1.6% on recovery in private consumption as
well as non-residential investment and exports. Nominal gross domestic product will top
JPY500 trillion for the first time in eight years.
Among private demand components, non-residential investment will expand for theutilisation of accumulated capital, further productivity improvements and other purposes,
exceeding JPY70 trillion to achieve the target in the government’s Japan Revitalisation
Strategy. Backed by improvements in employment environment, private consumption will
absorb the impact of the consumption tax hike in October and post an increase. Private
demand as a whole will contribute to 1.0 percentage point of the economic growth in FY2015.
Among public demand components, social security and some other outlays will increase,
while public investment will be curtailed. Public demand as a whole will level off from theprevious year. Exports will continue increasing due mainly to the deeper-rooted correction to
the earlier appreciation of the yen and overseas economic growth. While imports will top
JPY90 trillion for the first time ever, fossil fuel imports in value will decline in line with therestart of nuclear power plants. Japan’s trade deficit will fall to JPY7.2 trillion.

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IEEJ: July 2014. All rights reserved.

Table 1: Macroeconomic indicators
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Real GDP (JPY2005 trillion)
Private demand
Private consumption
Private residential investment
Private non-residential investment
Public demand
Government consumption
Public investment
Net exports of goods and services
Exports of goods and services
Imports of goods and services
Nominal GDP (JPY trillion)
Balance of trade (JPY trillion)
Exports
Imports
Fossil fuels
Domestic corporate goods price index (CY2010=100)

Consumer price index (CY2010=100)
GDP deflator (CY2005=100)

512.4
377.1
299.7
12.5
64.9
118.5
97.9
20.7
16.8
83.6
66.8
480.2
5.3
67.8
62.5
18.1
100.2
99.9
93.7

514.1
383.3
303.9
12.9
68.0
119.2
99.1
20.1
12.0
82.3
70.3
473.7
-4.4
65.3
69.7
23.1
101.6
99.8
92.1

517.5
388.7
308.4
13.6
68.5
120.9
100.6
20.3
8.4
81.3
72.9
472.6
-8.2
63.9
72.1
24.6
100.6
99.5
91.3

Notes: GDP components may not add up to the total GDP due to minor data deviations.

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529.4
397.4
316.2
14.9
69.7
126.1
102.7
23.4
7.1
85.2
78.1
481.7
-13.8
70.9
84.6
28.3
102.3
100.4
91.0

534.4
400.0
314.1
13.8
72.6
126.8
103.7
23.1
8.7
89.7
81.0
492.8
-12.1
77.5
89.6
27.9
106.4
103.2
92.2

542.8 2.3% 0.9% 1.6%
404.8 2.2% 0.7% 1.2%
316.6 2.5% -0.7% 0.8%
13.8 9.5% -7.6% 0.2%
74.7 1.7% 4.2% 2.8%
126.8 4.3% 0.5% -0.0%
104.8 2.1% 1.0% 1.0%
22.0 15.3% -1.4% -4.7%
12.4 -15.5% 23.0% 42.6%
95.5 4.7% 5.3% 6.5%
83.1 7.1% 3.7% 2.7%
505.7 1.9% 2.3% 2.6%
-7.2 68.6% -12.2% -40.2%
83.9 10.8% 9.4% 8.3%
91.2 17.4% 5.9% 1.8%
25.8 15.0% -1.4% -7.7%
108.3 1.8% 3.9% 1.8%
104.9 0.9% 2.8% 1.7%
93.2 -0.4% 1.3% 1.0%

IEEJ: July 2014. All rights reserved.

4. Industrial production
Crude steel production, though affected by the consumption tax hike, will rise to a highlevel on recovery in domestic demand in FY2015.
In FY2014, crude steel output will decrease by 0.7% from the previous year due to a
substantial decline in automobile production under the impact of the consumption tax hikein Japan and oversupply in China and Republic of Korea. In FY2015, recovery in demand forsteel for vehicles in Japan and improvements in exports amid the robust world economy willallow crude steel output to rise 0.5% to a level representing full-capacity operation.
Ethylene production will exceed 6.7 Mt for the third straight year with domestic demandand exports maintained.
In FY2014, ethylene exports will be robust with domestic demand remaining stable. Ethylene
output in the year will fall by 0.6% as production recovers in the second half after decreasing
due to regular checks on many production facilities. In FY2015, ethylene output will expand
by 0.5% due to a shift from imports to domestic products and unchanged exports, despite alevelling-off in domestic demand. The capacity factor will remain above 90%.
Cement production will top 62 Mt for the third straight year thanks to domestic demand
including reconstruction after the March 2011 Great East Japan Earthquake and robust
construction.
In FY2014, cement output will exceed 62 Mt, representing a ceiling under capacity andpersonnel constraints as in the previous year, while posting a 0.1% drop. In FY2015, cement
production will remain robust, increasing by 0.3% from the previous year. After a production
capacity cut, full-capacity operation will continue.
Paper and paperboard production will fall due mainly to a shift to electronic media,
despite the impact of an economic pickup including recovery in private consumption.
In FY2014, paperboard production will benefit from an economic pickup. But paper output
will be affected by a long-term shift from paper to electronic media and a demand drop aftera last-minute increase before the consumption tax hike. Paper and paperboard production in
the year will thus post a 1.5% decline. In FY2015, paperboard output will slightly increase
due mainly to a rise in demand for paperboard for processed food products amid a private
consumption recovery. But paper demand will continue a long-term downward trend. Paper
and paperboard output in the year will drop by 0.3%.

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Automobile production will decline due to a substantial domestic demand drop attributable
to the consumption tax hike, before rising back to 9.5 million units in FY2015.
In FY2014, domestic demand for automobiles will decrease substantially due to theconsumption tax hike. Exports will benefit from the depreciation of the yen. But the yen
depreciation’s effects have declined due to Japanese automakers’ expansion of overseas
production. Automobile production will thus decrease by 5.0% from the previous year. In
FY2015, automobile production will rebound with a 1.5% gain as domestic demand expandson the economic recovery.
Table 2: Industrial activities
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Crude steel (Mt)

Production

Ethylene (Mt)
Cement (Mt)
Paper and paperboard (Mt)
Automobiles (Million units)

Production indices

Mining and manufacturing (CY2010=100)
Food
Chemicals
Non-ferrous metals
General and electrical machinery, etc.

Tertiary industry activity index (CY2005=100)

110.8 106.5 107.3 111.5 110.8 111.4
7.00 6.47 6.26 6.76 6.72 6.75
56.1
57.6
59.5
62.4
62.3
62.5
27.3
26.5
25.7
26.7
26.3
26.2
8.99 9.27 9.55 9.91 9.42 9.57
99.4
98.8
95.8
99.0 100.1 102.2
98.1
97.3
96.7
97.7
99.1
99.4
99.8
98.3
96.5
98.4
99.0 100.5
98.9
97.5
96.6
97.9
98.5
99.5
101.3 100.3 93.1
97.4
99.8 103.0
97.8
98.4
99.2 100.4 101.3 102.3

3.9%
8.0%
4.9%
3.6%
3.8%
3.3%
1.0%
2.0%
1.4%
4.6%
1.2%

-0.7%
-0.6%
-0.1%
-1.5%
-5.0%
1.1%
1.4%
0.6%
0.6%
2.4%
0.8%

Note: Chemicals include chemical fibre.
Note: General and electrical machinery includes general machinery, electrical machinery, information and telecommunications equipment,
electronic parts and devices, precision machinery and metal products.

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0.5%
0.5%
0.3%
-0.3%
1.5%
2.1%
0.3%
1.4%
1.0%
3.2%
1.1%

IEEJ: July 2014. All rights reserved.

5. Primary energy supply
Primary energy supply in Japan in FY2014 will fall slightly for the first time drop in two
years while natural gas supply will hit a new high. In FY2015, Japan’s energy
self-sufficiency rate will rise back to 13%.
Primary energy supply in Japan in FY2014 will log a small fall of 0.3% from the previous year
due mainly to temperature changes and electricity and energy conservation, althoughmanufacturing industry output will recover gradually. In FY2015, primary energy supply
will substantially level off as continuous energy conservation efforts offset the impact of an
economic expansion.
Coal demand in FY2014 will turn down with a 0.4% drop due to the oil and coal tax hikecoupled with a drop in crude steel production, although coal-fired power generation
capacity will increase. In FY2015, the coal demand decline will widen to 2.6% despite a crude
steel production recovery as coal-fired power generation decreases in line with the restart ofnuclear power plants.
Oil demand in FY2014 will decrease by 4.1% as high-cost oil-fired power generation drops inaccordance with an increase in LNG-fired power generation. Oil consumption at 205 Mtoe in
the year is equivalent to the FY1970 level before the first oil crisis. In FY2015 when the restartof nuclear power plants will make progress, oil demand will slip below 200 Mtoe for the firsttime in almost half a century, with oil’s share of total primary energy supply falling to 40%.
Demand for natural gas for power generation will increase further in FY2014 as the impact of
the restart of nuclear power plants is still limited. City gas sales mainly for the industrial
sector will be firm due mainly to a switch to gas from other fuels. As some thermal power
generation plants using LNG and city gas launch operation, the year’s overall natural gas
demand will expand by 2.6%, hitting a new high for the fifth consecutive year. In FY2015,
natural gas demand will turn down with a 10.0% plunge to the lowest level since the Great
East Japan Earthquake as nuclear power plants restart.
In FY2014, nuclear power generation in FY2014 will remain unchanged from FY2012 or 2013
despite the restart of some nuclear power plants as the number of nuclear reactors inoperation and periods for their operation are still limited. In FY2015, nuclear power
generation will score a rapid nine-fold increase. But it will still be limited to less than half thelevel before the earthquake.
Energy-related carbon dioxide emissions in FY2014 will drop for the first time in five years ascoal and oil consumption decreases despite a natural gas consumption increase, slipping
below 1,200 Mt for the first time in three years. In FY2015, CO2 emissions will decline further
as fossil fuel consumption falls further on progress in the restart of nuclear power plants. The
emissions will fall short of dropping below the level before the earthquake.

- 12 -IEEJ: July 2014. All rights reserved.

Table 3: Primary energy supply
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Primary energy supply (Mtoe)
Coal
Oil
Natural gas
Hydro
Nuclear
OthersSelf-sufficiency
Energy intensity (FY2005=100)
Energy-related CO2 emissions (Mt)
(FY2005=100)

514.3
119.1
212.0
95.5
18.2
60.7
8.7
18%
94.1
1,123
93.4

491.1
112.8
217.6
112.0
18.5
21.4
8.8
11%
89.6
1,173
97.6

484.6
117.7
221.2
116.6
16.7
3.4
9.1
7%
87.8
1,207
100.3

Note: “Others” include geothermal, new energies, etc.

- 13 -

486.4
125.4
214.1
117.5
17.2
2.0
10.3
7%
86.1
1,218
101.2

485.0
124.9
205.3
120.5
18.3
3.0
13.0
8%
85.1
1,199
99.7

486.8 0.4% -0.3% 0.4%
121.6 6.6% -0.4% -2.6%
195.8 -3.2% -4.1% -4.6%
108.5 0.8% 2.6% -10.0%
18.2 2.7% 6.4% -0.4%
26.2 -41.6% 51.9% 779.4%
16.5 13.6% 26.5% 26.6%
13%
..
..
..
84.1 -1.9% -1.2% -1.2%
1,133 0.9% -1.6% -5.5%
94.2
..
..
..

IEEJ: July 2014. All rights reserved.

6. Final energy consumption
Japan’s final energy consumption will fall slightly in FY2014 and level off in FY2015. It will
be stable at levels some 4% less than before the earthquake.
Final energy consumption in FY2014 will post a small drop of 0.3% from the previous year
due mainly to slower economic growth and progress in electricity and energy conservation.
Consumption changes will differ from sector to sector in FY2015. But overall consumption
will almost level off. As a result, final energy consumption will remain stable in the
330-331 Mtoe range since FY2012.
The industrial sector will gradually recover production in FY2014 as the demand fall
following a last-minute increase before the consumption tax hike is limited. Its energy
consumption in the year will remain unchanged from the previous year. Due mainly toprogress in fuel switching, city gas and electricity consumption will expand, with kerosene,diesel and fuel oil consumption declining. Coal and naphtha consumption will also decrease
because of drops in energy-intensive crude steel and petrochemical output. In FY2015, theindustrial sector will expand energy consumption by 0.6% as industrial production including
crude steel and ethylene expands more remarkably.
The residential sector, which has continued a downward trend of energy consumption since
the earthquake, will narrow its energy consumption reduction to 0.2% in FY2014 and FY2015.
In FY2014, city gas and liquefied petroleum gas consumption will increase as water-heating
demand expands due to lower-than-usual winter temperatures. Meanwhile, kerosene
consumption vulnerable to fuel switching will decrease along with electricity consumption
affected by electricity conservation and a reaction to heat waves last summer. In FY2015, thesector will post a small fall in energy consumption. But its electricity consumption will stop
falling for the first time since the earthquake.
The commercial sector will log a 0.4% drop in energy consumption in FY2014 before
expanding consumption slightly, although electricity and energy conservation will continue.
In FY2014, electricity consumption will increase while oil and city gas consumption will
decrease. In FY2015, the sector will expand electricity and city gas consumption on thestrength of the robust economy. But its kerosene and heavy fuel oil A consumption willcontinue declining due to fuel switching.
The transportation sector will return to a long downward trend for energy consumption due
to a ceiling on the domestic automobile fleet, fuel efficiency improvements accompanying
expanding market shares for mini-vehicles and other fuel-efficient cars and transportation
efficiency improvements through cooperative programs. The sector’s energy consumption
reduction in FY2014 and FY2015 will total 1.4 Mtoe, making the sector the largest
consumption reducer in the two-year period for this outlook. The sector’s consumption in
FY2015 will come to 80.2 Mtoe, a level seen 22 years ago.

- 14 -IEEJ: July 2014. All rights reserved.

Table 4: Final energy consumption
Estimated Projections
HistoricalYear-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015

Final energy consumption (Mtoe)
Industry
Buildings
Residential
Commercial
Transport
Coal and coal products
Petroleum products
City gas and natural gas
Electricity
Others343.6 334.4 329.9 331.5 330.5 330.7
162.9 159.0 156.0 158.2 158.2 159.2
97.3
93.8
92.5
91.5
91.3
91.2
54.6
52.8
52.0
51.2
51.1
51.0
42.7
41.0
40.5
40.3
40.1
40.2
83.4
81.7
81.4
81.7
80.9
80.2
38.0
37.8
37.7
38.5
38.3
38.6
178.1 172.1 168.8 169.2 167.6 166.4
35.0
36.3
36.3
37.6
38.3
39.2
88.9
84.8
83.9
83.0
83.0
83.3
3.7
3.4
3.3
3.2
3.2
3.2

Note: Industry includes non-energy use.

- 15 -

0.5%
1.4%
-1.1%
-1.5%
-0.6%
0.4%
2.2%
0.2%
3.6%
-1.1%
-0.5%

-0.3%
0.0%
-0.3%
-0.2%
-0.4%
-0.9%
-0.4%
-0.9%
1.9%
0.1%
-0.4%

0.1%
0.6%
-0.1%
-0.2%
0.1%
-0.8%
0.8%
-0.8%
2.4%
0.3%
-0.1%

IEEJ: July 2014. All rights reserved.

7. Electricity sales (electric utilities)
Electricity sales in FY2014 will continue increasing. In FY2015, electricity sales will rise to
the highest level since the earthquake as sales under lighting contracts turn up.
In the summer of FY2014, the electricity supply-demand balance in central and westernJapan will be far tighter than a year earlier due to the absence of nuclear power generationand trouble at the second unit of the Matsuura coal-fired power plant. Electricity sales underlighting contracts mainly for the residential sector in FY2014 will decline as summer
temperatures are lower than a year earlier. But sales to the industrial sector including
large-scale industrial users will increase firmly. Overall electricity sales will post a small riseof 0.2% in FY2014. In FY2015, the supply-demand balance will ease substantially due to therestart of nuclear power plants. The impact of the last-minute demand increase before theconsumption tax hike and the reactionary fall after the hike will be small for the whole of theyear. Sales to manufacturers will score a strong increase. Electricity sales excluding thoseunder lighting contracts will reach the highest level since the earthquake. Sales underlighting contracts will increase toward the second half of the year. Overall electricity sales in
FY2015 will increase by 0.4%.
Table 5: Electricity sales (electric utilities)
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Total (TWh)Lighting contracts
Power contractsof which: Large-scale industrial users
Mining and manufacturing
Chemicals
Iron and steel
Machinery

926.6
304.2
622.4
283.2
234.4
28.1
36.3
74.6

879.5
288.9
590.5
274.1
227.9
27.2
36.5
71.6

870.9
286.2
584.7
267.4
221.3
26.3
36.0
69.0

871.5
284.3
587.2
269.3
222.8
26.6
37.3
69.2

873.0
282.6
590.4
272.0
225.3
26.8
37.7
70.5

876.8
282.7
594.1
275.3
228.2
27.1
38.1
71.9

0.1%
-0.7%
0.4%
0.7%
0.7%
0.9%
3.8%
0.4%

0.2%
-0.6%
0.6%
1.0%
1.1%
0.9%
1.1%
1.8%

0.4%
0.0%
0.6%
1.2%
1.3%
0.9%
1.1%
2.1%

Note: Power contracts and total include specified-scale demand.

LNG-fired plants’ share of power generation will exceed 50% in FY2014 for the first timeever before falling sharply due to the restart of nuclear power plants in FY2015.
In FY2014, LNG-fired plants will account for more than 50% (412 TWh) of power generation
by electric utilities. Coal-fired power generation will level off, while generation with oil, etc.
will decline. In FY2015, generation with oil, etc. will decline further as nuclear power
generation increases. Coal power generation will also decrease as delayed regular checkups
are implemented. While LNG power generation capacity will increase with the addition of
the fourth to sixth units at the Himeji Daini plant (launching operation between August 2014
and March 2015) and the third unit at the Shin Sendai plant (in December 2015), the capacity- 16 -IEEJ: July 2014. All rights reserved.

factor will fall back to the level before the earthquake. LNG power generation will thus
decline to 347 TWh, still some 20% more than 290 TWh in FY2010.
Table 6: Power generation mix (electric utilities)
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Electricity generation (TWh)918.2 857.4 822.0 823.7 822.3 821.0

Share
Hydro
Fossil fuel-fired thermal
Coal
Natural gas and city gas
Oil, etc.
Nuclear
Others

0.2%

-0.2%

-0.2%

Year-to-year changes

8%
60%
23%
32%
6%
31%
0%

9%
79%
24%
43%
13%
12%
0%

8%
90%
25%
48%
17%
2%
0%

Note: Electricity purchased is not included.

- 17 -

8%
90%
28%
49%
13%
1%
0%

9%
89%
29%
50%
10%
2%
0%

9%
76%
27%
42%
6%
15%
0%

+0.1p
+0.7p
+3.5p
+0.7p
-3.5p
-0.8p
-0.0p

+0.6p -0.0p-1.2p -13.4p+0.1p -1.6p+1.6p -7.9p-2.8p -3.9p+0.6p +13.4p+0.0p +0.0p

IEEJ: July 2014. All rights reserved.

8. City gas sales (general gas utilities)
City gas sales will rise to 38 billion m3 in FY2015, rewriting the record high for the fifth
straight year.
City gas sales for commercial and other (medical and public) uses in FY2014 will decline as
air conditioning demand falls due to lower summer temperatures than in the previous year.
In the residential sector, water-heating demand will increase due to a lower averagetemperature than in the previous year. Sales for industrial uses will also expand substantiallythanks to power generation demand in the Kanto region and fuel switching. City gas sales asa whole will increase by 2.1%. While city gas sales for residential uses will slightly decline in
FY2015, those for commercial and other uses will increase due to the spread of gas-powered
air-conditioning and gas-fired cogeneration systems. City gas sales for industrial uses will
also increase firmly due mainly to fuel switching. Overall city gas sales will rise by 1.5%,
rewriting the record high for the fifth straight year.
City gas sales for residential sector in FY2014 will increase by 1.1% for the first rise in two
years due mainly to greater water-heating demand under a lower average temperature thanin the previous year. In FY2015 when temperatures are assumed to remain unchanged, sales
will fall by 0.1% due primarily to the spread of energy-saving systems. While the number ofcontracts for sales for residential uses will increase due chiefly to the expansion of gas
utilities’ service areas and fuel switching from LPG and kerosene, a long-term trend in whichsales for residential uses decline moderately continues (if without the impact of lower
summer temperatures) due chiefly to the spread of more efficient equipment, such as water
heaters, and shrinking household sizes. Residential uses’ share of total city gas sales, which
had exceeded 60%, will shrink to a quarter in FY2015.
Sales for commercial and other uses in FY2014 will decrease (by 1.3% for commercial usesand 1.1% for other uses) due mainly to a decline in air-conditioning demand in reaction toheat waves in 2013, and energy and electricity conservation. In FY2015, sales for these uses
will increase (by 2.5% for commercial uses and 2.0% for other uses) as the effects of thepenetration of gas air-conditioning and gas cogeneration systems exceed those of energy andelectricity conservation. Gas cogeneration capacity will continue increasing on growinginterests in disaster-resistant energy systems in the wake of the Great East Japan Earthquake.
Gas air-conditioning systems can contribute to easing peak summer demand for power andwill diffuse further.
Sales for industrial uses in FY2014 will expand substantially thanks primarily to the launchof commercial operation at a large gas-fired combined cycle power unit (the seventh unit at
the Kashima power station) and recovery in manufacturers’ production in and after thesecond half of the year. Annual sales for industrial uses will rise by 3.9%, topping
20 billion m3 for the first time ever. In FY2015, they will increase by 2.0% for the sixth straight- 18 -IEEJ: July 2014. All rights reserved.

year of growth due mainly to new demand through fuel switching and higher operating
rates for existing equipment in line with manufacturers’ production expansion. Over recent
years, city gas sales per contract for industrial uses have increased rapidly because oflarge-scale users’ introduction of natural gas mainly for power generation, while the numberof contracts for industrial uses has declined. This trend is expected to continue in the future.
Industrial uses’ share of city gas sales will reach 55% in FY2015, compared with some 40% in
the first half of the 2000s. Industrial uses will continue contributing greatly to growth inoverall city gas sales.
Table 7: City gas sales (general city gas utilities)
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Total (Billion m3)
Residential
Commercial
Industrial
Others35.28 35.91 36.32 36.69 37.48 38.05
9.79
9.79 9.80
9.55 9.66 9.65
4.74
4.48 4.50
4.47 4.41 4.52
17.63 18.67 19.03 19.63 20.40 20.81
3.13
2.97 3.00
3.04 3.00 3.06

Notes: Converted at 1 m3 = 41.8605 MJ (10,000 kcal)- 19 -

1.0%
-2.5%
-0.6%
3.2%
1.3%

2.1%
1.1%
-1.3%
3.9%
-1.1%

1.5%
-0.1%
2.5%
2.0%
2.0%

IEEJ: July 2014. All rights reserved.

9. Fuel oil and LPG sales
Fuel oil and LPG sales will see a clearer downward trend again. In two years, these sales
could slip below 180 GL for the first time in half a century.
Fuel oil sales will continue a downward trend because of fuel switching, energy conservation
progress including improvements in vehicle fuel economy, a decline in heavy fuel oil C
consumption for power generation accompanying the restart of nuclear power plants, andhigh oil prices. Drops in FY2014 and FY2015 will total nearly 12 GL.
Gasoline sales will continue a year-on-year fall of around 1.5% due mainly to improvements
in vehicle fuel economy through the penetration of fuel efficient vehicles and growth in themini-vehicle fleet. In FY2015, gasoline sales will slip below 54 GL for the first time since
FY1996 just after the abolition of the special petroleum law.
Naphtha sales in FY2014 will decline by 0.6% from the previous year as ethylene plants
undergo regular checkups or are shut down. In FY2015, they will increase by 0.5% onrecovery in ethylene production. Naphtha sales have fared relatively well while other fuel oil
sales have continued a downward trend. In FY2015, naphtha’s share of total fuel oil sales will
top a quarter for the first time ever.
Kerosene sales will follow a long-term downward trend due to continuous fuel switching toelectricity and city gas. In FY2015, kerosene sales will decline to some 60% of the decade-ago
level.
Diesel oil sales in FY2014 will level off as such factors as a decline in the diesel vehicle fleet
offset the effects of firm reconstruction demand after the earthquake. Although production
and transportation will become active in line with economic growth in FY2015, diesel oil
sales will log a small fall of 0.1% for the first drop in four years due to improvements intransportation efficiency.
Heavy fuel oil A sales will continue a year-on-year drop in a 4.5-5.0% range as users switchfrom heavy fuel oil A to city gas and other fuels against the background of environmental
conservation and high oil prices, with energy conservation making progress.
Heavy fuel oil C sales for power generation will decline substantially (by 16.1% in FY2014
and 30.5% in FY2015) due to switching to other electricity sources. Those for other uses will
also decrease due mainly to fuel switching and energy conservation. In FY2015, heavy fueloil B and C sales’ share of total fuel oil sales will dropped to a new low of 7.8%.
LPG sales will increase by 1.9% in FY2014 as those for chemical feedstocks and residential
uses recover. Because of switching to other fuels, however, LPG sales will continue an overalllevelling-off trend (remaining unchanged in FY2015).

- 20 -IEEJ: July 2014. All rights reserved.

Table 8: Fuel oil sales
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Fuel oils (GL)
Gasoline
NaphthaJet fuel
Kerosene
Diesel oil
Heavy fuel oil A
Heavy fuel oil B and C
For electric utilities
For other users
LPG (Mt)

196.0 196.3 197.8 193.5 187.9 181.7 -2.1% -2.9% -3.3%
58.2
57.2
56.2
55.4
54.6
53.8 -1.4% -1.4% -1.4%
46.7
43.7
43.2
45.7
45.5
45.7 6.0% -0.6% 0.5%
5.2
4.2
4.0
5.1
5.0
5.0 27.1% -0.4% -0.4%
20.4
19.6
18.9
17.9
17.3
16.8 -5.2% -3.2% -2.9%
32.9
32.9
33.4
34.1
34.1
34.0 2.1% 0.0% -0.1%
15.4
14.7
13.8
13.4
12.8
12.2 -2.3% -4.8% -4.7%
17.3
24.0
28.4
21.9
18.6
14.1 -22.9% -15.1% -24.2%
7.7
14.9
19.4
14.4
12.1
8.4 -25.7% -16.1% -30.5%
9.7
9.1
9.0
7.5
6.5
5.7 -16.8% -13.0% -12.6%
16.5
16.4
16.6
15.5
15.8
15.8 -6.5% 1.9% 0.0%

- 21 -IEEJ: July 2014. All rights reserved.

10. Renewables
Renewable energy power generation capacity will reach 55 GW with authorised facilities’
cost burden on consumers totalling JPY44 trillion.
Two years have passed since Japan launched the feed-in-tariff, or FIT, system in which
utilities purchase electricity generated with renewable energy sources at fixed prices. As
great expectations are placed on renewable energy that represents purely domestic resourcesand emits no CO2, renewable energy has diffused rapidly. Meanwhile, various relevant
challenges have emerged.
Available renewable energy power generation capacity subject to the FIT system will increaseby 12.9 GW to 42.1 GW in FY2014 and by 12.7 GW to 54.9 GW in FY2015 if the diffusion
retains the present pace. Remarkable growth is emerging in solar photovoltaic power
generation that features shorter lead times and higher tariffs. Particularly, non-residential
solar PV generation capacity (including “mega-solar” systems) will expand to 18.2 GW by
the end of FY2014 and 28.6 GW by the end of FY2015, accounting for a majority of total
renewable energy power generation. As some five years are required for any wind power
generation project to start generation, meanwhile, wind power generation capacity will still
be limited to 3.3 GW at the end of FY2014 and 4.1 GW at the end of FY2015. Renewableenergy power generation will total 92.1 TWh (including 27.1 TWh by solar PV, 5.8 TWh bywind and 37.9 TWh by small and medium-scale hydro facilities) in FY2014 and 108.8 TWh(including 39 TWh by solar PV, 7.2 TWh by wind and 37.9 TWh by small and medium-scalehydro facilities) in FY2015, accounting for some 10% of Japan’s total power generation.
The very rapid diffusion of renewable energy power generation has sharply expanded thecost burden on consumers. The government has called for the steady and stable operation of
the FIT system in its 2014 revision to the Japan Revitalisation Strategy and cancelled theauthorisation for renewable energy projects that have failed to secure lands and equipment.
If 88.9 GW in renewable energy power generation capacity authorised by the end of March2014 (including 70.9 GW for solar PV and 3.6 GW for wind) is all put into operation, however,the cost burden on consumers over 20 years may total JPY44 trillion2. The burden amounts toa hike of JPY2,500/MWh in electricity bills – 10% for the residential sector and 14% for theindustrial sector. Particularly, the rapid expansion of solar PV generation subject to higher
tariffs will push up the burden. As authorised mega-solar facilities are completed and put
into operation, the estimated burden increase will come about.

The remaining FIT periods for capacity introduced before the FIT system launching are taken into
account. The marginal avoidance cost is estimated at JPY10,400/MWh based on the renewable energy
FIT system on the website of the Agency for Natural Resources and Energy.
2- 22 -IEEJ: July 2014. All rights reserved.
Figure 1: Installed capacity of renewable
power generation(Operation start basis)
28.6

30

Solar PVfor nonresidence

18.2

Solar PVforresidence

15

0

7.3

7.6

6.6

3.3

8.6

Wind

25

20

Authorised
Operating

15
10

4.1

3.5

30

JPY trillion

GW

20

5

40

35

25

10

Figure 2: Cumulative burden of FIT
over 20 years(As of March 2014)

5

Biomass

2011 2012 2013 2014 2015
As of the end of fiscal year

0
Solar PV Wind Solar PV Othersfor
for
non-residence
residence

Grid measure costs: Battery costs will total JPY18 trillion. Output curtailment may beutilised to cut the costs to JPY4 trillion.
Measures for allowing electric grids to respond to sharp fluctuations in solar and wind
power generation are required to achieve stable electricity supply. They may include backup
thermal power generation systems, storage batteries and curtailment of renewableenergy-based power generation output. Storage batteries are now under demonstration tests.
Some European countries, which give feeding priority to renewable energy power sources,
do restrict renewable energy-based power generation output depending on conditions.
If 88.9 GW in renewable energy power generation capacity authorised by the end of March2014 (including 70.9 GW for solar PV and 3.6 GW for wind) is all put into operation, the gridmeasure cost as well as the purchase cost will be massive. Fossil fuel-fired power generation
will decline in line with the expansion of renewable energy power generation. But a fall in
operating rates for fossil fuel plants will result in a rise in operation cost. The rise will total
JPY1.3-1.4 trillion over the 20 years. In addition, storage batteries for responding tofluctuations in renewable energy power generation output will cost JPY18.1 trillion 3 . If
curtailment of renewable energy power generation output are adopted, such curtailment
may be imposed for a little more than 1% of a year. Even if a 100% monetary compensation is

The estimate is for a case in which nine regional electric utilities will independently take gridmeasures for their respective service areas. Storage batteries’ unit cost is set at JPY70 million/MWh, anaverage for NAS sodium-sulphur and lithium-ion batteries based on materials distributed at the fifth
meeting of the Cost Review Committee (on 25 November 2011).
3- 23 -IEEJ: July 2014. All rights reserved.

adopted for the curtailment, the total cost may be limited to JPY2.6 trillion4. Among regionsin Japan, Kyushu, which accounts for 26% of non-residential solar PV generation capacity inJapan, will see the largest cost for grid measures.
Figure 3: Cumulative costs for power grid over
20 years for authorised capacity(As of March 2014)
20

19.5

Figure 4: Cumulative costs for power grid
over 20 years for authorised capacity
by region(As of March 2014)
Kansai
Hokuriku
Shikoku

JPY trillion

15
Outputcurtailment
10

Batteries

3.9

Chubu

Backup by fossil
fuel-fired power
generation

2.6
0

By output
curtailment
By batteries

Tokyo

18.1

5

Hokkaido

1.4

1.3

By batteries

By output
curtailment

ChugokuTohokuKyushu0

2

4
6
8
JPY trillion

10

Note: Excludes costs for backup by fossil fuel-fired
power generation

Inter-regional grid connection systems to link grids of different electric utilities must be
enhanced to effectively utilise renewable energy power generation facilities located awayfrom users. But such enhancement may cost much money and time. For the immediate
future, therefore, storage batteries and output curtailment will be required. Particularly, it isdesirable to adopt output curtailment that cost less and are realistic. In order to smartly
utilise renewable energy, Japan should set tariffs at appropriate levels for rebalancing among
renewable energy sources and take measures to prevent costs from rising further.

Non-residential solar PV power generation is assumed to be subject to the output curtailment.
Electricity lost due to the curtailment is assumed to be purchased at fixed tariffs. The purchase cost isdeemed the output curtailment cost.
4- 24 -IEEJ: July 2014. All rights reserved.

Topic 1: Impacts of nuclear power plants’ restart on the economy and energy
supply and demand
Safety assessment exceeds one year, reaching the final phase. Progress in final proceduresfor the Sendai plant and the assessment of other plants will make a difference.
Japan’s new regulatory standards for nuclear power plants took effect more than one year
ago, when the assessment of nuclear power plants under the new standards was expected totake six to 12 months. However, no nuclear power plant has restarted. The assessment of the
Sendai nuclear power plant, though given priority, has been prolonged substantially due tothe addition of many findings and points to be checked. As a result, the Nuclear Regulation
Authority managed to complete a draft assessment report on 16 July.
The assessment report is expected to be finalised after a public comment procedure taking
about one month. Given the past developments, however, it is uncertain whether things will
go as expected. Also uncertain is the time to be taken for subsequent checks before the restartand simultaneous efforts to get approval by relevant local governments on the restart. Thismeans that the Sendai plant restart is expected to come in or after early October.
In the Nuclear Mid-level Case, the NRA will restore a three-team assessment setup after the
Sendai nuclear power plant restarts in early October. We assume the restart of other nuclear
power plants in consideration of assessment progress reports, the presence or absence oflarge-scale construction and the assessment application order. We assume that nuclear
reactors restarting by the end of FY2015 will be limited to 19 units for which their owners
have filed assessment applications. We assume that seven reactors will restart by the end of
FY2014, operating for three months on average with their electricity generation totalling
14 TWh in the year. Nineteen reactors will restart by the end of FY2015, operating for ninemonths on average with their generation totalling 124 TWh in the year.
In the Low-level Case, we assume that the restart of the Sendai nuclear power plant will bedelayed until the end of FY2014 and that one group will restart every six months later. In thiscase, we assume that two reactors will restart by the end of FY2014, operating for one monthon average with their electricity generation totalling 1 TWh in the year. Nine will restart by
the end of FY2015, operating for seven months on average with their electricity generation
totalling 42 TWh in the year.
We have also developed a High-level Case in which the NRA will expand its assessment
setup with electric utilities filing additional assessment applications in FY2015. Our
assumption for FY2014 in this case is the same as in the Mid-level case. But the High-level
Case assumes that 32 reactors will restart by the end of FY2015, operating for seven months
on average with their generation aggregating 162 TWh in the year.

- 25 -IEEJ: July 2014. All rights reserved.

We have also developed and analysed the virtual “Full Operation Case” where the32 reactors in the High-level Case will operate at 80% of their capacity in FY2015 and the “No
Operation Case” where no reactors will restart by the end of FY2015.
Figure 5: Timetable of activities on nuclear power plant assessment
FY2014FY2015

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Assessment
Low-level

Mid-level

Assessment 2 units
Assessment

Assessment
Assessment
Assessment
Assessment

Operation
7 units

Operation
Operation
Inspection
Operation
Operation
Operation

9 units

19 units

Assessment

High-level

Assessment
Assessment
Assessment
Assessment
Assessment

Operation
7 units

Inspection
Operation
Operation
Operation
Operation

32 units

Assessment
Assessment

In the Mid-level Case, Japan’s fossil fuel imports in FY2015 will increase by JPY7.7 trillion
from FY2010. LNG imports will expand by 9.6 Mt to 80.2 Mt. The unit power generation cost
will increase by JPY3,000/MWh – equivalent to 17% of the electricity price for the industrial
sector and 13% of that for the residential sector – from FY2010. CO2 emissions will increaseby 10 Mt-CO2. Japan’s energy self-sufficiency rate will decline by 4.6 percentage points.
In the Full Operation Case, fossil fuel imports in FY2015 will be JPY2.5 trillion less than in the
No Operation Case where no reactors will restart by the end of FY2015. The power
generation cost will decline by JPY2,800/MWh from the No Operation Case. The cost cuts
will work to boost real GDP by 0.26%, reduce CO2 emissions by 98 Mt-CO2 and raise theenergy self-sufficiency rate by 9.0 percentage points. LNG imports will decrease by 20.6 Mt
from a record 91.0 Mt in the No Operation Case. The substantial decline in Japan’s LNG
imports and the United States’ expansion of LNG exports in and after 2016 will work to easethe supply-demand balance in the international LNG market.
The first nuclear power plant assessment under the new regulatory standards has comecloser to its completion, while it is still uncertain whether the remaining steps of the firstassessment would be taken smoothly. Later, the NRA is expected to take procedures forrestarting the Sendai plant with no delay and to implement the efficient assessment of otherplants taking full advantage of the past experiences while retaining the strictness.

- 26 -IEEJ: July 2014. All rights reserved.

Table 9: Impacts of nuclear power plants’ restart (FY2015)
FY2015FY2010No
Full
Low-level Mid-level High-level
Historical Operation
Operation
Case
Case
Case
Case
Case
Cumulative number of[FY2014]
restarted nuclear reactors1 FY2015
Average period for operation (months)
Electricity generation by nuclear (TWh)

–
–
–
288.2

[0]
0
–
0.0

[2]
9
7
42.2

[7]
19
9
124.3

[7]
32
7
162.0

[7]
32
10
209.8

FY2015 (Changes from FY2010)
FY2010No
Full
Low-level Mid-level High-level
Historical Operation
Operation
Case
Case
Case
Case
Case

EconomyEnvironment
Security

Power generation cost2 (JPY/kWh)Primary energy supply
Oil (GL)
Natural gas (Mt of LNG equivalent)
LNG imports (Mt)
Total fossil fuel imports (JPY trillion)
Oil
LNG
Balance of trade (JPY trillion)
Real GDP (JPY2005 trillion)
Gross national income (JPY trillion)
Energy-related CO2 emissions (Mt-CO2)
Changes from FY2005
NOx
Local pollutants by
3
SOxelectric utilities(kt)
PM
Self-sufficiency rates
Recurrence interval of loss of

8.2

+4.8

+4.1

+3.0

+2.5

+1.9

232.4
73.2
70.6
18.1
12.3
3.5
5.3
512.4
493.5
1,123
-6.6%
151
137
3.8
18.0%

-9.5
+21.0
+20.5
+9.2
+5.5
+3.7
-13.9
+29.6
+28.5
+69
-0.8%
+54
+57
+1.0
-10.0p

-15.2
+18.7
+18.2
+8.6
+5.0
+3.5
-13.3
+29.9
+29.0
+48
-2.6%
+27
+24
+0.5
-8.1p

-17.8
+9.9
+9.6
+7.7
+4.8
+2.8
-12.6
+30.4
+29.8
+10
-5.8%
+8
+7
+0.2
-4.6p

-20.5
+6.5
+6.3
+7.2
+4.6
+2.5
-12.1
+30.7
+30.2
-9
-7.3%
-7
-9
-0.0
-3.0p

-20.5
+0.0
-0.1
+6.7
+4.6
+2.0
-11.7
+31.0
+30.6
-29
-9.0%
-12
-10
-0.0
-1.0p

50

35

35

42

53

62

power generation fuel4 (years)
No Operation Case <for reference>: Hypothetical case where no re-start of nuclear plant until the end of
FY2015 is assumed.
Low-level Case: Re-start of the plants with prioritized assessment to be delayed until the end of FY2014.
Other re-starts would follow at six months' intervals.
Mid-level Case: Sendai plant starts in early autumn. Other plants which had submitted application would
re-start under the current assessment scheme and condition.
High-level Case: More efficient assessment process and more applications than in the Mid-level Case.
32 re-starts by the end of FY2015.
Full Operation Case <for reference>: Hypothetical case where 32 units as defined in the High-level Casewould operate throughout FY2015 at 80% operating rate.
Note: 1. Thirty-nine reactors operated at the end of 2010.
2. Power generation cost in FY2010 is for the general electric utilities, estimated based on
their profit-and-loss statements.
3. Local pollutants are estimated based on emission intensity by Keisuke Nansai and Yuichi
Moriguchi (2012), "NOx, SOx and PM emissions factors of Japanese stationary sources,"
National Institute for Environmental Studies.
4. Probability of loss of 2% or more fuel for power generation due to country risks
such as wars of import origin.

- 27 -IEEJ: July 2014. All rights reserved.

Topic 2: Impacts of oil and LNG price hikes on the Japanese economy and energy
supply and demand
Price hikes will work to lower consumption, causing the economy to contract by 0.2%. Oilconsumption and energy demand in the transportation sector will plunge.
While the shale revolution has become a buzzword, Japan’s shale gas imports from theUnited States will reportedly start in 2016 at the earliest. Japan will not benefit directly fromthe revolution for the immediate future. Meanwhile, international energy prices are likely torise depending on developments in the complicated Middle East and Ukraine situations. As
Japan’s fossil fuel imports have risen to a high level, fuel price fluctuations can exert great
impacts on the Japanese economy. Based on the Outlook for International Oil Market by
Yoshikazu Kobayashi (11 July 2014) and other information, we have assessed the impacts of
the oil price’s hike of $10/bbl from $108/bbl in the Base Scenario and the LNG price’s increaseof $50/t from $776/t.
The hikes will lead Japan’s fossil fuel imports to expand by JPY1.9 trillion – JPY1.5 trillion foroil and JPY0.4 trillion for LNG. Due to the oil price hike, the retail price will rise by 6.2% forkerosene and by 4.3% for gasoline. The overall consumer price index will increase by 0.2%.
The LNG price hike will cause the city gas price for enterprises to increase by 3.4%. Although
oil and LNG price hikes can influence electricity prices, the increase in the electricity price forenterprises will be limited to 1.2% due to the use of other fuels for power generation and thelarge capital cost ratio. These domestic energy price increases and drops in wages and profits
will exert downward pressure on the economy. The oil and LNG price hikes will lead to a
0.2% contraction in real GDP and a JPY13,000 drop in gross national income per capita.
Primary energy supply in Japan will decline due to the economic deceleration. But impacts
will differ from energy source to source. Oil supply will post a larger decline than otherenergy supply due to the high oil price hike. Meanwhile, coal consumption, though affectedby the economic deceleration, will post only a small drop in the absence of any price hike.
Final energy consumption will drop by 0.5%. The consumption decline will be larger in thetransportation sector whose energy consumption is dominated by petroleum products
including gasoline and diesel oil. In the industrial sector vulnerable to economic trend andprice changes, energy consumption will decrease by 4%. The commercial and residential
sectors will post the smallest energy consumption drop due to lower price hikes and priceelasticity.
In sales in volume, fuel oil vulnerable to the import price hike will post a large decline. Any
drop in city gas and electricity sales will be smaller. As sales to the industrial sector accountfor a large share of city gas sales and the price hike is sharper for city gas, however, the dropin city gas sales will be slightly larger than for electricity sales.

- 28 -IEEJ: July 2014. All rights reserved.

Table 10: Impacts of high energy prices (FY2015)
Base

High Prices Case

Scenario
PricesOil ($/bbl)
LNG ($/t)
Real GDP (JPY2005 trillion)

Economy

GNP per capita (JPY thousand)Industrial production index (CY2010=100)
Balance of trade (JPY trillion)
Fossil fuel imports
Consumer price index (CY2010=100)
Primary energy supply (Mtoe)
Oil (GL)
Natural gas (Mt of LNG equivalent)
Coal (Mt)
Final energy consumption (Mtoe)

EnergyIndustry
Buildings
Transport
Electricity sales (TWh)City gas sales (Billion m3)
Fuel oil sales (GL)
Energy-related CO2 emissions (Mt-CO2)

Note: Industry includes non-energy use.

- 29 -

108
776
542.8
4,118
102.2
-7.2
25.8
104.9
486.8
214.6
83.2
188.0
330.7
159.2
91.2
80.2
876.8
38.05
181.7
1,133

Changes

118
826
541.8
4,106
101.9
-8.8
27.7
105.2
485.0
213.0
83.0
187.9
329.2
158.6
90.9
79.6
875.5
37.96
180.2
1,128

+9.3%
+6.5%
-0.2%
-0.3%
-0.3%
+21.2%
+7.2%
+0.2%
-0.4%
-0.8%
-0.2%
-0.0%
-0.5%
-0.4%
-0.3%
-0.8%
-0.2%
-0.2%
-0.8%
-0.4%

IEEJ: July 2014. All rights reserved.

Topic 3: Impacts of yen depreciation on the Japanese economy and energy supply
and demand
Exports in volume cannot be expected to increase as much as earlier. City gas andelectricity sales will increase slightly while fuel oil sales will decrease.
In autumn 2012 when the excessive appreciation of the yen was corrected after the growing
expectations of a government change, the correction was expected to push up exports.
Yen-denominated exports in value have actually expanded due to the depreciation of the yen.
But exports in volume have not increased as much as expected.
During the depreciation of the yen, the relationship between progress in the depreciation andyen-denominated export price hikes has grown stronger. This means that while thedepreciation of the yen has created room for foreign currency-denominated prices of exports
to be lowered, actual price cuts have been limited. Exporters’ choice to secure earning power
without joining any price-cutting race has become a factor behind failure of the export
volume to increase as much as expected.
Global economic conditions have contributed to the weakness of export volume growth.
Global economic growth during the current depreciation of the yen has been more moderate
than during the past two yen depreciation periods (2005 and 2006-2007). A structural factor
behind the weakness of export volume growth is Japanese enterprises’ enhancement ofmoves to transfer production bases overseas and increase transactions invulnerable toforeign exchange rate changes during the yen appreciation period. Some people have cited adecline in Japanese products’ export competitiveness as another factor behind the export
weakness.
If the yen depreciates by JPY10 to the dollar from the Base Scenario to JPY112 to the dollar,
Japan’s real GDP will grow by 0.4%. Exports will be promoted to some extent, expanding by
7% or more. But imports will also increase by a similar rate due to import price hikes. As aresult, the yen depreciation will fall short of improving the trade balance. Consumer prices
will rise by 0.3%, supporting the Bank of Japan’s inflation target. But the price increase may
represent cost-push inflation rather than the more desirable demand-pull inflation.
The economic expansion will support an energy demand increase mainly in the industrial
sector. Due to the effects of energy price hikes, however, primary energy supply may remain
almost unchanged. But the effects may differ from energy source to source. Natural gas andcoal demand will increase thanks to brisker industrial production, while oil demand will
decline mainly in the transportation sector due to a large price hike. Electricity and city gas
sales will expand by 0.2% in volume in line with increased industrial production. But fuel oil
sales will decrease by 0.5% in volume due mainly to a gasoline sales fall, although naphthasales will increase.

- 30 -IEEJ: July 2014. All rights reserved.

Figure 6: Pass-through of depreciation of yen to export prices in dollar
60%
50%

40%
30%
20%
10%
0%
2005

20062007

2012-

Note: Ratio of actual cuts of export price in the dollar against room of price cuts caused by depreciation of theyen

Table 11: Impacts of depreciation of the yen (FY2015)
Base

Depreciation of

Scenariothe Yen Case

JPY102/$ JPY112/$ Changes
Real GDP (JPY2005 trillion)
EconomyIndustrial production index (CY2010=100)
Balance of trade (JPY trillion)
Exports
Imports
Consumer price index (CY2010=100)
Primary energy supply (Mtoe)
Oil (GL)

EnergyNatural gas (Mt of LNG equivalent)
Coal (Mt)
Electricity sales (TWh)City gas sales (Billion m3)
Fuel oil sales (GL)

542.8
102.2
-7.2
83.9
91.2
104.9
486.8
214.6
83.2
188.0
876.8
38.05
181.7

545.0
102.9
-7.6
90.3
97.9
105.2
486.9
213.8
83.4
188.7
878.4
38.11
180.9

+0.4%
+0.7%
+5.8%
+7.6%
+7.4%
+0.3%
+0.0%
-0.4%
+0.3%
+0.4%
+0.2%
+0.2%
-0.5%

Contact: report@tky.ieej.or.jp- 31 -