Electricity Policy to Realize Society 5.0 with Carbon Neutral
Second Proposal on Rebuilding Japan's Electricity System (Summary)

Background

March 16, 2021

Japan Business FederationFuture vision

Electricity system for achieving carbon neutrality by 2050

• The first proposal, "Rebuilding Japan's Electricity
System" (April 2019) identified four crises in theelectricity sector and the importance ofinvestment.
• The government has made progress since then,with passing of the Act for Establishing Energy
Supply Resilience. However, issues requiring
further consideration have come to light.
• Declaration of the 2050 carbon neutrality goal
presents a new set of S+3Es challenges as it
seeks to become carbon neutral.

• Government should consider multiple scenarios combining long-term
fixed power, flexible (load following) power, variable power, and power
storage that take technological trends into account• Transmission facilities should be expanded and rebalanced in
preparation for massive deployment of renewables and distribution
facilities built to enable use of distributed resources• Increased electrification is an essential part of decarbonization(Government estimates increase from 26% in 2018 to 32–38% in 2050 asreference values. Generation at that time will be 1.3–1.5 trillion kWh)
• When decarbonizing, government should pursue green growth atminimum cost to citizens and at maximum return• Government should solve problems (power market design, securing fuel, etc.)
revealed by last winter's power market price spikes and design markets
where the creativity of diverse players can be utilized

Providing enabling conditions to achieve the vision: Issues in specific areas and policy directions

Promote investment in new construction of power sources
Promoting construction of new power sources, including zero-carbon sources, is essential considering the carbon neutrality goal. However, spot market prices havebeen low, impeding investment decisions.
••

Current capacity market does not provide enough predictability for investment in new construction ⇒ Mechanism for securing longer-term capacity income needed
FIP scheme is effective for ensuring new construction of sources still acquiring price competitiveness ⇒ Use FIP as support to increase predictability for securing
appropriate income

Renewables

NuclearThermalSource most desired for achieving carbon neutrality

Decarbonized source with establishedtechnologies

Flexible, major power source
today⇒ Aim for smooth transition
toward decarbonized thermal⇒ Make major power source through short/medium
and long-term measures• Short/medium term: Shift basic policy on FIT scheme
and accelerate installation focusing on sources
expected to be competitive. Meanwhile, conduct
regulatory reassessment (e.g., ensuring grid capacity
for offshore wind projects by the government)• Long-term: Develop renewable energy technologies(e.g., next-gen solar cells, floating offshore wind) andtechnological preparation for introducing at scale (e.g.,maintaining grid inertia)

Storage(pumped, battery)

Key technology for filling time difference insupply/demand as solar and wind ramp up⇒ Essential to expand use• Clarify policy positioning in legal system,
proper considerations related to wheelingcharge system• Develop batteries; regulatory reforms⇒ Continuous use on the major premiseof ensuring safety• Steadily restart and increase capacity
factors• Consider operating 60+ year-old reactors,
exempt downtime from age• Articulate policy on
replacement/new/expansion construction,and maintain supply chains• R&D on new reactor types (e.g., SMR)
• Government-led back-end strategy

Distributed resources• Promote innovation in CCUSand single-fueledhydrogen/ammonia to support
net-zero carbon• During transition, increase
efficiency with hydrogen cofiring, phasing out inefficientcoal, etc.

(rooftop solar, EVs, thermal storage, hydrogen, DR, etc.)

Necessary component for advancing S+3E given decentralization and digitalization trends⇒ Harness potential resources and integrate them with electricity system• Support increased investment toward cultivating new distributed resources, such as digitaltechnologies (Energy management system and IoT which supports it) and heat sharing
infrastructure• Design market systems to enable participation of resource aggregators• Develop environment and standards for controlling EV charging/discharging and secondary
use of EV batteries

Networks
Need investment in both mass replacement of aging infrastructure and upgrading••••

Implement steady and efficient investment in networks based on cost-benefit analysis following the Master Plan
Promote investment in R&D and new technology rollout by designing wheeling charge system that provides stability and predictability
Design wheeling charge burden so that burden is commensurate with benefits received, taking changes in power flow into accountManage and integrate diverse resources and improve facility maintenance through digitalization. Develop communications infrastructure and data
platforms to support digital transformation of the electricity sector

Conclusion: Outlook on future electricity business•The 2050 carbon neutrality declaration shifted the decarbonization effort to a higher gear. Decarbonizing electricity is a precondition to the future vision held by various
stakeholders, and public expectations are high. Robust investment to support the transition of our electricity system has never been more important.

•In an era of increasing digitalization and decentralization, trends meant to accelerate decarbonization, connecting and coordinating diverse resources--and creating value
in the process--will form the heart of electricity business. We must pursue a new vision of electricity business, in which business models are co-created with various
stakeholders.

•The time is now for the government to implement policies for building a new electricity system and business. The business community will spare no effort to achieve this aim.