IEEJ © December 2016. All Rights Reserved.

22 December 2016
The 425th Forum on Research Work

Economic and Energy Outlook of Japan through FY2017
Appropriate domestic energy policy measures are required to pursue diversification of energy
AOSHIMA Momoko, Y. Yorita, M. Tsunoda, R. Eto, K. Ueno, T. Kato,
C. Onda, Y. Shibata, A. Yanagisawa, S. Suehiro, K. Taguchi and K. Ito

Highlights
Macro economy | Japanese economy grows slowly, and manufacturingsector will recover
The Japanese economy will continue to grow in FY2017 at about 1% for the third consecutive year.
This is because private consumption will remain strong, and production of the manufacturingsector will recover as exports and private investments expand.

Energy supply and demand | Energy consumption continues to decrease but
at a slower pace; fossil fuels dependency will be lower than 90% for the firsttime in six years
Total primary energy supply in FY2017 will decrease for the fourth consecutive year due to theadvancement of energy conservation despite a slow recovery of production of the manufacturingsector. Energy intensity (a measure of energy per unit of GDP) will improve by 1.3% from theprevious year. Moreover, fossil fuel consumption and energy-related CO2 emissions will be
substantially reduced to levels below those observed before the Great East Japan Earthquake dueto the restart of nuclear power plants and increase in renewable energy.

Energy sales | City gas and electricity will grow for the second consecutive
year but fuel oil declines
In FY2017, for the first time since the Great Earthquake, electricity sales by utilities will increase by
0.5% for a second consecutive year. This is because of production recovery and demand increase
from industry and commercial sectors. City gas sales in FY2017 will increase by 1.4% and reach thehighest-level for a second consecutive year due to better economic conditions, including
development efforts to increase demand in the industry sector. Overall sales of fuel oil in FY2017
will decrease for the fifth consecutive year; the decrease in FY2017 will be 2.4%. This is because
sales for Type C fuel oil for power generation will decrease as more of nuclear power plants restartand because of an anticipated decrease in kerosene sales.

Nuclear power generation | Five plants restart but judicial ruling stops twoplants; three plants are approved to operate for more than 40 years
No. 3 reactor at the Ikata Power Station was reactivated in August 2016. It was the fifth plant torestart under Japan’s new safety regulations. However, two plants at the Takahama Power Station
are still suspended from operations due to an injection issued by a district court. In November
2016, No. 3 reactor at the Mihama Power Station was approved for a life extension to 60 years but

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its actual restart will be after 2020, when its construction will be completed. It was the third plant
to receive an extension of its operation period.
Relative to the case where 18 plants will be in operations, the case which assumes a total of sevennuclear power plants will have restarted by the end of FY2017, total spending on fossil fuel*imports will increase by JPY500 billion, and the electricity cost per MWh will rise by JPY400/MWh.
In that case, the energy-related CO2 emissions will increase by 28 Mt-CO2 (2.5%), theself-sufficiency rate will be lowered by 2.6% point, and GDP will decrease by JPY400 billion (0.1%).
These outcomes show that nuclear power generation plays an important role in the achievementof the 3Es in Japan.
* Electricity cost = Fuel cost + FIT purchasing cost + Grid stabilisation cost.
Actual electricity price includes capital and labour costs, etc. (METI “Long-term Energy Supply & Demand Outlook“)

Renewable power generation | Decrease of spending on imports by
JPY9 trillion for 20 years vs. increase of electricity cost by JPY38 trillion
In the case, 81 GW of approved renewables (solar PVs for non-households, onshore wind, andwoody biomass under Feed-in Tariff [FIT] system) substitute LNG-fired power generation, theenergy-related CO2 emissions decrease by 800 Mt. LNG imports decreases by 294 Mt, andspending on LNG imports decreases JPY16 trillion. However, net decrease effect on spending onimport is JPY9 trillion since spending on imports of panels for solar PVs and fuel of biomass is
JPY7 trillion.
Electricity cost increases JPY38 trillion relative to LNG-fired power generation for the same
condition as above. Progress of renewable energy is required with considering burden capacity (i.e.
capacity for cost) and industry competitiveness.

Coal-fired power generation | Decrease of electricity cost by
JPY630 billion/year and increase of the energy-related CO2 emissions by
54 Mt/year by operation of total 23 GW of planned coal-fired power plants
As of December 2016, 48 units totalling 23 GW of coal-fired power plants are planned forconstruction. Assuming all of them reach operation, the share of coal-fired power increases to
48% from 31% of Japan’s power generation. Consequently, electricity cost decreases by
JPY630 billion (10%) while the net energy-related CO2 emissions will increase by 54 Mt. The
capacity factor of LNG-fired power plants would decrease to 30% from 49% due to substitution tocoal. Evaluation and consideration under comprehensive judgement are important.

Executive summary of outlook through FY2017 [Reference Scenario]
Macro economy
The Japanese economy will grow in FY2016 at 1.2% due to strong fixed capital formation and steady private
consumption. For FY2017, private consumption will remain strong with good labour and income situation;
demand related to Tokyo Olympics will appear, and goods exports will increase. GDP grows by 1.0% for theperiod due to increase of import with strong domestic demand.

Production activity
The production activity will tend toward recovery in FY2016, despite some slow down factors, such as
Kumamoto Earthquake in the first half of FY2016. Production will improve in FY2017, due to an increase of

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exports of heavy electrical machinery for Asia and progress on replacement of high value-added consumer
electronics. Increase of private investments will also be a rising factor for GDP.

Energy supply and demand
Under moderate economic expansion and continued energy conservation, the decline of total primaryenergy supply in FY2016 is moderate because of the increase in cooling and heating demand relative to theprevious year’s cooler summer and warmer winter. For FY2017, the energy supply will slightly decrease forthe fourth consecutive year because production and economic activities will recover, but temperature factors
will make the demand decrease. The shift from oil and natural gas to nuclear and renewable energy will
progress.
In FY2016, industry sector’s final consumption is almost same as the previous year because production
activities recovered even though continuous advancement of energy conservation progresses. The transport
sector consumes less due to an increased share of fuel-efficient cars while consumption increases in thebuildings sector due to temperature effect. For FY2017, the industry sector will increase for the first time infour years through further recovery of production activities while the consumption of the buildings sector will
decrease to the level in FY2015 due to progress of energy conservation; the transport sector will also
consume less.

Energy sales
In FY2016, electricity sales by utilities increase since those to lighting and power services increase because ofa rebound from the previous year’s cooler summer and warmer winter. For FY2017, sales for high and extra
high voltage power services will grow reflecting moderate production recovery and total sales will increase
for the second consecutive year. This will be the first time since the Great East Japan Earthquake.
City gas sales in FY2016 reach an all-time high due to demand development efforts and the rebound fromthe previous year’s cooler summer and warmer winter. In FY2017, the overall sales will mark the highest-level
for a second consecutive year because sales to industry will increase for the eighth consecutive year,
reflecting the recovery of production activities and demand development efforts.
Total fuel oil sales show an overall decrease in FY2016, primarily in response to a decline in naphtha sales
related to a decrease in ethylene production. In FY2017, overall sales of fuel oil will decrease for the fifth
consecutive year. It is because sales for Type C fuel oil for power generation will substantially decrease, as
more nuclear power plants restart, and because of the decrease in Type A and B/C fuel oils and kerosene
sales for fuel switching to electricity or city gas.

Renewable power generation
The pace of expansion for renewable power generating capacity of the last few years, supported by agenerous Feed-in Tariff (FIT) system, is slowly subsiding due to reduced tariff for solar PVs and thecancellation of approvals for contracts/permits of some facilities, which have not started operation. Despite
such situation, the operating capacity of renewable power generation (excluding large-scale hydro) willreach 65.5 GW by the end of FY2017.
Coincidently, the unavoidable burden expands also. The cumulative cost burden for 20 years could be
JPY57 trillion if all of the approved 88.2 GW (of which 80.3 GW is solar PVs) by the end of August 2016
become operational. This is equivalent to an increase of JPY3,300/MWh above the rates in place just before
FIT started – an increase of 14% for households and 20% for industrial consumers.

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CO2 emissions
Energy-related CO2 emissions reached a historical high of 1,235 Mt-CO2 in FY2013 but will decrease for the
fourth consecutive year through FY2017. The energy conservation and the restart of nuclear power plants
combined with the increase in renewable energy will considerably diminish oil and natural gas consumption,
lowering the emission to 1,105 Mt-CO2 in FY2017. The GOJ set its international target (Nationally Determined
Contributions) for GHG emissions reduction at 26% (25% for energy-related CO2) from FY2013 by FY2030.
CO2 emissions in FY2017 will be 10.5% less than in FY2013, a step closer to achieve the target.
Table 1 | Summary of Reference Scenario
Historical
Projections
Year-to-year changes
FY2010 FY2013 FY2014 FY2015 FY2016 FY2017 FY2015 FY2016 FY2017

513.3
232.3
2
73.6
Natural gas (Mt of LNG equiv.)
LNG imports (Mt)
70.6
184.7
Coal2 (Mt)
Nuclear (TWh)288.2
Hydro (TWh)44.0
Renewables excl. large hydro (TWh) 63.9
Final energy consumption (Mtoe)
340.4
159.1
Industry3
Buildings
98.7
Transport
82.7
Petroleum products
176.2
Natural gas and city gas
34.4
Coal and coal products
36.7
Electricity
89.8
Electricity sales (TWh)
926.6
39.28
City gas sales4 (Billion m3)
Fuel oil sales (GL)
196.0
Energy-related CO2 emissions (Mt) 1,139(FY2013=100)
92.2
Crude oil, import, CIF ($/bbl)84
LNG, import, CIF ($/t)
584($/MBtu)
11.3
Steam coal, import, CIF ($/t)
114
Coking coal, import, CIF ($/t)
175
Nominal GDP (JPY trillion)
499.2
Real GDP (JPY2011 trillion)
492.8
Industrial production (2010=100)
99.4
Exchange rate (JPY/$)
86.1
Primary energy supply (Mtoe)1

EconomyPricesEnergyOil2 (GL)

493.2
234.5
91.1
87.7
194.6
9.3
40.0
67.9
327.7
156.9
91.5
79.3
164.3
34.5
36.4
84.7
871.5
39.82
193.6
1,235
100.0
110
837
16.1
108
135
507.4
512.7
99.0
100.0

477.5
217.1
91.5
89.1
190.0
0.0
44.3
76.0
319.2
153.7
88.5
77.0
158.4
34.3
36.0
82.7
851.4
40.16
182.7
1,190
96.4
89
797
15.3
93
109
517.9
510.4
98.4
109.2

470.3
211.4
87.0
83.6
190.1
9.4
46.7
87.6
315.7
152.3
86.3
77.1
158.5
33.8
34.0
81.5
837.5
39.91
180.5
1,148
93.0
49
452
8.7
76
88
532.2
517.2
97.4
120.4

469.5
208.4
84.8
81.6
190.5
17.2
47.3
99.7
315.5
152.2
87.1
76.1
156.8
34.5
34.3
82.0
842.7
40.77
176.6
1,137
92.1
48
344
6.6
81
134
538.8
523.4
97.7
107.8

468.0 -1.5% -0.2%
201.9 -2.6% -1.4%
79.0 -4.9% -2.6%
77.3 -6.2% -2.3%
190.9 0.1% 0.2%
62.9.. 82.2%
47.3 5.3% 1.2%
111.9 15.2% 13.8%
313.7 -1.1% -0.1%
152.6 -0.9% 0.0%
86.4 -2.4% 0.9%
74.6 0.1% -1.2%
153.9 0.0% -1.1%
35.0 -1.3% 2.1%
34.4 -5.4% 0.7%
82.4 -1.4% 0.6%
846.6 -1.6% 0.6%
41.35 -0.6% 2.2%
172.4 -1.2% -2.2%
1,105 -3.5% -1.0%
89.5
..
..
58 -45.2% -2.2%
419 -43.3% -24.0%
8.0
..
..
88 -18.4% 7.1%
139 -19.3% 52.9%
545.3 2.8% 1.2%
528.5 1.3% 1.2%
99.1 -1.0% 0.3%
110.0 10.2% -10.4%

-0.3%
-3.1%
-6.8%
-5.3%
0.2%
266%
0.1%
12.3%
-0.6%
0.3%
-0.8%
-2.0%
-1.9%
1.4%
0.4%
0.5%
0.5%
1.4%
-2.4%
-2.8%
..
21.9%
21.9%
..
8.4%
3.9%
1.2%
1.0%
1.4%
2.0%

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 until FY2012.
2. Conversion factors for oil: 9,145 kcal/L; natural gas: 13,141 kcal/kg; steam coal: 6,203 kcal/kg; coking coal: 6,877 kcal/kg since FY2013.
3. Industry includes non-energy use.
4. Conversion factor: 1 m3 = 10,000 kcal

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Executive summary of topics
Topic 1 | Effect of the pace of nuclear power plants’ restart
No. 3 reactor at the Ikata Power Station was reactivated in August 2016. Currently, there are 20 plants undersafety checks for restarting through the new regulation standards. In addition, No. 3 reactor at the Mihama
Power Station was approved for a life extension of 60 years in November 2016. Three plants have so far
been approved to extend their period of operations.
The [Reference Scenario] assumes that a total of 14 nuclear power plants will have restarted by the end of
FY2017. They will be in service during FY2017 with a total electricity generation reaching 62.9 TWh. Total
spending on fossil fuel imports reaches JPY15.9 trillion and the electricity cost per MWh (i.e. electricity unitcost) is about JPY6,800/MWh. Furthermore, the energy-related CO2 emissions reach 1,105 Mt-CO2, and theself-sufficiency rate remains 12.8%.
In the [Low Case], which assumes a total of seven plants to restart by the end of FY2017, total fossil fuelimports spending increases by JPY300 billion relative to the Reference Scenario. In this comparison, theelectricity unit cost increases by about JPY200/MWh, the self-sufficiency rate decreases by 1.5% point, andthe energy-related CO2 emissions increase by 16 Mt-CO2 (1.5%) whilst GDP decreases by JPY200 billion(0.03%).
In the [High Case], which assumes a total of 18 plants to restart by the end of FY2017, total fossil fuel imports
spending decreases by JPY200 billion relative to the Reference Scenario. In this comparison, the electricity
unit cost is lowered by about JPY200/MWh, the self-sufficiency rate improves by 1.1% point and theenergy-related CO2 emissions decrease by 12 Mt-CO2 (1.1%) whilst GDP increases by JPY200 billion (0.03%).
The hypothetical [Best Mix Case] reflects the power generation mix of METI’s “Long-term Energy Supply &Demand Outlook.” Under this Case, compared to the Reference Scenario, total fossil fuel imports spending
decreases by JPY1.2 trillion, the self-sufficiency rate is improved by 7.9% point and the energy-related CO2
emissions are decreased by 101 Mt-CO2 (9.1%). The electricity unit cost is increased by JPY500/MWh, and
GDP increases by JPY1.0 trillion (0.2%).
Nuclear power generation plays an important role towards the achievement of the 3Es in Japan.
Figure 1 | Influence of the pace of nuclear power plants’ restart (FY2017, compared to Reference
Scenario)
150

132

100

0.6

0.5

5
1.0

0.2

2
0.0

-15

Nuclear power
generation
(TWh)

-15

-1.5
-0.2

-0.2

Electricity unit
cost
(JPY/kWh)

-12
-40

-10

-1.0

0.0

-36

6

-3

4

-1.2
-50

0

0.4
0.2

0

Total sepnding
on fossil fuelimports(JPY trillion)-0.4

Low Case

Economic and Energy Outlook of Japan through FY2017-0.2

Real GDP(JPY trillion)
High Case

16

7.9

8

-5

-0.5

40

10

4

0

0.8

-0.2

0.2
26

1.2

0.3

0.0

0.4

50

0.5

1.1

-80

0

-101
-120

-20

-2

LNG imports
(Mt)

-1.5

Self-sufficiency
rate
(%)

CO2
emissions(Mt-CO2)Best Mix Case|5

IEEJ © December 2016. All Rights Reserved.

Topic 2 | Income and expenditure through renewable power generation
Instalment of renewable power generation is progressing in Japan. Under FIT system, 51 GW of renewable
power generation plants is operating, and an additional 30 GW has been approved for a total of 81 GW,
which is 1.7 times of current operating capacity. Assuming a total 81 GW of approved solar PVs for
non-households, onshore wind, and woody biomass generates 2,100 TWh for 20 years under FIT systemand the generated power substitutes LNG-fired power generation, the energy-related CO2 emissions will
decrease by 800 Mt-CO2, and LNG imports will decrease by 294 Mt.
Spending on LNG imports decreases by a total of JPY16 trillion. However, as an increase of importing related
goods to such renewable power generation for a cumulative total of JPY7 trillion is expected, the spendingon imports represents about JPY3,100/MWh to JPY3,500/MWh as electricity cost. In short, the net reduction
effect of spending on import is JPY9 trillion.
Electricity cost for generating 2,100 TWh is JPY16 trillion by LNG-fired power generation. On the other hand,in the case of renewable power generation, the electricity cost reaches JPY54 trillion, increased by
JPY38 trillion due to the high tariff.

Topic 3 | Effect of realising a huge amount of coal-fired power plants in Japan
As of December 2016, 48 units for a total 23 GW of coal-fired power plants are planned. Such capacity isequivalent to half the current capacity of existing coal-fired power plants in Japan. It is also close to Chubu
Electric Power Co.’s total fossil fuel-fired power generation capacity of 24 GW.
Assuming all the planned coal-fired power plants reach operation and substitute oil- and LNG-fired power
plants, power generation from coal-fired plants increases by 153.8 TWh, and the share of coal-fired powerincreases to 48% of Japan’s total power generation. On the other hand, power generation by LNG decreases
by 117.9 TWh, and its share decreases to 25%; power generation by oil also decreases by 35.6 TWh.
Consequently, electricity cost decreases by JPY630 billion (10%).
In this case, however, the energy-related CO2 emissions increase by 54 Mt-CO2, and the increase isequivalent to 3.8% of GHG emissions in FY2013. The result means adverse effects on the international target
set by the GOJ for GHG emissions reduction of 26% from FY2013 by FY2030.

Economic and Energy Outlook of Japan through FY2017|6
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