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Special Bulletin
A Japanese Perspective on the International Energy Landscape (210)

March 13, 2015

Appropriate Promotion of Energy Conservation and Renewable Energy
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanDiscussions are underway to fix Japan's energy mix. A long-term energy supply/demand
outlook subcommittee of the Advisory Committee for Natural Resources and Energy started thediscussions on January 27 and has met twice a month to work out the energy mix. As a participant inthe subcommittee, I would like to summarize some points that I have viewed as important throughthe past four meetings.
The past discussions focused on potential energy demand, energy conservation andrenewable energy diffusion through 2030 and relevant challenges. This is because great expectations
are placed on energy conservation and renewable energy from the viewpoints of the Fukushima
Daiichi Nuclear Power Plant accident and the present shutdown of all nuclear power plants in Japanfollowing the accident, as well as massive fossil energy consumption to cover the nuclear power loss,
which has great impacts on energy security, environmental load and the macro economy.
Both energy conservation and renewable energy are expected to have great utility andbenefits. Energy conservation can contribute to improving energy self-sufficiency and reducing
carbon dioxide emissions by holding down energy demand (including demand for fossil fuels forwhich Japan has no choice but to depend on imports). Improving energy efficiency contributes toraising productivity to enhance Japan's economic productivity. Furthermore, Japan is a global leader
in energy conservation and energy efficiency technology. Its relevant technology and know-how
accumulation and energy conservation achievements have been excellent so that great expectations
are placed on their further effective utilization. As for renewable energy, we can expect great supply
potential because solar, wind power and renewable energy sources are domestically and naturallyavailable. This is a great advantage for renewable energy. We should also remember renewableenergy's advantage of being free from carbon dioxide emissions.
Therefore, it is very important to appropriately promote energy conservation andrenewable energy to exploit these advantages. This has been an undisputed common understandingat the subcommittee. At a symposium on Japan's energy mix, sponsored by the Ministry of Economy,
Trade and Industry in Fukui City on March 12, I heard many participants expressing their great
expectations on energy conservation and renewable energy, and the importance of their promotion.
An estimate given in the meetings at the subcommittee indicates that energy conservation
measures could reduce final energy consumption in 2030 by 12% and electricity consumption by
18%. Renewable energy electricity generation capacity is projected at some 210 billion
kilowatt-hours for 2030, based on the present capacity, conditions of electricity source development
projects and their feasible connection with electric grids. Future discussions will deal with the details
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○ｃ IEEJ 2015of each renewable energy source from the viewpoints of economic efficiency and technology.
The most important point may be an analysis from the viewpoint of economic efficiency.
Unless based on this viewpoint, we may depict an excessively optimistic or unrealistic picture ratherthan an aggressive or ambitious picture. This may lead to an illusion that energy conservation or
renewable energy alone, or their combination alone may resolve all Japanese energy problems.
Regrettably, no perfect energy option without defects exists. Therefore, we must pursue the best mix
to make the most effective use of all available options in a way to utilize their advantages andovercome their disadvantages.
The above energy conservation projection for 2030 is a very high target. This projection
given at the subcommittee is almost equal to or greater than the energy conservation projection in ananalysis titled "Selecting an Energy Mix" released by the Institute of Energy Economics, Japan onJanuary 16. The IEEJ energy conservation projection is very high-level energy conservation, whichis equivalent to that Japan achieved in the 1970-1990 period including oil crises in the 1970s in
terms of improvement in the final energy consumption intensity. The conservation projection that isequal to or greater than the IEEJ projection can be viewed as very ambitious. Such conservation may
not necessarily be impossible. But it may require considerable efforts and costs. Combining such
efforts with economic rationality will be important.
At the subcommittee, some members have taken note of the possibility that energy
conservation could exert excessive burdens on some parties, while understanding energy
conservation as important. They are from large companies that have already made considerable
energy-saving efforts and thus have less room to further save energy, as well as small andmedium-sized companies that have relatively weaker economic resources to make substantial
investment for energy conservation. Representatives from energy intensive industries noted that if
energy-saving requirements exceed a certain level, such industries may relocate their plants overseas
instead of saving energy. In this sense, the viewpoint of the sustainability of Japan's economy andindustry is required for promoting energy conservation. While promoting energy conservation in thebuilding and transportation sectors as well as the industrial sector, Japan should determine a target
energy conservation level from the viewpoint of economic rationality.
Renewable energy should also be considered from the viewpoint of economic efficiency oreffects on the Japanese economy. Particularly, the massive introduction of intermittent solar andwind power energy supply could sharply boost electricity supply costs including power generation,
grid connection and backup costs due to their costliness and a geographic gap between theirelectricity generation and consumption locations (particularly for wind power). We must find an
appropriate level of introduction of renewable energy power generation and how to appropriately
promote renewable energy to such level, while learning lessons from relevant problems that havealready emerged in Germany. The abovementioned IEEJ analysis estimated the total electricity costat 14.8 yen/kWh for a case of renewable energy share at 20% (50% for fossil energy and 30% fornuclear energy) and at 19.0 yen/kWh for a case of the renewable share at 30% (55% for fossil fuelsand 15% for nuclear) in 2030, indicating a gap of 4 yen/kWh between the two cases. A new working
group has been created to analyze power generation costs based on the latest data. The
abovementioned cost analysis may also have to be updated with the latest data and study results of
the working group. From the viewpoint of economic efficiency and effects, we may have to pursue
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an energy mix to hold down a rise in electricity costs as much as possible.
It is important to appropriately promote energy conservation and renewable energy tomake effective use of their advantages. In this sense, we should pursue a well-balanced best energy
mix based on objective and quantitative analyses and studies.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

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