The likelihood of speedier wind development without new legislation is slim, says JWPA's Koichiro Kani. In April 2003, the government mandated that power companies must source 1.35% of their electricity supply from renewables by 2010, a proportion that is "extremely low," says Kani. Utilities can meet the obligation through their own production or by buying green power from independent power producers. They prove compliance by buying the appropriate number of green power credits. Income for wind farm operators comes from both the price they get for the electricity sold plus the price they get for green power credits.
In principle, market forces should decide the price of the credits. In reality, however, the market is entirely controlled by Japan's ten utilities who dictate the prices paid to independent power producers, says JWPA. The association says a wind project only becomes financially viable if the combined income from sale of electricity and credits is around ´11-12/kWh ($0.10-0.11/kWh). Today's power purchase price is closer to ´2-3/kWh ($0.019-0.028/kWh) with many utilities only offering to buy green credits for ´3/kWh ($0.028/kWh).
The local utility in Hokkaido, is a prime example, says JWPA. It offered ´3/kWh ($0.028/kWh) for 15 years for electricity from two 600 kW turbines installed in Setana last year. The developer then found it difficult to secure a buyer for the green credits, with the world's second biggest utility, Tepco in Tokyo, said to have offered no more than JPY 2/kWh ($0.019/kWh). With a total achievable rate of ´5/kWh ($0.047/kWh), independent power producers like Setana village simply cannot survive, according to JWPA.
Not long ago, utilities were buying wind energy at ´11.5/kWh ($0.109/kWh), which included the price of both electricity and green power credits. With Japan's renewables legislation up for government review in the coming year, JWPA is calling for a minimum price for green power. A maximum price of ´11/kWh ($0.104/kWh) is already in place.
For wind power producers, the problem is compounded by the inclusion of energy from some forms waste in the government's definition of green energy. Kani says energy produced from waste is cheaper than wind power, costing utilities less than JPY 5/kWh ($0.047/kWh), making it a far more attractive option for meeting their renewables obligation. Kani points out that energy from waste is not classified as green as it contributes to carbon dioxide emissions.
An additional problem with the current market structure is that utilities like Hokkaido and Tohoko in the country's windiest northern regions have already met their green power mandates. They did not buy any wind energy last year, nor have they plans to do so this year. Meanwhile, utilities in the less windy areas, where wind power is more expensive to produce, such as Tokyo, Kansai and Chubu, have some way to go in meeting their obligation, but cannot afford to generate their own wind power at current prices.
The northern utilities are reluctant to build wind plant to export electricity to other regions, arguing that their grid and transmission networks are not up to the job without significant investment. JWPA and other renewable energy organisations refute this, arguing that wind power in the relatively small quantities required would not burden the system.
The government review of its renewable legislation needs to deal with these issues if Japan its to meet it 2010 wind target and its obligation under the Kyoto Protocol to bring emissions down by 6% on 1990 levels by 2008-2012, JWPA argues. Emissions had increased by 7% on 1990 levels by the end of last year. The association is calling for an increase in the proportion of green power that Japan's electric utilities are mandated to provide, a minimum price for green electricity, and for the exclusion of energy from waste as a legitimate green energy source for meeting the mandate.
Without these fundamental changes, the association says, Japan could end up spending billions of yen buying CO2 credits from overseas or investing in overseas renewable energy projects just to meet its now legally binding Kyoto obligation. "All this money could instead be used to enhance the development of green energy at home in Japan," says Kani.