Industry pins hopes on national energy review -- Build rate static in Japan

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With its long awaited energy policy review now expected to begin in June, wind industry optimists are hoping Japan will defy the pessimists, who say the country will miss its target for 3000 MW of wind by 2010 by 500-600 MW. The pessimistic forecast is based on static build rates in the past three years -- and a market with exactly the same problems today as it had one year ago.

By the end of 2005 installed wind capacity in Japan was 1150 MW, an increase of 230 MW in the nine months from the end of March 2005, 70 MW less than for the same period last year according to the Japanese Wind Power Association (JWPA).

A radical change in legislation is required for Japan to stand any chance of achieving its wind target, says JWPA. "Reaching 3000 MW by 2010 is going to be extremely difficult, if not impossible. For 2006, in the worse case scenario the figure will rise to 1350 MW, at very best 1500 MW," says the association's Koichiro Kani. "The government needs to review the legislation introduced in April 2003, and soon."

The nearly three year old Special Measures Law Concerning the Use of New Energy by Electric Utilities obliges the country's ten power utilities to obtain just 1.35% of their electricity from renewable sources by 2010. Kani says that without an upward revision of that figure the market is going to become "very difficult." Japan's wind energy effort is "half hearted at best," he says.

Last year JWPA drew up plans calling for approximately 12,000 MW of wind power by 2030, divided equally between onshore and offshore plant. Of this, around 800 MW would be new plant and 400 MW would be via repowering, with new machines replacing old capacity that will have been in operation before 2010, assuming a typical 20-year lifespan for a turbine. The government is yet to make a formal response, although in January it announced new national energy strategy guidelines, mapping out Japan's energy policy through 2030, which specifically mention wind power. These are to be formalised in June.

Buyer's market

Getting its ten regional electricity utilities to play ball will perhaps be the government's biggest hurdle. Japan is very much a buyer's market with the utilities effectively setting the prices independent electricity producers receive. The current power purchase price is ´3.0-3.30/kWh ($0.025-0.028/kWh), with utilities offering ´2-3/kWh ($0.017-0.025/kWh) for the associated green credits. The total purchase price falls far short of the ´11/kWh ($0.098/kWh) the association says is needed for a wind plant to be viable -- and which the utilities were paying three years ago.

Efforts to change the system have so far been ineffective, says JWPA. "The minimum offered for green credits must be ´6/kWh ($0.051/kWh)," says Kani. "That added to the income accrued from the sale of electricity would make wind power projects just about viable." Japan caps the maximum price paid for green power at ´11/kWh, but JWPA would like to see that become a minimum, not maximum, rule.

But it is not power purchase prices, but a plethora of other support measures that keep the Japanese wind market going, including healthy capital subsidies. Under a program for regional promotion of "new energy," local and regional authorities sponsoring wind projects can claim up to 50% of the capital cost from central government. Private developers receive a third less, which explains why so many projects are owned or part-owned by local councils. Long term, low interest funding is available for these projects, while power purchase contracts in Japan usually run for a long 17 years. Tax breaks, including lower property taxes, are another fiscal incentive, while investment subsidies are available for new energy projects through the New Energy Development Organisation, a quasi-government body with close links to the economy, trade and industry ministry. NEDO also pays all the costs of site wind monitoring and 50% of the operational costs of test projects.

Nonetheless, utilities in wind rich regions such as Hokkaido Electric, in the north of the country, which have long since fulfilled their green power obligations remain unwilling to increase their renewables portfolios. Moreover with the eastern half of Japan's network running at 50Hz, and the western half at 60Hz, utilities say it is difficult to export power to less windy regions via the grid without significant cost and thus refuse to invest in further wind plant, an argument JWPA disputes.

Meantime, while Vestas remains the leading turbine supplier, in Japan, Kani expects official government figures to be released next month to show that its 40% market share of the past has dropped dramatically. Spain's Gamesa is closing on its Danish rival, reportedly due to the lower cost of its machinery, with America's GE Energy coming third in the ranks of overseas suppliers. Mitsubishi Juko leads the pack of domestic suppliers, Kani says, followed by Fuji Heavy Industries, while in terms of developers Eurus Energy remains Japan's biggest wind power developer.

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