To prove compliance, utilities must acquire the appropriate number of green power credits by producing the required amount of green energy from their own developments or by buying green power from independent power producers or other utilities. The energy can be produced from a range of alternative energy sources including wind, solar, biomass and some waste (plastic waste is excluded).
The Ministry of Economy and Industry (METI) has already set a goal for 3000 MW of wind power by 2010. If half of the RPS target is met from wind power (the equivalent of around 300 MW of new wind capacity every year up to 2010), the METI goal would be achieved.
Green Energy Network Japan (GEN), however, is doubtful it will a happen. The non governmental organisation suggests only around 180 MW of wind capacity will be commissioned this year. GEN's Tetsunari Iida says that under the RPS obligation, biomass rather than wind is likely to be the dominant renewable fuel of choice for utilities. GEN estimates that biomass is likely to cover 60-70% of the required RPS, with wind competing with other sources of renewables such as small hydro, solar and biogas power, to make up the remaining 30%.
The RPS law does not, Iida adds, require a linear increase of green energy to be produced up to 2010 and in fact during the first five years the stipulated increase in green energy is minimal, again limiting the potential for wind development. Furthermore, the liquidity in the market for RPS certificates will be low, as the market is relatively small. As a result, the price for the certificates is expected to be as low as ´3-4/kWh ($0.025-0.034/kWh). Wind project developers, however, say they need around ´10/kWh ($0.085/kWh) to make a profit.
One way the system might work is for a utility to buy the green power from projects but allow the developer to keep the RPS certificates. The developer can then auction the certificates to other utilities who have not met the minimum standard for renewables power in their portfolios.
This appears to be happening already. Hokkaido Electric Power has announced plans to buy 100 MW of wind from 2004 with speculation that it will pay the developer around ´3-4/kWh for the power (Windpower Monthly, March 2003). In a bid to attract developers, it will forfeit its right to the RPS certificates. To make the whole exercise worthwhile for the developer, the certificates would need to sell for around ´5-6/kWh, say market players.