Here is the real energy challenge for Japan's Abenomics

In March 2013 Japan's prime-minister, Abe, completed his 3 months in office. His overall approval rating remain high, a sign that the Japanese are happy so far. But are they really?

Abe san economic achievements for the first three months are focused around the weakening of the Yen and appointing a “supporting” bank of Japan governor to target 2 % inflation. To prime the economy, increased government spending is used, a quick fix.

So far so good one could argue and to some extend this is true. A new wind is blowing in Japan with a strong focus on business. While the rhetoric is strong, the lack of a long term policy is worrying. The early actions are increasing Japanese debt, at records level already, and do not consider the aging and even shrinking population that will be burdened with it.

So much about the economics. What has Abe san three months in office done for the Utility sector?

The segregation of T&D from Generation has been approved by parliament. By 2020 a legal separation will be completed and as intermediate step an Independent System Operator will be appointed to overseas the opening up of the grid to the retail sector in 2016.

This will introduce more competition and should have a positive effect on the electricity rates. With all but one Utility reporting huge losses for the fiscal 2012, those rates in the short term are only expected to even further increase from already record levels.

This was the good news. As I earlier wrote, Abe san announced when he entered office that the energy policy outline as prepared by the previous government would be reviewed. This review is still ongoing and there has been hardly any discussion about it. This is not that strange if one considers the fact that Abe san is a keen supporter of Nuclear Energy and the strong business lobby behind it.

While the public opinion is for a vast majority still supporting the facing out of Nuclear Energy, the PM needs to wait until the upper house elections this summer before he can make any concrete move. His strategy is to secure a 2/3 majority in both houses first, which will pave the way for a stronger Nuclear agenda.

That the Nuclear disaster at the Fukushima-Daiichi plant is far from being resolved became clear recently with in succession two power failures (of which one was caused by a rat !) causing the cooling system to stop for almost three days. This was followed by two leaking storage tanks containing contaminated water. Water is being pumped to other storage facilities but the capacity is reaching its limits.

A recent visit by a delegation of the International Atomic Energy Agency (IAEA) concluded that the decommissioning will take at least 40 years. In part because the current technology is not even capable to access and/or remove the melted fuel rods and this has to be developed.

Now, moving on to the renewable energy and PV in particular, the perception after three months of Abe san is that without a clear direction on energy, the importance of renewable energy becomes more questionable. Utilities are increasingly finding obstacles to limit the integration of renewable power to the grid. One Utility claims that the amount of renewable energy to be connected has reached its maximum capacity.

In order to ensure a reliable power supply they are proposing to mandatory disconnect renewable capacity for certain periods. Obviously not good for any investor/developer and further more questionable as the grid capacity details are not public information.

Not only the Utilities are having an impact, accessible land is another one. Nine months into the FIT implementation, most of the ideal plots are gone. These plots are relative flat, without much shading, and close to a transmission line. With a high FIT, even the recently revised one is still considered generous, there is no focus on efficiency or availability of such a plant.

At a recent seminar in Japan it was presented that designs used in the Japanese mega-PV market today are in some cases 20% less efficient as compared to international benchmarks. This is a shame as the limited accessible plots possible have less efficient installation, reducing the overall impact of solar power.

As is the case in economics, the utility sector is in dire need of a long term plan. The recent approved legislation to segregate generation from T&D is a positive step. Now the future energy policy need to be decided and the nuclear power need to be somehow ring-fenced to enable the Utilities to develop Generation capacity without the Nuclear burden on their books.
 

The views expressed are mine alone and do not necessarily reflect the views of my employer.