What the “Hot Winter” in Japan is all about

The months of November and December saw a huge influx of FIT applications submitted to METI and the respective Utility Companies. Reason behind was the fact that the first revision of the current FIT is due by end of March 2013, after which the new tariffs will become effective from April onward. Considering an application period around 3 months, makes end of December a cutoff date to secure the current rates.

The market anticipates a reduction in FIT rates, mainly for Solar. A range between 35Yen/Kwh and 38Yen/Kwh is a possible outcome of the revision, effectively reducing the rate by about 12%. Still a very healthy level and substantial higher than in any other part of the world.

I believe this will have a positive impact in the PV Solar market. Efficiencies become more important and this is needed. Based on the current rates, the plant efficiencies are much less under scrutiny and experiences from overseas are hardly used.

In December we saw the LDP winning a substantial majority in the new elections, however voter turn up was at the lowest level ever. Having the LDP back into power will have an impact on the Energy policy, as drafted by the previous government.

Mr. Abe directed his team almost immediately to review the work done by the previous government and increase the focus on the economic part of the policy.

The traditional cozy relationship between the long time ruling LDP, the utility companies as well as the business community will likely mean that the earlier vision of a nuclear free Japan is off the table. While the politicians are still sensitive now towards the public opinion, who overwhelming support the nuclear free direction, it is just a matter of time before the next nuclear station will be again allowed to be put online.

The newly established Nuclear Regulation Authority (NRA) has submitted it first draft of new mandatory safety requirements and these should be finalized by mid-2013. The expectation is that nuclear stations that do not fulfill such new standards could potentially still be allowed to be started, as long as a plan is submitted and approved that details the actions that will be taken to comply with them.

Switching from generation to transmission, draft proposals have been submitted to the parliament to establish separation between generation, transmission and distribution. Currently the 10 Utilities operating in Japan control all, monopolizing the complete industry as a fact. To establish the announced Independent System Operator (ISO) or, preferably, a Transmission System Operator (TSO) will introduce more visibility of the grid system and competition into the utility market.

In closing, even taking into account the change of government as well as lower FIT rates, I still believe that renewable energy is a huge opportunity in Japan and an area that will continuously be supported by the various stake holders albeit at a more realistic level. It is essential that the energy policy laid out is based on sound economics and realistic scenarios. Having more nuclear stations back online makes economic sense and will even support further growth of the renewable energy. The risk is that history could repeat itself if the nuclear industry as well as the Utility industry as a whole is not restructured and the cover up mentality stays.