Renewable energy law may lack needed 'teeth'

August 26, 2011

The intentions may be honorable, but a new energy law promoting natural power sources may already have had the wind knocked out of its sails before it even becomes law.

The special measures bill on renewable energy, whose passage through the Diet was among the conditions Prime Minister Naoto Kan set for his resignation, passed on Aug. 26.

However, there is a real possibility the law will lack teeth because electric power companies will still be allowed to reject purchases of electricity generated through natural energy, such as solar power and wind power.

"The new law is just a determination of the government (to promote natural energy)," said Hironori Miyauchi, a senior researcher at the Japan Research Institute who questions whether the law will be effective.

Purchase prices depend on deliberations that will be made in the future. If the prices are low, few companies will try to make inroads into the business of power generation through natural energy.

Recently, a growing number of parties have expressed interest in investing in the nonprofit organization Hokkaido Green Fund, which operates 12 windmills across the nation.

However, its director, Toru Suzuki, says with anxiety, "I wonder whether electric power companies will do their best based on the purpose of the law?"

In the past, laws have been passed that aim to increase the use of natural energy. However, electric power companies imposed limits on their purchases of electricity generated with wind power or other renewable energy, asserting that the supply of power produced using the sun or wind was not constant. It quickly became clear that the utility companies did not embrace natural energy as a power supply.

Late last year, the Tohoku Electric Power Co. decided to purchase an additional 270,000 kilowatts of wind power-generated electricity, and a lottery was held to select the suppliers. Of the 100 or so organizations that applied, less than 20 were selected.

"There are many organizations that want to get into the wind power generation business, but they are turned away at the door," complained one of the applicants who failed to win the lottery.

The special measures bill on renewable energy obliges electric power companies to purchase electricity generated using natural energy. However, it has "exception stipulations" that allow the utilities to reject such purchases. For example, they can reject buying natural energy if there is any question about not being able to secure a stable supply of electricity, which leaves them with a big "out."

Hokkaido and the Tohoku and Kyushu regions are regarded as most suitable spots for wind power generation. The Hokkaido Electric Power Co. (HEPCO) plans to review limits on its purchase of electricity after the law is enforced, although its officials don't sound too enthusiastic about the idea.

"We will do so only after the amount of purchased electricity reaches the upper limits and we see the results in the first one or two years (after the enforcement of the law)," an official of the utility says.

In cooperation with the Tokyo Electric Power Co., Tohoku Electric Power is now considering increasing the amount of naturally generated electricity it purchases. However, no firm decision has yet been reached.

An executive of the Kyushu Electric Power Co. said: "Solar power or wind power is not a stable source of energy. At present, it is not realistic to introduce natural energy-generated electricity in large quantities."

Thus, the next-generation electricity transmission system, called "smart grid," is indispensable as it can monitor and control the charging and discharge of electricity in storage batteries and the output of power generators.

The Ministry of Economy, Trade and Industry (METI) estimates that widespread implementation of the smart grid will require 200 billion yen (about $2.5 billion) a year in the second half of this decade and in subsequent years. However, discussions have yet to be held on who should shoulder these costs.

The purchase price is key regarding the spread of natural energy. The price will be determined by a third-party organization consisting of experts. Since the price has yet to be decided, organizations that may want to get involved in the power generation business with natural energy are hesitant to do so.

Eurus Energy Holdings Corp., the largest wind-power generator in Japan, has not started to construct any new wind farms this year.

"We cannot forecast earnings though there are many candidate sites (for wind farms)," said the company's president, Tetsuro Nagata.

The Japan Wind Power Association says that wind farm operators cannot make profits if the purchase price remains at the current rate of about 10 yen per kilowatt hour. It says a more realistic range is 20 yen to 24 yen.

However, if the purchase price rises, the financial burdens on companies and households that buy the electricity will increase. This is because the costs to purchase the electricity will be passed on through electricity bills.

METI initially estimated that electric bills will increase by 150 yen a month for an average household in 2020. The ministry planned to use the estimate to insist that the increase in electricity bills does not represent any hardship.

However, the ruling and opposition parties later agreed that purchase prices must be decided separately, depending on the kind and scale of natural energy to be purchased.

At the Upper House plenary session on Aug. 24, the Minister of Economy, Trade and Industry, Banri Kaieda, said, "There is a possibility that the (purchase) price will rise."

The government will have to make a difficult judgment between the profitability of companies, which hope to start power generation businesses using natural energy, and the financial burdens passed on to consumers.

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Iwaya Wind Farm in Aomori Prefecture is operated by Eurus Energy Holdings Corp. (Eurus Energy Holdings Corp.)

Iwaya Wind Farm in Aomori Prefecture is operated by Eurus Energy Holdings Corp. (Eurus Energy Holdings Corp.)

  • Iwaya Wind Farm in Aomori Prefecture is operated by Eurus Energy Holdings Corp. (Eurus Energy Holdings Corp.)

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