Tokyo too bullish on nuclear, too bearish on gas and solar

The Japanese government’s 26% emission reduction target is realistic but its proposed pathway is “wishful politics”, according to new research

Tokyo, 2 June 2015 – Analysts at research firm Bloomberg New Energy Finance have analysed the Japanese government’s long-term energy outlook and concluded that the figures it uses are neither in line with market trends nor with the government’s own stated policies.

A draft of the long-term energy outlook, released in April and reaffirmed on 1 June, proffered an emission reduction target of 26% by 2030, from the level in 2013. However, analysis by BNEF has found discrepancies in the modelling approach and the final results. Most notably:

• Nuclear:

The government projects that nuclear generation will account for 20% to 22% of electricity supplied (213-234TWh) in 2030, requiring at least 38GW of operating capacity.

BNEF’s analysis shows that by 2030, only 26GW of capacity would be operational under even the most optimistic restart scenario. Taking into account the costs and additional regulatory burden associated with extending the lifetime of reactors beyond 40 years, BNEF projects that nuclear will not supply more than 10% of Japan’s electricity in 2030. To achieve the government’s target, at least 13 reactors would have to receive extensions beyond their 40-year operational lifetime – or new nuclear capacity would need to be considered, contrary to the government’s current stated policy of no new nuclear build.

• Thermal generation:

The government projects that thermal sources such as coal and gas will account for 56% of electricity supplied in 2030, down significantly from the 87% share in 2013.

BNEF’s analysis forecasts that thermal generators will account for 65% of electricity supplied. The biggest difference lies in the role of gas generators.

• Coal, gas and oil:

The government forecasts almost equal contribution from coal and gas to overall electricity generation, at 26% and 27% respectively, and oil at 3%.

BNEF projects that 23% of electricity will come from coal, 42% from gas and zero from oil in 2030. The government cites commitment to support “efficient” coal technologies such as ultra-super critical for its reasoning. BNEF forecasts a higher role for gas, based on utilities’ existing assets and project pipeline, as well as the ramping flexibility offered by gas turbines, needed to accommodate the increasing uptake of solar PV.

• Renewables:

The government’s projections for renewables are based on the feed-in tariff application approvals (and environmental impact assessment applications in the case of wind), even though new applications can still be approved after that date. As a result, the government’s projection of solar PV contribution to electricity supplied in 2030 is at 7%.

BNEF expects solar PV’s contribution to electricity supplied to reach 12%. The government assumes renewables will not be built without feed-in tariff support. Currently, residential rooftop PV systems in Japan on average cost 50% more than those in Germany and Australia. The latter countries both experienced PV system price reductions once support schemes such as feed-in tariffs were reduced. The rooftop PV market in Germany and Australia is now fully competitive with retail electricity prices, and there is every reason to expect Japan will follow a similar trajectory, unless additional regulatory burdens are applied to prevent uptake of rooftop solar PV.

Overall, the government’s outlook appears to be an attempt at reconciling competing goals of achieving a lower-emission generation mix while at the same time protecting the politically favoured technologies of coal and nuclear.

Ali Izadi-Najafabadi, head of Japan analysis at Bloomberg New Energy Finance, commented: “Analysing the market trends and current official government policy results in a significantly different electricity generation mix than the government’s outlook suggests.  “Still, our projections show emissions associated with electricity will fall by 28% in 2030 compared to 2013, making the government’s emissions target realistic, if it is willing to let current market trends follow their course.”

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