ENERGY & ENVIRONMENT OPPORTUNITIES IN JAPAN FACT PACK ENERGY & ENVIRONMENT IN JAPAN BUSINESS SWEDEN TOKYO, FEBRUARY 218
The energy sector is one of the most prioritized by the Japanese government. Following the Fukushima nuclear accident in 211, after which all 54 nuclear reactors halted energy production, focus has been on re-thinking the energy policy. Nuclear power has largely been replaced by imported mineral fuels. 94 % of the energy consumption in 214 came from imported sources, whereof the largest category is mineral fuels (oil, gas and coal) adding up to roughly 2 % of total imports by value. Increased energy savings and introduction of more renewables are in focus until 23, both for environmental reasons as well as to improve the trade balance. During the past decade there has been a strong growth trend in renewable energy in Japan. The government prioritizes the introduction of renewable energy and assume that some nuclear energy will be replaced by geothermal, hydro and biomass. We see significant opportunities for Swedish companies within the Japanese energy and environment market as there are five main advantages to keep in mind: - Japan is a big market and the scale itself makes it worth paying attention to. - Japan is a market in change and new opportunities within sustainability, as well due to deregulation, are emerging. (E.g. the Japanese government has authorized additional budgets especially for renewables such as floating offshore wind, geothermal energy etc.) - A trendsetting market that provides learning opportunities in order to be more competitive at home. Japanese companies are eager to collaborate with overseas researchers and conduct pilot tests all over the world. - Japan is a good reference for the rest of Asia. Since Japanese companies are known for high quality, leading technologies and have far-reaching production networks in Asia, presence in Japan is a good reference case. - Greater protection of intellectual property, compared to other Asian markets, and a more secure legal environment. Hideki Hayashi Project Manager +81 3 5562 55 hideki.hayashi@business-sweden.se
ENERGY & ENVIRONMENT OPPORTUNITIES IN JAPAN After the Great East Japan Earthquake in 211, the Japanese energy industry has been forced to change. There has been increased focus on energy savings and the introduction of renewable energy. Swedish companies in energy and environmental related industries with unique products or services should examine opportunities arising from Japan s ambitions within the energy and environment sector. Additional opportunities will also arise as the market deregulates. JAPAN HAS BECOME INCREASINGLY DEPENDENT ON ENERGY IMPORTS Japan is a country with limited natural resources. Before World War II, Japan were able to cover the domestic energy demand by locally produced coal, but as the demand increased the mines reserves eventually depleted, which led to a shift and most energy fuels had to be imported. During latter days, total domestic energy production has been decreasing gradually since 21. Part of the decreasing production is a consequence of the Great East Earthquake in 211 that lead to the shutdown of all nuclear plants in Japan, leaving big parts of Japan short on energy. Japan heavily relies on energy imports. 94% of the energy consumption in 214 was covered by imported sources. Mineral fuels such as oil, gas Figure 1 - Delivered Energy Use By Sector, 215 Primary industry 2% Freight 9% Passenger transport 14% Household 14% Service 19% Manufacturing 42% Source: Ministry of Economy, Trade and industry and coal was the largest import segment for Japan in 216. However, imports of fossil fuels has decreased from 27 trillion JPY in 214 to 12 trillion JPY in 216 by value. The change in volume is not as remarkable and remains more or less at the same level. The decreased imports FACT PACK ENERGY & ENVIRONMENT IN JAPAN BUSINESS SWEDEN 3
by value is largely an effect of more favourable exchange rates and globally decreasing fuel prices. As a result of this, Japan registered its first trade surplus in 216 since 21. Figure 2 - Import of goods & services in Japan (216) Transport equipment 5% Raw material 6% Food stuff 7% Source: Intracen 216 Figure 3 - Trade balance & import of mineral fuels 29-216 (trillion JPY) 3 2 1-1 -2 Manufactu red goods 9% Machinery 1% Mineral fuels 19% Chemicals 11% Source: Ministry of Finance Trade Statistics of Japan Cabinet Office Figure 4 - Electric production (GW) & import (%) 12 1 8 6 4 2 14 2.7 Others 16% 17 6.6 22 24 27 27 Electrical machinery 17% 4. 29 21 211 212 213 214 215 216-2.6-2.8-6.9-11.4-12.8 trade balance 18 import of fuels 1 95 9 85 8 75 7 12 RE-THINKING JAPAN S ENERGY POLICY - ENERGY SAVINGS & RENEWABLES For the Japanese government, there are two main priorities regarding the national energy policy. The first is the recovery and reconstruction of the damage caused by the great east earthquake in 211, especially the Fukushima nuclear plant, and the second one is to focus on energy policies with a more long-term perspective (source: Energy White Paper 216 published by Agency for Natural Resources and Energy in July 217). The total electricity production has been decreasing, but the government expects growth in electricity demand, as an effect of continued economic growth. The government has decided to aim to maintain the energy demand in 23 at the same level as it was 213. In order to achieve this, the Japanese government is proceeding with energy saving regulations. Figure 5 - Electricity demand target in 23 17% energy saving 966 98 213 23 demand Source: Ministry of Economy, Trade and industry 17% energy saving 165 23 supply In the energy basic plan, the government is also aiming to decrease (based on pre-211 levels) the dependency on nuclear energy to 2-22% in 22, while increasing the dependency on renewable energy to 22-24%. This implies a 1% increase of renewable energy production until 23. Source: Federation of electric power companies and Agency for natural resource and energy Total electric production % of Import energy source 4 BUSINESS SWEDEN FACT PACK ENERGY & ENVIRONMENT IN JAPAN INCREASED FOCUS ON ENERGY EFFICIENCY & SAVINGS The Japanese government and industry have put a lot of focus on energy saving measures. Many
Gigawatt factories have started operations on Saturdays and Sundays due to available energy capacity in the weekend, and have stopped operations on some weekdays to curb overall peak demand. Also, the production industry has in general shifted to more energy saving production. Furthermore, part of the railway service network has been suspended and the government have instructed offices, schools, factories, and public buildings to set higher temperature when airconditioning in the summer. They also initiated the so called Cool biz-campaign, which is aimed at reducing air conditioning in summer by allowing a more liberal dress code during the summer months (no suit jacket/tie and short sleeved shirt). Japan has successfully streamlined their energy use since 211, particularly in industry and transportation sectors. There is still large room for energy efficiency improvements within the household sector, which accounted for about 14% of the total energy consumption in 215. Figure 6 - Final Energy Consumption 25-215 2 15 1 5 Industry Household Transportation Source: Ministry of Economy, Trade and industry Key take-away: Fossil fuel dependency makes Japan vulnerable and is one of the main reason why energy saving is an important issue for Japan. Consequently, opportunities for companies within energy savings are arising. RAPID INCREASE EXPECTED FOR RENEWABLE ENERGY IN JAPAN Driven by the urgency of energy security and the energy crisis that followed the Fukushima disaster, renewable energy has become a top priority among Japanese policymakers. The governemnt is introducing more renewable energy and increasing the productivity of thermo-electric power generation, and thus decreasing the dependency on nuclear energy. In the basic plan, the government prioritizes the introduction of geothermal, hydro and biomass. These energy sources have the advantages of providing a steady energy supply since they are less affected by natural factors than e.g. wind and solar. However, finding and initiating feasible projects might risk delays. Regarding wind power, there are still technical issues due to strong winds. The plan for Best mix of power source, latest released in 215, will be reviewed every three years. Figure 7 Power source, Best mix target for 23 Source: Ministry of Economy, Trade and industry, Working study group for long term energy supply structure the 1th agenda During the past decade there has been a strong growth trend for renewables, a trend that does not show any signs of slowing down. Renewables (except large hydro) accounted for 7.4% of the total energy output in 215, a great step forward compared with 1.4% in 211. Figure 8 - Renewable energy output (GW) 9 8 7 6 5 4 3 2 1 11% 15% 43% 3% 1% 22-24% 3% 27% 26% 2-22% 213 23 Source: METI, Renewables Japan Status Report 215 Renewable Oil LNG Coal Nuclear Solar Wind Hydro Thermal Biomass FACT PACK ENERGY & ENVIRONMENT IN JAPAN BUSINESS SWEDEN 5
Key take-away: As Japan still lags behind in renewable energy generation compared to other developed countries, high growth and more opportunities can be expected, e.g. for companies with new technology suitable to Japnese conditions. FEED-IN-TARIFFS WAS INTRODUCED IN 212 & HAS SPURRED MARKET GROWTH In order to promote the use of renewable energy, feed-in-tariffs (FIT) was introduced in July 212. It implied that electric suppliers are required to procure electricity generated by renewables at a fixed cost guaranteed for up to a maximum of 2 years. This has created clear results: - FIT brought a large surge in the introduction of renewable energy primarily solar - Cumulative capacity of renewables before FIT was 2.6 GW. An additional 85.6 GW has been added as of January 216. - Solar Power accounts for nearly 93% of the total increase (79.3 out of 85.6 GW) while medium-small hydro and geothermal power showed limited growth during the period. Figure 9 - Renewables Capacity after FIT [MkW] 2 18 16 14 12 1 8 6 4 2 Geothermal Source; Energy White Paper 215 by METI, Renewables Japan Status Report 214 Biomass Med-small hydro Wind Solar (non-residential) Solar (residential) FY215 FY214 FY213 FY212 (Jul-Mar) Before FIT MARKET ON THE WAY TO LIBERALIZE The Japanese electricity market is undergoing deregulation, and several opportunities will arise when the market is fully deregulated, scheduled in 22. Last year (216), full electricity deregulation of the retail side was completed. However, the last step in the deregulation is remaining and will mean a full unbundling of power generation and transmission as well as full deregulation of the electricity price. Figure 1 - Process of Deregulation, 1995-23 Year 1995 Introduction of wholesale electric power bidding system 2 Partial deregulation of electric power retailing (3% of power sales) 24 Expansion of retail deregulation (4% of power sales) 25 Expansion of retail deregulation (6% of power sales), Transactions began on the Japan Electric Power Exchange (JEPX) 215 Establish Organization for Crossregional Coordination of Transmission Operators (OCCTO) 216 Full retail liberalization of electricity (April) 218-22 Full unbundling of power generation & transmission Deregulation of the electricity price regulation Source: Industry competition map by Nikkei business daily and Nikkei marketing journal, 215 May. J-Power, Electricity System Reform In Japan by Andersen, Mori & Tomotsune, Jan 214 To proceed with the deregulation, there are two main hurdles. The first concern is that 1 power companies monopolize the market and this has created a market with little competition and strong price control. Apart from this, systematic restrictions still exist to rapidly deregulate the energy market. The second concern is the unification of Japan s bifurcated grid system (5hz/6hz) which originated in different imported technologies. Eastern Japan introduced 5Hz power generator from AEG while western Japan introduced 6Hz power generator from GE in the 189s when Japan started to build power plants. These differences still remain unchanged and there is no system to transmit electricity between regions in a smooth way. 6 BUSINESS SWEDEN FACT PACK ENERGY & ENVIRONMENT IN JAPAN
Figure 11 5Hz vs. 6Hz by area Hokuriku / Chubu Chugoku Kansai Shikoku Kyushu / Okinawa Source: Electricity review Japan 211 Hokkaido Kanto Tohoku 5Hz 6Hz Key take-away: The feed-in-tariffs scheme introduced in 212 created clear guidelines and incentives to invest in renewable energy production. Rapid market growth has followed as a result and further growth is expected as the Japanese energy market continues to liberalize and seek nationwide technical standards. THE LITHIUM-ION BATTERY MARKET IN JAPAN HAS HIGH GROWTH EXPECTATIONS The lithium-ion battery market has grown steadily in recent years, increasing by 8.7% annually 212 to 216 in volume and 17.7% in capacity (1 3 Ah). The demand for lithium-ion batteries for electric vehicles, drones and electric tools etc. is expected continued growth. The application of high capacity lithium-ion batteries started for mobile equipment, such as cell phones introduced by Sony in 1991. In the initial stages, particularly regarding airplane applications, the lithium-ion batteries had certain safety problems. Batteries produced by a Japanese manufacturer for Boeing 787 ignited in mid-air. The function and reliability has since been considerably improved into a mature technology. The market for lithium-ion batteries used to be dominated by Japanese manufacturers such as Sony, Panasonic, etc. These companies are now facing tough competition with Korean and Chinese manufacturers on price and volume, resulting in a decreased market share for Japan. But Japanese companies are still leading regarding technology and innovation in the field. OPPORTUNITIES FOR SWEDISH COMPANIES WITHIN THE ENERGY & ENVIRONMENT SECTOR IN JAPAN There are opportunities in the Japanese energy market for Swedish companies with leading technologies and services, following increased need for energy efficiency, increased introduction of renewable energy sources as well as a liberalization of the electricity market. 1. As the third largest economy in the world, Japan is a big market and the scale itself makes it worthwhile to pay attention to. Furthermore, the Japanese government has authorized additional budgets especially for renewables such as floating offshore wind, geothermal energy and Japan is home to many leading large industrial companies. 2. Japan is a trendsetting market, providing opportunities to be more competitive at home. Japanese companies are eager to collaborate with overseas researchers and conduct pilot tests all over the world. For example is zero-energy buildings (ZEB) or zeroenergy housing (ZEH) likely to be new national standard from 22. 3. Japan is a good reference for the rest of Asia. Japanese companies have farreaching production networks, are known for high quality and have leading technologies. Presence in Japan is a good reference case, especially in Asia (e.g. a leading Chinese solar cell module manufacturing company decided to sign an OEM deal with a Japanese maker to provide made-in-japan products). 4. Greater protection of intellectual property, compared to other Asian markets, and a more secure legal environment. This creates an ecosystem in which it is safe to innovate and invest in new technology and materials (e.g. the world s first plant to produce bio jet and biodiesel fuel from euglena is expected to be finalized in Japan 218). FACT PACK ENERGY & ENVIRONMENT IN JAPAN BUSINESS SWEDEN 7
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