Review of feed-in tariff system

A review of the feed-in tariff system, introduced in 2012 to promote introduction of renewable energy following the shutdown of nuclear reactors in the wake of the 2011 disaster at Tokyo Electric Power Co.’s Fukushima No. 1 power plant, is underway by a panel of experts at the Ministry of Economy, Trade and Industry.

Planned amendments to the system, aimed at addressing several problems that came to light in its first three years, should be implemented in ways that contribute to boosting the scant share of renewable sources in the nation’s electricity supply. The reform should also be accompanied by greater efforts to build a public consensus on what cost the nation is ready to shoulder to establish a sustainable energy supply.

Currently, electricity generated by renewable sources accounts for only 12.2 percent of the nation’s total. The share of sources such as solar and wind but not including hydro stands at a mere 3.2 percent. To achieve the government’s goal of boosting the renewable share to 22 to 24 percent in 2030 — and hopefully beyond — the system to expand renewable energy supply needs to be based on a long-term vision.

The feed-in-tariff system, which began in July 2012, makes it mandatory for power companies to buy electricity generated by renewable sources at fixed prices set by the government, so that the prospect of stable revenue will facilitate investment in renewable power generation. The system has indeed sharply boosted the introduction of solar power, whose facilities can be built relatively easily and quickly. Solar power output during the peak-demand period in summer 2014 reached 6.33 million kilowatts — the equivalent of six nuclear reactors.

However, much of the increase in renewable energy output capacity under the system — more than 90 percent of the total — has been concentrated in solar. This sharp increase in output led several major power companies to suspend purchases of electricity from solar power operators, on the grounds that their power supply system could be disrupted.

It has also been pointed out that many operators of solar power businesses that have obtained a government permit to sell the electricity at a high fixed price have not started producing power because they’re waiting for the cost of solar panels and other items to decrease.

The system should be corrected to prevent distortions in the way renewable energy develops. And yet it appears indisputable that the system is contributing to expansion of the use of renewable energy in this country. In the ongoing review, the government should not lose track of the system’s basic purpose — to reduce the risks for businesses that are serious about developing renewable energy, and to get all of society to share the cost of expanding the use of renewable energy.

The fixed prices for purchase of electricity from renewable sources are set high to ensure a profit margin for the producers. The power companies’ cost of buying such electricity is passed on to households and businesses.

During the current fiscal year, the total cost of purchasing renewable energy is projected to reach ¥1.8 trillion. The cost is expected to rise to as high as ¥4 trillion in 2030 if the renewable supply is doubled from the current level in line with government targets.

Reportedly under consideration in the ministry’s review of the system is a mechanism to introduce an auction for energy operators if the output of solar power reaches a certain level, so that the purchase of power from more efficient operators would be prioritized and trim the overall cost.

Also called for in the review is a more balanced promotion of various renewable sources whose output is less affected by weather conditions than solar. The ministry is believed to be weighing whether to fix purchase prices for wind, hydro, geothermal and biomass for several years ahead — instead of revising them annually — to promote investments in energy facilities that require a long period to be completed. This could reduce the risk of price fluctuations for prospective operators and encourage them to cut costs.

Under the feed-in-tariff system, the additional charges that consumers pay for electricity will increase as the power supply from renewable sources rises. While the government and power producers should make sustained efforts to win the understanding and support of consumers, the latter will also need to think about the benefits and problems of the system as they weigh the impact on their pocketbooks.

To help build a popular consensus on the issue, discussions of the feed-in tariff system and other measures to promote introduction of renewable energy should be made transparent, rather than being monopolized by the bureaucracy and business interests.