To call a spade a spade, the Democratic Party of Japan (DPJ) administrations of Yukio Hatoyama and Naoto Kan (in office successively September 16, 2010 to September 2, 2011) accomplished very little, while leaving behind much chaos and damage that will likely continue to have a negative bearing on the nation for a long time to come. One example is the Japanese version of FIT (Feed-in-Tariff), a system about to be implemented effective July 1 obligating utility companies to purchase power from renewable energy sources.

　　　FIT is a scheme tenaciously advocated by Kan, who on August 6, 2011, pledged a nuclear free future for Japan on the occasion of the 66th anniversary of the Hiroshima atomic bomb dropped by the US. FIT is designed to have utility companies purchase all of the electricity generated from natural and renewable (solar, wind, hydraulic, geothermal, and biomass) energy sources over a maximum period of 20 years with prices fixed. Because a new law enacted this year allows utilities to add to electricity bills all of the purchasing costs, end users are expected to eventually pick up the full expense.

　　　The law, commonly called “the FIT law,” is officially referred to as the “Special Act on the Purchase of Renewable Energy-Sourced Electricity by Electric Utilities.” It was approved by Kan’s cabinet on March 11, 2011 -€ the same day Kan was reported to have illegally received a political contribution from a non-Japanese resident in a front-page scoop by the mass circulation daily Asashi. Because Foreign Minister Seiji Maehara was forced to resign on similar charges less than a week before, Kan’s imminent resignation was generally taken for granted. It was at this critical moment that the cabinet approved the law.

　　　Several hours later on the same day, the Great East Japan Earthquake and ensuing tsunami hit the Pacific northeast coast of Japan, barely sparing Kan his resignation. Facing this unprecedented national crisis, the people of Japan linked their hearts and minds together in vowing to rise from the catastrophe, and naturally expected the government to take the initiative in demonstrating the vigor and competence to overcome the crisis and reconstruct the battered regions and rejuvenate Japan. But Kan failed miserably to deliver the goods, subsequently prompting an overwhelming majority of Japanese to start demanding that he step down immediately. And yet, Kan clung to the premier’s seat, confronting his opponents with a succession of “conditions for resignation.” The FIT law was enacted as Kan assumed an attitude of willful defiance, declaring he was ready to resign only as long as all his conditions were met.

　　　The FIT law is Kan’s parting gift, of sorts. Under the law, the purchase price of solar electricity was set at 42 (US$0.53) per one kilowatt hour (1kWh) including tax; wind electricity at 23.1 (US$0.29) (minimum volume: 20kWh); and hydroelectricity between 25.2 (US$0.32) and 35.70 (US$0.45). Each of these prices is fixed for 20 years. Meanwhile, geothermal electricity was priced at between 27.3 (US$0.34) and 42 (US$0.53) over a 15-year span.

Wisdom of Not Walking into the Footsteps of Germany

　　　Let us compare the prices with Germany, world leader in utilization of natural and recyclable energy sources. The prices for electricity per 1kWh in Germany are as follows: solar electricity – 18-24 (converted from the German Mark) vs 42 (US$0.53) in Japan, making Japanese prices twice as high as Germany’s; wind electricity – 5-9 (US$0.063-US$0.11) vs 23.1 (US$0.29) in Japan; biomass – 6-14.3 (US$0.08-0.18) vs a maximum of slightly over 40 (US$0.50). In these last two categories, too, the prices in Japan are at least twice as high as in Germany.

　　　Solar electricity in Germany varies in price because there are a number of different types of generators. Germany derives some 60% of its solar electricity from photovoltaic units attached to the roofs of corporation buildings and plants, while 30 % is from ground-based solar panels, with the remaining 10% from units installed in private homes. Whereas in Japan, 86% of electricity from photovoltaic power generation is attributable to private homes.

　　　The costs of natural and recyclable energy-sourced power generation, including solar, consists of the unit itself as well as the labor cost of installation. Otherwise, the raw material is available free of charge (excluding biomass generation, which requires woodchips). The question is why the purchasing prices are twice to three times higher than in Germany when the raw material, i.e., sunshine, is free and low-cost equipment, such as solar panels, is internationally available.

　　　These prices, set by the Procurement Price Calculation Committee of the Ministry of Economy, Trade and Industry, have in fact attracted criticism from various quarters advocating promotion of electricity utilizing natural and recyclable energy sources, but the law is scheduled to be implemented on July 1 without any clear explanation from the ministry. The new law is a blatant blunder. In point of fact, Germany, which Kan and his backers emulated in forging ahead with enactment of the law, has taken a major step forward lately to change course drastically, reflecting undue expectations its FIT law has created for natural and recyclable energy sources in the society at large as well as for higher purchase prices on the part of energy suppliers.

　　　Germany introduced FIT in 1991, and has for more than two decades given high priority to solar and wind generation, obligating utility companies to purchase all of the electricity thus generated at fixed prices.

　　　As mentioned earlier, the fundamental raw material is free in solar and wind generation. The materials for equipment are being mass-produced in countries like China and South Korea, available at ever reduced prices. New market entrants have increased while budgets for fixed price purchases have risen steeply -€ 13.6 billion euro (US$16.9 billion) in 2011 alone, roughly half of which involved solar generation. In the past two decades, Germany is believed to have invested a cumulative total of 10 trillion yen (US$125 billion) in solar generation, which surprisingly accounts for only 3% of the country’s total electricity output today. No wonder German magazine Der Spiegel criticized the nation’s solar generation as a “massive money pit” in its January 16 issue this year.

　　　In an attempt to prevent funds for the purchase of electricity from ballooning uncontrollably and avoid imposing heavier financial burdens on the people, the German government has begun lowering purchase prices in stages. After reducing to 24 (US$0.30) the purchase price which had stood at 43 (US$0.54) in 2009, the German government took further price-reduction measures this spring. Legislation was introduced proposing such steps as (1) implementing monthly reviews of prices, and (2) limiting to 80% of the total output the volume of power purchased. The bill was approved by the lower house of the parliament, but was rejected by the upper house. As of June 26, 2012, the bill is still in the hands of a reconciliation committee of the two houses.

Overbearing Financial Burden on the People

　　　While the outcome is hard to predict, Germany appears to be clearly and steadily making headway towards rectifying its excessive promotion of power generation utilizing natural and recyclable energy sources. The possibility of Chancellor Angela Merkel taking the plunge to review nuclear power generation -€ something which she declared she would never do -€ is being discussed among various German quarters. In fact, the chancellor’s stance against nuclear power makes little sense in the first place, because Germany’s energy base depends significantly on imported electricity generated by nuclear power plants in France.

　　　Meanwhile in the international community, bankruptcies of corporations which once constituted the nucleus of the world’s solar generation have been making headlines. Two months ago, on April 2, Q-Cells, once the world’s largest solar-cell manufacturer, announced it would take legal steps to file for bankruptcy. On the same day, Solar Trust of America LLC, a major solar generation developer based in Oakland, CA, filed for bankruptcy protection; Solar Millennium, its parent company headquartered in Germany, began insolvency proceedings last December.

　　　Japan has a lot to learn from the German experience. Development of natural and recyclable energy sources has important consequences for man’s future, and Japan ought to be in the vanguard of new technological development. And yet, keeping the German experience in mind, we must be aware that treating natural and recyclable energy as the mainstay of Japan’s grand energy strategy by purchasing electricity at fixed prices over a long span of time would impose excessive economic and financial burdens on the general populace.

　　　This being the case, every effort should be made to revise the Japanese FIT which will shortly be implemented. Firstly, a system must urgently be introduced to enable purchase prices to be stringently reviewed every month as is proposed in Germany. Because the Japanese FIT stipulates that purchase prices be determined by adding appropriate profit to overall generation cost in order to protect new companies coming into the field, there is currently no room for utility companies to “beat down” providers of renewable electricity on pricing. One should not forget that the 42 (US$0.53) price tag for 1kWh of electricity in itself is already a dear price -€ much higher than what the industry had hoped for. Officials concerned must immediately start reviewing this law, while at the same time rediscovering the merits and vital importance of nuclear power generation, unafraid to take the lead in technological innovation in this field. Japan’s future is at stake.

(Translated from “Renaissance Japan” column no. 516 in the July 5, 2012 issue of The Weekly Shincho)