Japan’s Feed-in Tariff (FIT) scheme—the negative legacy of a former prime minister obsessed with a fervid anti-nuclear ideology—is clearly showing signs of crumbling under its own weight.

　　　　　In view of the marked need for utility companies across the archipelago to raise power rates in recent months (a 12.43% increase is planned by Hokkaido Electric Company effective November 1) and their exorbitant outlays for imported fossil fuels, it is clearly time for Japan to bid farewell to its troubled FIT scheme. The scheme is based on the Special Measures Concerning Procurement of Renewable Energy, enacted in August 2011.

　　　　　Right from its start, FIT was clearly doomed as I pointed out in this column.

　　　　　FIT is a system aimed at promoting renewable energy by obligating utilities to buy electricity generated from renewable energy sources—solar heat, geothermal energy, water, wind, and biomass—over a fixed period (up to 20 years) at pre-determined prices. FIT allows operators to surcharge profit margins on their expenses. However, regenerated energy in Japan has yet to mature technologically, and is costly on the whole because supply remains unstable, as electricity generated from renewable sources is severely affected by climatic conditions. While it also puts a severe strain on family and corporate finances because of high installation costs, the utilities’ commitment to buying electricity from these unstable sources in turn affects their own ability to deliver electricity to their clients.

　　　　　Refuting mounting pressure to resign as prime minister for ineptly handling the Fukushima disaster, Kan, the then incumbent Democratic Party of Japan leader, insisted that three demands be met expeditiously in exchange for his resignation. One of these was the FIT scheme.

　　　　　The FIT scheme was implemented in August 2011, setting the pre-tax buyback price of solar power at 42 yen (approximately 42 US cents) per kilowatt for purchases up to 10 kilowatts, and at 40 yen (40 US cents) over 10 kilowatts. According to the scheme, if new applications submitted by renewable power generation plant operators and individual households are accepted, utilities must continue purchasing that electricity over the next 20 years at the fixed prices.

　　　　　The prices for electricity from renewable resources, including wind and thermal energy, were set generally at twice those of Germany, which has been in the forefront of renewable energy technology. The price tag for solar energy electricity was set notably higher, reflecting the wishes of Japan’s budding solar energy industry. It was quite natural that investments, including those from abroad, centered on solar power generation, which now accounts for more than 90 percent of electricity available from all renewable energy resources in Japan.

“A Gigantic Money Pit”

　　　　　The purchase price of solar electricity has been annually reviewed, reduced last year from 42 yen per kilowatt to 38 yen and then to 37 yen this year for purchases below 10 kWh, and from 40 yen to 36 yen last year, then down to 32 yen this year for purchases over 10 kWh.

　　　　　In the one month before prices were reduced in April this year, utilities received approximately 70,000 applications for grid connections from renewable solar power providers matching the total number of applications in the year preceding the price reduction. This threatened the utilities’ ability to profitably maintain a stable electricity supply to its clients—private homes as well as businesses—forcing them to subsequently suspend purchases of electricity from renewable energy resources.

　　　　　I may be repeating myself, but wish to stress that, when Japan introduced its own FIT scheme, such an outcome would have been easily predictable from what Germany had experienced. For nearly two decades since 1991, Germany concentrated its energies on generation of renewable energy, pouring more than 10 trillion yen (US$10 billion) in tax money into solar power generation. And yet the electricity thus generated accounted for a mere 3% of Germany’s total output, with news magazine del Spiegel describing German solar power generation efforts as a “gigantic money pit.”

　　　　　Germany later altered its excessive promotion of renewable energy resources. However, its solar power generation project was creating problems that also involved its neighbors. Needless to say, solar power can only be regenerated during the day, its output quickly reduced to zero as soon as the sun sets. The discrepancy in electricity supply between the day-time, when the sun is out, and the night time when no power generation is possible, has created a nasty problem in terms of voltage regulation. As a result, in an attempt to stabilize domestic electricity supply, the German government has taken the desperate measure of turning primarily to electricity from French nuclear power plants and domestic thermal power plants, which use coal as their main source of fuel. Meanwhile, it has made arrangements with neighboring nations, such as Poland, under which the unsteady supply of electricity from renewable energy resources is offered for sale at ridiculous prices.

　　　　　When former Prime Minister Kan got fully worked up over the introduction of FIT in Japan, Germany’s bitter experience was already well known. Had he been so humble as to be willing to learn from Germany’s mistakes, putting aside his obsessive anti-nuclear ideology, or had he been able to rationally contemplate Japan’s national interests, including the economy, even a politician like Kan could have refrained from implementing FIT in Japan.

　　　　　Notwithstanding my criticism of Kan and FIT, I am one to favor utilizing renewable energy resources. I firmly believe that Japan, of all countries, should be in the vanguard of this movement. We should concentrate our maximum efforts in this field as part of our national strategy, but simultaneously be aware that a thorough development of the necessary technologies will require years of effort to complete. I wish to stress that, in the meantime, it will be in our national interests to resort to electricity from nuclear power generation, doing everything in our power to ensure its safety. Looking at the situation realistically, it is clear that the current FIT scheme is doomed.

Waste Inhibiting Economic Growth

　　　　　As a result of the sudden increase in applications prior to the planned buyback price reduction, utilities have ended up with more electricity than they can expect to sell at a reasonable profit. For example, Kyushu Electric Power Company reports that, combining what it already has available and what will become obtainable from new applications, it has some 12.6 million kWh of solar energy electricity available—more than enough to supply all its customers during the daytime, when demand is relatively low. If the firm decides to purchase all the electricity offered to it, it theoretically can supply all of its customers without bothering to operate its own power plants during the day. However, it will have to turn completely to thermal power generation when night falls. It also will have to resort to thermal power generation whenever the weather unpredictably turns foul during the day. Under such unstable conditions, securing a steady supply of power would be practically impossible. In that sense, it was unavoidable that Kyushu Electric Company suspended new purchases, and that the four regional power companies—in Hokkaido, Tohoku, Shikoku, and Okinawa—all withheld signing new contracts at least until the end of September. I also view it as quite rational for the Ministry of Economy, Trade and Industry to have made a comprehensive review of the FIT scheme.

　　　　　Because not even one of Japan’s nuclear power stations now numbering 54 is in operation after Fukushima, our self-sufficiency ratio in primary energy supply has dwindled to 6.0% since March 11, 2011, making Japan 33rd among the 34 member nations of OECD—just ahead of Luxemburg. Japan’s energy situation has deteriorated to the level of one of the smallest nations in the world with a population of a mere 550,000 versus Japan’s 127 million.

　　　　　Japan is currently spending a whopping annual 28 trillion yen (US$ 280 billion) on imported oil—an increase by 10 trillion yen (US$ 100 billion) in just three years since Fukushima. Of the additional 10 trillion yen, 3.7 trillion yen (US$ 37 billion) is spent to cover increases in fuel costs resulting from the stoppage of all of its nuclear power plants with the remaining 6.3 trillion yen (US$ 63 billion) reflecting increases in fossil fuel prices as well as a weaker yen. Behind the sharp price increases are the world’s suppliers who are not hesitating to take advantage of Japan’s desperate current need for oil and natural gas.

　　　　　It has been generally believed that Japan is daily spending 10 billion yen (US$ 100 million) more since shutting down its nuclear plants. But the truth of the matter is that the actual number is three times that—US$ 300 million a day! Such a horrendous waste is a significant inhibition to Japan’s economic growth. In order to rectify this situation, in which huge capital is flowing out of Japan to secure energy resources, Japan should make its utmost efforts to expedite the resumption of nuclear power generation, ensuring all necessary safety measures are in place before doing so.

(Translated from “Renaissance Japan” column no. 629 in the November 6, 2014 issue of The Weekly Shincho）