Japan mulls introduction of clean energy power exchange

Japan’s solar industry could be aided by the introduction of a new, renewables-focused power exchange that would allow customers to cherry-pick the energy they purchase and enable them to advertise their clean energy credentials.

Talk is currently in the early stages, but those working close to the power industry in Japan believe that a new clean energy market could be introduced as early as 2018, with the prevalent thinking being that consumers and companies eager to advertise their green credentials would opt to pay more for solar energy if they were able to do so.

The country’s Ministry of Economy, Trade and Industry is mulling the introduction of such a power exchange, and its immediate benefits to solar are twofold: in enabling corporations to meet the growing demand for clean power, and allowing solar producers to find willing buyers outside of Japan’s FIT, which is contracting rapidly.

According to Bloomberg New Energy Finance’s (BNEF) Asian clean energy policy analyst Takehiro Kawahara, the exchange could be hosted on the Japan Electric Power Exchange (JPEX) or one of a handful of other platforms.

"JPEX is a plausible option, although there are other options, such as the Tokyo Commodity Exchange (TOCOM)", he told pv magazine. "At this stage it is not actually clear what form of trading would take place."

According to Kawahara, the viability of a clean power exchange would very much depend on what type of additional regulatory changes take place.

"Existing regulation in Japan drives up the cost of construction of new renewable energy projects, and network rules – particularly for inter-regional transmission – act as significant barriers to the high uptake of renewables."

Currently, network rules make it impossible to structure synthetic PPAs in Japan for the virtual delivery of power as opposed to the physical delivery of power. So if a corporate consumer from the Tokyo region wants to sign a PPA for a solar project in the region of Tohoku, they currently have to sign contracts for physical delivery of power, ie, network charges in the region managed by Tohoku Electric, as well as having to negotiate with Tokyo’s TEPCO for the delivery of power in their inter-regional transmission link dispatch schedule. This, says Kawahara, makes the final cost of the renewable electricity "uneconomical" and "very complicated".

Hence, these regulatory barriers would have to be altered to make the introduction of a renewable power exchange worthwhile.

As for "green" credentials and corporate bragging rights, the BNEF analyst told pv magazine that there is indeed a growing clamor for cleaner power among Japan’s larger firms. "There is certainly demand for corporate clean power procurement, partly because global companies such as Apple have committed to make their entire supply chain emission-free," he said. "Thus, Japanese companies such as Murata and Sharp will need to start thinking about how they will procure clean power."

Toyota has already set itself a long-term emission reduction goal, and others are likely to follow suit. However, Japan’s FIT remains something of both a carrot and a stick for solar uptake. "Today, if these Japanese players choose to procure renewable energy covered by the FIT, they are not allowed to claim any green/clean energy credits, as according to Japanese regulation the credits of renewable energy produced under the FIT are owned by the whole society," Takahara explained.

Hence, solar developers do not build projects outside of the FIT program because electricity generation costs are higher due to the regulatory barriers. But higher cost is, for some, a price worth paying – particularly among eco-conscious and wealthier residential consumers.

"But the majority of C&I electricity consumers would not pay more for renewable power as they need to constantly control their costs in order to remain globally competitive," warned the BNEF analyst.

Next year the Japanese government is launching a forward electricity market, and it is likely that they will assess how this plays out before introducing any additional market mechanisms. "So the earliest we would see a renewable power exchange introduced is 2018, but more likely around 2020," he said.