The Renewable Energy Development and Related Promotion and Pricing Mechanism in Japan

1. APEC Workshop on Renewable Energy Promotion and Pricing Mechanism, Taipei, Chinese Taipei The Renewable Energy Development and Related Promotion and PricingMechanism in Japan September 26, 2013 Takao Ikeda The Institute of Energy Economics, Japan (IEEJ)

2. Generation Mix 1

3. Generation Mix Trend in Japan • LNG mainly compensates for the decline of nuclearafter 2011 (Source) METI 2

4. Current Generation Mix in Japan • Among the total electricity generated in fiscal 2010, renewable energy, etc. accounted for approximately 10%; approximately 9% of which is hydraulic power generation. • Other renewable energy is still cost prohibitive. Composition of annual electricity generated in Japan FY 2010 FY 2011 Coal Petroleum Approx. 8% Approx. 24% Hydropower Approx. 1% Approx. 9% Renewable energy excluding hydropower Approx 39.5％ Approx. 27% Natural gas Approx. 31% Nuclear power Note: “Etc.” of “Renewable energy, etc.” includes the recovery of energy derived from waste, refuse derived fuel (RDF) products, heat supply utilizing waste heat, industrial steam recovery, and industrial electricity recovery. Source: Prepared based on the Agency for Natural Resources and Energy’s “Outline of Electric Power Development in FY 2010” 3

5. Promotion and Pricing Mechanism • of New and Renewable Energy 4

6. Major laws and strategies for Renewable Energy in Japan #1 1. Sunshine Project (1974) Long-term national project for new energy technology research and development in Japan launched in July 1974. In 1993, Sunshine project was renewed as the New Sunshine Project consolidated with Moonlight Project ( Energy Efficiency) and other environmental project. The project has finished in 2000. 2. Law Concerning Promotion of the Development and Introduction of Alternative Energy (1980） Known as “Oil Alternative Energy Law”. Oil Alternative Energy were developed and introduced for (1)Combustion, (2)heat, (3)energy, and (4)electricity which are generated from other than oil products. In 2009, oil alternative law was renewed as “NonFossil Energy Law”. In this law, energy suppliers (Electricity/Gas/Oil companies) have to use non-fossil energies while using fossil oil efficiently. 3. Law Concerning Special Measures to Promote the Use of New Energy (1997) Known as “New Energy Law”. New Energy is energy which are not price-competitive among Oil Alternative Energy. Hydropower and Geo-thermal power are not included because of their price-competitiveness. （http://www.japaneselawtranslation.go.jp/law/detail/?ft=1&re=02&dn=1&co=01&ky=%E6%96%B0%E3%82%A8%E3%83%8D%E3%83%AB%E3%82%AE%E3%83%BC&page=3） 5

7. Oil Alternative Energy Coal Natural Gas Nuclear Power Renewable Energy Large Hydropower New Energy Small Hydropower Geothermal(binary) Biomass Photovoltaic Power Biomass Power Wind Power (Black Liquor) (Scrap Wood) Unutilized Energy (Temperature Deference Energy) Solar Thermal Biomass Thermal Unutilized Energy (Snow Ice) Biofuels Ocean Energy (Energy Crops) Natural Energy Recycling Energy Waste Power Waste-based Fuels (RDF) Waste Thermal Revision of “New Energy” Innovative High-level Energy Utilization Technology Development of Renewable Energy PV（High Efficiency, New Materials）, Battery for PV and Wind in parallel including capacitor, Ethanol Production Technology from lignocellulosic biomass, BTL （Biomass to Liquid） Production Technology, Gasification Power Generation from Biogas Geothermal Rapid Advancement of Energy Efficiency Stationary Fuel Cell, Hybrid Auto, Natural Gas Cogeneration, Heat Pump, Oil Residue Gasification Technology (IGCC, IGFC, etc), Clean Coal Technology Diversification of Energy Source Fuel Cell Vehicle, Electric Vehicle, Plug-in Hybrid Vehicle, CNG Vehicle, Diesel-substitute LP gas Vehicle, Hydrogen Vehicle, High Concentration Bio Fuel Vehicle, GTL Production Technology, DME Production Technology, Non-traditional Fossil Fuel Usage Technology (Methane Hydrate, Oil Sand, etc) 6 (Source) Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry (METI), Japan (modified by IEEJ)

8. Major laws and strategies for Renewable Energy in Japan#2 4. Special Measures Law Concerning the Use of New Energy by Electric Utilities (2002) Known as RPS (Renewable Portfolio Standard) Law. In this law, the amount usage of renewable energy goals were established with 5 kinds of electricity (wind, solar, small hydropower, biomass power generation , binary geothermal). （http://www.rps.go.jp/RPS/new-contents/top/toplink-english.html） 5. Biomass Nippon Strategy (2002/2006) Comprehensive strategy of utilization of biomass set by Ministry of Agriculture, Forestry and Fisheries in cooperation with Ministry of Economy, Trade and Industry, the Ministry of the Environment, and Ministry of Land, Infrastructure, Transport and Tourism etc. 6. New National Energy Strategy (2006) National energy strategy for 2030.Regarding renewable Energy, (1) promoting innovation in new energy technologies (achievement of PV power cost reduction comparable to thermal power generation etc.), (2)introducing 20% alternative energy in transportation sector etc. 7. Special Measures Law Concerning the Purchase of Renewable Energy Electricity by Electric Utilities (2011) Known as FIT (Feed in Tariff) Law, which will start from July, 2012. In this law, the purchasing price and its duration will be determined separately. 7

9. Outline • RPS (Renewable Portfolio Standard) • wind, solar, small hydropower, biomass power generation , binary geothermal • 8-year target set by every 4 years 2003 • Buyback surplus PV electricity from residence • Developed from Utilities’ voluntary Net metering system 2009 Nov 2011 Aug Passage of FIT Law • Proposal from the Advisory Committee • Proposal from Advisory committee for the purchasing rate and the duration 2012 Apr • Public Comment • From May 16 to June 1 2012 May • Commencement of FIT • Start from July 1 2012 Jul • Revision of PV tariff • Based on the PV system price decline FY 2013 8

10. (TWh) 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Commencement of RPS 2003 Hydro Wind Biomass PV 2004 Wind Hydro Biomass PV 2005 Wind Hydro Biomass PV 2006 Hydro Wind Biomass PV 2007 Biomass Wind Hydro PV 2008 Hydro Wind Biomass PV under Buyback PV Buyback System for surplus PV electricity from residence 2009 Wind Hydro Biomass PV 2010 Hydro Biomass Wind PV PV under Buyback Renewable Energy Purchased by Utilities under RPS Source: METI 9

11. Buyback System started from Nov 2009(1) Major points of the buyback system • ○Of the electricity generated by photovoltaic generation systems, surplus electricity will be purchased. • ○ The buyback period is within the 10 years from the start of the program. The buyback price is fixed. • (※The buyback price may differ depending on the fiscal year in which a panel is installed. In the initial stages, it is \48/kWh for residential use [less than 10kW].) • ○ Expenses will be born by all electricity users. Electric Power Companies Electricity Users Surplus electricity Electricity Purchase revenue (\48/kWh for residential use) as of Nov. 2009 Solar surcharge (Born by all electricity users) Surplus electricity Purchase revenue (\24/kWh for purposes other than residential use) Users of photovoltaic generation systems ※In the initial stages after installation, \48/kWh for residential use (less than 10kW) and \24/kWh for other uses. In the case where a private electric generator is also installed, \39/kWh and \20/kWh, respectively. 10

12. Buyback System started from Nov 2009(2) Rate inside the brackets are for the houses/ facilities using private generation system(photovoltaic generation plus fuel cells, etc.) Buybacks rate will be decide each year and the rate continues for 10 years after the start of the program. 11

13. Electricity from Renewable Source Supply Electricity Power producers utilizing renewable energy Utilities PV Middle & Small Hydro Purchase Electricity Collecting Surcharge rate for FIT With ordinary electricity rate Wind Fund for Purchasing Electricity from Renewable Energy Payment of collecting amount of surcharge Organization for adjusting the surcharge by different region Customers Biomass Geothermal Decide the tariff rate every fiscal year with respect for the opinion from advisory committee for purchasing price Decide Surcharge rate for FIT every fiscal year Minister Economy, Trade and Industry Power from PV at houses Approving power generation facilities Advice of Rate and Duration Advisory committee for purchasing price etc FIT Basic Scheme (Started From July 2012) Source: METI

14. Major Revision from RPS to FIT Source: METI 13

15. Electricity Cost Estimation in Japan (Japanese Yen/kWh) Source: National Policy Unit, Cabinet Secretariat http://www.npu.go.jp/policy/policy09/archive02_shisan_sheet.html 2010 2030 2020 14

16. Feed in Tariff started from July 2012 FY 2013; PV 10kW >=: \37.8(36.0+Tax)/kWh, 10kW< \38.0/kWh (Incl. Tax) 15 Source: METI

17. Deployment in FY2012 and FY2013(April and May) Major part of deployment under FIT is PV due to the development Terms 16 Source: METI

18. PV System cost revison (residential use) • FIT for PV residential sect which is started from July 2012 was based on the PV System cost of JPY(10 thousand) 46.6 / kW in 1st Q 2012. • Revised FIT for residential PV for FY 2013 should be based on the latest (4th Qtr) cost which is JPY(10 thousand) 42.7 / kW. • About JPY(10 thousand) 4 / kW has dropped (10thousand JPY/kW) Already Build Total Ave. Newly Build System cost for FY2012 tariff Latest System cost for FY2013 tariff Source: METI Oct-Dec, 2011 Jan-Mar, 2012 Apr-Jun, 2012 Jul-Sep, 2012 Oct-Dec, 2012 Jan-Mar, 2013 Apr-Jun, 2013 National Government Subsidyfor Residential PV system 17

19. Development in the Future 18

20. Geothermal Power Plants (Japan) (Source) Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry (METI), Japan

21. Governmental support measures FY 2012 budget • Choice of Energy Options:Issued on June 2012 • The geothermal amount of introduction is made into 3% of the total electric power production (27,200 • millions kwh) at the maximum in 2030. ※2010 track record: 0.2% (2,600 millions kwh) [Targets] Cost of test drilling, etc. including geological surveys. Budget: \9.05 billion Subsidy ratio: 50% to 75% Installation of power generation facilities Exploration (drilling of exploration wells, etc.) Geological survey Construction stage Risk Feed-in tariff scheme Subsidy [Targets] Cost of drilling exploration wells to check whether a sufficient volume of steam can be stably extracted from heat sources. Budget : \5 billion Investment ratio: 50% Investment Loan guarantee [Targets] Cost of drilling wells necessary for power generation Budget: \1 billion Loan guarantee ratio: 80% Electric utilities purchase electricity generated from renewable sources including geothermal at the procurement price and for the procurement period.

22. Regulations on geothermal development １．Natural Park Act Geological surveys and drillings for geothermal energy in national parks are restricted according to the protection zones. ２．Hot Spring Act Drilling in pursuit of hot springs (hot water, mineral water, steam and other gas from underground) requires a permission of the prefectural governor. ３．Forest Law Cutting down protected forests for constructing a base for drilling or a power generation plant requires delisting from protected status. Delisting requires a proven necessity for the public interest. ４． Act on Special Measures concerning Reform of National Forest Business Management Constructing a base for drilling or a power generation plant in a national forest requires loaning. A national forest can be used for public use or within 5ha in area, otherwise it cannot be used. ５． The Environmental Impact Assessment Law Constructing a power generation plant with output of 10,000kW or over requires EIA. When constructing a power generation plant with an output of 7,500kW-10,000kW, the necessity of EIA is judged by project. ６． Electric Utilities Industry Law Power facilities requires placing chief engineers in charge of supervision of safety matters of construction work, maintenance and operation of the power facilities.

23. Offshore Wind demonstration project Offshore of Fukushima Pref. METI 2MW class Floating offshore wind turbine and 2 set of 7 MW class floating wind turbine Floating substation from FY2013 Offshore of Choshi, Chiba Pref.(2.4MW) /Offshore of Kitakyushu, Fukuoka Pref (2.0MW) Offshore of Goto, Nagasaki Pref.(2.4MW) Wind Resource Wind Speed • MOE • 100KW class floating wind turbine from FY2012 • 2MW class floating Wind from FY2013 • METI(NEDO) • 2MW class wind turbine • Wind observatory tower • demonstration projects • started from FY2012 22

24. Renewable Energy Deployment Potential in Japan -19% 23

25. Grid Framework in Japan Hokkaido Direct current power transmission Tohoku Tokyo Hokuriku Kansai Chubu Kyushu Shikoku Frequency converter station Direct current power transmission 24

26. Solar and Wind Power Deployment Potential in Japan 25

27. Large Battery Demonstration Projects Large Battery Demonstration Projects for Grid Stabilization R&D Target : Cost reduction of batteries as same level as Pumped Hydro in 2020 Redox FlowBattery Lithium-ion Battery NASBattery 26

28. Demonstration Project on Next-generation Energy and Social Systems in Japan (FY 2010-FY2014) Large-scale and cutting-edge pilot projects have been launched in 4 areas. The outcomes to be accumulated through the projects will be utilized to create smart communities and smart cities in Asia and other countries. Kyoto Keihanna District Demonstration using new technologies in science city Yokohama City Kitakyushu City Large-scale demonstration in major city Demonstration in industrial city Toyota City Community-based demonstration in provincial city 27

29. Information of Smart Community Projects http://jscp.nepc.or.jp/en/ http://jscp.nepc.or.jp/en/video.shtml 28

30. Thank you for your attention!