Japan’s Cities Challenge Regional Power Monopolies

Japan Real Estate

Local Energy for Self-sufficient Cities

28 Dec, 2015 –

TOKYO—Japanese cities are entering the renewable-energy business, the latest phase in a shake-up of the nation’s power sector in the aftermath of the 2011 Fukushima nuclear crisis. So far, about 14 cities have formed companies to generate clean energy from local resources and sell it to area businesses and homes. With full deregulation of the nation’s electricity markets set to begin next year, the government aims to have 1,000 such city-operated companies up and running by 2021 in a direct challenge to regional power monopolies. The move is part of Japan’s strategy for creating energy self-sufficiency, while helping revitalize communities with infrastructure investment.

Kitakyushu, a city of nearly 1 million people in southern Fukuoka prefecture, has invested ¥24 million (about $200,000) to form a company that next April will start buying electricity from the two city-owned waste-fired power plants to supply public buildings. Previously, it sold that power to Kyushu Electric Power Co. , but it says it can save money by buying directly from its own plants, allowing it to sell the surplus at rates at least 5% cheaper than those charged by the large regional utility player. By 2022, Kitakyushu’s power company aims to be buying electricity from planned biomass, thermal and wind energy plants, some partly owned by the city. “This way, we know that power that we generate from renewable sources helps support local businesses and communities,” said Tetsuya Ishida, a Kitakyushu city official who promotes local sources of energy.

Japan has little fossil fuels and depends almost entirely on imports. Before the Fukushima crisis, Japan turned heavily to its own nuclear plants to meet about 30% of its energy needs. The government was planning to crank that up to about half of all power generated by 2030. But, in response to Fukushima, the government sidelined its nuclear plants. The public, terrified by the catastrophe, grew more interested in renewable energy. Though the Japanese government has backed a return of nuclear power—only two of its 43 plants are now operating—it cut its 2030 target for nuclear to just more than 20% of all power generated. The 2011 crisis began when one of the most powerful earthquakes ever recorded triggered a tsunami that inundated the Fukushima Daiichi power plant. The cleanup, which has been delayed by repeated radiation leaks and other issues, is expected to take decades.

Hydroelectric sources account for about 9% of Japan’s energy, and that is expected to remain unchanged. But other types of renewables have played a much smaller role, and that is where the community-based plan comes in. The country has set a goal of ramping up renewables to 22% to 24% in 2030, up from 11% as of the fiscal year ending in March 2014. The central government is pledging money to help reach that goal, taking as its model Germany’s stadtwerke, in which municipal utilities played a key role in an energy revolution that has devastated traditional power suppliers.

Prime Minister Shinzo Abe’s ruling Liberal Democratic Party sees investment in local energy self-sufficiency as one way to help revitalize communities struggling because of population decline. The economy ministry, traditionally a backer of nuclear interests, has more than doubled its request for renewable energy subsidies for the coming fiscal year, to ¥82 billion (about $673 million) from ¥36 billion. The Internal Affairs Ministry is looking to triple its budget to help cities conduct feasibility studies next year. Already, 31 municipalities have expressed interest.

The cities have good reason to take the government’s offer, says Takiguchi Shinichiro of the Japan Research Institute. A local power company in a town of 200,000 residents could receive a ¥1.9 billion annual boost to the local economy, including the effects of investment in infrastructure and equipment to boost energy efficiency, as well as local jobs and electricity sales. About 8% of Japanese municipalities are considering entering the retail power market, according to a survey this year by Nagoya University. For now, many more municipalities are taking an intermediate step. Tsuneo Takeuchi, a professor of environmental studies at the university, estimates that about half of Japan’s biggest cities and wards have already turned to power from small renewables producers in a bid to wean themselves from big utilities.

Among them is Shimokawa, a shrinking town of about 3,500 people in northern Hokkaido prefecture, which generates 60% of the heat needed for public buildings by burning wood waste, saving ¥16 million in annual electricity and gas costs. Another is Tsushima, in the country’s southwest, which now sells power from renewable sources to a local utility, but wants to form its own power supplier. Still, many towns remain cautious. One is Hino, in western Tokyo, which has saved over ¥50 million in the three years since its public schools started buying power from Ennet—a power company set up in 2000 by NTT, Tokyo Gas, and Osaka Gas — instead of Tokyo Electric Power Co.

But Hino is overwhelmed by the choice it now faces in a deregulated market, in which it has the option to both buy and sell power to and from myriad small power producers and users. “We’re talking about tax money. Funds that are lost are funds that we can’t allocate to services,” said Hitoshi Okano, a city official in charge of administrative management. “But we are doing our homework. There is a great deal to study.”

(Source – “The Wall Street Journal“, Pic – Hydro-electric Plant / “Takuma Kimura“)

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