Japan's Energy Mix Post-Fukushima
Japan is important to consider on the global energy stage. The country’s emissions footprint is considerably smaller than China and the U.S. While Japan's energy footprint isn't growing as rapidly as India's, it’s still the fifth-largest emitter of any country globally, with emissions representing roughly three to 4% of the global total. Japan's energy system is heavily fossil fuel-based, especially after it cut nuclear power generation from roughly one-third to zero in the aftermath of the 2011 Fukushima incident.
Today we're diving into the Japanese energy economy and decarbonization efforts with Isshu Kikuma. Isshu has been with Bloomberg New Energy Finance since 2018, and up until last month his role there was Japan Energy Analyst. He just switched his focus to the energy storage world, but clearly brings a wealth of knowledge on Japan, energy, and decarbonization.
We've been doing these geo tours on the pod for a while, covering countries like China, India, Brazil, and Kenya. Just check out our pod archives at the links below.
Episode recorded on June 4, 2024 (Published on July 22, 2024)
In this episode, we cover:
Japan's current power mix and heavy reliance on fossil fuels
Decrease in nuclear power generation after the Fukushima incident
The country's share of renewables
Challenges and potential of offshore wind in Japan
Programs and initiatives to encourage emission reductions, including the feed-in tariff scheme
The structure of Japan's power grid and interconnections between regions
The role of industry in energy use and emissions reduction
Japan's emissions targets
Market-based levers and consumer programs in Japan, including the RE-100 initiative and EV subsidies
Japan's funding of coal power plants in other Southeast Asian countries
Climate change impacts on Japan and resiliency efforts
The role of battery energy storage in Japan's power grid
Geothermal and more
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Cody Simms:
Today on My Climate Journey, our guest is Isshu Kikuma, and our topic is Japan. We're diving into the Japanese energy economy and decarbonization efforts. We've been doing these geo tours on the pod for a while, having covered countries like China, India, Brazil, and Kenya. Just check out our pod archives. Japan is a very important economy to consider. The emissions footprint of Japan is considerably smaller than that of China and the US, and Japan's energy footprint isn't growing anywhere near as rapidly as say India's, but Japan is still the fifth largest emitter of any country in the world, with emissions representing roughly 3% to 4% of the global total.
And Japan's energy system is heavily fossil fuel-based, especially after Japan cut its nuclear power generation footprint from roughly 1/3 to zero in the aftermath of the Fukushima incident in 2011. There's a lot to cover here. Isshu has been with Bloomberg New Energy Finance since 2018, and up until last month his role there was Japan energy analyst. He just switched his focus to the energy storage world, but clearly brings a wealth of knowledge on all things Japan energy and decarbonization. But before we start, I'm Cody Simms.
Yin Lu:
I'm Yin Lu.
Jason Jacobs:
And I'm Jason Jacobs. And welcome to My Climate Journey.
Yin Lu:
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms:
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help. Isshu, welcome to the show.
Isshu Kikuma:
Hi. Thank you for having me here.
Cody Simms:
I am excited to learn from you all about Japan and in particular to learn about how Japan's energy mix is currently set up and also to hear about how Japan is thinking about its emission profile and what that means for the future.
Isshu Kikuma:
If you look at today's electricity supply mix of today, I think one thing you would notice is actually the huge reliance on fossil fuels such as coal and LNG. So 70% of the total electricity supply is actually met by fossil fuels, even though Japan is one of the developed countries, and also it's a part of the one member of the group of seven or G7. And for nuclear, nuclear share has been quite limited. I think nuclear used to account for one side of the total electricity supply before the Fukushima nuclear accident in 2011. But after that, Japan had to shut down all the nuclear reactors and the nuclear restart process has been a bit slow and also the public perception is not the best as of today. So nuclear only accounts for about less than 10% of the total. So compared to before, it's quite small.
Cody Simms:
I saw a graph as I was preparing to chat with you showing the evolution of electricity generation in Japan since the year 2000. It's amazing where you've got essentially coal, you've got natural gas, and you've got nuclear that are all pretty neck and neck and even, and then in 2011 it is quite literally a drop to zero of nuclear and then a fairly sizable, though not as large as the drop, increase in gas as a electricity generation source.
Isshu Kikuma:
Exactly. So I think after Fukushima accident, obviously we or Japan lost a nuclear generation for a few years. So because of that, other technology had to step in to supply electricity in a reliable manner, and those technology were basically fossil fuels. So if you look at the emissions around 2010, 2011 to perhaps 2014-ish, I think the emissions are actually higher than before and that's because of the higher output or generation of the coal and LNG fired power plants.
Cody Simms:
Japan is one of the, if not the largest importer of LNG, liquid natural gas today. Is that correct?
Isshu Kikuma:
Exactly. So I think Japan is definitely rely on LNG or the fossil fuel imports quite a lot and that's because Japan doesn't have the natural resource as much in the country.
Cody Simms:
Are there any significant domestic natural resources that Japan uses for electricity generation?
Isshu Kikuma:
Not really. I think most of the fossil fuels, or I guess fossil fuels are typically imported from other markets.
Cody Simms:
There's a sizable hydro electricity generation presence in Japan?
Isshu Kikuma:
I think for hydro, I think Japan has quite abundant resources. Maybe related to the hydro quickly, I can talk about renewable share in Japan today.
Cody Simms:
Sure.
Isshu Kikuma:
So I think renewables including hydropower plants account for I think a quarter of total electricity supply. So it's quite sizable and hydro accounts for about 10% of the total and the remaining is non-hydro renewables such as solar, wind, and biomass. And I think of the non-hydro renewables, solar accounts for the largest and wind solar accounts for about 1%. So it's quite small.
Cody Simms:
And I saw on that same graph that I was referring to in 2011 when Fukushima happened, natural gas spiked pretty quickly and then solar almost since that same time has been on a pretty gradual but noticeably steeper uptake. Was there policy implemented around the time of 2011 to help spur more solar development?
Isshu Kikuma:
Definitely. So I think when it comes to one of the key turning points for Japan's electricity market or perhaps the renewable energy market was actually in 2012 one year after Fukushima accident. So in 2012, Japanese government introduced a subsidy scheme for renewables Feed-in-Tariff scheme. So in 2000 order in early days of Feed-in-Tariff scheme or the regime, the government used to offer quite generous subsidies to renewables, especially around the utility-scale solar and without any strict commissioning deadlines. So that's how Japan was basically able to attract a lot of investment into renewables from overseas and domestic players and also that's how Japan was successfully able to kickstart the renewable energy market.
Cody Simms:
Can you really describe in detail the Feed-in-Tariff scheme and who participates in that?
Isshu Kikuma:
So Feed-in-Tariff program is again the subsidy program for our renewable energy projects. And the idea is that once you secure a Feed-in-Tariff contract or the contract under the Feed-in-Tariff scheme, renewable energy projects can secure or receive flat subsidy for 20 years on a per kilowatt basis, per kilowatt hour basis.
Cody Simms:
So the government is basically subsidizing some aspect of the ongoing generation of these projects on a per kilowatt hour basis making the overall unit economics better for the financier and the developer of the project. Is that correct?
Isshu Kikuma:
Exactly. And also obviously the 20-year payment is really long. So that also helped I guess the bankability of renewable energy projects in Japan.
Cody Simms:
How are these granted?
Isshu Kikuma:
I think in the past, in the initial days of the Feed-in-Tariff was typically just application basis. So developers just apply for the Feed-in-Tariff program and just once those applications are approved, they just get the subsidy for 20 years. But these days Japanese government is actually switching the program from application-based to auction or the tender-based. So instead of just giving out Feed-in-Tariff subsidies to all the projects, now the Japanese government is trying to incentivize the cost reduction of the project by I guess setting up the auctions.
Cody Simms:
In addition to simply looking at the economic viability of a given project, is the government assessing other factors? Is there a workforce development plan associated with the project? Are there any environmental impacts of the project like encroaching on a wetland or the like?
Isshu Kikuma:
Today, unfortunately most of the criteria or the criteria using the auction or the application-based Feed-in-Tariff or the feed-in-premium program is mainly just the cost of the projects. So how much the developers wants to receive subsidy from the Japanese government. But I think the only exception is offshore wind. Offshore wind tender actually is made up for two factors. One is price, which is the same as the conventional or the existing Feed-in-Tariff or feed in premium scheme. But the other factor is non-price factors. So that non-price factor is probably something related to I guess the work or the labor employment increase in Japan or supply chain management in Japan.
Cody Simms:
I assume as well, just understanding what the interconnection cues to the grid might look like for a said project presumably would also have some impact on whether the project is able to go live or not.
Isshu Kikuma:
I think the grid connections definitely becoming a global, I guess, issue when it comes to the uptake of renewables. And I think Japan is definitely one of the countries where developers are struggling to secure the grid connections. One in terms of I guess time and two in terms of the costs and also probably this is similar to other market, but when it comes to the grid connections in Japan, one of the challenges is around uncertainties or lack of the transparency around the grid connections and also the grid connection timeline. So in Japan, I think many developers trying to connect to the grid, but occasionally when they get that quote of the grid connection cost from or the grid connection timeline from the grid utility, sometime those estimates are beyond what they have expected and ultimately sometimes the project needs to give up their projects because of those reasons.
Cody Simms:
And in terms of the domestic energy footprint in general, whether it's gas or coal, are most of those the fossil fuel power plants that are responsible for the bulk of Japan's electricity generation today, are they domestically owned and operated? Is there a lot of foreign investment driving the power sector today? What's that mix generally look like?
Isshu Kikuma:
So I think when you look at I guess the conventional power plants like coal, LNG, or the gas-fired power plants, think most of those power plants are typically owned by Japanese company, and that's because obviously it's not easy to build those power plants. So I think the market players who have been in the Japanese market for a while have built those power plants in the past. But I think when it comes to renewables, I think the story is a bit different. So Japan is open for investment from overseas markets. So some of the projects, renewable energy projects are owned or invested by the Japanese companies, but also we have a lot of overseas players looking into the Japanese renewable energy market.
So I think it's combination of both domestic and overseas players. I think one of the good example would be I think offshore wind, offshore wind market in terms of the installed, supplied or installed power supply capacity, it's quite tiny because it's just started in Japan. But if we look at the offshore wind tender that the Japanese government started recently, some of the winning participants or the winning project developers are actually overseas offshore wind developers that showcases that mix of domestic and overseas players in Japan.
Cody Simms:
You mentioned that they're winning these bids. How are these projects getting sponsored? Let's use the offshore wind example, let's keep running with that. I'm interested to learn more about that.
Isshu Kikuma:
Each renewable technology has slightly different mechanisms, but for offshore wind, I think that's one of the only way for projects basically to be developed in Japan. And the offshore wind tender basically allows 30-year C lease contract. So if you get contracted, you should be able to use that site for 30 years. And on top of that, the tender typically comes with the 20-year subsidy contract in Japan, offshore wind tender. It's kind of mix of both price factors and non-price factors. So one of the criteria is obviously how low the project developer or the project proposal can bid, but the other factor is basically non-price factors such as contribution to the economies or levels of supply chain management. So basically, sorry, long story short, I think the offshore wind tender comes with 30-year C lease contract as well as the 20-year subsidy contract.
Cody Simms:
Solar has been driving the bulk of growth there. I would think as an island nation offshore wind would be a huge contributor and driver of renewable power. Is that not the case in Japan where that will continue to grow and take a larger and larger share?
Isshu Kikuma:
So as I mentioned, offshore wind, it's probably one of the promising technologies that many companies and also the Japanese government are betting. But by having a tender scheme, the government trying to or the government decided to reduce some of the development risk related to the offshore wind projects. But if you look at the power supply or the offshore wind installed capacity, I think it's less than 500 megawatts as of today, even though we think offshore wind has a lot of potential as Japan being island nation. But that's because it takes a lot of time for offshore wind projects to be developed.
So I think in Japan it takes about five to seven years for offshore wind projects to come online. That's because of the long environmental permitting process and also the long environmental impacts assessment periods. And on top of that, it typically takes longer for projects to be built, to be constructed. So because of that, it takes some time for projects to come online. So BNF produced installation forecast for offshore wind. By 2030, we still expect that quite sizable growth for offshore wind, but still that cumulative capacity will be around four gigawatt from 500 megawatt today. That's because even though the government started the tender scheme, it still takes time for the projects to actually come online in this decade.
Cody Simms:
And the bodies that are ultimately determining who is awarded these tenders are the electric utilities, it's part of the government in Japan. What does that tend to look like?
Isshu Kikuma:
Typically it's the government, or the government-led agency. So those ones are basically the organization managing Japan's, renewable energy auction and the tender. And in Japan, basically the electricity market, the generation side is deregulated. So even electric utilities have to compete against other, let's say project developers to secure the contract in Japan. It means electricity is not granted to secure a contract.
Cody Simms:
Let's dive into the utility market a little bit more. So it's a deregulated utility markets. What does the grid look like? Is it a single national grid? Are there multiple grids? Is it interconnected with any countries outside of Japan? Paint that picture for us a bit.
Isshu Kikuma:
When you look at Japan's power grid, one of the, I guess interesting or complicated feature is that Japan has nine different electric utility or electric grid regions. So each region typically has their own transmission distributor operator. But if you look at the interconnections between region, it's not interconnected well, and especially if we look at East Japan and the West Japan, we have two different frequencies. So one side use 50 hertz, the other side use 60 hertz, and then the interconnection between East Japan and West Japan, I think they only have two gigawatts. So this is quite small. So because of that, if you look at the power prices between East Japan and West Japan, power prices in West Japan has cheaper power prices compared to the East Japan. And that's because interconnection is not great so the cheaper power in the west region cannot be sent to the East Japan.
Cody Simms:
Fascinating. And forgive my very basic geographic understanding, but Japan also exists on three main islands that make up Japan. So you're obviously dealing with some pretty significant overseas cabling as well, I would guess, in order to operate those grids.
Isshu Kikuma:
I think in general, Japan has four main islands, so the one main big one-
Cody Simms:
Four main islands, sorry. Thank you.
Isshu Kikuma:
So the main one plus Hokkaido region, Kyushu region, and also Shikoku region. And then each region is connected, but at the same time, as I mentioned, it's island nation, so the interconnection is not the best.
Cody Simms:
And in terms of how demand forecasting is done on that grid, Japan is also a very heavily industrialized nation. So I have to assume industry plays a large role as well in saying, hey, we need additional generation capacity here, or hey, we're planning to build a large factory over here that's going to need a ton of energy supply. Can you talk a little bit about the role of industry as it relates to energy use?
Isshu Kikuma:
So I think the answer will be yes and no. I think industry will definitely have some power when it comes to energy consumption. So obviously they work with Japanese government quite a lot because some of the industry periods are quite big within Japan. But at the same time, if you look at the overall electricity consumption in Japan, perhaps if you look at the historical trend, actually the power demand has been declining or flat for over I guess a long time. And that's because one, the aging population or the decrease in population in Japan that generally reduce the power consumption or power demand. But two, that's because a shift in Japan's economies. So I think Japan used to have quite a lot of industrial activities, but now some of the sectors are shifting more towards service sectors, so that doesn't require much electricity.
Cody Simms:
That's a fascinating trend related to both the population and the essentially offshoring of manufacturing. Where I live in the United States, we've gone through that trend to some extent. And now AI and data centers and the electrification of everything, including EVs or including cars to EVs, are now driving forecasts of significantly increased electric power needs in the U.S for the first time in over a decade. It sounds like Japan is not planning to experience the similar kind of growth in electricity generation need even as the economy electrifies, is that a correct assumption?
Isshu Kikuma:
Some extent, yes. But at the same time, similar to other market, we are expecting the uptake of electrification in many sectors including transport. And for now Japan's, I guess EV penetration has been relatively I guess low compared to other markets, but still we expect the EV uptake to happen in Japan. And on top of, I think we are starting to see more and more data center or the electricity demand from data centers because many overseas tech companies and also domestic players are trying to, I guess power their data center in Japan as well. So I think those should also complicate the story here as well for the projects to actually come online in this decade.
Yin Lu:
Hey everyone, I'm Yin, a partner at MCJ Collective. Here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out of the community.
A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming like monthly women in climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to MCJCollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms:
Let's shift our focus to talking about emissions in general. So you shared that the bulk of emissions in Japan come from power generation, given that the bulk of power generation is from coal and natural gas, what are some of the emissions targets that Japan is seeking to achieve at present?
Isshu Kikuma:
When it comes to climate or emission reduction targets, I think Japan has two major targets. So the first one is the NDC target. Japan is aiming to reduce the emissions by I think 46% by 2030 from the 2013 level. If you look at the current progress, I think the emission reduction is about 23% above the end of, I think 2022. So it's basically halfway down. The prime minister in the past Prime minister Suga actually pledged net zero target in 2020. And then I think in the following year, in 2021, the Japanese government legislated the net zero target. So basically Japan has 2030 and 2050 target for the emission reduction.
Cody Simms:
You mentioned that Japan is roughly halfway to that 2030 goal of 46% emission reduction. It sounds like based on what you were explaining earlier, the bulk of that has been ramping nuclear backup and the increase in solar so far, and the resultant decrease in natural gas and coal into the power generation. Is that the bulk of change so far in the last few years?
Isshu Kikuma:
I think so, yeah. Obviously restarting nuclear definitely helps and also uptake of the renewables are also helping the trend as well.
Cody Simms:
And on the nuclear side, was it roughly a third of power generation before Fukushima went to zero immediately, and I think the target is now to get it back up to roughly 20% of power generation. Is that the idea?
Isshu Kikuma:
Exactly. So on top of emission reduction target, Japan actually has the power mix target for 2030, and as you mentioned, nuclear's target is basically increasing the nuclear share to 20 to 22% of the total from the current less than 10%.
Cody Simms:
And when it comes to emissions, what are the programs that are in place to try to encourage emission reductions? Is there carbon pricing or is there carbon tax? Is it more of a tax credit scheme like in the United States that's trying to incentivize adoption of renewables? What does it look like?
Isshu Kikuma:
So I think when it comes to emission reduction, the first thing is probably the subsidy scheme for renewables that I mentioned. So Japan doesn't have the tax incentive for renewables like the U.S, but we do have the Feed-In-Tariff scheme or the feed-in premium scheme. So both are subsidy programs for renewables. So I think that's one of the, I guess the major one for the power sector.
Cody Simms:
And that came online shortly after Fukushima, you mentioned.
Isshu Kikuma:
Fukushima, yeah. But I think when we think about other carbon pricing mechanisms like emission trading scheme or carbon tax, Japan is not doing well, especially compared to other markets like Europe For example, if you look at the carbon tax, technically Japan has the nationwide carbon tax, but the current tax rate or the current tariff is actually 289 yen per ton of CO2, which is basically less than $2 with the current exchange rate. So this is basically too low to incentivize any low carbon solutions. And on top of that, Japan doesn't have any nationwide emission trading scheme or ETS. I think some or not some actually the Tokyo prefecture and Saitama prefectures, those two prefectures technically have regional emission trading scheme, but Japan actually has 47 prefectures. So two prefectures having emission trading scheme has the limited impact on emission reduction.
But when it comes to the emission trading scheme, the Japanese government actually launched emission trading scheme for a private sector interested in emission reduction on a voluntary basis from this year. So I think this is exciting topic and obviously the good progress for Japan. But at the same time, obviously this emission trading scheme that government launched this year is only on a voluntary basis, meaning not all the companies need to read or need to participate. So from that sense, I think the impact on emission reduction will be probably limited.
Cody Simms:
Have you seen any market-based levers start to play out in the US for example, the big sort of ESG movement over the last five or six years of investors looking to put money to work in lower emissions bundles of equities, for example. Whether or not that has worked or not is probably a different conversation to have on a different day, but there's no doubt that it became a very mainstream phenomenon in the US investment world. Has anything similar to that played out in Japan?
Isshu Kikuma:
Obviously the Feed-In-Tariff or the subsidy scheme program that I mentioned is definitely one of them. But I think another interesting trend that we are seeing in the Japanese market is that the private sectors are trying to lead energy transition with or without the government support. So from I guess the power sector or the emission reduction, the power sector, the RE-100 initiative is one of the, I guess quite well-known initiative globally. So RE-100 initiative is basically member companies pledged to source 100% clean electricity by their target year. And in Japan, I think the number of RE-100 members is quite a lot. So I think as of today, I remember seeing 85 companies pledged to source 100% clean electricity by their target year. And this is actually the second largest after the US. So in terms of the demand for clean electricity from the private sector is very high. So now they pledged and now they need to take actions and actually source clean electricity in Japan.
Cody Simms:
Do you have a hypothesis on what is motivating the private sector to do that?
Isshu Kikuma:
That's a good question. I think one, a Japanese company loves signing up, so RE-100 is one of them. But also if you look at the other initiative related to the climate change, typically Japan or Japanese company lead are typically in the top in the ranking. So probably that's one of the reasons. But on top of that, I think there are feeling pressure from perhaps their suppliers or business partners in Japan or overseas. So I think that definitely helped or incentivize or encourage them to actually work on emission reduction for the electricity they use.
Cody Simms:
Is activism around climate issues a big thing in Japan?
Isshu Kikuma:
I'd say not small, but I don't think too big compared to other markets like other overseas markets, I would say.
Cody Simms:
Less so than maybe what we've seen in Europe where you have large scale climate action. I would say Europe probably bigger than the US even in terms of general public pressure to act.
Isshu Kikuma:
I think you're right.
Cody Simms:
Another question on industrial focus on climate issues, how much are you seeing investments in new innovations on the industry side drive progress? And in particular, we can talk about these separately, but I'm thinking about investments in carbon capture and storage, particularly if the power sector is so fossil fuel heavy. I assume a lot of these industrial players also need fossil fuel based heat to drive many of their processes. So carbon capture and storage around that. And then also hydrogen or other forms of low carbon fuel sources powering industrial applications.
Isshu Kikuma:
I think Japan's or the Japanese government's intention is to keep fossil fuel in some ways. So I think one of the good example is Japan's push or some of the strategies that Japan is pushing, companies are pushing to abate emissions from coal power plants. So if you look at the Japan's power mix target for 2030, coal still accounts for 19% of the total. So it's quite sizable. Another interesting thing is actually 1% of the total is actually met by hydrogen or other hydrogen carriers such as ammonia, even though 1% of the total is fairly small, I think it still shows the Japanese government intentions to scale hydrogen or ammonia use for the power generation. I think one of the, I guess biggest movement around Japan is retrofitting coal power plants for ammonia. And that's because ammonia doesn't include carbon in their, I guess, chemistry. So when they burn ammonia with coal, they can reduce CO emissions from coal power plants.
But Bloomberg and EF did quite a lot of analysis on the economics or other factors or retrofitting coal power plants for ammonia. And what we found for Japan and also other APAC market is actually retrofitting coal power plants for ammonia is actually very expensive because of the low energy density, the volumetric energy density of clean fuels compared to existing fossil fuels. And also in general, it's not energy efficient to produce hydrogen ammonia using clean electricity and then converting back to the electricity. So because of these combinations of these things makes the economics of the retrofitting coal power plants for ammonia not viable.
Cody Simms:
I could be wrong on this too, but I also think combusting ammonia releases NOx, which is also a very powerful greenhouse gas. So there's always trade-offs, right?
Isshu Kikuma:
Yeah. Nox emissions which is obviously the one type of air pollutant. And also ammonia combustion generates nitrous oxide or N2O. And this is actually more powerful greenhouse gas than CO2. I mean obviously they're the technologies to capture these emissions, but still if there's any leakage of these molecules or these emissions, it could just lead to even more worse climate change.
Cody Simms:
So most of my questions have focused on things inside Japan's borders. You talked about how Japan is also moving a lot of manufacturing base offshore, and I have seen some news where Japan has faced some criticism because Japanese companies are funding the build out of coal power plants in other developing countries, and Japan's been taking some heat on the international stage as being a financier of the expansion of coal. How are you seeing that play out?
Isshu Kikuma:
Yeah, when it comes to I guess helping energy transition in other markets, I think mainly Southeast Asia, Japan used to finance or support building new coal pipeline in those markets. But obviously I think we got a lot of criticism. So now I think one of the things that Japanese companies and also Japanese government is actually doing is retrofitting coal power plants for ammonia. So obviously that's helping those coal power plants to reduce CO two emission according to their words. But I think one of the underlining hope that they have is basically exporting their technologies around ammonia co firing to other markets to tap into the new business opportunities.
Cody Simms:
Interesting. Last set of questions I want to talk about are less to do with the energy mix and the emissions mix and more to do with how climate change is impacting Japan and how you think it will grow in impact in the coming decades. I assume Japan is an island nation, so things like sea level rise are quite real in Japan. Beyond that, Japan is a very urbanized nation I believe as well. So I would assume extreme heat and urban heat effect are also very real, but would love to hear from you any specific programs or areas that you know Japan is concerned on and is taking action on from a climate resiliency perspective.
Isshu Kikuma:
I think all the things you mentioned are definitely right. If I may, I would add the more frequent and also more powerful natural hazards that we are seeing in Japan. So I believe this more frequent or more powerful natural hazards is probably not unique to Japan, but still Japan is getting more and more severe natural hazards these days. So I think we've seen more frequent typhoons and each typhoon is getting stronger, which frequently cause landslides and damaging a lot of, I guess, communities that can be people's life, but also that can be animals or nature. I think natural hazards, more frequent natural hazards is definitely one of the things that I'm seeing quite a lot these days. I guess another thing would be extreme weather. So I feel like summer is getting longer, winter is getting longer, and also the temperature is becoming really extreme. And I think those extreme weather or the temperature definitely complicate how the power grid can manage a spike in the power demand for those seasons.
Cody Simms:
Yeah, fascinating. And so helping to have smarter intelligence on forecasting and managing loads on the power grid as a resilience play and presumably storage would factor heavily into that to be able to support peak demand needs of the grid.
Isshu Kikuma:
When it comes to the battery storage, Japan, it's one of the country with relatively high intra or penetration of the home batteries or residential battery because we have quite a lot of natural hazards, which occasionally brings power outage in some regions. So some of the house owners wants to prepare for themselves by installing residential or behind the meter energy storage. But I think one of the interesting trends that we are seeing in the market these day is the uptake or the growing interest in the large scale battery energy storage. So even though the battery prices in Japan are relatively higher than other markets, Japanese government is right now offering subsidies.
This is not program or anything, it's more like annually if they have enough budget, the government offer subsidy covering the part of the CapEx to some of the energy storage projects. And this subsidy program has been quite successful to increase or grow the interest in the large scale energy storage project. And on top of that, the government is making some changes around the power market so that the battery energy storage can actually stack up multiple revenues. So those can be energy outage, meaning charging electricity when the power price is cheap and then discharging when the power price is high. And on top of that, there are other revenue schemes available for the battery energy storage. So those things are helping the uptake of the battery energy storage market in Japan, and I believe those will help to accommodate more renewables in the future.
Cody Simms:
That's the first consumer focused program that I think you've mentioned so far. Are there any other consumer programs around electricity usage or around distributed rooftop solar or anything like that that are taking effect today?
Isshu Kikuma:
When it comes to the demand side or the end user side, the subsidy program for renewables, the Feed-In-Tariff actually covers rooftop solar on the residential buildings or commercial buildings. Through the subsidies regime for the renewables, the government is still trying to support the uptake of those rooftop solar.
Cody Simms:
You mentioned that gas car penetration was still quite high, and EV adoption has been slower in Japan. Do you expect anything there to drive greater consumer purchasing behavior?
Isshu Kikuma:
So the Japanese government is also has some programs to help consumers to purchase EVs. So we have the EV purchasing subsidy that help consumers to basically offset some of the purchasing costs the consumer needs to pay. But I think one of the challenges around the uptake of EVs in Japan is actually because of the huge market presence of the hybrid cars, and that's one of the vehicle types that some of the Japanese automakers used to put a lot of efforts. So I think that part is still one of the reasons why we haven't seen the huge uptake of the EVs, although it's slightly changing these days in a positive way.
Cody Simms:
It's interesting. Yeah, the Japanese automakers had a very early head start on lithium ion batteries in a hybrid context, but maybe just didn't go all the way there with full EVs as much as some of the other automakers have today.
Isshu Kikuma:
Yeah, definitely. But I think these days now, those domestic players are launching more and more EV models and also overseas players are also exporting some of the EV models to Japan. So I think the market dynamics is slightly changing these days.
Cody Simms:
Automotive is a huge industry in Japan. We just saw in the US the Biden administration put these very large tariffs, 100% tariffs on Chinese imported EVs. Are you seeing an influx of Chinese EVs into the Japanese domestic market?
Isshu Kikuma:
We started seeing some of the Chinese automakers are tapping into Japanese market. So I would say yes, but I think that's not unique to I guess the auto market. For example, I think Japan's, going back to the battery energy storage market, Japan market used to have a lot of domestic players, and those players basically occupied the market, but now the cost of the battery storage is becoming more and more important because many developers wants to make the project economics viable. So in that case, obviously it's cheaper or better to use the cheaper equipment. So now a lot of Chinese battery manufacturers or system integrators are trying to tap into the Japanese market. So I think this is one of the interesting trend that I also see in the market today.
Cody Simms:
You mentioned the same in power generation, right? You said the traditional fossil fuel power plants have been mostly domestically owned and operated, but that with the Feed-In-Tariff scheme around solar, and with the tender scheme around wind that you're starting to see a lot more foreign investments coming into project development in renewables.
Isshu Kikuma:
I think you're right. So we are definitely seeing more players in the market, which is positive or which is good for the market because it means we are going to see more and more cost competitive technologies in the market.
Cody Simms:
Isshu, is there anything else? We could keep going forever. We could talk about a number of these topics. Actually, I have one more that we haven't hit on, which is an interesting story. I was doing a little research on geothermal and it seems like geothermal in Japan, people tried to develop it, and it was actually a lot of the hot springs sort of tourist economy that resisted the build out of geothermal. Maybe you can tell that story to us, and I'm wondering if that is continuing to be the trend there.
Isshu Kikuma:
So I think geothermal in Japan is definitely one of the natural resources that Japan has because Japan has a lot of volcanoes or those geothermal resources in the country. When you look at the uptake of the geothermal, as you mentioned, it's quite limited. And I think there are a few reasons for this. So I think one of them is definitely because of the challenges around the stakeholder engagement. So Japan had quite a big hot spring industry because people love, I guess, enjoying taking the bath in the hot spring. Some of the, I guess, community or the stakeholders, local people are concerned about whether geothermal power plants will take out the natural resources that the hot spring needs to use. And also that's because of, they're not familiar with geothermal technology itself, but I don't think that's the only reason.
For example, definitely Japan's topography is making the project development a bit challenging because typically those good natural resources of geothermal is located in the middle of the mountain, which is typically hard to access, and the geothermal technology is still expensive. So it's really difficult for project developers to tap into those natural resources in a competitive way. The other thing I'd like to highlight is the challenges around identifying actual natural resources because obviously you cannot check easily, so you need to rely on a lot of resource assessment, which is not the easiest thing to do, and the risk of the development will be very high. So I think these things are preventing the uptake of the geothermal in Japan, even though Japan has a lot of natural resource potential for that.
Cody Simms:
Isshu, I super appreciate you sharing with us. Japan is such an important nation on the global stage, I believe fourth largest economy in the world, in the top five in terms of emissions way behind China in the U.S, but still a top five emitter. And so these are all very impactful topics when it comes to climate change and our emissions profile as a global society. Thanks for all the work that you do, and thank you for all the reporting you do, and thanks for taking the time to come on here and share your knowledge with me and with our listeners here at My Climate Journey.
Isshu Kikuma:
Cool. Thank you so much.
Jason Jacobs:
Thanks again for joining us on My Climate Journey podcast.
Cody Simms:
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Cody Simms:
Thanks, and see you next episode.
