Japan&rsquo;s energy system has undergone several transitions over the past century, in response to changing market conditions and political and environmental shocks, and is experiencing one such transition right now. Regulators are balancing sensitive political, economic and environmental challenges as they look to build a &ldquo;Best Energy Mix&rdquo; for the year 2030. The Best Energy Mix, revealed in an energy plan by the Ministry of Economy, Trade and Industry earlier this year, includes plans to restart selected nuclear facilities, new coal development, and a renewable energy goal of 23 percent by 2030. Excluding hydroelectric generation, which has been stable for decades, Japan&rsquo;s generation from wind, solar, biomass and geothermal is set to increase from less than 1 percent in 2010 to 14 percent in 2030. Biomass is projected to account for nearly 30 percent of Japan&rsquo;s renewable power in 2030, and over 4 percent of the nation&rsquo;s total power. Much of that will likely come from imported wood pellets. Before World War II, Japan relied heavily on domestic coal as its primary energy source. It was imported oil, however, that fueled Japan&rsquo;s rapid economic growth from the mid-1950s until the oil crisis of 1973. By then, imported oil accounted for 73 percent of Japan&rsquo;s electricity production. The oil crisis led to Japan diversifying its electricity mix with nuclear power, imported coal and liquefied natural gas (LNG), displacing much of its reliance on oil. By 2010, oil accounted for just 7 percent of electricity generation with nuclear, LNG and coal representing 84 percent. Japan&rsquo;s energy system faced another shock on March 11, 2011, when the Great East Japan Earthquake struck off the coast of Miyagi prefecture. The earthquake and ensuing tsunamis caused massive destruction, killing nearly 16,000 people and damaging over 400,000 buildings, including the Fukushima Daiichi Nuclear Power Plant. At the Fukushima NPP, cooling systems failed, leading to a meltdown of three of the plant&rsquo;s six reactors and a reevaluation of nuclear power by the Japanese public and regulators. After the Fukushima Daiichi Nuclear Disaster, regulators began the process of shutting down the country&rsquo;s NPP, all 54 of which were closed in two years. In August 2015, regulators started allowing recommissioning of selected, low-risk reactors, beginning with the restart of the Sendai NPP. As of early November, a total of five NPPs have resumed operation. In the aftermath of the disaster, Japan significantly increased its use of LNG imports to supplement displaced nuclear energy. In the five years since the disaster, LNG imports have increased 28 percent, compared to the five years prior to the disaster. In 2016, LNG accounted for 42 percent of Japan&rsquo;s electricity, up from 29 percent in 2010. Moving forward, METI has laid out a plan called the &ldquo;Best Energy Mix&rdquo; for 2030, which includes 21 percent nuclear energy, 27 percent LNG, 26 percent coal, 3 percent oil and 23 percent renewables. Renewable energy in Japan is promoted by the country&rsquo;s feed-in tariff (FIT) system, which provides independent power producers (IPP) a set power price over an extended contract period. The FIT for larger (greater than 2 MW) biomass power plants is a 20-year contract with prices ranging from 20 &yen;/kWh ($0.18/kWh) for &ldquo;general wood,&rdquo; which includes wood pellets, to 32 &yen;/kWh ($0.28/kWh) for domestic, unutilized biomass. Due to an overwhelming response, the FIT for general wood was lowered in October from 24 &yen;/kWh ($0.21/kWh), though dozens of projects have already been awarded FITs, and will enjoy the higher rate. In a new FutureMetrics study, more than 130 biomass IPP projects are analyzed. These projects, if successful, would use 4.5 million metric tons (MT) of pellets, 3.3 million MT of palm kernel shells and 10.2 million MT of domestic and imported wood chips. In addition to pellet demand from biomass IPPs, Japan could see a significant market for pellet cofiring at its coal plants. As a way of making Japan&rsquo;s increasing reliance on coal more politically and environmentally palatable, regulators have set Best Available Technology standards for thermal power plants. The BAT for coal plants is considered Ultra-Supercritical generation. About two-thirds of Japan&rsquo;s current coal fleet does not meet the USC standard, and one way to comply is cofiring wood pellets. Plant efficiency is calculated by dividing energy output by energy input. METI has allowed energy input from biomass cofiring to be deducted from coal fuel input. Essentially, the plant&rsquo;s efficiency is calculated by only its coal input. Just to meet this standard, Japan&rsquo;s existing fleet would need to cofire nearly 4 million MT of wood pellets. Japanese regulators are in a difficult situation, balancing sensitive political, economic and environmental concerns, while planning for the future composition of the country&rsquo;s electricity grid. In the post-Fukushima era, a balanced approach to energy will take shape, one that is likely to include a significant amount of biomass and wood pellets. Author: Seth Walker Senior Economist, FutureMetrics LLC sethwalker@futuremetrics.com 617-702-2418

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Japan's energy system has undergone several transitions over the past century, in response to changing market conditions and political and environmental shocks, and is experiencing one such transition right now

Japan's Energy Industry Embraces Biomass

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Japan's Energy Industry Embraces Biomass