Vol 4. Issue 3, June 2021

Japan Energy Newsletter

Japan Electric Power Information Center, U.S.A.

Japan Energy Weekly News

Table of Contents

1 Volume 4 Issue 3, June 2021 ...... 3 Current Development and Deployment Trends for Renewable Energy Aggregation Services ..3 1.1.1 Background ...... 3 1.1.2 Utilities’ Involvement in Renewable Energy Aggregation Demonstration Projects ...... 3 1.1.3 The Current Trends for the Development and Introduction of VPP and Renewable Energy Aggregation Services...... 5 Utilities’ Involvement and Investment in Smart Agriculture ...... 6 1.2.1 Energia’s Establishment of an Indoor Vertical Farm ...... 6 1.2.2 Utilities’ Active Investment in Smart Agriculture ...... 6 2 Volume 4 Issue 2, May 2021 ...... 8 Japan is Advancing the Development of Ammonia Fuel Technologies ...... 8 2.1.1 Background ...... 8 2.1.2 JERA’s Collaborations on the Ammonia Value Chain ...... 9 2.1.3 Ammonia Use by Japanese Utilities and Electrical Equipment Manufacturers ...... 10 Establishment of a New Regional Electric Power Company, Ena Electric Power, in April 2021 11 2.2.1 The Establishment of Ena Electric Power ...... 11 2.2.2 New Regional Electric Power Companies ...... 12 3 Volume 4 Issue 1, April 2021 ...... 14 The Recent 2050 Carbon Neutrality Policy and Strategy Trends ...... 14 3.1.1 Green Growth Strategy Through Achieving Carbon Neutrality in 2050 ...... 14 3.1.2 Japanese Utilities’ Carbon Neutral and Zero-Emissions Strategies ...... 15 Japan Establishes a New Power Supply and Demand Adjustment Market ...... 17

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1 Volume 4 Issue 3, June 2021

Current Development and Deployment Trends for Renewable Energy Aggregation Services

Following the April 2021 launch of the Japan Electric Power Exchange (JEPX), there has been a growing movement in Japan to introduce distributed energy resource (DER) aggregation services that manage and control integrated renewable energy sources and storage batteries. Recently, Kansai Electric Power (KEPCO) and Hokkaido Electric Power (HEPCO) have started demonstrations of renewable energy aggregation services based on Virtual Power Plant (VPP) platforms, and other companies such as ENERES have also begun to provide similar services.

1.1.1 Background

In Japan, to enhance the renewable energy deployment and accelerate investments in the sector, all electricity generated by renewable energy sources is incentivized through the FIT (Feed-in-Tariff) system. Under the FIT system, utilities purchase energy at a fixed price set by the Japanese government. Since the launch of the Japan Electric Power Exchange (JEPX) in April 2021, DERs are expected to be traded in the wholesale electricity market as one of these generation resources. The Feed-in-Premium (FIP) system is scheduled to be introduced in April 2022, with the expectation that it will contribute towards making renewable energy one of the main power sources. Under the FIP scheme, when renewable electricity generated by a producer is sold at the JEPX, it will earn a premium in addition to the sales revenue from the market transaction at the trading market.1 Since power producers are required to adjust their supply/demand planning and actual supply/demand on a 30-minute interval to balance out the power supply and demand based on their accurate forecasting, they will need to optimize their power trading according to fluctuating market prices to reduce their market risks. Japan must address these market risk issues to expand the use of renewable energy sources. Renewable energy aggregators can support power producers in meeting the power supply and demand and optimizing their power trading. Therefore, renewable energy aggregators in Japan have been increasingly providing aggregation services based on the VPP platform.

1.1.2 Utilities’ Involvement in Renewable Energy Aggregation Demonstration Projects

KEPCO has joined a consortium led by Next Kraftwerke (TNK)2 to launch a renewable energy aggregation demonstration project funded by the Japanese Ministry of

1 The premium is calculated by subtracting the reference price (based on the market price) from the designated FIP price. https://enechange.jp/articles/fip#FIP 2 Next Kraftwerke Toshiba (TNK) is a joint venture which was established in November 2020 between Toshiba Energy System and Next Kraftwerke, a VPP service provider based in Germany. https://www.toshiba-energy.com/info/info2020_1104.htm

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Economy, Trade, and Industry (METI). The demonstration project was slated to begin operation on June 9, 2021.3 The project consortium consists of seventeen renewable energy aggregators and eleven other partners. The renewable energy aggregators include electric utility companies such as (Kyuden), Chugoku Electric Power (Energia), Hokuriku Electric Power (Rikuden), HEPCO, and Tokyo Electric Power Energy Partner (TEPCO Energy Partner), while other partners include Idemitsu Kosan, Kanden Energy Solutions Co. (Kenes), and Tokyo Real Estate.4 The project seeks to build a stable and efficient electric system through the utilization of renewable energy sources and DERs by testing resource control technologies and examining power generation forecast models for renewable energy power generation, including solar power and wind power. By leveraging the VPP knowledge and experience of Next Kraftwerke, the project will study the technical and business issues for renewable energy aggregation.5

The project will also review some of the important factors for energy aggregation businesses, including preventing power imbalances and improving profitability. It will examine technologies for power generation prediction, storage battery control, power trading, the methods that connect the power generation balancing group (BG) and the electricity providers, and the feasibility of renewable energy aggregation services. The consortium will utilize a large-scale renewable energy facility with a total capacity of 1.2 GW.

Over the past few years, KEPCO has sought to enhance its power flexibility through implementing VPP demonstration projects and promoting its VPP business via its K-VIPs platform. 6 Through this demonstration project, KEPCO and Kenes will evaluate the business model for power balance control by verifying the performance of K-VIPs and identifying the necessary technologies for power generation prediction and resource control. KEPCO aims to contribute to the transition to a zero-carbon society by 2050 by developing a stable and efficient electricity system utilizing DER and renewable energy.

3 https://www.kepco.co.jp/corporate/pr/2021/pdf/20210609_1j.pdf 4 https://www.toshiba-energy.com/info/info2021_0609.htm 5 https://www.toshiba-energy.com/info/info2021_0609.htm 6 K-VIPs: the Kanden Vpp Integrated Platform System. An integrated platform that supports customers using VPP to monitor and control energy resources.

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KEPCO’s Demonstration Project on Energy Aggregation System7

Electricity and KEPCO Information Transactions

Wind Power Plants Aggregators Control JEPX

Storage Battery

Solar Power Plants K-VIPs

Renewable Energy Power Producers

Partners Main Works Idemitsu Kosan (Provide data - Plan and avoid power imbalance and review - Shift the charging timing and Kenes the business maximize profits model)

HEPCO will use the project as an opportunity to evaluate each of its DERs, including solar power farms, electric vehicles, experimental residential houses with solar power generation installations, EcoCute, and storage batteries in the demonstration project. It will also examine the feasibility of power adjustment for biogas fuel with the support of renewable energy aggregators.8

1.1.3 The Current Trends for the Development and Introduction of VPP and Renewable Energy Aggregation Services

With the recent expansion of the use of renewable energy, there has been an increasing number of development and demonstration projects for VPP and renewable energy aggregation services. On April 12, 2021, ENERES, a power trading and energy solution services provider, announced that it had completed a METI-funded VPP demonstration project that it had jointly conducted with KDDI since FY 2016. Based on the results, ENERES began offering VPP platform services on April 1, 2021, and announced that it would participate in the JEPX in the same month. ENERES has formed a consortium of 17 companies led by Energia and Gas and has conducted several demonstration projects over the past five years.9

Meanwhile, NEC and & Nichido Fire Insurance Co. (Tokio Marine & Nichido) announced on May 26, 2021, that they would jointly develop a first-of-its-kind service to provide resource aggregators with an insurance service for facility damages incurred from natural disasters. Since 2019, NEC has offered its Energy Resource Aggregation Cloud Service, which integrates and controls DERs. The Cloud Service was developed based on the knowledge NEC gained through past projects with METI. NEC and Tokio Marine Nichido are developing new functions that will be based on the Cloud Service, such as

7 https://www.kepco.co.jp/corporate/pr/2021/pdf/20210609_1j.pdf 8 http://www.hepco.co.jp/info/2021/1251288_1895.html 9 https://www.eneres.co.jp/news/release/20210412.html

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energy data management and a mechanism to compensate aggregators for facility damages due to natural disasters or unexpected contingencies.10

Utilities’ Involvement and Investment in Smart Agriculture

On May 25, 2021, Chugoku Electric Power (Energia), ES-CON Japan, a Tokyo-based real estate company, and Spread, a Kyoto-based agriculture startup, announced that they would establish the TSUNAGU Community Farm, a venture that will build and operate indoor vertical farms that rely on clean energy. Aside from Energia, other utility companies have also recently invested in smart agriculture to support the regional agriculture sector in their own rural electric service areas.

1.2.1 Energia’s Establishment of an Indoor Vertical Farm

On May 25, 2021, Energia, ES-CON Japan, and Spread announced that they had reached an investment agreement to establish TSUNAGU Community Farm, which will build and operate indoor vertical farms. Energia owns 51% of the company, while ES- CON Japan owns 48%, and Spread owns 1%.

TSUNAGU Community Farm is scheduled to start construction of the Techno Farm Fukuroi in October 2021. The smart farm will enter production from January 2024. It will be the world’s largest indoor vertical farm with fully artificial light and will be able to produce 10 tons of lettuce a day. TSUNAGU Community Farm will leverage ES-CON Japan’s construction capabilities and Spread’s plant production technologies to produce lettuce efficiently and reliably, meeting consumer’s needs and addressing the food safety issues caused by climate change. The company is dedicated to moving towards a sustainable society and achieving the SDGs by actively using clean energy and reducing CO2 emissions.11

1.2.2 Utilities’ Active Investment in Smart Agriculture

Recently, some other utilities have also been actively investing in smart agriculture in their service areas. Smart agriculture refers to new agricultural processes that enable high-quality production and reduce labor requirements by utilizing technologies such as drones, artificial intelligence (AI), big data, robots and automation technologies, and other Information and Communications Technology (ICT) tools.

Since Japan is facing challenges such as an aging population and a decrease in the number of agricultural workers, smart agriculture will contribute to ensuring the country’s food self-sufficiency and address labor shortages. Smart agriculture tools allow farmers to collect a wide range of data and information, which can then be analyzed and turned into actionable insights to enhance operational efficiency, energy saving, and high-quality productivity. The smart agriculture sector has increasingly attracted attention from agricultural machinery manufacturers and new players such as

10 https://jpn.nec.com/press/202105/20210526_01.html 11 https://www.chuden.co.jp/publicity/press/1206514_3273.html

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electric utility companies, telecommunication providers, university-launched ventures, and regional banks.

On February 28, 2020, K4 Ventures, the corporate venture capital arm of KEPCO, announced that it would invest in Future Food Fund No. 1 (FFF1), a venture capital fund specializing in food innovation areas, including smart agriculture, formed by Oisix Ra Daichi.12 In March 2021, K4 Ventures joined with Japan Agricultural Cooperatives (JA Group) and FFF1 to invest in Terrace Mile, a company established in 2014 that provides agricultural data analysis services. Terrace Mile’s RightARM is an information platform that aims to centralize various data related to agricultural technologies for educational and strategic support and utilize them in agricultural management. On the platform, a wide range of data such as weather, market conditions, sensors, and fruit selection results can be merged and viewed from a single screen. Users can use the data to build applications such as shipping forecasts and simulations.13

On September 25, 2020, (Yonden), together with Norinchukin Bank, announced that they would establish Aitosa, an agriculture company, with a total starting capital of 226K US Dollars. Yonden accounts for 95 percent of the investment in the company, and Norinchukin Bank accounts for the remaining 5 percent. Focusing on smart agriculture, Aitosa will build a farm that produces Shishito, a type of pepper that is a local major agricultural commodity, in Nankoku City, Kochi Prefecture.

Shikoku has an aging population with a declining birthrate, so its population is shrinking even faster than other regions in Japan, and the local agricultural industry is facing labor shortages as a result. Agriculture is a key regional industry for Shikoku, and Yonden’s decision to enter the sector was motivated by the company’s strong desire to contribute to the revitalization of the industry in light of the labor challenges that the region is facing. In 2018, Yonden established the Agribbon Corporation to produce strawberries in Kagawa Prefecture in Shikoku, which is now fully operational.

Smart agriculture has also been seen as a way to enhance regional production efficiency. Aitosa has been collaborating with Ginza Farm, an agricultural technology venture, to develop an AI-enabled image recognition tool for farming and robotics for pesticide spraying and harvesting. Aitosa has also been working with an IoP project14, an industry-government-academia collaboration project in Kochi Prefecture, aiming to study efficient plant cultivation methods through utilizing environmental and plant data. Based on the results and experience of the study, Aitosa will provide new tools for the agricultural management of farms and support improved regional productivity.15

12 https://www.kepco.co.jp/corporate/pr/2020/0228_3j.html 13 https://prtimes.jp/main/html/rd/p/000000005.000055672.html 14 IoP (Internet of Plants) is a public-private partnership that brings together researchers, students, and companies from Japan and around the world in the field of gardening where Kochi Prefecture has an advantage. The project aims to improve farm income and strengthen marketing of local products through developing and deploying latest technologies, such as AI and IoT. 15 https://www.yonden.co.jp/press/2020/__icsFiles/afieldfile/2020/09/25/pr010.pdf

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2 Volume 4 Issue 2, May 2021

Japan is Advancing the Development of Ammonia Fuel Technologies Japanese utilities view the ammonia mixed combustion method as a promising pathway to reduce thermal power plant CO2 emissions, which is a key part of their plan to achieve the Japanese government’s goal of reaching carbon neutrality by 2050. In May 2021, JERA, a joint venture between Tokyo Electric Power Company (TEPCO) and (Chuden), confirmed its collaboration with a leading ammonia manufacturer, Yara International ASA (Yara). JERA also signed a memorandum of understanding (MOU) in February 2021 with Petroliam Nasional Berhad, a Malaysian state-owned oil and natural gas company, to collaborate on decarbonization technologies, including the development of ammonia fuel. In March 2020, JERA launched a demonstration project to use and integrate ammonia fuel with thermal power generation. Meanwhile, Chugoku Electric Power, IHI Corporation, and Mitsubishi Heavy Industries are also separately developing and investing in ammonia fuel technologies. This report analyzes the current trends in the development and deployment of ammonia fuel technologies by Japanese utilities and electrical equipment manufacturers, with a focus on JERA.

2.1.1 Background Following the 2050 Carbon Neutral Declaration by Prime Minister (PM) Suga, Japan’s Federation of Electric Power Companies (FEPC)16 announced in December 2020 that it would take a wide range of measures to reduce greenhouse gas emissions to achieve carbon neutrality by 2050. The measures include making renewable energy the main power source in Japan; maximizing the use of nuclear energy; reducing and decarbonizing thermal power generation; advancing new technologies and promoting energy innovation in fields such as hydrogen ammonia, carbon capture, utilization and storage (CCUS), and next-generation nuclear reactors; and promoting the expansion of electrification.17

Zero-emission ammonia fuel is carbon-free and has an established global supply chain, which means that there is increasing potential to use ammonia as a fuel for thermal power plants, industrial reactors, and cargo ships. Thermal power plants, in particular, are well-situated to take advantage of ammonia fuels to reduce their CO2 emissions. Since ammonia can be easily combusted with coal, coal-fired power plants are expected to use ammonia ahead of other industries. Therefore, the ammonia mixed fuel combustion method must be further developed for integration into the power generation field.

In October 2020, Japan’s Ministry of Economy, Trade and Industry (METI) launched the Public-Private Fuel Ammonia Promotion Council in partnership with related companies such as JERA, Mitsubishi Heavy Industries, IHI Corporation, and trading companies, as

16 Japan’s Federation of Electric Power Companies (FEPC) consist of 10 Japanese utility companies. 17 https://www.fepc.or.jp/about_us/pr/oshirase/__icsFiles/afieldfile/2020/12/18/press_20201218.pdf

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well as government-affiliated organizations.18 The Council’s interim report, released in February 2021, sets four top priorities to work towards the expansion of ammonia usage — securing a stable supply chain, reducing costs, minimizing environmental impacts, and expanding overseas usage. The interim report creates a roadmap for boosting the supply and demand for ammonia fuel by 2050 and sets goals for deployment: introducing and deploying 20% ammonia mixed fuel combustion into coal- fired power plants by 2030; and increasing the ammonia mixed fuel combustion ratio to approximately 50% by 2050.19

2.1.2 JERA’s Collaborations on the Ammonia Value Chain On May 11, 2021, JERA, a joint venture between Tokyo Electric Power Company (TEPCO) and Chubu Electric Power (Chuden), signed an MOU with Yara20, the world’s largest nitrogen fertilizer manufacturer, to collaborate on developing an ammonia value chain, including the development of a blue ammonia21 production plant.22 JERA and Yara agreed to jointly work on the following activities:

1) Upgrading Yara’s Pilbara Fertilizer plant in Australia to a blue ammonia production plant; 2) Developing new blue and green ammonia production projects; 3) Optimizing the sea transportation of ammonia fuel; and 4) Meeting the ammonia demand and supply in Japan, including the demand for power generation

JERA expects that the collaboration with Yara will ensure a stable supply of ammonia fuel for power generation, helping to build and expand its green fuel supply chain as part of the realization of the JERA Zero CO2 Emissions 2050.23

In addition to its MOU with Yara, JERA has been aggressively pursuing various other decarbonization initiatives. In February 2021, it signed an MOU with the Malaysian state- owned oil and natural gas company Petroliam Nasional Berhad to collaborate on promoting Liquefied Natural Gas (LNG) usage in Asian countries and building ammonia and hydrogen fuel supply chains.24 Furthermore, JERA and its partners, including IHI Corporation, , and Woodside Energy, announced in March 2020 that they would conduct an Ammonia Mixed Fuel Combustion for Coal-Fired Power Plants Pilot Project. The pilot project was commissioned by New Energy and Industrial Technology Development Organization (NEDO). 25 The project, which ran from March 2020 to

18 Member List. https://www.meti.go.jp/shingikai/energy_environment/nenryo_anmonia/pdf/001_03_00.pdf 19 https://www.meti.go.jp/shingikai/energy_environment/nenryo_anmonia/pdf/20200208_1.pdf 20 https://www.yara.com/investor-relations/ 21 There are mainly two types of ammonia categorized by manufacturing methods. Blue ammonia is the conventional ammonia for which by-products such as CO2 has been captured and stored. On the other hand, green ammonia is made with hydrogen that comes from water electrolysis powered by alternative energy. 22 https://www.jera.co.jp/information/20210511_675 23 https://www.jera.co.jp/corporate/zeroemission 24 https://www.jera.co.jp/information/20210210_622 25 https://www.jera.co.jp/information/20200327_479

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February 2021, examined and evaluated the feasibility, economic efficiency, and technical issues of using ammonia as a fuel for coal-fired power plants.

2.1.3 Ammonia Use by Japanese Utilities and Electrical Equipment Manufacturers In addition to JERA, Chugoku Electric Power (Energia) and several Public-Private Fuel Ammonia Promotion Council members, such as IHI, Mitsubishi Heavy, and Mitsubishi Power, have also conducted ammonia fuel projects in recent years. Major past projects include the following.

Company Month/Year Description Chugoku July 201726 • Commissioned by the Japan Science and Electric Power Technology Agency (JST), Energia conducted an (Energia) ammonia mixed fuel combustion test (Mixed combustion ratio: 0.6% and 0.8%) at Energia Mizushima Coal-Fired Power Station (Location: Kurashiki City, Okayama Prefecture, Output: 156MW) • The project confirmed that ammonia fuel combustion will not affect the environment. Energia will seek to increase the mixed combustion ratio in a future project. IHI March 202027 • Commissioned by NEDO, IHI has been developing a Corporation 2MW class gas turbine with sprayed liquid ammonia. It is the first time in the world that the turbine has been able to stably combust liquid ammonia with a thermal ratio of 70% and reduce the amount of NOx generated. Furthermore, the project has demonstrated that the gas turbine can be partially operated with 100% liquid ammonia mixed fuel combustion. Mitsubishi March 202128 • Mitsubishi Power announced that it had started Power developing the world’s first 40MW class gas turbine system that directly uses ammonia as fuel for gas turbine power generation. It aims to make ammonia for common practical use by 2025. • The company is contributing to the creation of a fuel ammonia supply chain by developing technologies that can directly combust ammonia. They hope to offer ammonia fuel combustion as an option for small and medium-sized power plants in the industrial sector and remote islands.

26 https://www.energia.co.jp/press/2017/10697.html 27 https://www.ihi.co.jp/ihi/all_news/2020/resources_energy_environment/1197059_1601.html 28 https://power.mhi.com/jp/news/20210301.html

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Company Month/Year Description Mitsubishi April 202129 • Mitsubishi Heavy Industries America (MHIA) Heavy invested in Colorado-based Starfire Energy, which Industries develops green ammonia technology. Mitsubishi Heavy Industries aims to accelerate the development of the hydrogen and ammonia value chain businesses. AP Ventures, Chevron Technology Ventures, and USA also invested in Starfire Energy.

Establishment of a New Regional Electric Power Company, Ena Electric Power, in April 2021

In April 2021, Ena City in Gifu Prefecture, in collaboration with Chubu Electric Power (Chuden) and NGK Insulators, established its first local government-funded regional new electric power company, Ena Electric Power as part of the city’s goal to move forward towards becoming a zero-carbon city. Ena Electric Power plans to begin operating its retail electricity business in April 2022. Since the deregulation of the electricity retail market in Japan, local governments are increasingly taking the lead in establishing new electric power companies in the region. Regional electric power companies can balance the electricity supply and demand locally and boost the local economy. This report highlights the latest development of local government-led electric power companies in Japan.

2.2.1 The Establishment of Ena Electric Power In April 2021, Ena City (Gifu Prefecture) announced that it would establish a new regional electric power company, Ena Electric Power, in cooperation with NGK Insulators and Chuden’s subsidiary, Chuden Miraiz. Utilizing in-house solar power systems with NAS Batteries for power storage, Ena Electric Power will provide stable electricity to public facilities and NGK Insulators’ buildings located in the city without relying on feed-in tariffs (FITs system). The company will contribute to the decarbonization of the city and will support local business development by promoting the consumption of locally produced energy sources. The company also plans to enhance regional disaster resilience by using the solar battery system as a backup power source in emergency situations such as power outages caused by natural disasters. The city will also create a sustainable business model to monetize its local renewable energy investment activities. The establishment of Ena Electric Power is a public-private partnership that aims to realize the Japanese government’s goals for carbon neutrality.30 The business information of Ena Electric Power is as follows.

29 https://www.mhi.com/jp/news/210409.html 30 https://miraiz.chuden.co.jp/info/press/1206096_1938.html

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Figure 1 Ena Electric Power • Retail electricity business Services • Renewable energy generation and sales business • Services that expand the use of renewable energy, etc.

Equity 80 million yen (appx. $734,716 USD) Capital NGK Insulators 75.0％ Investment Ena City 12.5％ Ratio Chuden Miraiz 12.5％ Established April 14, 2021 (Scheduled) Start of April 1, 2022 (Scheduled) Business

2.2.2 New Regional Electric Power Companies Since March 2000, Japan has gradually pursued the deregulation of the electricity retail market. With the full liberalization of the market in 2016, Japanese consumers, including households and businesses, are allowed to freely select their own provider, and new retail electric providers have begun to enter the market. 31 New regional electric power companies are being established to maximize the region’s power sources and to provide power to public facilities, companies, and residential homes located in the region. A regional electric power company established with the investment of a local government is called a “local government electric power company.” As of February 2020, there are at least 52 nationwide, and the number is expected to increase.32 The main purposes for these companies are to revitalize local productivity; reduce greenhouse gas emissions by using renewable energy; enhance emergency preparedness and response to disasters; and reduce electricity rates for public facilities. These companies generally seek to provide renewable energy for local production and consumption.

While local government electric power companies are expected to bring many advantages to the regions that they serve, there have been some challenges associated with their market entry and operations, including financial difficulties, dissatisfaction with their results, and concerns about whether they are meeting their region’s mission and vision. For example, Miyama Smart Energy, launched by Miyama City, Fukuoka Prefecture in 2015, became insolvent due to inadequate business operations.33 Ikoma Citizen Power, established by Ikoma City, Nara Prefecture, was sued by residents who alleged that the electricity charges under a free contract were set at a high price.

There have also been cases where local government electric power companies only procure a small portion of local electricity, even though they claim to use 100% local power sources. Similarly, in some cases, the companies do not generate electricity from the power sources within the area, and instead sign a contract with other retail electricity providers located outside of the region. It remains to be seen whether the

31 https://www.enecho.meti.go.jp/category/electricity_and_gas/electric/electricity_liberalization/what/ 32 https://www.env.go.jp/press/files/jp/113284.pdf 33 https://miyama-se.com/wp-content/uploads/2020/02/c43517446419c1e98268425fcde5739d.pdf

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local government electric power companies can overcome these challenges, through actions such as securing power resources and hedging against risks.

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3 Volume 4 Issue 1, April 2021

The Recent 2050 Carbon Neutrality Policy and Strategy Trends

With the 2050 Carbon Neutral Declaration in October 202034, Japanese Prime Minister (PM) Suga has prioritized the technology development and deployment of renewable energy, hydrogen, thermal power generation with CO2 reduction technologies, and nuclear power. These technologies will help Japan achieve its decarbonization goals in the electric power generation sector, which accounts for 37% of Japan’s total CO2 emissions. Therefore, Japanese utilities have announced their carbon-neutral zero- emission strategic plans since 2021 to meet Japan’s 2050 carbon neutrality strategy. This report provides a general overview of the Japanese administration’s 2050 Carbon Neutral Declaration and Japanese utilities’ strategic plan to achieve the goal.

3.1.1 Green Growth Strategy Through Achieving Carbon Neutrality in 2050

In October 2020, PM Suga set the goal to realize carbon neutrality and a decarbonized society by 2050. In accordance with this goal, in December 2020, Japan’s Ministry of Economy, Trade and Industry (METI), in collaboration with other related ministries and agencies, formulated and released the Green Growth Strategy Through Achieving Carbon Neutrality by 2050. The Strategy is an industrial growth strategic policy to address the challenges for achieving a carbon-free society while ensuring a virtuous cycle of economic growth and environmental protection. The Strategy has prioritized fourteen industrial and technological areas to achieve its aggressive goals and provides action plans for budget, tax agenda, regulatory reform and standardization, and international cooperation.35

In Japan, the electric power sector is the largest CO2 emissions by Sector source of its CO2 emissions, with a share of 37%; therefore, decarbonizing the sector is the highest Others, priority for reducing national carbon emissions. To 11% achieve this goal, Japan aims to develop and Commercial & Power introduce the following four technology fields: Residential Sector, 10% Generation, 37% • Renewable Energy: Maximize the introduction of renewable energy, with the goal Transportation, of upgrading transmission systems, reducing 17%

costs, balancing renewable energy usage with Industrial the surrounding environment, and utilizing Sector, 25% storage batteries. Also, prioritize offshore wind and battery technologies as high-growth industries. Source: METI

34 https://www.kantei.go.jp/jp/99_suga/statement/2020/1026shoshinhyomei.html 35 https://www.meti.go.jp/press/2020/12/20201225012/20201225012.html

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• Hydrogen power: Introduce hydrogen power as an energy source option, expand its supply and demand, promote infrastructure development with reduced costs, and create a hydrogen ecosystem. • Thermal power integrated with CO2 reduction technology: Maximize thermal power integrated with CO2 reduction technologies as an energy option and aim to advance related technology developments and reduce the costs. Realizing that thermal power will still be used minimally in Asia, Japan aims to support its carbon recycling and ammonia fuel industries to contribute to reducing the thermal power plant CO2 emissions. • Nuclear Power: Rely on well-developed nuclear power technologies. Japan aims to improve nuclear safety, restart idled nuclear reactors, and research and develop next-generation nuclear reactors. Japan will continue to make the best use of nuclear power while reducing its reliance on it.36

In addition to the carbon-free emissions goals in the electric power sector, electrification is the key focus in other sectors. Electricity demand is expected to increase by 30 to 50% from the current level (about 1.3 to 1.5 trillion kWh) due to the increasing electrification of the industrial, transportation, and residential sectors. To address increasing electricity demand, Japan has underscored the need to grow energy- saving related industries and promotes energy efficiency and energy saving in these sectors. The transportation sector will promote electrification, while the commercial and residential sectors will seek to develop all-electric buildings with storage batteries. Japan also aims to meet its carbon-neutral goals by improving the technology development and installation of storage batteries. Heating demand will be met by using hydrogen energy and reusing CO2 captured from fossil fuels.

3.1.2 Japanese Utilities’ Carbon Neutral and Zero-Emissions Strategies

Following the Japanese government’s declaration of carbon neutrality by 2050, most Japanese utilities have announced their own strategies and roadmaps to achieve this goal. In December 2020, the Federation of Electric Power Companies of Japan (FEPC), which consists of Japan Nuclear Fuel, Japan Atomic Power Company, and the Electric Power Development Company (J-Power), established the 2050 Carbon Neutral Realization Promotion Committee. In order to meet the carbon-neutral goal by 2050, the Committee will explore the following issues: 1) Deploy renewable energy as the main power source 2) Maximize the use of nuclear power energy, and decarbonize thermal power generation 3) Develop advanced technologies (hydrogen, ammonia, Carbon Capture Utilization and Storage (CCUS)/carbon recycling technologies, and next-generation nuclear reactors) 4) Promote electrification37

36 https://www.meti.go.jp/press/2020/12/20201225012/20201225012-1.pdf 37 https://www.fepc.or.jp/about_us/pr/oshirase/__icsFiles/afieldfile/2020/12/18/press_20201218.pdf

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Japan Energy Weekly News

In response to this policy, Japanese utilities have launched their own carbon-neutral zero-emission strategic plans since February 2021. The carbon-neutral/carbon-free strategies of each utility and J-Power are as follows.

Company Announced Strategy and Goal Description Month/Year J-Power38 February 2021 J-POWER Blue Proposes three pillars: 1) CO2-free hydrogen energy (hydrogen Mission 2050 power generation, CO2-free hydrogen fuel production); 2) CO2- free power generation (hydropower, wind power, geothermal renewable energy, nuclear power), and 3) stabilize and enhance the electric network to reduce 40% of CO2 emissions from the 2017-to-2019 average by 2030 and to achieve zero emissions by 2050. Tokyo Electric October 2020 JERA Zero CO2 As of mid-April 2021, TEPCO Holdings has not yet announced Power Company Emissions 2050 its company-wide carbon-neutral strategic plan. However, (TEPCO)39 JERA40, a joint venture between TEPCO and Chubu Electric Power (Chuden), has set its goal of pursuing zero emissions by 2050 by expanding the use of renewable energy and adopting zero-emissions thermal power technologies with green fuel that does not emit CO2. It aims to promote the introduction of offshore wind power, ammonia fuel for thermal power plants, liquefied natural gas (LNG), and hydrogen energy. Kansai Electric February 2021 Zero Carbon Vision Move forward with decarbonization and address the challenges Power Company 2050 of both energy demand and supply; promote the expansion of (KEPCO)41 distributed energy resources, storage battery, and e-mobility on the demand side; deploy renewable energy, maximize the use of nuclear energy, hydrogen and ammonia fuel, and the promotion of CCUS on the supply side by collaborating with the public and private sectors and related stakeholders. Chubu Electric March 2021 Zero Emissions Reduce 50% of CO2 emissions from FY2013 and 100% electrify Power Challenge 2050 the company’s vehicles. The plan aims for net-zero CO2 (Chuden)42 emissions for the entire business by 2050. Promote maximum utilization of non-fossil energy, practical application of hydrogen technology, carbon recycling, and electrification. Tohoku Electric March 2021 Carbon Neutral Maximally use renewable energy and nuclear energy, and Power Challenge 2050 decarbonize thermal power while meeting S+3E44 objectives. (Tohoku)43 Tohoku aims to create businesses that realize a smart society through utilizing distributed energy resources and electrification. Kyushu Electric March 2021 Towards Carbon Kyuden plans to announce its decarbonization plan and Power Neutrality by 2050 roadmap in 2021. For the energy demand side, it aims to (Kyuden)45 promote electrification and enhance the regional energy system. For the energy supply side, Kyuden will expand the development of renewable energy; make use of nuclear energy; research and develop hydrogen, ammonia fuel and CCUS; and build an energy network that optimizes the use of renewable energy.

38 https://www.jpower.co.jp/news_release/2021/02/news210226_4.html https://www.jpower.co.jp/news_release/pdf/news210226_4-2.pdf 39 https://www.jera.co.jp/corporate/zeroemission/ 40 JERA was jointly established by TEPCO and EnerGia in April 2015. 41 https://www.kepco.co.jp/corporate/pr/2021/0226_3j.html https://www.kepco.co.jp/corporate/pr/2021/pdf/0226_3j_01.pdf 42 https://www.chuden.co.jp/resource/file/20210323b.pdf 43 https://www.tohoku-epco.co.jp/news/normal/1219392_2558.html https://www.tohoku-epco.co.jp/news/normal/__icsFiles/afieldfile/2021/03/24/b1_1219392.pdf 44 S+3E emphasizes energy security, economic efficiency, and environmental protection without compromising safety. 45 http://www.kyuden.co.jp/var/rev0/0280/3076/r63bet2i.pdf

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Japan Energy Weekly News

Company Announced Strategy and Goal Description Month/Year Chugoku Electric February 2021 Carbon Neutral 2050 For the power generation business, EnerGia aims to expand Power Roadmap renewable energy, including solar, wind and hydropower; to (EnerGia)46 continuously utilize nuclear power; and to develop high- efficiency coal-fired, biomass, and hydrogen and ammonia power generation technologies. Shikoku Electric March 2021 Yonden Group Yonden aims to maximize its utilization of nuclear energy, make Power Company Carbon Neutral renewable energy its main power source, develop low (Yonden)47 Challenge 2050 carbonization technologies for its thermal power generation, and achieve decarbonization. It sets to achieve low carbonization by 2030 and meet decarbonization by 2050. Hokkaido Electric March 2021 Hokuden Group's By 2030, Hokuden plans to reactivate the Tomari Nuclear Power Company Efforts to Realize Power Plant, promote its renewable energy power generation (Hokuden)48 Carbon Neutral business, and reduce its CO2 emissions by facilitating electrification and energy saving. Hokuriku Electric April 2021 Carbon Neutral Rikuden plans to be carbon neutral by 2050. The company will Power Company Roadmap focus on the decarbonization of power sources, the (Rikuden)49 electrification of residential houses, and installing next- generation power and energy systems. Rikuden will also adopt advanced digital technologies such as AI, IoT, blockchain, etc., while working to improve users’ quality of life. Okinawa Electric December 2020 Efforts for Zero Okiden aims to achieve zero CO2 emissions by 2050 by making Power (Okiden)50 Emissions51 renewable energy its main power source and reducing CO2 emissions from thermal power generation. It will expand the introduction and operation of renewable energy and the use of LNG and biomass.

Japan Establishes a New Power Supply and Demand Adjustment Market

Nine Japanese transmission and distribution operators52 jointly announced on March 17, 2021, that they will establish a new power supply and demand adjustment market, called the Electric Power Reserve Exchange (EPRX), and will begin power trading on April 1, 2021.

After the Great East Japan Earthquake occurred in March 2011, some challenges emerged for conventional power systems, such as a shortage in the power supply due to the shutdown of large-scale centralized power generators. To tackle these issues,

46 https://www.energia.co.jp/assets/p20210226-1b.pdf 47 https://www.yonden.co.jp/press/2020/__icsFiles/afieldfile/2021/03/31/pr010.pdf#page=14&zoom=1 00,0,0 48 https://wwwc.hepco.co.jp/hepcowwwsite/info/info2020/__icsFiles/afieldfile/2021/03/19/210319a_1.p df 49 http://www.rikuden.co.jp/press/attach/21042803.pdf 50 https://www.okiden.co.jp/shared/pdf/news_release/2020/201208.pdf 51 https://www.okiden.co.jp/shared/pdf/news_release/2020/201208.pdf 52 These operators are Hokkaido Electric Power Network, Network, TEPCO Power Grid, Chubu Electric Power Grid, Hokuriku Electric Power Transmission & Distribution Company, Kansai Transmission & Distribution, Chugoku Electric Power Transmission & Distribution, Shikoku Electric Power Transmission & Distribution Company, and Kyushu Electric Power Transmission & Distribution.

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Japan Energy Weekly News

Japan has begun to reform its existing electricity systems based on providing diverse electricity options to consumers, maximizing the use of distributed renewable energy, strengthening the power transmission and distribution networks, and ensuring the neutrality of the power transmission sector. Since then, Japan has legally divided its major utility company’s transmission and distribution functions from the generation segment, deregulated the retail electricity market, and expanded wide-area grid operations.

Although Japan’s transmission and distribution operators are responsible for power frequency adjustments, they no longer own the power generation after they were required to split off that business segment in April 2020. Since October 2016, they have solicited bids for supporting power frequency adjustments, most of which were procured from incumbent electric utility companies. Since Japan is increasingly introducing renewable energy sources, particularly solar power, the ability to adjust power frequency has become more significant. With the establishment of EPRX, operators can operate wide-area adjustment power beyond each area and will be able to procure adjustment power from the trading system. Japan aims to improve the efficiency of the procurement process and the wide-area power operation through enhancing competition and transparency, reducing the costs of power coordination, and allowing new electric businesses to enter into the trading market.53

Products in the EPRX are categorized according to the requirements, such as frequency control and supply-and-demand balance adjustment, response time, and duration. There are five supply-and-demand balance adjustment products (in ascending order): 1) Synchronized Frequency Restoration Reserve (S-FRR), 2) Frequency Containment Reserve (FCR), 3) Frequency Restoration Reserve (FRR), 4) Replacement Reserve (RP), and 5) Replacement Reserve-for FIT (RR-FIT). For wide-area procurements, RR-FIT trading is scheduled to begin in 2021 and RP trading will begin in 2022.

The wide-area operation of RR-FIT and RP began in Central Japan (Chubu, Hokuriku, Kansai) prior to March 2020. It expanded to the Chugoku region (the western part of Japan’s main island, Honshu) in August and to Kyushu in September. By October 2020, it was open to five regions. The wide-area operations will be active in all areas starting in April 2021.54

53 https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/seido_kento/pdf/043_04_01.p df 54 https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/seido_kento/pdf/043_04_01.p df

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