IEEJ: April 2013 All Right Reserved The Best Energy Mix and the Need for Comprehensive Viewpoints Wednesday, November 16, 2011 Masakazu Toyoda The Institute of Energy Economics, Japan IEEJ: April 2013 All Right Reserved Contents 1. The Best Energy Mix from Comprehensive Viewpoints 2. Overall, There Is No Perfect Energy Option 3. Short- to Mid-Term Challenges to Achieving the Best Energy Mix 4. Mid- to Long-Term Challenges to Achieving the Best Energy Mix Unauthorized reproduction is prohibited. 2 IEEJ: April 2013 All Right Reserved 1. The Best Energy Mix from Comprehensive Viewpoints 1. When reviewing the energy mix, we must solve simultaneous equations with many variables. This requires objective and quantitative analyses. 2. The following variables are important: 1) S (safety) 2) Three Es (i) Energy security (ii) Economic efficiency (particularly in terms of cost) (iii) The environment (compatibility with mitigating global warming) 3) M (impacts on the macro economy) Unauthorized reproduction is prohibited. 3 IEEJ: April 2013 All Right Reserved 1. The Best Energy Mix from Comprehensive Viewpoints 1) S (safety) ● Safety is a prerequisite for energy policies and the activities of the energy industry itself. ● Safety is a measure of the overall competence in various areas including technology, appropriate regulatory framework, cooperation among national and local governments, and the allocation of responsibility among the national government, local governments and utilities. ● Since other energy options also have their advantages and disadvantages (in terms of supply stability, economic efficiency, global warming mitigation, etc.), completely phasing out nuclear power would incur significant risk. Japan must develop safer nuclear power, which is supported by people. ● In the rest of Asia, there are plans to increase the number of nuclear power plants by three to four times. They need Japan to supply safe nuclear technologies. Outlook on nuclear power deployment in Asia Cooperation among Technology national and local Technology Technology governments Reference case development case Reference case development case China Assurance of safety Japan Taiwan Korea Appropriate Balanced allocation of ASEAN regulatory responsibility between framework utilities and governments India Asia Public acceptance and support Source: IEEJ Unauthorized reproduction is prohibited. 4 IEEJ: April 2013 All Right Reserved 1. The Best Energy Mix from Comprehensive Viewpoints 2) Three Es - (i) Energy security ● Japan is one of the world's most vulnerable countries in terms of energy security due to two weaknesses: a. Japan's energy self-sufficiency ratio (4%) is the lowest among the G8 countries. b. Like that among EU countries, Japan needs to build an international energy network covering the whole of Northeast Asia (with electricity interconnections and pipelines), but it is difficult to achieve this in the short to mid term due to various challenges such as geopolitical uncertainty and discrepancies in price and foreign exchange policies. Energy self-sufficiency ratio of major countries Cross-national electricity interconnections in Europe Scandinavian network Nuclear Baltic network power Non-nuclear UK network Italy Japan Germany France UK US Canada Russia Continental European Contribution of non-nuclear synchronized network power sources: 4% North African network Turkish network Source: IEA Unauthorized reproduction is prohibited. 5 IEEJ: April 2013 All Right Reserved 1. The Best Energy Mix from Comprehensive Viewpoints 2) Three Es - (i) Energy security ● Energy supply risks have increased rapidly in the last 10 years: a. Energy demand has been growing rapidly, led by newly emerging countries, and there is fierce competition for energy resources. b. The Arab Spring has increased political uncertainty in the Middle East, which is expected to continue for a long time. c. US influence over other countries has waned, and the world has failed to build a satisfactory level of international governance. d. Rampant speculation in the futures market for crude oil has amplified the fluctuations in crude oil prices. LNG prices are linked with crude oil prices. The growing demand has increased spot market prices for LNG. Movement of WTI crude oil prices China's oil demand (actual + forecast) Unit: million oil equivalent ton Consumption Production Net import Jan. 1991 Jan. 1992 Jan. 1993 Jan. 1994 Jan. 1995 Jan. 1996 Jan. 1997 Jan. 1998 Jan. 1999 Jan. 2000 Jan. 2001 Jan. 2002 Jan. 2003 Jan. 2004 Jan. 2005 Jan. 2006 Jan. 2007 Jan. 2008 Jan. 2009 Jan. 2010 Jan. 2011 Source: IEEJ Source: U.S. Energy Information Administration Unauthorized reproduction is prohibited. 6 IEEJ: April 2013 All Right Reserved (Reference) Inadequate Energy Security 35,000 First Second Dependency on the 95% oil crisis oil crisis 100% 94% Fossil fuel dependency Middle East 87% 90% 30,000 90% 83%83% 80% 75% 88% 25,000 85% 70% 65% 60% 20,000 80% 50% 43%43% 15,000 78% 75% 40% Oil dependency 30% First Second 10,000 70% oil crisis oil crisis 20% 71% 17% 68% 10% 5,000 65% Crude oil import 0% 0 60% 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2009 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 90% 6% 79% 80% 5% 4.8% 70% 4.2% 60% 4% 50% Energy self-sufficiency ratio 3% 2.4% 40% 2.4% First Ratio of crude oil import 30% oil crisis 2% against nominal GDP Including nuclear power 20% 17% 17% 1% 10% First Second oil crisis oil crisis 10% Excluding nuclear power 6%6% 0% 0% 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2009 1965 1970 1975 1980 1985 1990 1995 2000 2005 2011 Sources: IEEJ “Overview of Energy and Economic Statistics” (etc.) April to June Unauthorized reproduction is prohibited. 7 IEEJ: April 2013 All Right Reserved (Reference) Implications of the Arab Spring (long-term increase in political uncertainty among the Gulf countries of the Middle East) Kuwait: UAE: - Demonstration - Criticism of the by Bedouins Emirates on (people without Facebook citizenship) - Arrest and persecution of - Protests activists against the - Convening of prime minister tribal council - Censoring of meetings - Slow progress Twitter toward parliamentary Saudi Arabia: elections - Demonstration by people Oman: - Demand for - Collision between political reform demonstrators - Collision with and security the Shi'ites in the forces in major Eastern Province cities - Implementation - Acceptance of of voting by women political/economic - Demand to reform permit women to - Parliamentary elections hold a driver's license Qatar: - Call for Bahrain: demonstration on - Demonstration by people and Facebook persecution of the Yemen: - Criticism of the Shi'ites - Collision with Emirates - Criticism of demonstrators - Aggressive imperial reign demanding the - Intervention by resignation of the intervention in armed forces of president Libya and Syria GCC countries - Intervention by GCC - Failed dialogue countries and a with the people resolution by the UN - Boycotting of Security Council parliamentary - Saleh's struggle to elections remain in power Source: IEEJ, the Middle East Research Center Unauthorized reproduction is prohibited. 8 IEEJ: April 2013 All Right Reserved 1. The Best Energy Mix from Comprehensive Viewpoints 2) Three Es - (ii) Economic efficiency (particularly in terms of cost) ● The stabilization of energy cost is a prerequisite for people's welfare and for economic development. Prof. Oshima, Ritsumeikan Univ. (2010) Yen/kWh IEEJ (2011) Yen/kWh ※Average between FY1970 to FY2007 Decommissioning Development and cost siting cost per kWh Backend cost Operation and Generation cost maintenance cost per kWh Fuel cost Capital cost Conventional Fossil-fired Nuclear Nuclear power + Fossil-fired Nuclear power Geothermal, etc. hydro power pumped storage （ ） RITE (2011) OECD 2010 Yen/kWh Cent/kWh * Discount ratio: 5% Carbon tax Operation and maintenance cost Fuel cost Construction cost Wind Photovoltaic Coal- LNG- Nuclear turbine fired fired power Hydro Coal- LNG- Nuclear fired fired power Sources: Keigo Akimoto (RITE) “Generation Cost Estimations” (2011); Kenichi Oshima “Political Economy of Renewable Energy” (Toyo Keizai Shinpo, 2010); OECD “Projected Costs of Generating Electricity 2010 Edition” (2010); IEEJ “Cost Unauthorized reproduction is prohibited. Estimations for Fossil-fired and Nuclear Power Generation on the Basis of Financial Statements” (2011) 9 IEEJ: April 2013 All Right Reserved 1. The Best Energy Mix from Comprehensive Viewpoints 2) Three Es - (iii) The environment (compatibility with global warming mitigation) ● Even after the Great East Japan Earthquake, the importance of countermeasures against global warming remains unchanged for Japan as an economic giant. ● Considering the trajectory of GHG emissions, the basic plan (30% reduction from the 1990 level by 2030) is compatible with the long-term target (80% reduction from the 1990 level by 2050). ● Nuclear power and renewable energy greatly help mitigate global warming. Long-term trajectory of GHG emissions (conceptual) Assessment from the perspective of global warming mitigation Million ton - CO2 1200 Wind [Basic Plan proposal 1000 Generation Others by the secretariat] Photovoltaic fuel (direct (indirect 2030: 30% down from Geothermal emissions) emissions) 1990 Hydro (medium scale 800 dam and conduit type) [Progress against Nuclear Kyoto targets] [Hatoyama target] 600 2008-2012: 1.6-2.8% 2020: 25% down LNG-fired (combined cycle) (Direct: 376) up from 1990 from 1990 LNG-fired (steam) (Direct: 476) (Direct: 695) 400 Petroleum-fired Coal-fired