What Should Japan Do with Nuclear Power, Renewables, and Electricity Conservation?

The growing uncertainty of energy supply, resulting from the Fukushima nuclear power accident caused by the Great East Japan Earthquake, is having a significant impact on Japan's energy demand and supply balance, energy policy, and measures for global warming prevention. With most of the exiting nuclear power plants still suspended, Japan faces an urgent need to develop a new comprehensive energy portfolio that properly takes account of its prospective strategy for economic growth, the scale of greenhouse gas emissions, energy security, and various other factors. In doing so, we need to give due consideration to the current state of our economy and society as well as to changes in the industrial structure. In a RIETI research project, "Economic Analysis of Environmental, Energy, and Resource Strategies following the Great East Japan Earthquake," we seek to identify the impact of changes in the economic situation in recent years on the nation's energy demand and supply balance (Note 1). In this article, I would like to propose a direction for future government policy on energy, global warming prevention, overall economic management, and the restoration of disaster-affected areas.

Since the March 2011 earthquake, societal decision making on trade-off decisions has become all the more important as the disaster has given rise to multiple sets of problems that require incompatible solutions.

Nuclear power generation

First, there is a trade-off between greater peace of mind and higher electricity prices as a result of reducing reliance on nuclear power generation. Assuming the case in which nuclear power plants cannot be put back into operation, we simulated how electricity prices would change if different types of thermal power plants are deployed to make up for the resulting shortfall in power supply. We found that electricity prices would go up across the board for all hours of the day year round, but particularly during the peak load hours, provided that all of the existing nuclear power plants are not in operation. The Kansai and other regions in western Japan as well as Hokkaido would suffer a significant hike in electricity rates. The introduction of combined cycle gas turbine power plants as a substitute for nuclear power plants would suppress the rise in the average cost of electricity per day. However, the hike in evening rates would be relatively large. This would pull the rug from under those who have purchased an all-electric home or an electric car, assuming that they would be able to take advantage of cheaper evening rates. It would be necessary to take some measures to alleviate the impact.

Renewable energies

The past five years saw the rapid increase in the use of renewable energy sources not only in Japan but also across the world. However, this has been realized at the cost of an increased financial burden on consumers. What we see here is a trade-off between the penetration of renewable energy sources and the financial burden involved. The scope and scale of policy-based support would vary depending on the target level of penetration. Focusing on the feed-in tariff system, a policy program introduced in July 2012 in order to promote the use of renewable energy sources, we examined photovoltaic (PV) power generation facilities approved or brought into service thereafter to investigate how the level of feed-in tariff rates have affected the approved capacity of PV power generation facilities and the operating capacity of those already in service. Our empirical analysis found that the impact of feed-in tariff rates on the approved capacity has been 3x-14x greater than that on the operating capacity, indicating that incentives have been at work to drive many to secure approval at an early stage in the hope of capitalizing on higher feed-in tariff rates.

Saving electricity

Since the March 2011 earthquake, we have been witnessing tight power supply conditions with greater frequency. With the importance of power conservation on the rise, the government has been making repeated efforts to raise public awareness. Saving electricity enables us to save on electricity bills. However, when it involves purchasing an in-home display device and checking electricity usage costs on it from time to time, we should want to know beforehand how much electricity we would be able to save. Because of this, much attention is now being focused on dynamic pricing, an approach that seeks to control electricity demand by changing prices in response to supply-demand conditions. By taking this approach, electric utilities can suppress peak demand by setting higher prices for use in hours and seasons with high demand, and stimulate off-peak demand by setting lower prices.

Thus, we conducted a field experiment in Yokohama to assess the impact of dynamic pricing. This experiment is unique in that we focused on PV prosumers—i.e., households equipped with grid-connected PV systems and thus subject to the feed-in tariff system—to examine the effects of increasing peak-load electricity prices as an indicator of possibilities of dynamic pricing in situations with surplus electricity. Our experiment showed that the peak-cut effects on PV prosumers were one-quarter of those on ordinary households, i.e., those without grid-connected PV systems. However, it should be noted that PV prosumers cover all or part of their own demand with home-generated electricity during summer peak load hours and can sell any surplus to utilities. And a degree of peak-cut effects were observed with the feed-in tariff system incentivizing them to reduce their electricity use during peak-load hours to sell surplus to utilities.

Meanwhile, in another field experiment conducted in Kyoto prefecture, we examined how the energy-saving behavior of households is influenced by better knowledge of relevant social norms. Among various types of households covered in the experiment, those that are on all-electric rates were the only ones in which power saving effects were observed, particularly, in morning and evening when all of the family members are likely to be at home. This points to the importance of taking a targeted approach in implementing measures that do not involve any price interventions. In the experiment, we also examined the effects of peak pricing, a price intervention measure. The power saving effects of this scheme were observed—albeit limited to peak-load hours—across various types of households, in a stark contrast with the findings on the aforementioned non-price intervention scheme.

Here I would like to draw attention to the trade-off we face in energy policy, including nuclear power generation, renewable energy sources, and power saving. In April 2016, the electricity market for households was fully liberalized. The cost of the feed-in tariff scheme passed onto customers is rising and so are overall electricity rates resulting from substituting thermal power for nuclear power, pointing to the growing importance of price and non-price interventions. To what extent will people accept nuclear power generation? Should we pursue renewable energy sources further? Will power saving efforts be able to close the supply-demand gap that cannot be covered by nuclear power and renewable energy sources? These questions, which were raised and attracted a great deal of attention following the Great East Japan Earthquake, remain unresolved and subject to policy debate. Now that the effects of various policy measures and technology penetration have become known to some extent, we should once again take a comprehensive look at the questions under the new light.