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Setback in Japan

Two big electricity suppliers don’t want to buy additional wind power. That’s throwing the Japanese wind industry back just when it was starting to make headway.

By Catherine Pawasarat

 

As of March, 2004, Japan had 800 turbines with 730 megawatts of installed capacity and orders for 300 megawatts to be installed by 2006, reports Nobuo Kobayashi, director-general of the Japanese Wind Power Association (JWPA). Since the Ministry of the Economy, Trade and Industry (METI) estimates that 3 GW of wind energy will be in place by 2010, the Japanese industry has to install 2 GW more to meet this non-binding target.

With the industry at a standstill, how is this going to happen? The JWPA is working with METI to improve the buying and selling conditions for wind power suppliers and to increase the amount of alternative energy utilities must buy under Japan's Renewables Portfolio Standard (RPS).

By the end of 2002, Japanese wind power had 463 MW capacity, a six-fold increase over fiscal 1999. “It's not increasing as dramatically nowadays, but it's still growing,” says a METI official. These figures represent around 0.01% of the country's total energy output capacity.

But last year also brought heavy blows to the Japanese wind power market: supply prices were unexpectedly undercut and two utilities in northern Japan announced they would not purchase additional wind energy. These developments have taken the wind out of the sails of the Japanese wind power market, leaving a big question mark over adding capacity in 2004.

Yet barely a year ago, in spring 2003, the sun still seemed to be rising over the Japanese renewables market. Last April parliament, the Diet, enacted Japan's New Energy Law, incorporating the RPS to set 2010 targets for the amount of renewable energy utilities must purchase.

The non-binding target is 1.35% of total electricity generated and may be met by any renewable source. METI sees the law facilitating 3 GW of wind-generated energy by 2010.

It’s doubtful that the target will be reached. The central government does give subsidies to organisations that build wind generation facilities. Civil organisations may receive 0.8% of half the construction costs, while private organisations may get 0.8% of 30% of construction costs.

But the practically all-decisive issue of feed-in remuneration rates has not been settled. “Unfortunately the Japanese government has not made any official rules about power companies' buying and selling renewable energy,” sighs Kobayashi. Anyone wanting to operate a wind farm has to deal directly with the power companies. As a result, “The price paid has not been settled since the RPS was passed and it is always subject to change based on the utilities' discretion,” says a government official working on wind energy.

That’s also the experience of Izumi Ushiyama, professor of mechanical engineering at the Ashikaga Institute of Technology in Tochigi prefecture. “Electric utilities are buying the energy as a voluntary service, so we don’t know whether they will keep buying our wind power,” he says. So there is no long-term planning security.

 

Wind monopoly

Unlike the situation in Europe and the US, in Japan ten regional power companies control everything from generating stations to nationwide distribution. Deregulation of the grid is an issue Japan has scarcely begun to address.

The best wind energy potentials lie in the north. Sparse population and open spaces with strong winds make the northern island of Hokkaido and the northern region of Tohoku Japan's favoured locations for land-based wind power generation. Seventy per cent of the wind farms have been built here. But “all the independent power producers have lost their business in Hokkaido and Tohoku areas, though these are the best areas for wind energy,” complains JWPA’s Kobayashi. Hokkaido Electric Power Company and Tohoku Electric Power Company – the two that dominate the northern market – both declared in late 2003 that they would not buy any additional wind energy in 2004.

Their back-pedalling is a major setback for the development of wind energy in Japan. In 2003, 650 MW of wind power capacity were planned for wind turbine sites in Hokkaido, according to Kobayashi, “but Hokkaido Electric said they would buy only 80 MW.”

Though these 80 MW were allocated to wind power operators by several lotteries, industry sources complain that most of the lotteries were won by a single company, Eurus Energy Holdings Corp., half of which is owned by Tokyo Electric Power Company, Japan’s largest energy utility. Eurus holds the largest market share for large-scale wind farms at about 30 per cent and last year had the second largest share for small-scale installations as well.

Sources also criticise that when the Tohoku utility put up a tender last year, Eurus won by offering an unprecedented low price of about 6.5 yen/KWh. Previously, wind power producers had been struggling to lower prices to between 8-9 yen/KWh to make wind energy more competitive with other power sources. “For sure, Eurus's price is really too cheap. Other suppliers can't compete and if there's no competition, wind energy won't spread. But the government doesn't have the right to intervene,” says the government official.

 

Old prejudices

The arguments of the two suppliers against further expansion are well known from other countries. They maintain that the supply of wind energy is too unstable. Indeed, Japanese topography causes wind to stop and start and change directions frequently, with seasonal typhoons another major consideration. The country's energy grids were not built to withstand such a fitful source, particularly since most wind power is generated in remote areas where few people live and not much has been invested in energy infrastructure.

The traditional expense of wind energy (10-20 yen/KWh for a 3 MW+ installation) compared to sources like nuclear power (5.9 yen) and coal (6.5 yen) is also certainly another factor that makes wind energy unappealing to utilities. “The most important thing is for the government to help the utilities reinforce their grids. Then the locations where we could generate wind energy would increase,” asserts Minoru Watanabe in sales at Ishikawa-Harijima Heavy Industries (IHI), Nordex's sole distributor in Japan.

 

Unsure prospects

The two utilities' move comes as a shock to wind turbine companies, whose business in Japan had shown increasing promise. With only one Japanese manufacturer (Mitsubishi Heavy Industries, Ltd) making large-scale turbines, European producers have done well here. Vestas' sole distributor Vestech Japan holds the greatest market share, followed by NEG Micon and Lagerwey, which recently licensed a Japanese company, JFE Engineering Co., to do its manufacturing in Japan. Together, these three approach 80 per cent unit and capacity shares of wind energy in Japan. Enercon, REpower Systems, DeWind and GE Wind Energy are also players in the Japanese market, with the lone Japanese competitor, Mitsubishi Heavy, maintaining a market share of about seven per cent.

Normally by late 2003 industry players would have some idea of new projects and contracts available for fiscal 2004 but now projects whose energy contracts with utilities have not already been secured are totally uncertain, particularly for development in the northern regions.

Nonetheless, last summer Eurus Energy Holdings Corp. announced that they would boost domestic capacity from 60 MW to 280 MW. It clinched numerous attractive contracts last year before the two utilities announced their freeze on wind-generated energy purchases.

In February, a 28-MW farm began operating in Kihoku, Kagoshima prefecture, in southern Japan, with 16 1,300-KW Bonus turbines and a contract with Kyushu Electric. A new plant with 42.9 MW capacity will go on stream in December this year in the northern prefecture of Iwate, with 43 1,000-KW turbines supplied by Mitsubishi Heavy. Construction of a wind farm in Nishime, Akita prefecture in northern Japan is scheduled to be completed by November this year, with 15 2,000-KW Vestas turbines and a contract with Tohoku Electric. A third farm in Odanosawa, Aomori prefecture will have ten 1,300-KW Bonus turbines, with a contract with Tohoku Electric and completion slated for October.

Eurus is also planning the two largest wind farms in the country, one with 57 1,000-KW turbines from Mitsubishi Heavy in Soya, Hokkaido, and a contract with Hokkaido Electric. The other will consist of 25 2,000-KW turbines from Gamesa, located in Heiji, Aomori prefecture and with a contract with Tohoku Electric. The construction dates for these two farms are not yet settled.

Because of the standstill in Hokkaido and Tohoku, wind power generation companies are building in other regions. Since the energy potential is less outside of those northern regions, the construction is consequently moving forward on a smaller scale. “It's going to take some time for the quantity of wind power to increase. In the meantime, we are trying other developments,” says Tetsunari Ida, director of the Green Energy Law Network. His organisation has spent several years organising an initiative to enable the general public to invest in wind energy and another to enable consumers to purchase green energy (new energy 3/2002).

For wind turbines, Vestech Japan has 10 V66s going up on the southern island of Kyushu for Wind Tech Co., owned by Toyota Trading Co. Now in the planning stages are a site with 11 V80 machines near Nagoya city in central Japan and ten V66 turbines on Kyushu, both of which are for J-Power. J-Power buys 80 - 90% of Vestech Japan's turbines, according to a company source.

IHI/Nordex has two wind energy sites under construction: a 1.65-MW turbine in Tokyo Bay for the Tokyo Metropolitan Government and eight 1.3-MW turbines for the Southern Kyushu Clean Energy Co. in Kagoshima prefecture. “Competition is severe. The euro is getting stronger and so our prices are going up, plus we have shipping fees on top of that,” says IHI's Watanabe.

In Japan, once a law is passed, it's extremely difficult to change. So it seems that the Japanese are stuck with their current RPS and New Energy Law until the RPS is scheduled for review in 2006. Wind energy producers are hoping for some kind of revision or amendment that will put the wind again at their backs.

 

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