1. Wind : Japan’s chance at long term energy independence (hydro article below this one)
Written for Shulman Advisory in Nov 2021 based mostly on material provided. End client Swiss Business Hub. This is a link to the published work, and that is followed by a copy of the original (not including diagrams): Wind: Japan’s Long Term Chance at Energy Independence | S-GE
- Japan has huge undeveloped wind potential
- Government is now prioritizing wind, removing earlier obstacles, and introducing auctions
- Costs are currently high but expected to fall sharply
- Japan has assessed priority subsectors where there may be most opportunity for overseas companies
Japan has huge wind potential, especially offshore, but so far very little development has taken place. Japan has the 6th largest Exclusive Economic Zone in the world, covering much of the northwest Pacific, and this huge area has 1,404 GW of wind potential, according to METI’s ANRE (floating offshore 782,880 MW, bottom-fixed 337,340 MW, onshore 284,560 MW). However, wind power generation accounted for only 0.7% of Japan’s power generation mix in FY2019, from an installed capacity of 3.9 GW.
There are a variety of reasons why wind has so far failed to take off. Above all, until 2018, Japan gave it no priority. After the 2011 Fukushima Daiichi Nuclear Power Plant accident it was thermal power that generators turned to fill the gap. Only in 2018’s Basic Energy Plan did the government position “renewables as the primary power source”.
In addition, onshore wind is limited by land constraints, including a forestry rate of 67%. Offshore, however, the potential is huge, which means the government now sees offshore wind as one of the key areas to achieve its 2050 carbon neutrality goal1. Floating offshore wind is particularly promising with more than five times the potential of bottom-fixed turbines due to limited shallow water sites linked to Japan’s mountainous topography2.
Offshore obstacles removed
In addition to the lack of direction from government, other critical obstacles to offshore wind had made it all-but-impossible to plan projects. These included a lack of unified rules on the utilization of maritime zones. And permission from the prefecture to use offshore areas was usually limited to just 3-5 years, which made it impossible to look at long term projects. In addition, there was no framework to coordinate with existing users such as shipping and fisheries, and there were few mechanisms to lower costs3.
To address these issues, the government established the “Act on Promoting the Utilization of Sea Areas for the Development of Marine Renewable Energy Power Generation Facilities” in 2018. This ensures priority and coordination with other areas, as well as allowing offshore wind farm operators to bid for the right to use the designated areas for up to 30 years.
The national government will lead negotiations with stakeholders, including local government and residents, which reduces the burden on offshore wind developers. And to keep costs down, Japan has introduced a public auction system in which competing wind farms can bid. The government has also identified 12 “Promotion Areas” for offshore wind (as of Sep. 2021), and 10 potential areas that have progressed to certain “preparatory stages” (see figure 1). Most are off the northwest coasts where sea floors are less steeply shelving.
Source: https://thinkrcg.com/japan-announces-offshore-wind-areas-4/ https://www.meti.go.jp/press/2021/09/20210913004/20210913004.html
Government hikes wind capacity targets
According to the 6th Basic Energy Plan that was approved by the Cabinet in October 2021, the government is aiming for 5% of power to be generated from wind by 2030, with an installed capacity of 23.6 GW (onshore 17.9 GW, offshore 5.7 GW) – up from 4.21 GW currently (onshore 4.2 GW, offshore 0.01 GW)4
However, the government had also in December 2020, announced a target of 10 GW by 2030, rising steeply to 30-45 GW by 2040 (see figure 2). Alongside this, it wants 60% of offshore wind generation components sourced from the domestic market by 2040, and the LCOE cost of bottom-fixed offshore wind lowered to 8-9 yen/kWh by 20355.
Figure 2: Location of planned wind capacity 2030/2040
Sharp falls expected in wind costs by 2030
The government recently reviewed the latest LCOE for wind and made projections for 2030. For 2020 METI estimated offshore wind costs in the low-30s yen/kWh – the highest of all power sources given all the obstacles faced – with onshore wind also high at 19s yen/kWh (see figure 3). However, with government support and changes to regulation, by 2030, METI expects onshore wind costs to more than half to 9s yen/kWh – below either coal or LNG. Offshore wind also falls significantly, although the biggest falls in costs here are only expected after 2030 once the scale of operations is expanded and supply chains are fully established.
Figure 3. Comparison of generation type costs
(H=High, L=Low)
The new public auctions for offshore wind promotion areas started in 2020, and as a reference point, 29 yen/kWh was set as an upper price cap for bottom-fixed wind projects, and 36 yen/kWh for floating offshore wind, which is more than 3-4 times higher than the global average6. In Europe, the latest UK offshore wind awards have been about £40/MWh or just 6 yen/kWh (down from about 18 yen/kWh a few years ago), and in Germany recent onshore awards have been at around €65/MWh or 8.45 Yen/kWh. These much lower numbers suggest there are significant cost savings that could still be realised in Japan, presenting opportunities for overseas companies.
There is already a lot of overseas interest. For example, Scottish offshore wind developer, Flotation Energy, entered the Japanese market this year. And leading wind turbine manufacturer, Vestas, is partnering with Mitsubishi Heavy Industries to adapt its products to Japanese conditions, while Siemens Gamesa also has a presence in Japan.
Areas of priority development
There are four areas where Japan feels that its domestic sector is not yet ready for fully fledged wind development, especially offshore, and these subsectors present the best opportunities for overseas companies.
1. Wind measurement and wind farm optimization
While Japan is advanced in scanning for local information on wind conditions, it needs development of wind measurement and wind farm optimization using methods suitable for Japan’s topography and natural environment. Block and wake effects of potential wind farms also need to be studied, and more accurate power generation forecast models developed.
2. Turbine adaptation
Wind turbines need to be adapted to the local Japanese wind conditions. Earthquakes, typhoons, and other natural phenomena also need to be considered. On the whole, Japan has a slower average annual wind speed than in Europe, although sites can be found with high load factors. However, some of those sites are subject to unique local conditions – the windy north-west Japan Sea coast suffers from regular heavy winter lightning due to the interaction of very cold Siberian air and the warm Tsushima Current7. And the southeast coasts face the world’s highest windspeeds in the form of Pacific typhoons, which have damaged turbines in the past.
Japan’s frequent severe earthquakes mean the weight of the turbine needs to be minimized. The government considers that this is an area where Japan needs assistance from global manufacturers8.
Japanese companies are already innovating for the local conditions. Hitachi Zosen, a Japanese engineering company, has been experimenting with two-blade floating offshore wind turbines since May 2019. The company hopes to lower power generation costs by adjusting shape and construction methods. The turbine is 70 meters tall and has two blades with a total length of 100 meters9.
Variable subsea topography and environmental conditions mean a variety of foundations will be required. And, for floating wind, Japan’s government plans to encourage development of multiple types of floating structures, which it hopes will encourage adaptation to varied local conditions, as well as promoting competition and cost reduction.
3. Power Systems (Underground Cable, Offshore Substations)
In Japan wind farm sites tend to be relatively close to shore compared to Europe, but the gradient and water depth will often be greater. Cable damage is a major risk for offshore wind projects in Europe, and that is also likely to be the case in Japan. Strong and safe high-voltage transmission cables need to be developed, as well as the methodologies to lay these underground power cables. In addition, floating offshore wind farms require dynamic array and transmission cables.
Other related technologies that are in demand include high-efficiency and high-density power conversion for large-scale floating offshore wind farms, and development of floating offshore substations that reduce fatigue loads of electrical equipment and cables.
4. Operations & Maintenance
Smart maintenance technology has been developed for onshore wind in Japan, and its application to offshore wind is expected. Development of lightning countermeasure technology is on-going. A number of digital technologies and data platforms developed in other industries are also being introduced.
There are opportunities in offshore inspection and repair technology, including large-scale on-site repair, especially for floating installations. TEPCO Ventures has already teamed up with US drone inspection company, SkySpecs, which will take part in the O&M service for TEPCO’s onshore and future offshore projects10.
Technology for adjusting the tension of mooring lines and attaching/detaching dynamic cables, is also in demand, along with offshore worker facilities and carriers.
With such limited development of such a huge potential energy source, and such huge cost premiums over established wind farm provinces, there are many opportunities for wind developers (and the wind supply chain) in Japan now that the government is fully on board. In particular, the government’s targets for development – turbines, floating offshore wind, power systems and O&M – present significant opportunities.
References
1. https://www.rinya.maff.go.jp/j/keikaku/genkyou/h29/1.html
2 https://xtech.nikkei.com/atcl/nxt/column/18/01592/00013/
3. https://www.meti.go.jp/shingikai/energy_environment/yojo_furyoku/pdf/002_02_01.pdf
4. https://www.nikkei.com/article/DGXZQOUA064640W1A500C2000000/
5. https://solarjournal.jp/windpower/38063/
6. https://www.meti.go.jp/shingikai/sankoshin/green_innovation/green_power/pdf/001_04_00.pdf
7. https://www.fujielectric.co.jp/technica/faq/thunder/01.html
8.https://www.meti.go.jp/shingikai/energy_environment/yojo_furyoku/sagyo_bukai/pdf/003_03_00.pdf
9. https://www.nikkei.com/article/DGXZQOJC068QK0W1A001C2000000/
10. https://www.digital.denkishimbun.com/PB5012_000/kiji.php?_P=kiji&_A=redirect&kiji_id=OK0000020120200101_05
2. SECOND ARTICLE ON HYDRO
Also written for Shulman Advisory (August 2021), final client SBH
Here is the link to published version, followed by original text (minus diagrams): Hydropower Development in Japan (s-ge.com)
Japan Hydropower: making the most of every drop.
As with most advanced economies, almost all suitable sites for large or medium sized hydropower plants have already been developed in Japan. But with its new, intensified focus on low carbon power, the country is keen to squeeze every last kWh of hydropower from the system, with potential remaining for small hydro expansion, as well as refurbishment and repowering of older facilities. Flexible hydro such as stored or pumped storage is especially attractive, as it is both low carbon and available when required – unlike wind and solar.
While Japan may not have many long rivers, it does have mountainous terrain and heavy precipitation, providing numerous opportunities for hydropower generation. With all suitable major sites already developed (Kyogoku 200MW unit 1 was the last major plant to be commissioned in 2015), Japan accounts for a significant 2% of the world’s total hydropower capacity. Much of that capacity is aging – hydropower has a long history in Japan, with the first plants built before 1900, and a major surge in construction in the decade from 1920. At the end of WW2, hydro represented almost two thirds of total generating capacity in the country, but this fell as big thermal plants outpaced new hydro additions in the post-war years, until hydro’s share reached about 7-8% in 2000 (this amounts to about 97 TWh per year (figure 1), from an installed capacity of xx GW).
It continues to supply this portion of the total today, with over 60% of operating hydro plants built more than 60 years ago. This means opportunities exist in refurbishment and repowering to improve efficiency and lifespan, although much of this depends on former utilities, which own more than 90% of hydro plant capacity in Japan, including almost all the large sites.
A wider range of companies are involved when it comes to the smaller sites, many of which are owned by or developed in cooperation with local municipalities. METI says there are many sites remaining for new smaller hydro installations, and estimates that more than 30% of hydro resources (including at existing projects) have yet to be fully utilized (see figure 1). This equates to undeveloped hydro resources (both at existing and new small sites) of just under 20GW, spread over 2,661 sites – suggesting an average project size of 5-10MW.
Figure 1. Actual and potential hydro power generation (METI)
All hands/Green and commercially attractive, long term.
Japan’s new target of a 46% cut in emissions by 2030 means all viable low carbon options, including any remaining hydro potential, will be needed. In any case, at 11 Yen/kWh, large hydro is the cheapest overall power source on the Japanese system, with the possible exception of nuclear according to METI, although nuclear costs have recently been revised upwards due to prolonged testing at closed facilities, and have yet to include any temporary shutdown or eventual decommissioning costs. Similarly, LNG is valued at 13.4-13.7 Yen/kW, but this is also likely to rise due to a recent spike in international prices that many expect to persist for several years at least. This makes hydro refurbishment at major plants to extend life, improve efficiency, or expand capacity commercially attractive, as well as environmentally sound – at least over the long term, given hydro’s relatively high up-front and low running costs.
Smaller hydro is more expensive, but plants of less than 30MW (including both new plants and sub-30MW refurbishments) qualify for FiT guaranteed payments, allowing costs to be covered by a guaranteed revenue stream and making them attractive as a revenue source for local government, as well as a reliable source of low carbon power. Moving an aging mid-sized plant onto a FiT scheme means producers can avoid exposure to market price risk, as well as enhancing capacity and efficiency through refurbishment. The take-up has been enthusiastic – in the eight years since the first hydro FIT plants were approved, a total of 1.42GW in hydro FiTs have been awarded (up to December 2020), with many of these for repowering/refurbishment (see figure 2).
Figure 2 – Repowering and refurbishment hydro schemes under FiT (METI)
Small scale plants
Many of the most attractive remaining undeveloped hydro sites are increasingly small-scale. Plants with a capacity of 1MW or less have been getting particular attention (see figure 3). Most are run-of river systems that sell power under the FiT system. These very small plants tend to have a low initial cost and less of an impact on the environment, making it easier to get the consent of local residents. Energy and construction companies can develop small hydropower plants using existing facilities, and local communities also have an interest in developing small hydropower plants. For example, local residents funded Chichibu Terasawagawa Hydropower plant (capacity 49.9kW), so they could sell power from the plant under a FiT to pay for the conservation of local woodland.
Table of examples and comment from small company.
The Group of Four Small and Medium-scaled Hydropower (clarify group) expects that 350MW of new small and medium-scaled plants of less than 30MW will be introduced by 2030, while as much as 9,710MW will be refurbished – suggesting the bulk of the work will be at existing sites. It also announced that it plans to develop plants with 1-5 MW capacity.
Opportunities in AI and IoT
Hydro facilities can be improved by installing AI, as well as digitizing and connecting hydro facilities to the internet for remote or automated operation (IoT). Japan’s big power companies are actively introducing AI and IoT technologies into the maintenance of facilities – for example, Shikoku EPCo has already introduced a system to control major equipment using IoT and big data at all its 57 hydropower plants. Other innovations include Kansai EPCo’s development of a drone that checks the inside of the water introduction path in plants, which it expects will halve the number of inspection days at its 90 hydro facilities. However, not many smaller-scale plants, many of which are owned by local governments, have introduced such technology, and METI is keen for them to do so. Moreover, many of the remaining small undeveloped hydropower sites are located in relatively inaccessible, mountainous terrain, and so may require remote operation and predictive, automated maintenance, so they can be developed in an environmentally sensitive manor.
Technology can also be introduced to optimise revenue from hydro plant output by coordinating maximum production with periods of higher prices on Japan’s wholesale market, although this is only possible for those plants with some control over their turbine flow.
Dispatchable green power
Stored hydro and pumped hydro projects offer this type of dispatch flexibility. Such plants can respond to solar and wind fluctuations, and are able to focus production during high priced periods on the market – so don’t need FiTs if they are being operated effectively. However, sites are scarce, and no new plans for pumped hydro have yet been announced by METI.
Stored and pumped hydro can temporarily fulfil the same role as LNG in balancing intermittent renewables or meeting peak demand, so may present particularly attractive commercial opportunities in coming years as the government seeks to cut gas use to a 20% share by 2030 as part of its efforts to decarbonise. Unlike other types of hydro plant (run-of-river and storage), pumped storage (PS) has high operating costs (depending on the electricity price) as well as high capital costs. But there are indications from Europe that the difference between half hourly prices during spells of high solar and/or wind, and those in low ones widens as more renewables are added. So, the prices that pumped hydro can rely on – both for cheap recharging (lower) and for peak discharge (higher) – may well improve, widening margins at both ends. The more flexible supply is, the more valuable the asset becomes as more intermittent renewables are added.
Intermittent wind and solar renewables are already working well with PS, ramping up the utilization rates for operating PS plants. For example, the operating hours of the Kyogoku PS Plant in Hokkaido doubled from 900 hours in 2016 to 1900 hours in 2019. The plant used to pump up water at night when power demand was low, but now it often pumps during the day when solar and wind power availability is highest. By combining the two (and potentially adding in other low carbon options such as batteries or utilizing biomass/hydrogen/ammonia fuel), a retailer can provide a continuous supply of CO2-free power, which is increasingly attractive to energy consumers (individuals and companies) – many of whom are setting their own carbon reduction goals. Retailers including Hokuriku EPCo, Shikoku EPCo, Tohoku EPCo, and TEPCO are now offering this type of supply, and more are expected to do so to meet rising demand over coming years.