Realists and idealists on the cost of adopting renewable energy

July 11th, 2011 by Philip Brasor & Masako Tsubuku

Though the power companies and their allies in the business community still insist that nuclear is the more viable form of energy generation for Japan, everyone else is already thinking beyond nuclear, including the government.

Towering, infernal; or, How I learned to stop worrying and love the pylon

On March 11 when the earthquake/tsunami happened, it just so happened that the Diet was discussing a bill to promote renewable energy sources like wind and solar. It is the exact same bill that Prime Minister Naoto Kan insists on passing before he steps down, and was written by the Ministry of Economy, Trade and Industry, the government organ whose predecessor was mainly responsible for putting nuclear power at the center of Japan’s energy policy. It’s not as ironic as it sounds. METI has been charged by the international community with reducing Japan’s carbon output, and since renewables only account for one percent of the country’s energy production there’s room for improvement in that area. Besides, as bureaucratic maverick Shigeaki Koga wryly suggests in the Asahi Shimbun, for METI officials there are as many opportunities for career advancement in the renewable field as there are in the nuclear field.

The question now is, how much is the consumer going to have to pay for this shift to renewable energy? NHK ran a discussion of the matter on Saturday morning with two experts. Tetsuya Iida, a former nuclear power insider who now runs an energy research center, is, as the announcer labeled him, an “idealist”; while Yuzo Yamamoto, a professor at Kotoha University, is a “realist” on the matter.

According to the proposed bill, called the Renewable Energy Act, the government will endeavor to increase the share of wind and solar energy to 13 percent of all power generation in Japan in 10 years by setting the price that power companies will have to pay for that energy. Though a number of venture businesses have tried to make a go of renewables, their main problem is startup costs. “It’s unavoidable that you operate in the red at first,” said the president of one solar farm in Miyazaki Prefecture. Construction of windmills is very expensive and the cost has almost doubled over time owing mainly to the price of materials. Moreover, the power companies pay less for wind energy than they used to: ¥10 per kilowatt-hour, down from ¥12 per kw/hour in 2003.

An NHK reporter pointed out that METI had been subsidizing the construction of solar and wind farms, but that last year the subsidies were stopped after a round of the Administrative Reform Council, which was charged by the ruling Democratic Party of Japan to cut waste. The premise was that the Renewable Energy Act would eventually be passed and thus make the subsidies obsolete.

Professor Yamamoto is against the bill because he says it will place a burden on the consumer, especially poor people, whose electricity bills may rise considerably as a result. That’s because power companies that buy renewable energy will pass the cost on to their customers. Of course, even under subsides citizens paid, but through their taxes. At present, power companies pay between ¥10.6 and ¥12.6 per kW/hour for solar energy and and average of ¥10.1 per kW/hour for wind. The bill would increase those prices to between ¥20 and ¥40 per kW/hour for solar and between ¥15 and ¥20 for wind. According to entrepreneuers, at those rates they could make a go of renewable energy production.

The Science Council of Japan has calculated that if the law is passed, an electric bill of ¥6,000 per month today will cost ¥8,118 per month in 10 years. Yamamoto, as well as many consumers surveyed by NHK, thinks this is too much, but Iida believes the amount is a red herring, based on faulty methodology. For one thing, the SCL based its calculations of the cost of renewables 10 years ago without taking into consideration the likelihood that the cost would drop once renewables become more widespread. By Iida’s calculations, the cost of producing renewables will drop by 10 percent every year and so the monthly electricity bill will only go up by about ¥500, an amount that hews closer to the government energy agency’s projection. In any case, the alternative — more reliance on fossil fuels — would mean even higher electric bills if current trends in the price of petroleum continue, and paying for oil and natural gas means the money leaves Japan. If the money went to renewables, it would remain in the Japanese economy.

Yamamoto countered by saying that countries in Europe, mainly Denmark and Germany, have seen their electric costs rise markedly since incorporating renewables into their energy policy. There’s just no way to assure a stable energy supply since the wind isn’t always blowing and the sun isn’t always shining. You need to build storage stations and new transmission networks, both of which are very expensive. “Japanese electricity bills are low compared to Europe,” he said. And as one NHK reporter pointed out, Japanese law mandates a “stable energy supply,” so while the government has to approve utility rate increases, they are always granted because in order to guarantee a stable supply of energy the power companies’ profits must also be guaranteed. Iida said that this situation must change, since power companies “are the best customers” for goods and services in Japan. Because their profits are assured by the government, they don’t have to bargain and so pay premium prices. Yamamoto countered that profit margins for Japanese power companies are half what they are in other countries.

In any event, Professor Yamamoto never advocated for nuclear as he made his points against renewables; and the prevailing opinion among viewers who commented during the program seemed to be mixed but definitely against nuclear. If the bill is passed, and that seems likely, there will probably be a lot of criticism from libertarians and others who prefer that the market take care of setting prices rather than the government. But the point of the bill is that renewable energy cannot get a leg up commercially without a bit of official price-fixing, since the startup costs are so daunting and, what with the power companies’ hold on regional energy supply, no reason for them to buy solar and wind energy at sustainable prices. “We can start any time,” said one wind farm owner. “We just need the reassurance that there will be money.”

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3 Responses

  1. Hey Philip,
    I just don’t understand why the media is opposing nuclear vs renewables, and is not talking about the elephant in the room, ie coal/gas. Did I not follow the latest debates or am I right?
    I am working in the nuclear business and I sincerely think we need CO2 free energy, nuclear for baseload and renewables for peakload (as much as 20% if available/affordable).

  2. I don’t necessarily think coal and oil power are the elephant in the room. As mentioned above, the main reason METI wrote the bill was to meet promises made by the Japanese government (specifically, former prime minister Hatoyama) to reduce carbon output. And just because they’re going to promote more renewables, it doesn’t mean they’re going to abandon nuclear power. The goal is only 13 percent in ten years. As pointed out last night on TV Asahi’s political talk show “TV Tackle” most of the government’s “datsu-genpaku” stance is nothing more than PR. They have every intention of keeping nukes around for the foreseeable future. That’s why the Japan Science Council’s estimate of what an electric bill would be if the Renewable Energy Act is passed is implausible–it assumes that nuclear energy will no longer be a factor in Japan’s energy calculations, an unrealistic assumption at best.

  3. The economy is structured so that growth depends on cheap energy and far too few critics or supporters of nuclear power are willing to acknowledge that. Until they do, nuclear power supporters will keep winning the debate by default.
    Nuclear power supporters stick to the argument that we can’t get by without it, since solar and wind don’t make enough power and oil, coal and gas are too dirty/nonrenewable.
    Opponents of nuclear power keep saying that solar and wind can replace nuclear.
    Both are correct, on their own terms, but beside the point because consumers simply aren’t prepared to pay the true cost of safe, clean energy. Our politicians know that and configure the power monopoly accordingly, with heavy subsidies and the political corruption that engenders.
    If consumers suddenly become willing to pay the full energy price, they’ll have a lot less money to spend on cars and beer and iPhones, etc, slashing economic growth.
    What if Tepco sent you a bill that gave you a choice of paying, say, 5,000 yen for a month’s worth of coal power, or 7,000 for the same month by nuclear or 15,000 for solar/wind. Surveys show more than 70 percent of Japanese say they oppose nuclear power, but how many would put their money where their mouth is?
    It’s unlikely we’ll have a fruitful discussion on energy policy until we can compare the real total costs of energy and figure out a way to pay for that without sinking the economy…

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