This is Dana Perkins and you're listening to Switched on the BNAF podcast. Prior to March of twenty eleven, Japan's energy sector looked significantly different from what it is now. Back then, a third of its overall power came from nuclear energy. However, in the aftermath of the earthquake and subsequent tsunami resulting in the Fukushima nuclear incident, the nation took the decision to shut down all of its nuclear
reactors and reassess its reliance on this power source. Fast forward to twenty fifteen, when Japan started up two of its reactors again, but between then and now only a few more have been brought back online, leaving fossil fuels to fill in the energy generation void and raise Japan's emissions. So on today's show, we dive deeper into Japan's pathway to net zero and the future mix of their energy system. To get more perspective on this, I get to speak
with Issue Kukuma and associate from bnaf's Tokyo office. Together, we discuss the energy technology Japan is looking to utilize as part of its drive to net zero and the unique circumstances such as land constraints that it has to overcome. We also discuss the nation's geothermal energy potential and why a meaningful rollout of this clean energy source is being blocked by an unexpected group, and lastly, Japan's reduced relationship with nuclear power and its potential role in the future.
BNAF subscribers are going to be able to access BNF's Japan specific New Energy Outlook report by going to BNF dot Com, BNF go on the Bloomberg terminal, or BNF's mobile app. Now this report, the New Energy Outlook for Japan was actually based off of BNF's New Energy Outlook twenty twenty two, where we developed the economic transition scenario, which is without admissions constraints, as well as the net zero scenario subject to a carbon budget consistent with meeting
the Paris Agreement goal. Using these scenarios, we're able to explore the implications for Japan's electricity, industry and transport sectors, along with the investment flows that are required to get there. As always, if you like this podcast, make sure to subscribe and you'll receive an update when we published future episodes and give us a review that'll make us more discoverable by others. But right now, let's jump into my
conversation with issue about Japan and its new energy outlook. Issue. Thank you so much for joining us on the show today.
Yeah, thank you so much for having me.
We're here to talk about Japan and we want to understand everything about the energy system there, and you're actually speaking to us today from our office in Tokyo, which is great. Let's start at the beginning. You know, we're here to talk about the energy system, so can you explain the current state of play? What does the existing energy system look like in Japan?
Japan's color anergy max with heavy rely on fourth of field, which explain why Japan's emission is too high and also explaining japan it's quite emission intensive and among all sectors, power sector is the largest source of emissions, which accounts for about forty percent of total emissions to Japan. And this is because japan a luxurity generation is mainly supplied by coal, gas and oil pop plants.
What are Japan's different emissions targets?
Yes, so I would like to highlight two major declbnization targets for Japan. For the first one is MDC targets, so this is more for the near term. So Japan is aiming to video some emissions by forty sixty percent in two the nand and thirty compared to twenty thirteen level, and the other one is netzero target, so this is obviously for the more long term, and Japan is pledging to achieve netzero by two the fifty and this has
been legislated since two twenty one. So these two are the key decobnization targets for Japan.
And we're going to talk a bit about history in terms of Japan's energy system and then also some of the changes we see in the future. But before we get into that, I want to know if you think that these emissions targets are ambitious.
Yes, I believe so. So forty six percent emission reduction and also basically netro in two there and fifty these are very ambitious given what japan energy mix is currently looking like. So as I mentioned, japan energy mix is very I mentioned intensive, so Japan definitely needs to do more to achieve a netro or deploy more renewable or more decarbonization solutions in access rated manner.
So it's going to take some work to get there, and before we think about the future, let's go to the past. So in twenty eleven, there is this event, the earthquake that then is now also synonymous with Fukushima, and what happened with that nuclear reactor where you had nuclear waste make its way all the way across the Pacific at one point and found in California. Can you explain how important nuclear used to be to the overall energy mix in Japan and where it sits right now?
A nuclear pop plant used to account for one third of total electricity grmination. But the fucustion accident was definitely a huge turning point for japan electricity market cause after the accident, or nuclear reactors had to shut down, and since nuclear had to drop out from the power market in Japan, forth of your poplant needed to step in to fill in the gap, which increased the emissions in Japan.
It's been over ten years since the focusing accident. Back in Japan, nuclear restart has been that is slow still, so by the end of twenty twenty two, only nine new Graatee reactors restarted, and this is quite small compared to before the accident because we used to or the Japan used to have around thirty nuclear reactors and last year, if you look at the contribution of nuclear pop plants or the nuclear power in japan electricity invention, it was
less than ten percent when it comes to the annual generation. So compared to the one side of the electricity met by nuclea before the accident, the current electricity generation by nucleate really small.
But you note that nine reactors have been restarted, and this is not a small undertaking to restart a nuclear reactor. But going forward are their plans to open more and what part of the energy mix would that actually comprise in the future.
Yes, that's a great question. So the Japanese government actually has some new clear target and alexis regeneration and according to the current electricity mixed target, the government is aiming to increase the share of nuclear generation to twenty to twenty two percent of the total electricity generation in twenty and thirty. So this is basically one fifth of the total electricity generation and this is a quite big jump
from what we're seeing the market. But BENF we don't expect the Japanese governments to meet this target because of the sole nuclear restart we have seen software and also the limited timeline until to the donally to continue the restart process.
I don't know if that was the funniest statement you've made, but you can tell for those who are listening the issues actually recording from our office in Tokyo, and it's an open floor plan, so apologies for any background noise, but hopefully people in your office are learning a bit more about the power system in Japan today. So there we go. Everyone's listening to the recording, they're getting a sneak peak. So my next question really has to do with how people in Japan are reacting to this.
Yeah, in the public, there're the mixed feeling. So obviously some people still worry about the safety of the nuclear power, and this is mainly because what they have seen in the past. But this is slightly changing these dates, so some people actually see the benefit of having nuclear power in Japan. Electricity mix because of increasing electricity retail prices that we are seeing in the market right now, because of the increase in the commodity prices.
So let's talk about what the alternatives are if we don't bring a lot of nuclear power back online in order to reach these emissions targets that you've outlined, and I'm going to start with a really simple one. You know, it's an island nation. What is the potential for interconnectors with other nearby countries and for them to buy clean energy from surrounding states or is this something that they're going to have to build domestically.
I think it's quite ambitious because obviously it's not like closest states island nations, So if you're trying to build an interconnection or like a power line or anything, it will require a huge investment, and on top of that, you have to kind of take an account for that your politics, let's say between Japan and Korea, or between Japan and China. So I think this could be a challenging topic.
So now that we've established that Japan's really going need to be developing a lot of their power generation domestically, what let's talk about some of the options that actually exist. And I think it's maybe the best place to start is diving into the traditional renewable energy sources that we think of, which are wind and solar. So what are the options and kind of what's the outlook for wind and solar in Japan.
Before talking about wind and solar specifically, I just wanted to highlight the organization of the power sector should be prioritized, especially in your term, I think in Japan, but also globally. And this is because renewablets are already matured and those renewable technology is already becoming cost competitive, and we know what need to do to clean out the power sector, which is basically deploying more common free power our pop
plants and also fade out the emission intensive technologies. And when it comes to like the role of solent when Japan or these technology have the huge potential in Japan.
For example, in one of the benf Fragship research in New Energy Outlook, which basically long term scenario exercise for Japan and also the global energy mix with it, the scenario exercise and modeled how the future energy mix needs to look like to meet the parents aligned net or target, and this scenario exercise basically confirmed that solar and when
there desically the key for Japan's netual target. So according to our research, solar and win account for about eighty percent of total electricity into the fifty in our net scenario. And if we look at the wind. Actually the share is quite big. So the share of wind is over fifty percent of the total elexicity generation into the fifty, so this is quite big and because of that, I think Japan definitely needs to scale the renewables deployment in
an accescerated manner. So in our network scenario that install the capacity of solar needs to be over four hundred gigabat. This is five times larger than what we are seeing the market today in a full wind, So the wind market in Japan is quite tiny. For right now, japanly has less than five gigot of wind projects installed, including
both on show Win off Show Win. However, our net scenario shows that on shore wind instration needs to be over one hundred and ten gigabat and off show wind instration needs to be over one hundred and forty gigat in two theou and fifty, so you can see how big the jump needs to be for that win and also solar.
So there have been a lot of changes to the energy mechs in Japan, and you noted that there was quite a bit of nuclear power, which is traditionally considered consistent based load power, which came offline, then replaced by heavy carbon emitting energy sources, and now looking into the future, perhaps a bit more nuclear certainly looks like quite a bit more wind. But then there is the fact that the wind doesn't always blow and the sun doesn't shine.
Anybody listening to this podcast is very familiar with that. From a security a supply standpoint, what has been happening with the grid and has there essentially with the changes that have been taking place, have there been any issues around reaching peak demand?
That's a great point. So I think in terms of energy security, Japan energy security is at risk, and this is because, as you mentioned, nuclear used to provide a quite huge channel of electricity in Japan. But after the focuss marks then Japan actually needed to increase the rely on on foth of field, which means Japan increase the rely on on the force of your imports. So when it comes to energy security, I think deploy more renewablets
actually improved japan energy security. One huge benefit of installing more renewables in Japan. The other thing I'd like to highlight is over the last few years, especially between the twenty and to the twenty two, actually Japan has seen a tight power supply demand balance, and this is because Japan retired many fourths of your pop plants, not for the cogonization effort, but it was because many of the fourths of your pub plants the end of the lifetime.
And because of that, in winter last winter, last summer, the Japanese government had to ask household and also businesses to conserve electricity during the peak hours in peak season.
How did they go about asking people to conserve energy. Was it a blanket statement that you need to conserve or was it something like I know have happened in the state of California where they're getting next to peak demand and they've had to take certain amounts of electricity off the grid, and they essentially sent out a text message to everybody telling them for the next couple of hours, you need to reduce your consumption. Is it over a short period of time or a long period of time?
And how is the Japanese government communicating with people?
So I think it was like over day typically, so when the incident was said to happen, based on some of the electricity demand podcast and also the weather condition, typically the government asked a household and businesses to reduce electricity consumption or perhaps considered using the electricity during the non peak hours through websites and also some of the TV programs, and I think when the Japanese government requests to ask something to the businesses, typically this is like
the message that the business must follow, and also into household I don't think we got the text messages, but still all the TV program was like showing the real time power supply demand balance.
So it was a really effective demand side way of dealing with an upcoming peak energy demand issue.
Yes, but also a supply side made a lot of efforts as well. For example, I think a lot of fourth of your pup plants ramp up quite a lot. And on top of that, Japan has quite a huge capacity of pumped hydro and pampto hydro actually saved the day because they have that quite long duration of the storage capacity that can be used.
It sounds like a very dynamic system that's able to dial up and dial down various things which may be needed if you end up adding more renewable energy sources like wind, which do have intermittency. Let's talk about wind specifically though, because you point out that wind is likely to make up a good percentage of the supply in the future, and more than likely this is going to be dominated by offshore wind. What is the sea bed
like directly surrounding Japan? And the question I'm really trying to get at here is are these very challenging projects or are these going to be the ideal circumstances for an offshore wind project, because certainly the depth of the ocean nearby can dramatically impact the overall costs.
Well, I think of when there's a huge potential in Japan, and I think that's one of the key technologies that Japanese Garden are trying to push for the cognization. One challenge for the offshoal win in Japan is that typically sea bed or the ocean gets deeper right off the cost So in the sense the potential for the bottom fixth off your wind project may be limited compared to
other countries. But at the same time, it also showcased the huge potential the bass potential of the full tea in off Showan, and that's one of the key areas where the Japanese company is actually trying to expand.
Now are a lot of the investment opportunities into these projects being done by domestic Japanese companies or is there a lot of foreign investment.
That makes up both domestic and overseas players. Obviously the Japanese players that are trying to tap into the potentials, but also from overseas developer perspective, they have a lot of experienses from overseas market, but at the same time they need some local players because Japan's tender process has a lot of implication, and also they need some support from domestic player for the outreach with a local player or the stakeholders.
Are there any other challenges that are worth noting to this rollout and I'm thinking of one specifically because we did a show a few shows back so fairly recently about grids generally and grid connections. What is the state of the Japanese grid and essentially is grid connection and the associated cost of potentially expanding the connection to accommodate new renewable sources. Is that a big part or a big issue that might be standing in the way of more deployment in the future.
Great connection is definitely one of the challenges that renewablet in Japan facing, Similar to the global trends, Many renewboat projects are waiting for the Great connections, and this is also similar to the global markets. But the low transparency around the Greek Connection costs and also the Great Connection timeline can be a huge development risk for the renewable energy projects in Japan.
And of course timelines then impact whether or not a country is able to actually reach the targets that they've set because it's not just an overall carbon abatement target, it's by a certain year. And do you think that some of the process I guess involved with getting these projects online will be really dramatically impacting whether or not those targets are met.
I think so. Some of the projects, especially the large scale are renewable energy project connecting those projects to the GRIT could take over three years, so if more projects are requesting for the Great Connection, this timeline could get delayed. So this GRET connection can be definitely a one challenge or could pose a huge challenge for the japantic carbonization targets.
Are there other issues do you think would be worth bringing up that maybe I'm missing.
One of the key challenges which is probably unique compared to other markets. The land constraints in Japan. So in Japan, I think related to the lands constraint, high cost of renewables are also like a big challenge for renewables, and this is because it's hard to reach the economies of scale in Japan due to the land constraint. And if I may another challenges related to a renewable diploment, it's
probably the carbon pricing. So technically Japan has nationwide carbon pricing mechanism or more specifically nationwide carbon tax, but the current carbon tax is very low, so it is two hundred and eighty nine ym part ton of CO two, which is probably less than two dollars part on of COO two with the current exchange rate.
Before we pivot to some other technologies, I actually want to know about the role of the Japanese government in this, because we have gotten to a place with the deployment of a lot of different energy sources at scale is
going to require certain amount of support from government. It's just a statement of fact, and I want to know if the Japanese government, first of all, how it's organized, and whether or not there has a strong amount of support in terms of how the programs are actually laid out to actually then meet these net zero targets, because it's one thing to have a target, but it's another thing entirely for the government to have organized around actually obtaining it in practice.
When it comes to the government structure in Japan, especially around the energy issues, the key ministry is the Ministry of Economy, Trade and Industry or METI. So when it comes to energy matters or energy policy, METI is the one who's discussing a lot of policy or incentive or perhaps I guess the penalty, the requirement for of energy projects and such. At the same time, when it comes to the cognization target, Minister of the Environment it's the
one who's kind of setting up those targets. And I think they're the one also dealing with a lot of permitting and environmental impact assessment in Japan.
And would you say that things are running reasonably smoothly.
I mean METI is not the only one bafically famalizing everything. For example, for off show win, it involves a lot of ministry efforts and METI is not the only one who's like talking about these issues. METI collaborate with other ministries, including Minister of Environment and also other ministries in charge of ports because of show Win involves a lot of relationship with port owners and also the port infrastructure development. So I think collaboration is typically done really well.
Now let's pivot to a technology that I think many of us actually think about when we think of Japan, but maybe not in such a literal sense, geothermal. When I think of geothermal in Japan, I actually think of these kind of almost idealic views of a bathhouse and the use of geothermal hot springs by several parts of the population. Geothermal energy is that something that is really quite ideally located for Japan and does it have a tangible future.
That's a great point. So as many listeners are probably aware, Japan is well known for the hot spring industry or onsend industry. And the good thing is Japanese government is offering subsidy to geo thermal projects through feeling type scheme.
But that challenge is, like we are seeing the quite limited deployment software and that's because of like high work and risks around the drilling, and also some challenges are on stakeholder engagement between developers and also the powerful hot spring industry who occasionally have misconception around the technologies.
So let's start with the risks around the drilling. Can you just explain what some of those risks are and kind of what the worst case scenario could be.
The first risk that I can come up is basically hard to estimate where the actual resource it is and also how big the resource is. And this is obviously like something the technology can help, but still it's not like you get one hundred percent correct to estimate or identify the resources of the geosalmal power or geosarmal resources.
I think another challenge of land the drilling is this is also kind of related to the land constraint, but it's really difficult to bring some of the drilling equipment to some of the location with the high potential for giosarmal. So some of the equipment needs to be smaller than perhaps equipment in other countries, or some developers needs to bring those big equipment in a narrow road. So those are the big challenges for the drilling technologies.
So it's hard to get the equipment in place, and then when you get there. You mentioned there is opposition. Talk to me a little bit about who is opposing this.
Typically obviously that people who own the hot springs and also perhaps like running the tourism industry. The other one who could oppose to the idea of having geosarmal projects nearby because they think the geo thermal resources that the local industry is using for the host spring could be depleted because of having a geosomal project nearby.
How are they going about opposing it? Is it protesting or is it putting pressure on the government.
When developers come to the area, obviously they need to kind of explain what kind of the project they're planning to do in the area, and that include explaining the projects to the local industry. That's when the discussion gets a bit tricky because if the local players are opposed to the project, the project, if we cannot get approval from the municipalities, which will basically lead to the project cancelations, possibly.
So very much at the local government level and getting them necessary permitting to get these projects even off the ground. So pivoting a little bit to another technology that is talked about so very often many parts of the world. What is the state of play of hydrogen in Japan?
That's one of the most frequently asked questions from our so happy to go through that. So when it comes to hydrogen, Japanese government tends to pay attention to sectors where hydrogen use shouldn't be prioritized for decarbonization. For example, the Japanese government and also some big Japanese maker that tends to focus on hydrogen use for the fartinger vehicles or field cell vehicles, but according to our analysis, electric
vehicles more economic ways to decominize the transport sector. And similarly for the power sector, the Japanese government and also some key electric utilities in Japan's pushing for the ammonia co firing technology existing core poplants. The idea is that for this ammoniacal FIGN technologies to reduce yourther mission by coi firing ammonia at existing core poplants because ammonia doesn't
include carbon in its chemistry. However, our research actually found that this ammoniacal FIGN technology is very expensive and it's actually more much more expensive than renewables to decognize the base fload power. So our view is that Japan should deploy more venewables rather than trying to rely on ammonia confrone technologis and yeah, long story short, Japan and Japanese comments tend to pay attention to a wrong sector for
the hydrogen use that set. One positive development we're seeing the market is that recent hydrogen strategy update in June into the tw twenty three this year, Japan actually updated the hygien strategy and expanded the focus of hydrogen consumption to other sectors including hard two upbate sectors. And as a part of the strategy update, Japan also added the
new hydrogen demand target for forty. So Japan even before the update of the hygien strategy, Japan already had the hydrogen demand target FOROTO than thirty and fifty, but basically added the new interim target photo forty. And I think this addition is good because it basically showcased that Japan is committed to the hydrogen society. And I guess one last thing if I may here, is the hydrogen supply chain development. So Japanese company, then Japanese government actually looking
into hydrogen imports rather than production of hydrogen domestically. And this is partially because of land constrained but also this is because other countries can produce hydrogen or ammonia cheaper than in Japan. So I think some of the key markets that Japanese companies and also Japanese government are looking into the source of the ammonia or hydrogen are like Australia or some region in the Middle East, and also possibly the US because of the Inflation Reduction Act.
So it's very possible that they may be importing hydrogen. But of the domestically produced hydrogen, which sources do you expect to see it come from? Will it be renewable resourced or nuclear sourced?
Domestic one? Possibly hydrogen sourced by renewables, but I know that some of the electric utilities in Japan are also discussing the possibility of hydrogen production using nuclear power. That could happen in Japan. But when it comes to the hydrogen imports, any hydrogen in as long as they are a low carbon Japanese companies interested in sourcing.
So it's safe to say that the increased emphasis on hydrogen could potentially drive forward nuclear and renewables industries.
Possibly yes.
So next technology that I want to know whether or not Japan has its eyes on is carbon capture and storage. Is that something that's currently being looked at in a particular degree of detail.
In Japan, this is one of the key area that Japanese government is also looking into. So the government is definitely trying to scale the FFIs market and the government set up the targets and also the government launched the
lot map for CFS. So in the FFIs WorldMap, Japanese government, if I mean to have annual capture capacity of six to twelve million metric tons of FIO two by twenty and thirty, and right now in Japan, there are seven large scale CFS projects in the pipeline and according to our research, if you adapt all the capacity for these seven large scale CFIAS projects in upon the capture capacity
will be thirteen million metric tonto field two. So this is quite in line with what the japanesecoman is trying to do or what they mentioned in the CFAs world Map. And also these projects should come online by jw th than thirty.
So there's a lot happening that's actually changing the way that the Japanese grid well what it's comprised of. But then I want to think about future demand. So in a lot of parts of the world you see future
demand really only increasing. And one of the things about Japan is actually low birth rates and a shrinking population, and my question really revolves around whether or not this will have an impact on decreasing energy demand in the future, and that the power system being built today maybe doesn't need to grow indefinitely, and reaching these net zero targets might in some ways be more attainable because you have a more predictable future energy demand.
Well if there's something we actually covered in our new
energy outlook. So one scenario is called economic transitional scenario, which is basically that baseline scenario for are modeling, and in that economic transition scenario, actually the electricity demand is expected to shrink over two thirty to twenty and fifty and this is because, as you mentioned, declining population, improvement and energy efficiency, but also a shift in economic structure from manufacturing industry to the service industry in Japan.
My final question really then also drives back again to the Japanese population, whether or not you perceive that there is a lot of support for the net zero targets or is this something that's largely being implemented by the government and happening in the background.
A lot of groups, including environmental groups, are definitely requesting higher targets. Japan's current venio bilergy target is thirty six to thirty eight percent of the total electricity generation into the DOND thirty but some feel this is too low, especially compared to other markets and also in terms of timeline to reach net throw. Some claims that Japan needs to take more aggressive actions to set the higher or more ambitious revenewable energy targets. So I think that's definitely
something we are seeing the market. And actually next year to the twenty four if the year the Japanese government will revise its electricity mixed target, because the Japanese government is revising the country the electricity mix target every three years, so I think we are going to see more discussion and more opinions from different groups. So I'm looking forward to see how or what kind of targets that Japanese goverment is going to produce for the next update.
Well Ishue, thank you so much for taking us through this incredibly wide tour of the energy system in so many different parts of what's happening in Japan. Hopefully we can have you back for a future show to dig into any one of these topics, because they are all each in their own right, very fascinating, Thank you so much. Bloomberg ne EF is a service provided by Bloomberg Finance
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