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Feed-in-tariff risks and drawbacks

June 30, 2014


Editorial: Gov't should adjust proliferation of feed-in-tariff system, burden on consumers




The Economy, Trade and Industry Ministry has come under pressure to achieve a balance between the proliferation of renewable energy and the burden on consumers as the ministry is set to review the so-called feed-in-tariff (FIT) system, under which power companies are required to buy electricity generated by such energy at fixed prices.

The ministry has decided to review the FIT system amid growing concerns that the scheme could cause electric power charges to rise and dampen the economy. How to achieve a balance between expanding the use of renewable energy and limiting the financial burden on consumers needs to be addressed to end Japan's reliance on nuclear power.

The ministry's panel of experts is expected to draw up specific measures to reform the FIT system by the end of this year.

The FIT system was introduced in July 2012 by the previous government led by the Democratic Party of Japan (DPJ), which aimed to end Japan's reliance on atomic power after reflecting on the Fukushima nuclear crisis. Under the system, electric power companies are required to purchase electric power from the operators of solar and wind power generators and other power generation systems using renewable energy at prices fixed by the government. Its costs are passed on to consumers by adding the expenses to electricity charges.

The additional financial burden of the FIT on an average household in Japan comes to 225 yen per month this fiscal year, about 2.6 times that in fiscal 2012. The higher the ratio of renewable energy is, the greater the financial burden that consumers are required to bear. The extra burden is already a serious social problem in advanced countries in terms of renewable energy. In Germany where the average monthly burden of renewable energy on households has amounted to 2,400 yen per month, the country's Parliament is deliberating on bills that would narrow the scope of power generators subject to the FIT system. This move is feared to hinder the spread of renewable energy.

The prices at which utilities are required to buy power generated with renewable energy sources in Japan are subject to review every year because the costs of generating power using such energy are declining with the advancement of relevant technologies. Still, power companies that have been given special certification from the government are allowed to maintain the prices at which they sell green power to major utilities for 10 to 20 years under the system, which is aimed at encouraging newcomers. However, the system has also encouraged unfair companies that receive special certification from the authorities to launch renewable energy businesses after the costs have declined considerably to earn marginal gains.

The combined power generation capacity of companies that have been specially certified by the government from the time of the introduction of the FIT system until the end of March this year surpassed 68 million kilowatts, far above some 20 million kilowatts prior to the introduction of the system. Still, the actual amount of power that these companies are currently generating is only 13 percent of their capacity. In particular, only 10 percent of their planned solar power generation systems -- whose capacity accounts for over 90 percent of their total capacity -- are actually in operation.

The Economy, Trade and Industry Ministry has begun to revoke its certificates of companies as solar power generators that have not begun generating power as planned. However, the ministry should reform the system into a stricter one to prevent such unfair practices.

Another problem is that an overwhelming majority of businesses specially certified by the government are those who generate power with solar power systems. Few operators of wind power generators and geothermal power generators have applied for such certification. This is despite the fact that wind power has been widely viewed as a promising renewable energy source and that Japan has the third largest amount of geothermal energy sources in the world. It is necessary to ensure that electricity from wind power generators across the country is used in extensive areas to disperse risks because their generation capacity largely depends on weather. It is also essential to prevent the construction of geothermal power stations from adversely affecting the environment and hot spa owners.

The government needs to tackle these tasks that cannot be settled with money to expand the use of renewable energy while gaining public consent.

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