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Fossil Fuels Lose Out In Japan’s Power Sector Transformation

Fossil fuels are set to lose out as Japan continues its on-going power sector transformation, according to the Institute for Energy Economics and Financial Analysis.

A new briefing published by the Institute for Energy Economics and Financial Analysis (IEEFA) published this week concluded that, “As Japan’s electricity sector evolves, coal dependency will decline.” In fact, the report also found that overall energy demand in Japan is declining, and was one of the three largest solar installation markets in both 2014 and 2015.

“With almost US$20 billion invested annually in new solar developments that are bringing 8 gigawatts (GW) of solar-powered electricity online per year, Japan is one of the three largest solar installation markets globally,” said author Tim Buckley, IEEFA’s Director of Energy Finance Studies. “It is living up to its name as the Land of the Rising Sun.”

The IEEFA predicts that total Japanese solar installations are estimated to have reached nearly 30 GW by the end of 2015, thanks to an estimated 8 GW installed during the year.

IEEFA-4

The IEEFA also forecasts Japan to exceed 50 GW of solar by 2020, thanks in part to the 76 GW of solar that has already been approved at the beginning of 2015. In fact, the Japan Photovoltaic Energy Association published a strategic document outlining how the country could reach 100 GW by 2030, implying generation of over 110 TWh annually of solar production.

“As we are seeing across the world, the growth in renewable energy, combined with significant energy-efficiency advances, is having a tangible impact on fossil fuels,” said Buckley. “Japan today has a record 47 coal-fired power plants in the pipeline. But investors should beware, because the energy transformation means these plants risk becoming quickly uneconomic. In other words, they have a high likelihood of becoming stranded assets.”

The trend towards transitioning to renewable energy has had an immediate impact on Japan’s thermal power sector, which, according to the report’s authors, is facing “declining market share for coal power generation and an almost inevitable drop in thermal coal imports.”

“This is the fifth consecutive annual decline as the country’s electricity market evolves in the wake of the Fukushima nuclear disaster,” said Tim Buckley. “Japan continues to invest almost US$20 billion annually in new solar developments that are bringing 8 gigawatts (GW) of solar-powered electricity online per year. Meantime, a gradual nuclear facility restart is under way, and oil and liquid natural gas (LNG) have seen significant price declines, improving relative cost competitiveness. Fossil fuel imports look to be the key loser.”

Continuing, Buckley, who is regularly quoted as a leading voice on the energy transition in Japan, said:

“As we have seen in India, China, Australia and Europe, the dramatic cost reduction in renewable energy, catalysed by the imperative to reduce carbon emissions, is rapidly rendering new thermal coal generation redundant. Today, Japan has a major opportunity to benefit from this trend by investing further in energy efficiency plus wind and solar power and avoiding the mistake of new thermal coal investment.”

“A more efficient Japanese electricity system less dependent on fossil fuel imports would improve Japan’s energy security needs and is not only consistent with Japan’s climate commitments, but would also serve to avoid significant stranded fossil fuel asset risks,” Buckley concluded.

 
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