The Ministry of Economy, Trade, and Industry (METI) is considering ways to reduce the financial burden of entering the renewable energy business. Currently, it costs renewable power operators hundreds of millions of yen to set up the necessary power grid system. The government is considering raising the contribution rate of local power companies from FY2020 and may even waive costs for certain types of wind power generation. METI aims to encourage widespread use of renewable energy by lowering initial investment costs for new operators.
To build a new green power plant, it is necessary to extend grid lines to households, stores, and plants where the generated power will be consumed or to augment existing lines.
Local power companies like Hokkaido Electric Power Company and Kyushu Electric Power Company bear part of the cost of augmenting grid lines, but only up to a certain cost cap.
When newly building a wind power plant, major power companies subsidize up to 20,000 yen per kW to increase grid capacity and 15,000 yen per kW for solar power plants. The renewable energy companies pay for all the costs beyond that. Under this system, an operator developing a typical wind power station with an output of 30,000 kW would have to invest some 600 million yen, a significant barrier to entering the market.
METI is considering doubling the power companies’ subsidies cap to 40,000 yen per kW to increase grid capacity to encourage new market entrants. With the increased subsidies, a standard 30,000 kW output wind power station operator would not have to pay anything beyond what the power companies would pay and even a 40,000 kW output plant may be able to slash its investment costs in half.
The revisions to the regulation will be compiled by the end of December. The Organization for Cross-regional Coordination of Transmission Operators, Japan, a METI-licensed organization that coordinates between local power companies, will decide on additional details
Since the introduction of the Feed-in Tariff (FIT) system in 2012, many operators have entered the green power business. The generation capacity now exceeds 50 million kW, making up around 15% of all power generation.
Renewable energy has been playing a greater role in curbing greenhouse gas emissions, especially when many nuclear power plants remain offline. The government aims to motivate newcomers to enter the green power market by reducing initial investment costs.
Meanwhile, there has been some distortion in the market since the introduction of the FIT policy. After the FIT revision, the per kW purchasing price for solar power generation was lowered from 40 yen to 21 yen, which resulted in the scrapping of some 28 million kW worth of solar power generation plans. METI is working to address this systemic issue.