Renewable Energy Act and Effect on Electricity Prices

◆The Renewable Energy Special Measures Act enacted 26 August 2011 provides for a feed-in tariff (FIT) system where all renewable electricity will be purchased at a fixed price (surplus electricity in the case of households) and FIT added to electricity prices as a surcharge. FIT will be determined every fiscal year by power source by referring to the views of a third-party expert committee. For the first three years after the law takes effect, FIT will be set at levels that will encourage the expanded generation of renewable electricity.

◆Key issues are how FIT will be determined and the degree to which electricity prices will rise. Bearing in mind the experiences of other nations, it will be necessary to develop announcement procedures that allow FIT to be anticipated several years forward so as to promote the adoption of renewable energy, to establish rules for lowering FIT at an early stage when renewable energy investments overheat, and to establish a framework for determining FIT that takes into account energy strategy and the tax payer burden.

◆In the case where 20% of power will be generated from renewable energy sources and FIT will fall by half 10 years after start of the FIT system, the electricity charges of a standard household and a large factory are estimated to increase Y431 and Y3.45 million, respectively, per month. Estimation figures will yield different results depending on assumptions used. Frequent reference has been made to date of the government estimation that electricity charges would rise about Y150 per month. Rather than simply using this figure in assumptions about renewable energy, it will be necessary to develop forecasts of electricity charges based on the desired installed generating capacity target for renewable energy and also FIT to be determined through future discussions.

◆Electricity prices are often said to be high in Japan. However, when industrial-use electricity prices are compared on a purchasing power parity basis, those in Japan are similar to those in European nations but around 40% higher than those in Korea. The cost of electricity to Japanese manufacturers is less than the major nation average as they possess production technology that makes efficient use of electricity. When only the higher electricity cost and the hollowing out of industry are considered, Japanese industries should be able to maintain and further increase international competitiveness by expanding energy-saving investments and by further developing electrically efficient manufacturing systems.