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Market News

 December 28, 2006
Clean Energy in the Kansai Region of Japan

 Japan is the fourth-largest energy consumer in the world. However, the country has limited energy resources and has to import almost all of its energy requirements. Approximately 90% of its oil and liquefied petroleum gases are imported from the Middle East, while natural gases are mainly sourced from Southeast Asia. Coal is imported primarily from Australia.

According to the International Energy Agency (IEA), Japan's domestic production of hydroelectric, geo-thermal and wind-generated power, combined with its inadequate reserves of natural gas, meets little more than 4% of the country's national energy requirements. New energies (clean energies) accounted for about 1.3% of Japan's primary energy supply in FY2004, although they are increasing year by year. If nuclear energy is taken into account, Japan's rate of self-sufficiency in energy supply is still only approximately 20%. Considering this situation, Japan has little alternative but to import its energy.

Having experienced two oil crises to date, Japan is aware of the importance of having stable energy supplies. As such, the Japanese government has taken a two-pronged approach to mitigate the risk to energy supplies: 1) bolstering relations with energy producing nations and stockpiling energy reserves and 2) promoting public awareness of energy conservation, such as through the "Cool Biz" campaign to reduce energy consumption in the workplace. In addition, Japan is working strategically to reduce its dependence on energy imports, particularly through the development of new domestic energy sources. Thus, Japan's push to increase energy self-sufficiency is creating a demand for new sources of energy.

The government considers clean energies to be the most important source of new energy, and has designated them the target of policy support. Clean energy is gentle on the environment and can be extremely profitable if a stable supply can be secured. The greatest challenge facing Japan is to make clean energy production cost-efficient and profitable. There is still much work to be done to reform current government policies and encourage clean energy generation.

Urgent solutions are needed, which require technological and regulatory improvements. Many governmental ministries are promoting clean energy through various subsidy programs. It is likely that clean energies will be a focus as a growing industry, as Japan works towards commercial viability and expanding demand for these energies. There is speculation that the Japanese government may impose an "environment tax" on businesses, which would further create demand for clean-energy generation.

Kansai Region

The Kansai region is at the forefront of the fledgling clean energy market.

The Kansai region is located in the western centre of Japan and is home to 24 million people. Comprising Osaka, Hyogo, Kyoto, Shiga, Nara and Wakayama prefectures, the Kansai region had a gross domestic product (GDP) of $761 billion in FY2003, constituting 16% of Japan's total GDP of $4.8 trillion.

It is estimated that by FY2010, the clean energy market in the Kansai region will be worth $9.1 billion (57.6% of the total Japanese market). In light of environmental issues (CO2 emissions and energy issues (oil dependence/depletion), many manufacturing companies have invested in the construction of large private power generation systems of clean energies.

CO2 emission reduction has become a priority management task, given the potential introduction of an environment tax that could adversely affect profits. Additionally, due to the recent crude oil price hikes, many corporations are shifting their energy source from oil to natural gases, a type of clean energy.

Opportunities

Photovoltaic Power Generation and Heat Recovery

The photovoltaic power generation and heat recovery method of generation accounted for 860 000 kW (48% of the world's total amount) in FY2003 on a cumulative basis. The Kansai region has the largest production base of solar cells, manufacturing about 90% of overall domestic production and approximately 40% of global production.

The adoption of photovoltaic power generation in Japan is increasing for both public and industrial uses due to technological subsidies, support for national priority programs and deregulation allowing the sale of extra power to power companies. Hyogo Prefecture has the top installation rate in Japan, while an active trend towards introduction of the system is evident in Osaka Prefecture.

According to the Kansai Bureau of the Ministry of Economy, Trade and Industry (METI), the Kansai region adoption rate is 26.5% of all photovoltaic power generation for public/industrial use installed nationwide; 16.1% of all such generation for housing; and 9% of all solar systems in the country.

Wind Power Generation

Wind power generation is attracting attention as a non-polluting power source. Adoption of this method of power generation has increased from 84 000 kW in FY1999 to 678 000 kW, generated by 735 plants, in FY2003 (an eight-fold increase). In fact, Japan currently ranks ninth in the adoption of wind-force power generation. In the past, most wind-force power generators were constructed by power companies as test wind farms and by local governments as demonstration wind farms for local revitalization campaigns.

However, deregulation of the sale of surplus power has opened the way for construction of wind farms geared toward the power-selling business. Research and Development (R&D) is currently focused on securing a stable supply of wind-generated power.

Although wind power generation has increased significantly in Japan since 2001, the Kansai region has not seen as high a growth rate since there are fewer locations in the region in which a wind farm would be economical. However, the Kansai region is home to some wind-force power plants. These include plants constructed in Taikoya (six plants of 750 kW), Nandan-shi (1500 kW), Kusatsu-shi (1500 kW) and Hirokawa-shi (1500 kW). Other "wind-rich" communities, such as Mihama-shi, Kidaka-shi and Nakatumura, have indicated a willingness to adopt wind-force power generation plants.

According to METI, Kansai Bureau, the adoption rate of wind-force power plants in the Kansai region is 2.1% of that nationwide.

Hydroelectric Power Generation

Sites that are appropriate for large hydroelectric dams have already been fully developed. Business opportunities lie in the development of small and mid-sized water turbine power generation systems.

The Hydro-valley Project has been initiated to support community-led distribution of power and small-sized hydro power development. This project aims at constructing small, municipally-funded hydro power generating plants. These plants will be focused on specific new industries, thus creating new power at the same time as promoting economic development.

Biomass Power Generation

Many private companies adopt the use of biomass energy by using their own waste byproducts. Governments have a much lower rate of adoption for this kind of power generation due to the time and costs associated with collecting biomass for use in generating power.

However, the Nanohana [rapeseed blossom] Project, which originated in Shiga Prefecture, makes the collection of biomass more efficient by having governments, companies and individuals work together in a coordinated manner.

For example, individual households are encouraged to deliver used cooking oil to municipal depots where they are recycled by specialist companies. The project is gaining popularity throughout Japan.

While advanced projects such as methane fermentation energy utilization are often seen in the Kansai region, initiatives such as the Biomass Nippon Strategy will further promote large-scale projects such as direct combustion generation and food waste gasification generation. Opportunities in the area of biomass power generation are predicted to grow significantly in the near to medium future. According to METI, Kansai Bureau, the adoption rate of biomass in the Kansai region is 25.6% of that nationwide.

Waste Power Generation

It is estimated that the volume of waste power generation will be 4 170 000 kW by 2010. Newly built incineration plants have adopted this method of power generation, and in recent years the technology has also extended to existing incineration plants.

The Kansai region is home to many of Japan's waste-power generation technology companies. Over 50% of the waste-power generation plants nationwide have been constructed by Kansai manufacturers. These manufacturers have introduced large-sized waste-power generation systems, focusing mainly on urban areas. Many research institutes, including Kyoto University, are working on R&D involving highly efficient energy conversion technologies, such as gasification.

According to METI, Kansai Bureau, the adoption rate of waste power generation in the Kansai region is 21% of that nationwide.

Fuel Cells

Japan's leading manufacturers of fuel cells are located in the Kansai region. These manufacturers engage in R&D of stationary fuel cells, especially the 1-kW-class polymer electrolyte fuel cells (PEFC) related to home-use co-generation. Osaka Gas Co., Ltd has developed highly advanced city-gas reforming technologies. Japan's national research institutes and Kansai's universities have traditionally been strong in the electrical sciences, and have a high potential for basic research on fuel cells.

In a joint project with Osaka Prefecture, METI has engaged consumers to provide feedback on their fuel-cell-powered prototype wheelchairs, electric carts, power-assisted bicycles, emergency power sources, and so on. After repeated improvements on the prototypes, based on feedback from test users, METI is aiming to commercialize these products through a five-year plan. Under the plan, in FY2006 two hydrogen stations for fuel-cell vehicles (FCV) will be installed at a site owned by Osaka Prefecture and at the Kansai International Airport. In order to meet the requirements for welfare-related equipment, including wheelchairs, a mobile supply system consisting of periodic door-to-door delivery of hydrogen cylinders is to be initiated. In 2006, the first year of the plan, approximately 300 million yen has been earmarked for the construction costs of hydrogen stations.

Japanese automobile manufacturers, major electrical appliance manufacturers, heavy industries and environmental equipment manufacturers are currently striving to develop fuel cells, with the expectation that an interesting and lucrative market will develop. Attention is now focused on the use of fuel cells for cellular phones.

Excerpts from "The Clean Energy Market in the Kansai Region of Japan", International Trade Canada, December 2006.