The power of many

Contact Newsletter +49 221/ 82 00 85 - 0
Reading time: 7 min
by Christian Sperling / 4 April 2019
Business developers from Next Kraftwerke visit Japan to discuss potentials of building Virtual Power Plants

Next Stop: Japan

Our new series of blog posts covers power markets throughout the world. To kick things off, Alexander Krautz and Tobias Romberg discuss their trip to Japan.

There are a lot of preconceptions about Japan, especially when it comes to the energy sector. That’s why we took the opportunity to visit Japan to learn for ourselves, discuss concepts, and meet decision makers. Alexander Krautz and Tobias Romberg from Next Kraftwerke's Innovation & Development team gained the following insights on a business trip to Japan.

Christian Sperling:What is unique about the Japanese power system? What makes their power system different than ours here in Germany?

Alex Krautz: The Japanese power market system is basically set up the same way ours was 10 or 15 years ago. This means there are vertically-integrated utilities – large power suppliers that own and operate the grid in addition to producing the power. There are a total of ten large suppliers that serve as transmission system operator, distribution system operator, and electricity producer all at the same time. 
The electricity supply market has started to open up a little bit, and smaller companies are able to take part. This is not the case in other areas, such as the grid.

Christian Sperling: So there has not yet been an unbundling of the grid and power production in Japan?

Alex Krautz: Unbundling is set to happen. There is a government plan for separating the grid and power production, and they are also pursuing more open markets. A lot of companies are getting ready for this, and it’s not just the providers. Other companies are seeing clear business opportunities.

Christian Sperling: How about sub-markets in power trading? Are there intraday and day-ahead trades like there are in Germany? Is there an electricity exchange at all?

Alexander Krautz: There is an exchange, but the markets are not comparable to the liquid markets in Germany with our short-term bidding options. Trade volumes are lower, and long-term off-market contracts dictate the trading.

Tobias Romberg: There is a day-ahead market, which is indeed liquid. But intraday trading isn’t particularly lively, mostly due to the imbalance price system and the low costs associated with it. There are not many incentives to seriously market a balancing group.

Christian Sperling: What about control reserve markets? Does the Japanese energy sector also have the distinction between primary, secondary, and tertiary control reserve like we are used to in Europe?

Alex Krautz: There are control reserve products, but not really an exchange. The government wants to implement one that utilizes the separation that we know between primary, secondary, and tertiary control reserve, but the Japanese grid faces different challenges than our grid. That means the products will be designed a little differently from what we have in Europe.

Christian Sperling: In terms of the energy sector, Japan is unfortunately best known because of Fukushima. Did that disaster provide a boost for renewable energies?

Alex Krautz: Over the last few years the photovoltaic sector has been on the rise, especially on the island of Kyushu and on the southern part of the main island, Honshu. There, they’ve reached about 55 gigawatts of installed photovoltaic capacity. On Kyushu, this has led to several network balancing problems because the solar power generated there couldn’t be taken on by the gird – Japan doesn't have well-organized feed-in management like we do. It is interesting to note that as of about ten years ago, there were hardly any photovoltaic installations in Japan.

There isn't a lot of wind energy in Japan, which can be attributed to a large extent to the high population density and the steepness of coastal areas. Japan’s coasts are densely populated, which means there are only a few places where the necessary distance to wind power plants can be maintained. 
One fundamental problem with expanding renewable energy in Japan is the fact that an operator – with plans to build a wind park, let’s say – is also partly responsible for the additional generation capacity of the grid. The operator must share the costs of expanding the grid – a cost structure that makes a lot of projects uneconomical from the get go and quite difficult to finance.

Christian Sperling: Does that mean the Japanese government is mostly staying out renewable energy expansion?

Alex Krautz: There's a fixed feed-in tariff, but a market premium model or options for direct marketing don’t exist. The fixed feed-in tariff must also cover the grid expansion costs mentioned before – that would be unthinkable in Germany. In Germany, you are essentially entitled to access the grid and the grid operator has to cover the expansion.

Christian Sperling: How high is the proportion of renewable energies in the Japanese power supply?

Tobias Romberg: In 2018 it was about 15 percent, and the Japanese government is planning to increase this between to 22 and 24 percent by 2030.

Christian Sperling: How could a Virtual Power Plant support the expansion and modernization of the Japanese power system?

Alex Krautz: Japan definitely sees the need for Virtual Power Plants when it comes to forecasting, monitoring, and operating decentralized renewable assets. This is why many Japanese power providers are currently looking for feasible VPP solutions, including VPP-as-a-service options such as NEMOCS. Japan’s economics ministry METI has cited Next Kraftwerke as a best practice example, which has opened a lot of doors for us.

Christian Sperling: Flexible sources of power such as biogas that don't depend on weather conditions are well-suited for setting up a Virtual Power Plant. Is biogas utilized in Japan?

Alex Krautz: Not much. On the northern island of Hokkaido, there is a lot of agriculture and therefore a few biogas plants that would be good for connecting to a Virtual Power Plant. But the forecasting and operational scheduling of decentralized energy sources is the most interesting.
In general, there is a clear tendency toward decentralizing the power supply. This is largely due to the constant threat of earthquakes and the desire to prevent blackouts if large power plants go offline. For this kind of strategic decentralization, a Virtual Power Plant with its forecasting abilities is a natural choice. It would enable a secure supply at the regional and transregional level, even in a major catastrophe, by linking emergency generators and power storage units.

Christian Sperling: Does that mean that large power plants, and nuclear plants in particular, don't have much of a future in Japan?

Alex Krautz: We’d like to hope so, but the Japanese are traditionally conservative and cautious when it comes to making decisions, especially when it comes to long-term strategic commitments. This is a reasonable approach on its face, but it limits the ability to quickly build up renewable energies or to implement decentralized solutions.

Christian Sperling: Let's talk about some of the “fun stuff:” Did you have any particularly memorable experiences, or was there anything you found especially interesting?

Tobias Romberg: For business travel, Japan is a pretty enjoyable country. There was great food, and our hosts were very polite and well-prepared for our potential Western “bull in a china shop” behavior.

Alex Krautz: But from our point of view, we were pretty good. There were no issues.

Christian Sperling: How was the punctuality of the trains – something we’re quite jealous of in Germany?

Alex Krautz: The Shinkansen bullet train (a Japanese ICE) is quite punctual and runs every ten minutes. But it also has a dedicated track, which is different than in Germany. We had a 15-minute delay once on a regional train, so there was no difference there.

Christian Sperling: What about other ways of getting around? Is there a preference for hydrogen or battery solutions?

Tobias Romberg: Toyota was invested in hybrids for quite a while, but now there is a noticeable trend toward hydrogen-powered solutions. I have the impression that hydrogen plays a greater role there than it does here, but it is still mostly in the showcase or research phase.

Christian Sperling: Does Japan have a protest movement against climate change similar to the one we have in Germany? What is the environmental consciousness?

Tobias Romberg: Difficult to say, but it was noticeable that there were hardly any options for vegetarians or vegans. Nearly everything was made with meat or fish, which of course has an impact on the environment. We weren’t exactly interacting with alternative sub-cultures, but I still couldn't recognize any kind of general presence of a climate protection movement. 
It was also noticeable that there wasn't really much aversion to flying. Even if they have an excellent high-speed rail system in the Shikansen, many Japanese fly domestically on short intercity routes without saving much time.

Christian Sperling: What about Japan’s general technological advancement? In the 1990s in Germany, Japan was considered a high-tech country. Is that still the case?

Tobias Romberg: It’s a little odd, to be honest. There are a lot of areas where Japan is quite advanced, but sometimes you get the impression that some areas have been technologized just because they can be.

Alex Krautz: That’s true. Just one example: If you have a meeting at a large company, you get an invitation with a QR code. But you don't take that to the doorman, you go to a machine that prints you out a ticket with a new QR code for the electronic turnstile. It’s complicated, but it worked just fine.

Tobias Romberg: It was also interesting to see that all machines talk to you with a voice output.

Alex Krautz: Or at meals: In some restaurants, you select your food from a picture on a machine. You pay right then, and you get a number. Then the food is brought to your table. This works without a hitch as well, and interestingly, your food looks exactly like it does on the picture.
Also fascinating: We’re used to getting cold drinks out of a refrigerated display case. But in Japan, they’ve also got warm drinks. You can get warm coffee from an aluminum bottle – 24 hours a day.

Overview of Japan's energy sector:

Power consumption:934 TWh (2016)
Electricity mix:Coal 34 %
Oil: 9 %
Natural gas: 39,2 %
Nuclear: 0,3 %
Hydro: 8,4 %
Wind: 0,5 %
Geothermal: 0,3 %
Solar: 3,6 %
Biomass (incl. trash): 4,1 %
Percentage of renewable energies:16,9 %
Paris Agreement CO2 reduction goal*:25% in the energy sector** 
6.7% in other sectors
* by 2030 compared to 2013** responsible for around 90% CO2 emissions
Christian Sperling

Christian Sperling

Content Marketing Manager