Chairman’s Message

On May 15th, the Government of Japan launched its process to develop the 7th Strategic Energy Plan to identify the direction of Japan’s energy policies for the future. It is worth looking into the discussions of the advisory committee in charge of developing the Plan.

<Main Points>

Strategic Energy Plan will determine Japan’s energy mix for 2040.

Single pathway vs. Multiple scenarios

Demand for power is expected to grow.

Ensuring sufficient power at reasonable cost is necessary.

Strong need to expand renewable energies.

LNG continues to play important roles.

Hydrogen and CCS to play greater roles.

Renewed interest in nuclear energy.

Carbon removal to emerge as a means.

1. Nature of the Strategic Energy Plan.

Considering the Basic Act on Energy Policy, enacted in 2002, the Japanese Government is required to review its Strategic Energy Plan about every three years. The Plan is decided by the Cabinet to ensure support for its realization by the whole government.
　The current Sixth Strategic Energy Plan was decided in October 2021 and served as the basis of Japan’s NDC for 2030. In May of this year, the Government initiated the process of developing its seventh energy plan to be completed by the end of fiscal year 2024 (March 31st, 2025).
　In the past Plans, the Government presented the target energy mix for a specific year and incorporated a set of recommended policies to achieve the energy mix. The plans have been decided by the Cabinet based on the submission by METI (the Ministry of Economy, Trade and Industry). Before developing and submitting, METI closely consults with an advisory committee, on which I have the honor to currently serve as a member.
　To the best of my knowledge, not too many countries develop similar targets for their future energy mix and the importance of energy security is the main reason why Japan has been developing such targets. The Plans decided by the Cabinet/Government ensure the understanding and support of the financial community and of the people hosting energy infrastructure. Considering the long time horizon of investment in energy, Japan believes in long-term planning.
　The target year for the 7th Strategic Energy Plan has not yet been decided but METI is suggesting that 2040 would ensure consistency with the target year of the GX (Green Transformation) strategy, which is currently being developed in parallel. The GX strategy will focus more on the transformation of the industrial sector while the Strategic Energy Plan will focus on the transformation of the energy sector.

2. Single pathway vs. Multiple scenarios

The previous Plans identified only one specific energy mix for the future. For the moment, the majority of the advisory committee members is of the opinion that considering multiple scenarios would be preferable to a single pathway. As there are too many uncertainties in the future, it is argued that the predictability of a single pathway is too risky. The plan must consider various scenarios depending on the uncertainties that may emerge.
　How METI would characterize the use of multiple scenarios in the Plan is a question to be watched.

3. Demand growth of power and demand side measures.

The demand for power in Japan has been flat or gradually dropping for the past two decades. Most of the advisory committee members now expects significant power demand growth for the future. The increase will reflect an expected rise in demand from data centers, due to the expansion of AI, the reshoring of manufacturing activities, including semiconductor factories, as well as an increase in electrification from all sectors, including the shift from blast furnace to electric arc furnace in steel production.
　At the same time, there are arguments within the advisory committee stressing the importance of demand side measures. As Japan has been engaged in energy efficiency enhancement since the first oil crisis, in 1973, further incremental improvement in energy efficiency appears more difficult to achieve in Japan than in other countries where there is still room for improvement.
　How much net demand growth should we expect?
　In this regard, there appears to be more emphasis on efforts to shift demand from the peak hours to reduce the need for capacity expansion. Shifting demand from the evening to daytime would also ensure a better use of renewable energies.
　While AI will add demand for power, AI can help reduce power demand through enhancement of efficiency and can also help shaving the peak demand.
　The concrete demand side measures that will emerge through those discussions and their expected impact will deserve special attention.

4. The need to secure sufficient power supply at reasonable cost

The members representing the industrial sector in the advisory committee are specifically stressing the need to secure sufficient power supply to meet demand. They are also vocal in pointing out that continued increase in the cost of energy may drive them to search for cheaper energy sources outside of Japan. To further complicate matters, industry is also noting the importance of providing low carbon energy because if the carbon content of their products is not significantly lowered, industry may encounter difficulties accessing the global market in the future.
　The tone at the advisory committee is quite different from three years ago when the discussions were almost exclusively focused on reducing CO2 emissions. Today, security of supply and cost competitiveness of energy are given priority while recognizing the need to lower CO2 emissions.
　Policies to ensure sufficient investment to expand supply and to realize the power mix contributing to the lowest total system cost need to be developed.

5. Strong need to expand renewable energies.

Despite acknowledging the difficulties to expand renewable energies in Japan, there is consensus among the advisory committee members that more renewable energies are needed. Examples of difficulties include solar parks often facing resistance from the local communities and onshore wind power facing environmental concerns.
　To expand renewable energies, Japan must construct long distance transmission lines to connect regions with large potential for renewable energies, such as the northern island of Hokkaido, with regions with substantial power demand, such as the Tokyo metropolitan area. Japan must also deploy more solar PVs in the urban areas by introducing light and flexible solar PVs, such as Perovskite solar cells. Surrounded by deep sea waters, Japan will have to deploy floating offshore wind power generation which currently poses substantial technological challenges due to strong currents, frequent typhoons and deep waters.
　How much renewable energies deployment is envisioned in the next energy mix will be closely watched. The policies to realize such expansion should be developed and it will be important to pay due attention to the issues related to the substantial increase in the “integration costs” of variable renewable energy.

6. LNG continues to play important roles.

The advisory committee strongly argues that LNG will continue to play an important role in the future. LNG will ensure sufficient energy supply to meet the growing power demand in Japan and will help reduce CO2 emission by first enabling the transition from coal to gas. Later, in the longer run, LNG can be decarbonized using CCS or by cofiring with hydrogen/ammonia.
　Based on Japan’s experience during the recent energy crisis that followed Russia’s invasion of Ukraine, we have learned that we cannot depend solely on the spot market to acquire LNG. It is argued that Japan must continue securing a significant portion of its long-term LNG demand through term contracts while procuring some portion from the spot market.
　While LNG demand may differ depending on the scenarios, the extent of the future LNG demand will be watched with keen interest. The policies to enable significant term contracts are also expected to be discussed.

7. Hydrogen and CCS to play greater roles.

In the current Strategic Energy Plan, hydrogen is expected to support 1% of Japan’s power generation in 2030. If the seventh Plan targets 2040, a much greater role for hydrogen, including its derivatives such as ammonia, would be expected. The question is how much more and supported by what kind of policies.
　The Japanese Government has already introduced policy frameworks to offset the cost differentials for hydrogen/ammonia and to support the infrastructure development to receive hydrogen/ammonia. To ensure the development of the market for hydrogen/ammonia, the Government recognizes the need to introduce additional policies such as carbon pricing. The policies to be incorporated in the Plan should be closely watched.
　No specific amounts were attributed to CCS in the current Plan. But if the next Plan targets 2040, it would be hard to realize substantial CO2 reduction without CCS. The question once again is how much and by what kind of policies. The legal framework to promote CCS has already been introduced in Japan but its policy framework to promote CCS is still pending. How such a policy framework will be articulated in the next Plan is also a matter of great interest.

8. Renewed interest in nuclear energy.

There is renewed interest in nuclear energy in Japan. Subject to safety check, there is wide public support for the restart of nuclear power plants to alleviate a rise in energy costs. The Kishida Administration has succeeded in introducing legislative changes to realize an extension of the operating life span of existing nuclear power plants beyond their previous 60-year statutory limit.
　The next big question is whether replacement of older nuclear power plants can gain public acceptance. Prime Minister Kishida has already made it clear that he will explore replacing the existing nuclear power plants. Some members of the advisory committee have been arguing for the need to introduce a policy framework to enable investment in nuclear energy.
　It will be highly watched if the replacement of nuclear power plants is stipulated in the next Plan and if the introduction of an investment policy framework will be mentioned.

9. Carbon removal to emerge as a means.

In addition to reducing the level of CO2 emission, we must start focusing on carbon removal. Based on the plan by EU, EU expects that the amount of carbon removal will be roughly equivalent to the remaining net CO2 emissions in 2040. In other words, the net CO2 emissions would be double the level of its 2040 goal, in the absence of carbon removal. Without carbon removal, it will be challenging to lower the overall level of CO2 emission, including carbon neutrality.
　There is very little mention of carbon removal in the current Strategic Energy Plan. But if the next Plan targets 2040, carbon removal will have to play a greater role.
　The question is by how much and by which type of carbon removal. Policies to promote carbon removal will probably have to be incorporated in the Plan. As this could be the first meaningful incorporation of carbon removal in Japan’s Strategic Energy Plans, reference to carbon removal deserves attention.

10. Way forward

Reflecting the broad range of issues that need to be addressed, the advisory committee meetings are held frequently, almost every other week. I have identified a series of points to watch without indicating their conclusions. Many arguments are still under intensive policy debates.
　The next Strategic Energy Plan of Japan deserves your attention and I intend to provide updates on further developments.