Chairman’s Message

Although so far relatively less attention has been paid to the power grid, the fact is that it will play a crucial and fundamental role to a successful energy transition. The experience of Japan may provide valuable lessons for the world.

<Main Points>

1. Importance of the grid for renewable energies, resilience and meeting new demand

　People tend to focus on investments for more solar panels and wind turbines while forgetting that without a sufficient grid any additional power generated by renewable sources cannot be used.
　In many countries, the regions with potential for renewable energies are often far away from the regions with sizable power demand. In Japan, Hokkaido, the northern island, has substantial potential for renewable energies while Tokyo which is a major demand center is more than 800km, or 500 miles, away. Long distance transmission lines, are therefore necessary to connect the different regions and deliver the power generated in Hokkaido to Tokyo.
　A similar logic applies to power generated from distributed sources. The capacity of the distribution networks and local transmission lines need to be sufficient to accommodate the generated power. Unfortunately, in many cases, the original grid designs did not consider generation from distributed sources.
　The grid at all levels (local/regional/interregional) must be strengthened to absorb and deliver the additional power generated by renewable energies.
　One of the challenges of renewable energies is that power generation can widely fluctuate with variations in weather in addition to day and night. Regions with different weather characteristics will also have different patterns of power generation. Interregional transmission lines can send power from regions generating abundant power to regions that are short of meeting demand because less power is generated due to weather conditions.
　When one region faces supply disruptions caused by an interruption at power plants, for example, other regions can provide power through those interregional transmission lines. The grid is thus essential to help match the supply and demand and to enhance the resilience of the power supply system.
　Compared to the past two decades when demand for power was roughly flat among the advanced economies, we are now witnessing significant increases in the demand for power. The increase is driven by data centers with the expansion of AI, the reshoring of manufacturing activities, and the increase in electrification from all sectors, including the shift from internal combustion engines to EVs and the conversion from blast furnace to electric arc furnace in steel production.
　The capacity expansion of the grid is crucial to supply enough power, especially increasing renewable energies, to meet the new demands.

2. Japan’s unique challenges: Fragmentation of the grid

　Japan has a very unique transmission line structure reflecting its history. Nine regional power companies in the four major islands had been supplying power to their designated exclusive areas. As the basic assumption was to have those regional power companies generate their own power within their areas, the need for interregional transmission lines connecting the different areas has been weak and far less important. They were operating in a quasi-monopoly manner.
　In addition, due to the history of obtaining different technologies from Europe and the US during Japan’s modernization in the late-19th century, the supply frequencies are different. The frequency in the Western side of Japan, is 60Hz, and in the Eastern side of Japan, it is 50Hz.
　The problem with the fragmentation of the transmission network was demonstrated in a painful manner when the power supply of Eastern Japan was substantially disrupted following the Great East Japan Earthquake in 2011. Due to this weakness in the interregional transmission lines, substantial amount of power could not be sent from the West to the East.
　The fragmentation of the transmission lines is becoming more problematic as the resiliency of the power system is becoming more important than ever before in light of the wide digitalization of Japan’s society. The need to deploy more renewable energies is also highlighting the problem of fragmentation.

3. First step: Better utilization of the existing infrastructure

　The grid in Japan has until now been managed in a very conservative manner which limited the effective capacity of the grid.
　It had been assumed that power plants would always generate at their maximum power, all at the same time. This assumption for the maximum power generation to be transmitted had limited the additional power that the grid could accommodate. As the transmission companies had made firm commitments to accept the maximum volume from existing power plants, they had been discouraged from accepting additional power coming from renewable energy for example. Often the transmission companies even had one backup line, without using it most of the time.
　To accommodate more renewable energies, such ultra conservative management of the grid has been significantly transformed and more realistic assumptions are in use to calculate the flow of power. Commitment to accept power is now made on a “non-firm” basis which allows the transmission companies to curtail generation when there is too much power. This flexibility can allow transmission companies to accept more power under normal conditions. The backup line is used in normal times rather than being kept as a reserve most of the time.
　While significant improvement has been made in the use of transmission lines, changes need to be introduced for the distribution lines. Starting with the real time monitoring of the flow of electricity in the distribution lines, dynamic management of the distribution network must be introduced to fully utilize the available capacity at any moment, while avoiding congestion.

4. Capacity expansion through better planning

　One of the major reasons for the fragmentation of the grid in Japan was the fact that planning for the entire grid had been conducted separately by regional power companies. As a result, the design of the grid might have been optimal for intraregional flow of power but not necessarily optimal for interregional flow of power. With this recognition, a nationwide organization named OCCTO, Organization for Cross-regional Coordination of Transmission Operators Japan, was established in 2015. With the establishment of OCCTO, nationwide planning for the grid has been made possible.
　In collaboration with OCCTO, the Japanese Government announced its “Master Plan” to strengthen its interregional transmission lines in March 2023. The main pillar of the Plan is to construct a long-distance transmission line connecting Hokkaido and Tokyo with a capacity of 6~8 GW. The Plan includes several other connections to be strengthened amounting to a total investment of 6~7 trillion yen, roughly 40~45 billion US dollars.
　Traditionally, grids had been developed in response to construction of new power plants or confirmed increase in demand for power. This approach was rational to avoid excess capacity. It was also logical to accommodate power plants that took years to construct, such as nuclear and hydro, in order for the grid to be developed in time for when the new power generation is realized.
　But the construction of transmission lines requires longer time than before. In contrast, the development of new power generation, especially solar PV, can be completed within a much shorter period while new demand sources, such as data centers consuming massive amount of power, can also be completed in just a few years. There is a much greater time gap between the planning/construction of the grid and the expansion of power generation or the demand for power. To shorten this time gap, rather than being responsive, the development of the grid must be proactive, anticipating the growth in power generation or in new demand. The Government of Japan is encouraging OCCTO and the transmission companies to be more forward looking in their planning.

5. Capacity expansion through improved payment mechanism and financing

　The construction price tag for major transmission lines is very substantial and the benefits are enjoyed by a variety of players. “Who pays for the transmission lines?” has become a major question.
　Traditionally, the cost of the transmission and distribution lines, within a region, was paid for by the regional power company, to be ultimately passed along to the electricity users in the region. For transmission lines connecting two adjacent regions, the cost was covered by both the adjacent regional power companies.
　But it has become clear that this mechanism is insufficient. For example, to send power from Hokkaido to Tokyo, the power goes through Tohoku regional power company which lies in between. While Tokyo regional power company enjoys the benefit of receiving the power, Tokyo regional power company has not been paying for the transmission line connecting Hokkaido and Tohoku. It has been understood that this insufficient payment system should lead to underinvestment.
　With this recognition, the cost for interregional transmission lines will now be partially funded also by the other regional companies of Japan’s four major islands. In addition, if the construction of intraregional transmission lines is considered as improving the interregional power connection, the cost will also be shared by the other regional companies.
　Furthermore, with the recognition that interregional transmission lines will help for the deployment of renewable energies, frameworks introduced to support renewable energies will be applied to interregional transmission lines. The revenue generated from the national mechanism of collecting an additional fee to promote renewable energies from power users can now be used to pay for such interregional transmission lines.
　But there remained one major remaining issue. The long construction period of transmission lines discourages the relevant transmission companies from investing. To address this concern, funds from the above-mentioned national mechanism can be paid as soon as the construction is started to help the financing of such projects rather than waiting to collect funds after the start of operations.

6. Lessons for the world

　Many countries are now starting to recognize the importance of the grid. The actual development of the grid is far less impressive compared with the dramatic acceleration in the investment for renewable energies. I believe that Japan’s experience can provide valuable lessons for such countries.
　The “effective capacity” of the grid can be expanded through better management of the existing infrastructure. This is a speedy way to enable the expansion of generation from renewable energies without waiting for the construction of new transmission lines.
　But ultimately the physical capacity will have to expanded. For countries with fragmented grid networks, nation-wide planning and payment mechanism could be very helpful. This approach could also be applied among different countries to introduce region-wide planning and payment mechanisms. South East Asia would be a good example for the application of such region-wide planning and payment mechanisms.
　Tapping into a pool of funds to expand renewable energies would be a pragmatic and logical approach and, as such, the grid would assist the deployment of renewable energies. The users of power are the ultimate receiver of the expanded grid and accelerated deployment of renewable energies.
　Japan has not yet fully addressed the challenge of the grid. But because of the uniqueness of its grid structure resulting from its history and of the painful experience from the Great East Japan Earthquake, Japan has had to face this problem much earlier than most other countries. Being one of the frontrunners, Japan’s efforts and experiences could well provide valuable lessons for the world.