Monday, August 22, 2011

No. 76: Problems with the special measures law for renewable energy (August 23, 2011)

The special measures law for renewable energy is scheduled to be approved within August. It will ask all electric power companies to buy electricity generated by renewable energy at a fixed price. The cost electric power companies pay to buy such electricity will be added to the electricity bills sent to consumers and companies. Electricity by photovoltaic generation in the residential area is not subject to this law, and only surplus electricity will be bought by electric power companies. The law is scheduled to be enforced next July. The future of renewable energy seems to be bright. However, there are several problems with the spread of renewable energy.

Because a solar panel has a very low conversion efficiency of 15%, it is necessary to pave solar panels in the area of 20,000-30,000 square meters to get a generation capacity of 1 megawatt. In Japan, the plant location law stipulates that the area occupied by generation equipment should be less than 50% of the total area. This means that an area that is two times as big as the area required to pave the solar panels is needed to build a photovoltaic power plant. A government agency estimates that the amount of renewable energy will grow three times in 10 years. However, the fact remains that land cost is enormous in big cities that have great power demand.

The purchase price is of great importance to renewable energy operators. The purchase price of electricity by wind generation will supposedly be fixed between 15 and 20 yen per kW, while it is between 16 and 17 yen per kW under the current support measures. Japan Wind Power Association is worried about the purchase price because lower price than 20 yen per kW will not support the spread of wind generation. In addition, it takes at least two years to build a wind generation plant, and it takes much longer to build a geothermal power plant. The purchase price of electricity by photovoltaic generation will be set higher than 30 yen per kW.

Foreign companies involved in the renewable energy business are supposed to rush to the Japanese market. The Japanese market seems to be bright not only for manufacturers of solar cells but also for investment funds. Actually, Japanese companies are receiving inrush of inquiries from foreign companies. It is quite natural that domestic companies concerned are worried about the price competition of solar panels. Few domestic companies can compete successfully with foreign companies in terms of price. And there is a fear of bubble. As Spain showed in 2007, speculation creates a bubble, and a bubble ends in a short time leaving the country in a devastated situation.

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