Solar lobby and energy transition in Japan

Energy Policy 134 (2019) 110950

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Energy Policy journal homepage: www.elsevier.com/locate/enpol

Solar lobby and energy transition in Japan a

a,∗

Aitong Li , Yuan Xu , Hideaki Shiroyama a b

T

b

Department of Geography and Resource Management & Institute of Environment, Energy and Sustainability, The Chinese University of Hong Kong, Hong Kong, China Graduate School of Public Policy, The University of Tokyo, Tokyo, Japan

A R T I C LE I N FO

A B S T R A C T

Keywords: Energy transition Solar PV Wind power Political economy Fukushima nuclear accident Japan

Due to significant cost advantages, wind energy penetrated the energy mix of most large countries much faster than solar PV did until the recent decade. However, Japan has been almost one-sidedly leaning toward the more expensive solar PV. For using solar PV electricity, the Japanese consumers are also paying sizably higher tariffs than those in other countries, especially after the Fukushima nuclear accident in 2011 that led to the sudden suspension of all nuclear power plants. Japan's energy transition towards renewables is accordingly largely single legged, rather than more balanced to take advantage of both wind turbines and solar PV. This article explains the puzzle on why renewable energy development in Japan has created such a wide distance from more economically optimal situations. We focus on the initiation, formation and impacts of the solar lobby that comprises bureaucracies, politicians, solar PV manufacturers, and independent power producers. Policy implications are drawn for Japan and other countries on the importance of controlling political lobby to achieve less costly energy transition.

1. Introduction Climate change is playing a key role in energy development and the fuel competition between fossil fuels and renewables. Concerns about CO2 emissions from fossil fuels (coal, oil and natural gas) are critical for continuously supporting renewables (REN21, 2017). Starting from a negligibly low basis, the rapid development of renewable energy has been displacing the share of fossil fuels in the overall energy mix to significantly mitigate CO2 emissions. In addition, because a great proportion of fossil fuels, especially oil and natural gas, is traded across country borders, the domestic nature of renewable energy could help those major fossil fuel importers to alleviate energy security concerns. Wind and solar are the largest two non-hydro renewables in most countries. When the Kyoto Protocol was negotiated in 1997, the World had 235 MW of solar PV capacity and 7644 MW of wind turbine capacity, while in 2017, they had increased to 399,613 MW and 514,798 MW, respectively (BP, 2018). However, their intermittency (fluctuating electricity generation due to unstable wind and sunshine) raises serious challenges to electric grids for providing reliable electricity supply. In addition, although we have witnessed a dramatic cost reduction of wind and solar electricity in the past two decades, the added system costs for electric grids remain a concern for further expansion. With the ever-growing penetration of renewables in the energy mix that drives down fossil fuels, the conventional fuel competition will

∗

become more complicated to turn different renewable energy technologies against each other, especially between wind and solar energy. Although both wind turbines and solar PV capacities have been significant, wind energy was preferred in earlier years. For example, from 1997 to 2009, World's wind capacity increased by 145.6 GW, dwarfing the 22.8 GW of solar PV capacity by 6.4 to 1 (Fig. 1). In the following years, however, solar energy quickly caught up and the preference between the two renewables has been gradually tilted toward solar PV. From 2010 to 2017, wind energy accounted for 376.7 GW of capacity increase and solar PV 363.1 GW (Fig. 1). In 2017, wind turbines had been steadily outpaced by solar PV with their annually increased capacities being 47.1 GW and 96.8 GW, respectively (Fig. 1). The key reason for the long-lasting preference to wind and the recent reversal toward solar PV should lie in their relative costs (Painuly, 2001; Verbruggen et al., 2010). The lower cost of wind had historically given it an edge over solar PV. In 2015, the global weighed average cost of onshore wind is 0.07 USD/kWh compared with 0.13 USD/kWh for solar PV (IRENA, 2016). Although wind electricity is still less costly than that of solar PV, the cost gap between the two has been reduced significantly as favorable wind farm sites become scarce and solar PV becomes even cheaper (IRENA, 2016), which could influence the costdriven choice between solar PV and wind (REN21, 2017). Between 2008 and 2015, the average cost for onshore wind electricity generation decreased by 35%, whereas that for solar PV fell by 80% (IEA, 2016a).

Corresponding author. E-mail address: [email protected] (Y. Xu).

https://doi.org/10.1016/j.enpol.2019.110950 Received 9 January 2019; Received in revised form 16 July 2019; Accepted 20 August 2019 0301-4215/ © 2019 Elsevier Ltd. All rights reserved.

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Fig. 1. The annual growth of World's solar PV and wind capacities and their ratios (BP, 2018).

Fig. 2. Shares of global wind and solar PV cumulative capacities during 1997–2017 in China, United States, Germany and Japan (the arrows indicate temporal sequences) (BP, 2018). (The share of cumulative capacity is calculated as: Cumulative capacity in a country in a year/Global cumulative capacity in the year.)

of solar PV (BP, 2018). This stood in sharp contrast with other countries such as China and the United States that actively promoted renewables and tended to install more wind than solar PV. By 2017, China topped the global list in installed renewable energy capacity with 164 GW of wind and 131 GW of solar PV, followed by the United States (88 GW vs. 51 GW) and Germany (56 GW vs. 42 GW) (BP, 2018). This unusual, to some extent extreme, preference to solar PV can hardly be primarily explained by resource endowments. Japan has been far from exhausting its wind energy potential. Furthermore, from the perspective of energy security and CO2 mitigation, wind and solar PV are essentially similar to each other because they both utilize domestic energy resources to replace imported carbon-intensive fossil fuels. For explaining Japan's preference over the past four and a half decades, this article examines the socio-technical regime behind the country's particular development pathway, paying special attention to

The global energy transition toward renewables has been accelerating in the past two decades, now running with two even legs of wind turbines and solar PV. Japan is one of the major countries with significant amounts of wind and/or solar PV capacities. Because its fossil fuel consumption almost entirely relies on import, domestically produced renewable energy could be especially important for energy security. However, Japan differs from other major players in its more single-legged and persistent preference to solar PV (Fig. 2). This progress is baffling due to its deviation far away from potential economic optimum. Due to the higher costs of solar PV than wind electricity, Japan has been spending more economic resources than foreign countries in utilizing renewable energy. The case of Japan is worth special attention not only because of its current struggle with nuclear power but also because of its unique structure of renewable energy mix. By 2017, Japan had installed only 3.4 GW of wind, compared with 49 GW 2

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and Kuriyama, 2018). However, in this study we illustrated that the overlooked, low-profile solar lobby, which has developed over the past four and a half decade and sustained its strength after the nuclear disaster, has limited the development of a more balanced renewable mix in Japan and led the country's economy onto a socially sub-optimal path. The composition of the solar lobby, or the stakeholders, evolved dynamically over time. The first stakeholder is the Japanese government, including mainly several ministries at the central level, the most important of which is the Ministry of Economy, Trade and Industry (METI). In designing initial supporting policies for renewables, one group of scholars encourages the government to interfere with free market by promoting certain technologies—often known as “picking winners”, and they found the proactive role of the government necessary for ensuring the advancement of domestic companies at the international market (Lin, 2011; Quitzow et al., 2017; Rycroft and Kash, 1992). Broader government interventions were also argued for industrial upgrading and diversification, with the claimed benefits from the provision of information externalities to the development of industry-specific infrastructure and to the buildup of comparative advantages (Lin, 2011). However, the notion of “picking winners” often stirs up dissent from free-market advocates. They cast doubt on whether the government has the capacity to pick the “promising” sectors (i.e. industries with potential comparative advantage) and guide society onto a sustainable path without suffering the technological and institutional lock-in (Moe, 2012; Pegels and Lütkenhorst, 2014; Rycroft and Kash, 1992). Once a winner is picked in the starting period, the evolution thereafter might be path dependent (Pierson, 1994). After the 1973 oil crisis, solar PV gradually emerged as the more favorite technology in comparison to wind turbines, although neither but nuclear energy was prioritized in the governmental plan for boosting non-fossil fuels. We will examine the role of the Japanese government in the initial development of solar PV. The other two key stakeholder groups in the solar lobby are the Japanese solar PV industry and investors. The governments’ policies may impact the innovation and deployment of renewables (Moe, 2012; Valentine et al., 2011). Strategic alliance may accordingly emerge from shared economic and political interests and break up when the setting changes (Pierson, 2011). The relative strength of the supporting policies and the choice of policy instruments reflect political choices, in which the two solar lobby groups may have played critical roles. For promoting renewables, policymakers have a repertoire of policy instruments which can be generally divided into two categories: (1) command and control instruments like technology or performance standards, and (2) market-based instruments like taxes, subsidies, green certificates or quota systems.

the initiation, formation and impacts of the solar political lobby. After explaining the analytical framework and data in Section 2, the rest of the analysis is organized as follows. Section 3 explores renewable energy policies in the early decades from the 1973 oil crisis to Japan's ascendency to top the world's solar PV market and manufacturing in around 2000. The role of bureaucracies in the Japanese central government will be carefully diagnosed. Section 4 understands the responses of politicians and solar PV manufacturers toward the fierce international competition in 2000s. In the post-Fukushima era, Section 5 examines the roles of politicians and independent power producers in setting up significantly higher feed-in tariffs for solar PV in comparison with wind electricity and other countries. Conclusion and discussion are provided in Section 6. 2. Analytical framework and data 2.1. Analytical framework Energy systems could be described as a socio-technical regime where technologies, institutions, and practices are interlinked with one another (Markard, 2018; Nordensvärd and Urban, 2015). This sociotechnical configuration includes three important dimensions: (1) physical and technological infrastructures, (2) actor networks and institutional arrangements, and (3) regulatory rules and associated behavioral patterns (Geels, 2002). And like other socio-technical regimes, energy systems are subject to path-dependence processes, due to technological and institutional lock-ins (Berkhout, 2002; Fouquet, 2016; Mori, 2018; Nordensvärd and Urban, 2015). To understand the path-dependence processes of an energy system, it is important to note that the self-reinforcing mechanisms occur not just at single institutions but at “the interdependent web of an institutional matrix” (North, 1990). It is the inertia of complementary configurations of institutions, rather than individual organizations or institutions, that makes path dependent processes most powerful (Pierson, 2000). “New social initiatives—such as the creation of organizations or institutions—usually entail considerable start-up costs; individuals, as well as organizations, learn by doing; the benefits of our individual activities or those of an organization are often enhanced if they are coordinated or ‘fit’ with the activities of other actors or organizations” (Pierson, 2000). Moreover, understanding the politics behind the path-dependence processes of an energy system means recognizing and identifying “the dispersed nature of power and agency”, paying special attention to multi-actor arenas in which the politics of transitions and resistance are played out (Avelino et al., 2016). There are a range of actors inside energy systems—governments, electricity generators and suppliers, as well as end users who often have diverging or even conflicting objectives and interests. These actors interact through social networks and form diverse institutional and political structures. Choices of alternative technologies may face the danger of being thwarted by vested interests (Gaede and Meadowcroft, 2016). However, rather than being a predetermined, lineal process, the path-dependence of an energy system always unfolds itself through relational, dialectic processes (Avelino et al., 2016), the development of which could lead to contingent and unpredictable outcomes (Bale et al., 2015). Understanding that energy systems are embedded in a complex web of dispersed power and agency, in this article, we choose to examine three major stakeholders whose interests were aligned closely with the success of solar PV industry and installation, including the government as policy makers, solar industry as the supplier of solar PV, and electricity generation investors as the direct customers of solar PV. They were interlinked to form the solar lobby in Japan. Many past studies of Japan's energy systems tended to focus on vested interests in nuclear power (Kucharski and Unesaki, 2018; Sklarew, 2018) and held optimistic view on the development of renewable energy in Japan since the Fukushima Daiichi nuclear disaster (Esteban et al., 2018; Wakiyama

2.2. Data Research data come from both publicly available sources, primarily in Japanese language, and more importantly, first-hand information from field interviews. The public information was collected on installed capacity, renewable unit costs, and industrial trends of solar PV and wind in Japan from the websites of ten major power companies, New Energy and Industrial Technology Development Organization (NEDO), METI, the Ministry of the Environment (ME), and Federation of Electric Power Companies (FEPC). First-hand data came from two rounds of fieldwork, conducted during the period between December 2014 and January 2015 and the period between February 2018 and March 2018. Semi-structured interviews were carried out with government officials, renewable energy investors, energy consultants, environmental consultants, university researchers, and think-tank scholars (Table 1). The interviews paid special attention to cover three government agencies related to solar PV and wind—METI, ME, and the Ministry of Agriculture, Forestry and Fisheries (MAFF). Interviews with government officials provided valuable insights into the policymaking processes, which are seldom recorded in final policy documents. 3

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introduction of the Sunshine Programme in 1974, providing funding to the studies of new energy (including nuclear, solar and geothermal energy). This was followed by the Moonlight Programme in 1978 and the Global Environmental Technology Programme in 1989 (IEA, 2016b). The funding allocation in those programmes revealed the government's emphasis back then. In 1990, the R&D expenditure in nuclear power was 82.7 billion JPY, compared with 14.5 billion JPY in renewable energy (Watanabe, 1995). Among all renewables, solar and geothermal energy enjoyed more financial supports and very limited funding was dedicated to wind (IEA, 2016b; RIETI, 2016). In 1993, the New Sunshine Programme was enacted to promote greater policy integration by combining the Sunshine Programme, the Moonlight Programme and the Global Environmental Technology Programme (Watanabe, 1995). Even though the general goal of the New Sunshine Programme was still to promote new energy (including nuclear power), solar PV received more attention this time (Andrew and Tetsunari, 2011). “Behind the new emphasis on solar PV was the failure of concentrated solar power (CSP) in the old Sunshine Programme, and the ending of CSP projects allowed more financial resources to flow to the solar PV research” (the quotation comes from our interviewee #Researcher3). Different from previous supporting schemes, clear goals were set for solar PV this time, including the target to reduce the production cost of solar PV from 600 JPY per DC Watt peak (Wp) in 1992 to 100~200 JPY per Wp by 2000 (IEA, 2016b). In addition, a general goal of 5000 MW was set for solar PV in 2010 in the Long-term Energy Demand and Supply Outlook (Advisory Committee for Natural Resources and Energy, 1998). Under those policies, solar PV continued to receive substantially greater support than wind. The ratios of their annual R&D funding were between 7.4 and 24.6 between 1996 and 2006 (IEA, 2008). As METI's involvement with solar PV programs deepened over years, the success of those programs became inextricably linked to the reputation of the ministry (Moe, 2012). Later renewable energy policy became highly dependent on the earlier leaning toward solar PV, although neither solar PV nor wind energy was prioritized relative to nuclear energy. To create demand for solar PV, MITI first targeted residential users. Regulations on the installation of small-scale solar PV systems was loosened in 1990, and technical guideline for grid-connection was prepared in 1993 (Chowdhury et al., 2014). Subsidies and incentive programmes for residential solar PV were designed. The Surplus Purchase Programme was inaugurated in 1992, allowing

Table 1 Information of interviewees. Categories

Affiliations

No. of interviewees

References in the paper

Government officials

METI

2

ME MAFF

1 1 4

#METI1, #METI2 #ME1 #MAFF1 #Investor1, #Investor2, #Investor3, #Investor4 #Consultant1, #Consultant2, #Consultant3 #Researcher1, #Researcher2, #Researcher3

Renewable energy investors

Energy and environmental consultants Renewable energy researchers Total

3

Universities and think tanks (e.g. NEDO)

3

14

3. Bureaucracy and the first energy transition Energy security concerns are a critical driver for Japan's non-fossil energy development. After the first oil crisis in 1973 that suddenly braked the advancement of oil in Japan's energy mix, the Japanese government had increasingly seen nuclear power as a feasible solution to the country's energy security predicament (Fig. 3). The share of nuclear power in total primary energy supply increased steadily from 0.3% in 1970 to 9.3% in 1985, and this ratio continued to rise, reaching 14.1% in 2000. In contrast, the development of non-hydro renewables proceeded at a much slower speed, growing from 0.0% in 1970 to 0.7% in 2000 (Fig. 3). Despite not being at the center of energy policy between the 1970s and 1990s, renewables did get a chance to enhance their R&D foundation and develop stakeholders. In the initial support of various renewable energy technologies, solar PV attracted much more R &D funding than wind turbines. The Japanese government has gradually become a stakeholder of its own policy and thus part of the solar PV interest group, or the solar lobby. One of the most powerful players within the Japanese central government is METI, whose name was the Ministry of International Trade and Industry (MITI) before 2001. After the first oil crisis, MITI had launched several strategic initiatives. The first initiative was the

Fig. 3. Primary energy consumption in Japan over 1965–2017 (BP, 2018). 4

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Fig. 4. Structures of solar PV development in Japan (METI, 2017; 2015; NEDO, 2017).

placed Japanese solar makers in a disadvantageous position in the price competition (Jäger-Waldau, 2008). Furthermore, the domestic demand for solar PV did not keep pace with the global trend. In 2000s, Japan tried to introduce market mechanism into the renewable field by implementing the Special Measures Law Concerning the Use of New Energy by Electric Utilities (the RPS Law) in 2003. The RPS Law required electricity suppliers to generate a certain amount of electricity from renewable sources such as solar PV, wind, biomass, geothermal, and small hydropower (1 MW or less) (Nishio and Asano, 2006). Over the same period, the Ministry of Finance decided to terminate the Residential Solar PV Subsidy Programme in 2006 (Asano, 2014), which led to a significant decrease in residential demand in the years 2007 and 2008. Given the lower price of wind, electricity suppliers had chosen to purchase more wind rather than the earlier one-sided focus on solar PV. Between 2000 and 2008, a total of 1.81 GW capacity was newly added in solar PV, whereas the increase in wind was 1.89 GW (BP, 2018). The fact that Japanese solar PV manufacturers were losing ground in the global competition created an intense sense of crisis. The yearly RP quotas were set at such a low level that over 50% of electricity suppliers had overachieved and could bank their surplus quotas to offset next year's requirements (Maruyama et al., 2007; National Diet Library, 2009). In 2007, new discussions on revising the RPS were organized by the RPS Law Committee (METI, 2007). The Committee's report sheds light on a new round of policy intervention. The report argued that solar PV should be further promoted based on its two important advantages: firstly, solar PV has a large cost-down potential and thus a higher prospect for future adoption; secondly, solar PV is subject to no geographical constraints and would not be confined to specific regional areas like wind or geothermal energy (METI, 2007). During our interview, these two advantages of solar PV were also emphasized by two METI officials (#METI1 and #METI2), who believed that, compared with wind, solar PV has greater growth potential, and therefore it is more reasonable to support solar PV than wind. Experts in the committee also expressed their concern that solar PV would not be able to compete with wind on an equal basis even by 2010, given the projected cost of 23 JPY/kWh for solar PV and 11~14 JPY/kWh for wind. Therefore, to increase the competitiveness of solar PV, the committee strongly recommended the government to set the RPS credit value for solar PV at a level that doubles or even triples that of other renewables (METI, 2007). The committee's heavy preference to solar PV rather than wind

households and other entities to sell their surplus electricity to electricity suppliers at 24 JPY/kWh for residential solar PV and 11~15 JPY/kWh for non-residential solar PV (National Diet Library, 2009). Here “surplus” means that part of electricity must be generated for selfconsumption, which excluded commercial electricity suppliers. The Residential Solar PV Subsidy Programme started in 1994 with a subsidy of 900,000 JPY/kW (Myojo and Ohashi, 2009) that accounted for about 45% of the 2,000,000 JPY/kW price tag for solar PV systems (METI, 2008). However, “these policies targeting demand side actually faced a lot of uncertainties because even with such a high level of subsidy, the residential solar PV system was not profitable at that time, but luckily the incentive was large enough to encourage the investment from a number of high-income, environmentally conscious families” (#Researcher3). By the late 1990s, the impacts of Japan's solar-centered renewable policy had already shown up. Throughout the 2000s, the annual capacity of residential solar PV eclipsed its non-residential counterpart (Fig. 4). This is also the year when the Kyoto Protocol was adopted. The Japanese rapid economic rise was remarkable. Vogel's book in 1979, “Japan as Number One”, insightfully projected its economic heyday in the ensuing years (Vogel, 1979). From this perspective, MITI's solar policy was indeed successful in the three decades after the 1973 oil crisis. The government's R&D and market-creation efforts had made significant cost reduction possible. The costs of domestically produced solar PV systems fell from 3,700,000 JPY/kW in 1993 to 690, 000 JPY/kW in 2003 (METI, 2015, METI, 2017). Along with the everexpanding domestic market came the development of domestic solar PV manufacturing industry, which had grown into a full-fledged business by the end of 1990s. In early 2000s, Japan has emerged to become the undoubted global leader in solar PV, responsible for half of the global cumulative installed capacity and producing half of global supply (Fig. 5).

4. Politicians and the solar PV industry in rising global competition Despite the earlier success, the Japanese solar PV industry soon ran into fierce global competition in 2000s. Though domestic solar PV manufacturers had achieved significant cost reduction, their cost-down pace was not fast enough to allow them to compete with new entrants in the global market. Failure to secure raw-material supply had further 5

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Fig. 5. Shares of global PV cells production from 1995 to 2016 and Japan's share of world's annual growth of solar PV capacity (dashed line) (BP, 2018; Earth Policy Institute, 2015; IEA PVPS, n.d.).

transition point of Japan's energy policy (Hayashi and Hughes, 2013; Kuramochi, 2015). The Fukushima nuclear accident forced Japan to reconsider its nuclear power policy. After shutting down all nuclear power plants, Japan urgently required replacement to result in the significantly more import of fossil fuels (Fig. 3). Partly driven by the increasing Japanese demand, the prices of oil and especially natural gas were pushed high and Japan ran an unusual current account deficit from the second quarter of 2011 to the third quarter of 2015 (Ministry of Finance of Japan, 2018). Furthermore, CO2 emissions from more fossil fuel consumption also put Japan in an awkward situation for further deviating away from its commitment in the Kyoto Protocol of climate change, the first international law with specific targets for controlling greenhouse gas emissions that was named after a Japanese city. The oil crisis in 1973 pushed Japan to prioritize nuclear energy, but the Fukushima accident dramatically reversed the course. The overall share of non-fossil fuels in Japan's primary energy mix was only 6.1% in 2012, even lower than the 6.8% in 1972 (Fig. 3).

turbines was echoed and reinforced by politicians who wanted to protect the world-number-one status of its solar PV industry. In June 2008, Prime Minister Fukuda unfolded his “Fukuda vision”, which aimed to regain Japan's world-number-one status in terms of solar PV installed capacity, with the goal of increasing solar PV installations “ten times the current levels (14 GW) by 2020 and 40 times the current levels (53 GW) by 2040” (Asano, 2014). Later, as Prime Minister Aso took the power from Fukuda in September 2008, he raised another slogan— “regaining the status of Japan as the world-number-one solar PV producer” (CRIEPI, 2010, p. 1). Following these discussions, a series of policy intervention came into effect in 2009. First, the government resumed the subsidies for residential solar PV systems. Second, the first solar-FIT programme was implemented, which is known as the Act on the Promotion of the Use of Non-Fossil Energy Sources and Effective Use of Fossil Energy Source Materials by Energy Suppliers (IEA, 2010). Under the solar-FIT programme, the purchase prices of solar PV were raised to a level double those under the old Surplus Purchase Programme—at 48 JPY/kWh for residential users and at 24 JPY/kWh for non-residential users for a 10year period (METI, 2012; National Diet Library, 2009). These new policies had an immediate impact on revitalizing residential solar PV demand. The annual capacity in residential solar PV in 2009 was more than double the amount of previous year, and this strong demand continued till the implementation of a new FIT in 2012 (Fig. 5). Although hard efforts have been made to save the Japanese solar PV industry, the fierce global competition still drove its steady relative decline. Among all global competitors, the rise of China was the most dramatic with its market share of solar PV cells production increasing from 3% in 2004, to 28% in 2008 and 66% in 2016 (Fig. 5). Consequently, Japan's global shares dropped sharply from the peak of 50% in 2004, to 18% in 2008 and then to merely 3% in 2016 (Fig. 5). The two solar stakeholders, the Japanese government and the solar PV industry, accordingly had much weakened positions to continue lobbying for one-sided focus on solar PV, although the solar lobby and political preference to solar PV still lingered.

5.1. Time constraints for wind turbines and solar PV The then existing regulatory framework posed different requirements on wind turbines and solar PV (Table 2). Contrary to the preferential treatment of solar PV, wind found itself subject to an increasing level of regulation and public scrutiny, although the regulations arose mainly from the objective judgement of social and environmental impacts of wind power. One crucial impact is the necessary time for a project to go through preparation, approval, construction and then operation. Three major categories of regulations could significantly differentiate solar PV from wind turbines, including environmental impact assessment, construction and land use. First, wind faces more stringent regulations and harsher social resistance because of its potentially more serious environmental impacts, such as noise, landscape change, and bird mortality (Mann and Teilmann, 2013). When entering the 2000s, the government gradually strengthened its regulation over wind. The NEDO issued the first version of the Environmental Impact Assessment Manual for Wind Power in 2003 (and the second version was made in 2006). This environmental impact assessment (EIA) was not legally mandatory for all the wind farms, but for wind power projects (more than 10 MW) that intended to apply to national subsidy programmes, it was required to conduct EIA

5. Politicians and independent power producers in the fukushima aftermath The Fukushima nuclear accident in March 2011 is recognized as a 6

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Table 2 Time table for renewables. Source: METI, 2014. Opinion on achieving maximum-amount renewable adoption based on individual characteristics. Tokyo, Japan. Energy Type

Time needed from project preparation to FIT approval

Time needed from FIT approval to the start of operation

Biomass (5000 kW) Geothermal (30,000 kW) Median- or small-scale Hydropower (1000 kW) Solar PV (10,000 kW) Wind (20,000 kW)

1 year 3~4 year (environmental assessment) 3 year (local agreement) 1 year 3~4 year (environmental assessment)

2~3 year 3~4 year ~5 year 1~1.5 year 1~3 year

energy plan as soon as it took office in September 2009. A project team was established in November 2009 by the Democratic Party of Japan (DPJ) for designing an extended FIT that would mandate the purchase of electricity generated by a wide range of renewables (Dent, 2014). On the morning of March 11, 2011, just hours before the strike of the massive earthquake on the north-eastern coast of Japan at 2:46pm, the Kan cabinet adopted a METI-drafted bill that was scheduled for submission to the Diet, though this draft made no specific statement about tariff levels and contract lengths (Babb, 2014; Nakano and Nakanishi, 2011). This bill was later known as the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (the Act), a comprehensive FIT scheme for renewables. It is the Fukushima accident that gave a final, decisive push to the adoption of the new FIT scheme. Amidst falling public support in the aftermath of the Fukushima accident, Prime Minister Kan declared his willingness to step down from the premier position in exchange for the passing of the new FIT bill (Babb, 2014; Huenteler et al., 2012). This struggle was continued by his DPJ successor Yoshihiko Noda who eventually brought about the passing of the new FIT scheme in August 2011. Under the new scheme, electricity suppliers are obligated to purchase a range of renewables for fixed contractual terms and at fixed price levels. This new FIT scheme became the centerpiece of post-Fukushima renewable energy policies in Japan. In the design of the comprehensive FIT scheme, the first major decision is on the choice between a uniform price scheme and a sourcespecific price scheme. Setting purchase prices differently would encourage investment by ensuring profit margins for different renewables, but it also could risk increasing economic burden on electricity consumers because the resulted portfolio of renewables may not be among the less costly options, while setting a uniform FIT price scheme would foster market competition and reduce electricity costs, but some highcost renewables might fail to benefit from the FIT scheme (Nakano and Nakanishi, 2011). In this debate, there were two important stakeholder groups—METI and the DPJ (#METI1). METI represents career bureaucrats. Besides the objective as described in Section 4 to develop domestic solar PV industries, they are also under pressure to keep electricity cost low for residential consumers and industrial development. Because the FIT scheme under discussion was expected to significantly increase the shares of renewable energy and replace the shutdown nuclear power, higher costs for each kWh of renewable electricity will become a much bigger issue to affect average electricity consumers. Accordingly, METI's preference was a uniform price scheme (#METI1). The DPJ came into power in 2009 to break the almost uninterrupted rule of LDP (Liberal Democratic Party) over six decades. Their politicians wanted to assert their leadership over the METI bureaucrats and insisted on accelerating renewable development through a source-specific price scheme” (#METI1). In the end, the DPJ pushed through their plan—a source-specific price scheme was adopted. The finally adopted FIT of solar PV electricity was high (Table 3), being 42 JPY/kWh for 10 years (less than 10 kW) and 40 JPY/kWh for 20 years (10 kW or more) if the project is registered in 2012 (METI, 2017). The FIT was set to decrease over time, but METI recognized that even in 2015 Japan's solar PV FIT level, 29 JPY/kWh for projects of 10 kW of more, respectively, was still the highest among developed

and receive consent from local residents. In practice, few projects were subject to this regulation. Between 2003 and 2006, 53 wind power projects among a total of 325 projects were required to follow the EIA Manual (ME, 2011). Thus, “the environmental regulation imposed by NEDO were not rigorous at that time, and some projects even skipped local consent procedures, which caused conflicts at later stages” (#ME1). On the other hand, since October 2012, wind became the subject of the new Environmental Impact Assessment Law. “The discussion of strengthening environmental regulations over wind had started long before the year 2012 because of increasing local complaints over noises, bird strikes, and other environmental impacts” (#ME1). “This new environmental regulation subjects wind power projects to a prolonged environmental impact assessment processes” (#Consultant2). Before the new regulation, it generally took 14~21 months for wind projects to pass the EIA procedures prescribed in the NEDO manual (JWPA, 2011); with the new regulation, the assessment period was stretched to 3~5 years and the project preparation costs increased up to 100~200 million JPY(METI, 2016). Second, located on the “Ring of Fire”, Japan is a country prone to earthquakes to mandate corresponding building construction standards. When the government revised the Building Standard Act in 2007, wind farms with tower height above 60 m were required to meet the same earthquake-resistant standards as high-rise buildings. Because modern industrial-scale wind turbines are generally all above the threshold – for example, the GE 1.5 MW wind turbine (at the small end in today's market) has a tower at 65 or 80 m (GE Energy, 2009) – essentially almost all major wind turbines fall under the authority of the new regulation. As a result, about 60% of wind projects were postponed (Ishihara, 2008). The construction standard was one of the main factors that substantially slowed down the growth of wind power installation after the year 2007. In contrast, construction standards for solar PV were first relaxed by the revision of the Building Standard Act. Starting from October 2011, solar PV systems no longer fall under the jurisdiction of the Act as long as the space below the PV panels is not used for living, working, and storage (MLIT, 2011). Then, project examination procedures for solar PV were simplified in the Electricity Utility Act. Starting from June 2012, Solar PV facilities with less than 2 MW capacity (previously less than 0.5 MW) no longer need to submit construction plan and go through pre-use safety check procedures (METI, 2013). Third, changes in land-use regulation in 2009 and the termination of two subsidy programmes in 2010 added more uncertainties to the future of wind projects. In 2009, the government clarified the Enforcement Regulation of the Agricultural Land Act, which ruled out the possibility of constructing wind farm in high-quality farm land (REI, 2017). With limited land supply, wind power investors faced the challenge of controlling costs in less favorable locations. Coupled with the termination of subsidy programmes in 2010, the cost-control challenge became even more formidable. 5.2. The design of feed-in tariffs The most important policy for renewable energy development after the Fukushima nuclear accident was the highly controversial feed-in tariff. The Democratic Party of Japan (DPJ) announced its renewable 7

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key factors in project selection, and the longer the lead time, the more risks for investors”; “It is the shorter lead time that made mega-solar a better investment option than wind” (#Investor1). For a mega-solar system, it takes on average one year to be planned and approved, much shorter than wind that may require a substantial amount of time due to social and environmental regulations (Table 2). “In practice, the time of solar PV projects could be even shorter and sometimes it took only three months from planning to approval” (#Investor3). Furthermore, the expected and later realized faster drop of solar PV electricity relative to that of wind electricity – as discussed in Section 4 – was utilized to enhance the profit margins. Between 2010 and 2017, the levelized costs of electricity from utility-scale renewables were reduced from 0.36 USD/kWh to 0.10 USD/kWh for solar PV and 0.08 USD/kWh to 0.06 USD/kWh for onshore wind (IRENA, 2018). In the original FIT scheme and to the benefits of the solar PV investors, the government allowed a utility to apply for the FIT and secure purchase price at the time of approval, regardless of the actual starting date of operation. “This regulatory vacuum was soon taken advantage of by investors who first rushed in to secure the price without giving concerns to construction and operation details” (#METI1). Expecting the ongoing dramatical cost reduction to continue, the solar PV opportunist investors intentionally postponed the installation to benefit from the gap between high FIT prices at early stage and low solar PV cost at later stage. Financially, the feed-in tariff subsidies are funded by the Taxes for Promoting Renewables, which are collected from each Japanese household monthly since 2012. The increasing financial burden of feedin tariff surcharge on individual household is illustrated in Table 5. Though electricity prices in Japan had been more affected by fluctuations of fossil fuel prices than by feed-in tariff surcharges during the period between July 2012 and June 2017 (Kimura, 2017), if the trend of increasing surcharges continues in the future, it is likely that higher financial burden could potentially reduce public willingness to pay for renewable energy.

Table 3 Tariff levels for different renewables (JPY/kWh). Source: METI, 2017. Energy White Paper 2017. Tokyo, Japan. Energy type

2012

2013

2014

2015

2016

Solar PV (> 10 kW) Solar PV (< 10 kW) Onshore wind (> 20 kW) Onshore wind (< 20 kW) Offshore wind Geothermal (> 15000 kW) Geothermal (< 15000 kW) Hydro(1000 kW~30000 kW) Hydro (200 kW~1000 kW) Hydro (< 200 kW)

40 42 22 55 – 26 40 24 29 34

36 38

32 37

29 33

24 31

–

–

36

36

countries (Table 4). The solar lobby again played a crucial role with one key objective to create market demand for domestic solar PV industry. The higher FIT was anchored upon the domestic solar PV costs but not the global market. According to the law, METI sets the FIT prices annually by factoring in opinions from the Procurement Price Calculation Committee (PPCC). When PPCC first took over the task of price calculation, it had limited available data and had to rely on two other data sources: (1) the report of the Energy Cost Investigation Committee (ECIC) and (2) the data supplied by renewable investors. The ECIC reported the cost at a high level—that is 33.4~38.3 JPY/kWh (residential) and 30.1~45.8 JPY/kWh (mega solar) for a 20-year lifespan (ECIC, 2011). “The overestimation by ECIC was partly due to their focus on the costs of domestic solar PV products rather than the global average, and incorporating such data reflected the government's intention of protecting domestic industries” (#METI2). “Moreover, the calculated mega solar PV costs in the report were much higher than usual because by then Japan only had few mega solar PV projects, most of which were built with high industrial standards” (#Researcher3). The second source—enterprises and industrial associations—also “reported high costs for the purpose of increasing their profit margins” (#METI1). More importantly, another new and powerful stakeholder group, mainly investors as independent power producers, emerged to lobby for solar PV. New investors who saw post-Fukushima business chances in solar PV installation lobbied strongly for solar PV preference and thus high solar PV FIT. As one highly important tycoon argued in one official meeting on deciding the FIT level (#METI1), the price for mega solar PV should be set at a level higher than 40 JPY/kWh for 20 years, otherwise 90% of some 200 projects that Softbank have tentatively proposed would face the prospect of losing money (PPCC, 2012). These investors preferred solar PV to wind due to several reasons. First, largely responding to the relaxed regulations, the shorter time duration to complete solar PV projects could reduce financial risks. As one investor stated in our interview, “time is indisputably one of the

6. Conclusion and policy implications Japan has gone through two major energy transitions in the past decades. The first one was triggered by the 1973 oil crisis that halted the rapid growth of oil consumption and initiated the rise of nuclear energy, while the Fukushima nuclear accident in 2011 forced Japan to conduct another energy transition for compensating the sudden loss of nuclear electricity. Renewable energy has been standing at the forefront in this ongoing energy transition. However, one key and puzzling feature is that Japan almost exclusively focuses on solar energy rather than both solar and wind energy as in most other large countries. This paper explains this phenomenon through understanding the initialization, formation and impacts of the evolving solar lobby with dynamically changing interest groups. Although renewable energy did not play any significant role in the first energy transition, the

Table 4 International comparison of solar PV costs and FIT levels (METI, 2016).

Britain China France Germany India Japan Turkey

Initial capital cost* ($/kW)

Capacity factor*

Electricity generation cost* ($/MWh)

FIT level** (¢/kWh)

1160 1181 1050 1000 898 2205 1240

10% 16% 14% 11% 19% 14% 16%

130 102 93 103 90 192 122

16.5 14.3~15.8 10.6 (biding price) 8.9 (biding price) 7.7~9.2 22.5 13.3

*data for the year 2016; **data for the year 2015. Source: METI, 2016. About policy orientation to improve the introduction of Renewables. Tokyo, Japan. The data of the table is calculated for utility solar PV with the scale above 1 MW. Here capacity factor is defined as actual amount of electricity production over a given period of time divided by the maximum possible electricity production over that period (Neill and Hashemi, 2018). Capital Costs include equipment costs (eg. modules), construction costs (eg. foundations), and project preparation costs (eg. permitting and siting). 8

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This Japanese case provides helpful implications for the rest of the world. Energy transition is currently one of the grand trends facing many countries, given the mandates of climate mitigation and technological advancement of renewable energy. However, its overall progress and the relative growth of various alternative energy technologies are not entirely determined by country-specific economic optimization, but also significantly shaped by political interest groups. For more rapid and less costly energy transition, the political interests must be effectively controlled.

Table 5 Changes in taxe rates for promoting renewables from 2012 to 2018 (METI, 2017). Year

2012

2013

2014

2015

2016

2017

2018

Unit price (Yen/kWh) Estimated monthly charges for one standard household (Yen)

0.22 66

0.35 105

0.75 225

1.58 474

2.25 675

2.64 686

2.90 754

Acknowledge

bureaucrats in the Japanese central government showed an explicit policy inclination towards solar PV over wind. They allocated nearly one order of magnitude more R&D funding to solar PV and the path dependency made them the first group in the solar lobby to further nurture a domestic market for residential solar PV. In around 2000, Japan produced around half of global solar PV cells, while those manufacturers comprised another key interest group for solar PV development and strengthened the solar lobby. The “Japan as Number One” position and the solar lobby constrained the Japanese government, including politicians and bureaucrats, to keep their heavy focus on solar PV although the relatively much lower costs of wind electricity pulled the utility firms toward a more balanced mix of solar and wind energy. Nevertheless, the surge of international competitors in 2000s, especially those solar PV manufacturers from China, quickly drove down Japan's global market share. The Fukushima nuclear accident caught the entire country as well as the top politicians in an emergency with tight time constraints on replacing the lost nuclear electricity. Another interest group, mainly independent power producers, seized the opportunity to lobby for solar PV through significantly high feed-in tariffs on the ground that solar PV could be deployed much faster than wind turbines and domestic products were more expensive. The historical competition between solar PV and wind in Japan illustrated how important it is to evaluate the performance of policy instruments based on domestic sociopolitical conditions. The question of whether a RPS or a FIT has better performance in promoting renewable energy is always a subject of debate (Choi et al., 2018). Japan had experienced the tentative introduction of market competition through the RPS scheme from 2003 to 2011. Low-price wind seemed to receive more favor from electricity suppliers. However, this market competition between wind and solar PV did not last long. The postFukushima stage (after 2011) was marked by the implementation of a comprehensive FIT scheme, which was believed to be more effective in promoting the development of renewable energy. This new FIT, born out of the power balance between different stakeholder groups, designed higher purchase prices for solar PV and allowed solar PV to become the biggest winner among renewables. It is the complex web of vested interests that determines the performance as well as the costeffectiveness of the two policy instruments. Wind electricity had been much cheaper than solar electricity until in recent years, but Japan focused on the more expensive solar PV, deviating away from what economic optimum would project. Despite its long coastal line, Japan has not been developing offshore wind energy resources at a significant scale, either (Li and Xu, 2019). The development of solar lobby distorted the cost difference between wind and solar PV: (1) subsidies lured investors to solar PV, and (2) stringent regulatory requirements on wind projects increased investment risks and further pushed investors away from wind projects. In the end, Japanese consumers pay more for solar electricity than those in other major countries due to the much higher feed-in tariff. The powerful solar lobby twisted Japan's renewable energy policy in the past decades to better suit their interests but not necessarily the country's. For Japan to achieve a more-balanced and less-costly energy transition towards renewables, a more level-playing field should be created in which all alternative energy resources might contribute to meeting the urgency of Japan's energy transition.

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