World : Biomass power boom prompts Japan to tame rising utility rates

Power providers willing to sell at cheapest prices will get priority

Japan is looking to switch to a bidding process for biomass-generated energy to save costs amid a spike in power plant applications from companies looking to cash in on the current feed-in-tariff system.

Biomass facilities generate power by burning wood chips and other renewable materials that are often imported from abroad. Under the current system, utilities are required to purchase renewable energy at fixed rates over a specified term. For biomass, that period is typically 20 years.

Biomass Boom

Biomass plants approved by this month earn 24 yen per kilowatt-hour in Japan, a profitable price that has led to a boom in the industry. The country's biomass power generation capacity stood at 14.73 million kilowatts at the end of March when both operating plants and facilities approved for operation are included. That is more than double the government's 2030 goal, and roughly 3 million kilowatts of additional capacity has been approved since April.

Starting in October, however, the fixed rate will fall to 21 yen for newly approved plants with an output of 20,000kW or greater. This has resulted in a last-minute surge in applications hoping to secure the 24 yen rate.

Utilities recover purchase costs by collecting a surcharge from electricity customers. The surcharge for biomass electricity alone would total more than 1 trillion yen if all plants approved by September were operational.

Fuel expenses, including processing and transportation, account for 70% of the costs in biomass power generation. That means, out of the 1 trillion yen, roughly 700 billion yen would be sent abroad.

Cutting costs

The Ministry of Economy, Trade and Industry is considering four plans to ease the burden on citizens. The procurement price committee will begin debating proposals on Thursday and reach a decision by the end of the fiscal year in March.

The first is to switch to a bidding process where biomass power companies submit bids on how much they are willing to sell electricity for, and the power is purchased from cheapest to most expensive. Solar power plants with an output of 2,000kW or more will begin using such a system in October.

Since the fixed rate for biomass plants with an output of at least 20,000kW will be set at 21 yen per kilowatt-hour from October through fiscal 2019, some plans propose a bidding system for larger facilities with an output of 30,000kW or more.

The committee will also debate whether to exclude biomass power generated at converted coal plants from the feed-in tariff program. Stricter criteria for approval will reduce purchase costs. It has also been pointed out that power providers are likely to use cheap coal again after the purchase period is over, so utilities may not stick with biomass.

The ministry will also discuss a system requiring power plants to prove that they can procure imported biomass fuel in a stable manner. The government will exclude those plants that cannot demonstrate stable procurement in an effort to reduce the cost burden on citizens and ensure that biomass power still spreads.

Although the fixed-price purchase system has helped popularize renewable energy, the cost to households is increasing. A household consuming 300kwh has been paying a surcharge of 792 yen per month for renewable energy in fiscal 2017, a 250% increase from fiscal 2014. These surcharges will grow as fuel prices rise, driving up electricity bills. Electricity charges for a working family with two or more people came to 8,282 yen in July, a 10% increase from the previous year.

 

Source : https://asia.nikkei.com/Politics-Economy/Policy-Politics/Biomass-power-boom-prompts-Japan-to-tame-rising-utility-rates?page=1

SMART GRID Bulletin November 2017


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