21.1.3.2 Cost-Benefit Evaluation
The Procurement Price Calculation Committee (hereafter the “committee”), based
on the provisions of the Renewable Energy Act, reviews energy consumption based
on “costs that would normally be required for efficient supply” and sets the purchase
price for energy (cost basis). Renewable energy generation costs consist of equipment costs, operation and maintenance costs, land preparation costs, land rents, etc.
In calculating the cost of each part, “the relevant cost data reflecting the actual cost”
and “data reflecting the new market conditions” are required (Price Procurement
Committee 2015).
As the committee targeted renewable energy introduction nationwide based on
the overall average value of actual costs and using a more competitive method, some
expensive cases were excluded from the cost calculations. The calculated cost was
actually less than the overall average cost. For example, when the committee
calculated the purchase price of PV of 10 kW or more in 2015, the national mean
actual land rent was 219 JPY/m
2 /year (median was 152 JPY/m
2 /year). The committee ruled out expensive cases and used a cost of 150 JPY/m
2 /year, which is lower
than the median. When calculating the fixed price, the average value (or lower) of
costs of each part were combined and used as the standard, instead of using the total
cost of introduced cases. As a result, the cost estimated by the committee is clearly
lower than the average cost of a whole installation. This method of deciding the fixed
purchase price, which emphasizes efficiency and competition, is thought to reduce
introduction costs on a national scale. However, while pursuing a reduction in
overall installation costs, weak interregional transmission lines (difficulty in supplying power over wide areas), essential power demand, and endowment of natural
resources were not considered. The fixed price does not reflect the fact that electricity
demand is low in regions with good natural resource endowment.
When a FIT system was introduced in China in 2013, electricity demand and the
endowment of natural resources were reflected in the system design. Instead of
adopting a national uniform purchase price like Germany, the Chinese government
set three solar power generation purchase prices. The lowest purchase price is in the
west at 0.9 CNY/kWh, the purchase price in the central part of the country is
0.95 CNY/kWh, and that in the east is 1 CNY/kWh. In China, power demand
increases from west to east, but the amount of solar radiation decreases. Thus,
their scheme aims to prevent a mismatch between the amount of installed solar
power generation and power demand. If Japan were to similarly set different
purchase prices according to electricity demand and natural resource endowment
in each region, the mismatch problem would become less of an issue.
398
W. Zhou et al.
The Procurement Price Calculation Committee (hereafter the “committee”), based
on the provisions of the Renewable Energy Act, reviews energy consumption based
on “costs that would normally be required for efficient supply” and sets the purchase
price for energy (cost basis). Renewable energy generation costs consist of equipment costs, operation and maintenance costs, land preparation costs, land rents, etc.
In calculating the cost of each part, “the relevant cost data reflecting the actual cost”
and “data reflecting the new market conditions” are required (Price Procurement
Committee 2015).
As the committee targeted renewable energy introduction nationwide based on
the overall average value of actual costs and using a more competitive method, some
expensive cases were excluded from the cost calculations. The calculated cost was
actually less than the overall average cost. For example, when the committee
calculated the purchase price of PV of 10 kW or more in 2015, the national mean
actual land rent was 219 JPY/m
2 /year (median was 152 JPY/m
2 /year). The committee ruled out expensive cases and used a cost of 150 JPY/m
2 /year, which is lower
than the median. When calculating the fixed price, the average value (or lower) of
costs of each part were combined and used as the standard, instead of using the total
cost of introduced cases. As a result, the cost estimated by the committee is clearly
lower than the average cost of a whole installation. This method of deciding the fixed
purchase price, which emphasizes efficiency and competition, is thought to reduce
introduction costs on a national scale. However, while pursuing a reduction in
overall installation costs, weak interregional transmission lines (difficulty in supplying power over wide areas), essential power demand, and endowment of natural
resources were not considered. The fixed price does not reflect the fact that electricity
demand is low in regions with good natural resource endowment.
When a FIT system was introduced in China in 2013, electricity demand and the
endowment of natural resources were reflected in the system design. Instead of
adopting a national uniform purchase price like Germany, the Chinese government
set three solar power generation purchase prices. The lowest purchase price is in the
west at 0.9 CNY/kWh, the purchase price in the central part of the country is
0.95 CNY/kWh, and that in the east is 1 CNY/kWh. In China, power demand
increases from west to east, but the amount of solar radiation decreases. Thus,
their scheme aims to prevent a mismatch between the amount of installed solar
power generation and power demand. If Japan were to similarly set different
purchase prices according to electricity demand and natural resource endowment
in each region, the mismatch problem would become less of an issue.
398
W. Zhou et al.