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On 14 May, 2021 the Ministry of Economy, Trade and Industry
(METI) issued a warning that Japan may face further power supply
shortages during this summer and coming winter. The power supply
shortage will be the second time in 2021 after the winter supply
crunch in January this year. The warning indicates a structural
issue within the power sector amid the ongoing energy transition in
Japan.
A sudden supply surge during winter 2020/2021 lead to a
JEPX price rally
On 7 January 2021, the Japan Power Exchange (JEPX) day-ahead
spot price rose above ¥100/kWh. The sudden rise in JEPX has been
caused by a multitude of factors, including a sudden surge in
demand amid a cold winter spell, LNG supply shortage owing to
supply chain (liquefaction capacity and shipping) issues, and a
lack of baseload power supply owing to nuclear outage. The supply
risk was alleviated by maximizing power outputs of regional
generators and captive generators in some instances and the return
of Ohi-4 nuclear reactor in the Kansai region, supported by an
overall rise in temperatures across the region after
mid-January.
Further supply shortages are expected in
2021
The Ministry of Economy, Trade and Industry (METI) issued a
report on 14 May 2021 warning that Japan may face further power
supply shortages during this summer and coming winter. Given the
warmer summer temperatures forecast by the Japan Meteorological
Agency, the Organization for Cross-regional Coordination of
Transmission Operations Japan (OCCTO) has indicated that many
regions may face dangerously low power reserve margin during the
summer months (July-September), particularly in July and August,
when margins are expected to be as low as 3.7% in eight regions in
Japan, excluding Hokkaido and Okinawa. Reserve margins below 4%
have not been recorded since 2017.
An even tighter supply crisis is expected during winter 2021/22,
with reserve margins falling below 3% in many regions during
February 2022. By February 2022, METI estimates that up to 3.7 GW
of thermal power plants will be unavailable as a year-on-year
comparison. Tokyo area is forecasted to be at the highest risk,
with negative reserve margins expected in February and March
2022.
Structural change is needed to support future energy
transition
METI's official power generation data during the peak demand
period suggest that the supply crisis was alleviated by ramping up
old and expensive oil-fired generation. METI is still evaluating
the future measures; however, the current suggested behavioral
changes (a call for power conservation) and shifting of maintenance
periods are only short-term and indirect measures, and a more
fundamental change is needed in the mid- to long term in order to
accommodate the increase in renewables.
Japan will face more challenges going forward as it aims to
achieve net zero by 2050. The long-term target, along with an
additional announcement by Prime Minister Yoshihide Suga to reduce
greenhouse gas emissions by 46% by 2030 (versus 2016 levels) is
forcing Japan to rethink its reliance on thermal generation. As
discussions on the future power mix continues, a coal phaseout
strategy is being evaluated concurrently to target its older, less
efficient coal fleet.
The government is due to announce details of the sixth Basic
Energy Policy this summer, which should include a renewed power mix
target for 2030 and 2040 along with a more detailed road map to
achieve a net-zero economy by 2050.
