September 23, 2010

New rules stymie investments in wind power


The government’s new system for promoting renewable energy could ironically dampen the enthusiasm of wind power generation companies to build new facilities.

Under the planned system, established power companies will be required to purchase all the electricity generated through renewable sources such as wind and sunlight at prices higher than existing levels.

However, wind power companies have been reluctant to invest in new projects because details have yet to be finalized.

The purchase price of the electricity, for example, a key factor in the decision-making process, has been left somewhere between 15 yen (17 U.S. cents) and 20 yen per kilowatt-hour.

In addition, the government is scaling back subsidies that cover up to half the costs of wind power projects in preparation for shifting to the new system.

Electric Power Development Co. (J-Power) informed the town assembly of Oma, Aomori Prefecture, on Sept. 2 that it would postpone the scheduled March 2013 startup of 10 wind power generators. The company said it failed to receive badly needed subsidies from the Ministry of Economy, Trade and Industry.

In August, the government announced that it would provide subsidies to 33 projects in fiscal 2010. But they included no new wind farms, compared with about 20 in the previous year.

The ministry rejected all eight applications for new projects for the current fiscal year.

“We are shifting to the new system in fiscal 2012 or later. We didn’t adopt new wind power projects because they usually take three years or longer to complete,” a ministry official said.

The Japanese Wind Power Association claims that without subsidies, wind power businesses cannot make profits unless the purchase price is raised to between 20 yen and 24 yen per kilowatt-hour, from the current average of 10.4 yen.

The government is banking on the new system to be its primary tool in efforts to expand the use of natural energy resources. The Democratic Party of Japan included the proposal in its campaign promises for the 2009 Lower House election. The industry ministry is preparing to introduce it in fiscal 2012.

Still, it remains unclear whether the bill for the new system will pass the twisted Diet.

Wind power companies have been hesitant to act because the future direction of the government’s support measures remains unclear.

In fiscal 2009, Chugoku Electric Power Co. clinched only one new contract to buy 1,500 kilowatts of power generated by wind, far below the upper limit of 100,000 kilowatts, through public tender.

Contracts concluded by Kyushu Electric Power Co. in fiscal 2009 also amounted to only one-10th the previous year’s level.

“Companies can’t take much risk if they don’t know how much the purchase price will be,” said Tetsuro Nagata, representative director of the Japanese Wind Power Association.

Once the new system starts, however, it is unlikely that all of the power generated by wind will find a utility willing to buy it.

Since wind power is one of the least stable sources of energy for generating electricity, power companies must place a limit on the amount they depend upon in order to ensure a steady supply of electricity for their customers.

According to the Federation of Electric Power Companies of Japan, the 10 regional electric utilities can accept a total of 5 million kilowatts generated by wind.

Of the total, the amount that can be accepted by the seven utilities in places where strong, steady winds can be expected, such as Hokkaido, Tohoku, and Kyushu, total only 3.685 million kilowatts.

The industry ministry expects that the amount of power generated by wind will increase by 2.8 million to 5.3 million kilowatts over the next 10 years under the new system.

But wind farms capable of producing 2.186 million kilowatts were already in operation as of the end of fiscal 2009.

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