Shulman Advisory

The Emergence of Microgrid Development in Japan

In a country prone to natural disasters, one of the government’s preoccupations is to increase the resilience of the grid in case of natural disasters and other emergency situations. The goal is for local grid branches to be physically independent and autonomous from the transmission network in case of emergency and be able to prioritize and supply power to local consumers to keep strategic infrastructure and as many consumers as possible powered during those disasters. This concept is often referred to as a “microgrid,” an independent grid energy system capable of powering its consumption centers independently from the rest of the energy system.

Recent events have demonstrated that the Japanese grid’s resilience could be improved.

In October 2019 a typhoon hit the Kanto region, damaged 2,000 powerline poles, and left 930,000 households in the dark. It took TEPCO 12 days to resolve 99% of the blackout. In 2018 a similar event damaged 1,300 poles in Kansai and left 1.68 million households in the dark. It took Kansai EPCo 5 days to resolve 99% of the blackouts but its call centers couldn’t handle the customers’ requests and local municipalities were in turn impacted by the calls. The Hokkaido Eastern Iburi Eathquake in September 2018 left 2.95 million households without power. Of those, 99% recovered after only 2 days but power saving measures had to be kept in place for weeks.

METI’s Support of Microgrid Development

After the 2019 events, it came to public attention that a microgrid in Mutsuzawa, Chiba Prefecture, had continued providing power to a public housing development and nearby community recreational facilities despite outages surrounding it. The town had established its own electricity retail company and build a distribution grid which can be islanded from TEPCO’s system. It uses PV generation, a gas turbine, and solar water heating systems.

By the end of the year, a subcommittee of METI’s Advisory Committee for Natural Resources and Energy had recommended the creation of a new category of electricity business licensee, a “distribution business operator,” in order to promote the long term proliferation of resilient microgrids across the country. The first draft for the creation of this license was published in June and Shulman Advisory conducted an in-depth analysis of its content in our monthly Market Monitor publication.

A new distribution license will be introduced, opening the power distribution markets to new players that will either build new power lines and equipment or lease existing ones and manage the distribution network. By enabling local and competitive management of the distribution network, the government expects to foster more efficient grid management and the development of new business models. Licensed distributors will be responsible for the power distribution and balance in their service areas and will maintain and operate the distribution infrastructure for 7,000V or less as well as the associated substations. They will consequently have three main tasks: securing stable power distribution and ensuring the quality of the power by managing the power current and frequency (including in case of disaster); billing related tasks such as meter reading and purchase of FIT power; and maintenance and operation of the distribution infrastructure.

With this new system, METI expects that in emergency situations the transmission grid will be disconnected from selected distribution networks that will operate independently and leverage their distributed power sources to continue supplying power in their areas, becoming microgrids. Additionally, it expects that local distribution companies will be better positioned to identify and prioritize consumers with needs for immediate power. This is also expected to improve the efficiency of the power systems on remote islands and allow them to be combined with other infrastructure (hydrogen production and use, for example).

METI has also provided funding under subsidy schemes to innovative projects that aim at developing and testing the technology necessary to implement microgrid systems across the country. Eleven projects were financed in FY2019 and 10 more projects were financed in FY2020. Major companies such as subsidiaries of Sumitomo, NTT and Tokyu are participating in these projects. METI also expects joint ventures of T&Ds and IT companies to join this market. The goal of these projects is also to encourage the involvement of local municipalities and promote public-private partnerships.

An example of what METI is aiming for can be seen in the microgrid project on Miyakojima, an island in Okinawa Prefecture which is nearly 300 kilometers from the main island of Okinawa and which is not connected to the grid linking the archipelago’s more tightly grouped islands. In addition to solar generation, the development includes storage and demand response, and it continues to evolve in scope and sophistication.

The economics in Miyakojima make sense due to the costs Okinawa EPCo has to shoulder in shipping fuel to the island’s baseload power plants. However, economics are still an issue for projects on the Japanese mainland and not something that METI has yet addressed.

Going Forward

There is a real willingness from the Japanese government to push and support projects and technologies that can further increase the number of microgrids in Japan. The development and integration of distributed generation and storage assets and their optimization is at the forefront of these new projects. So is the search for the best way to monetize these assets. This will likely in turn pave the way for the development of virtual power plant systems, demand response, and new business models leveraging these technologies. Local consumption of locally produced power and the development of local power retail entities will also benefit from this trend. We will be watching developments in this area closely and keeping you informed both through this blog as well as through our monthly report.

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