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Speaker 1: This is Tom Rowland's Reese and you're listening to Switched

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Speaker 1: on the BNF podcast. Today we're discussing the Japanese power market,

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Speaker 1: a market which, as one of our guests boldly claims,

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Speaker 1: could be the most important power market in the world.

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Speaker 1: Since the Fukushima disaster and its entire nuclear power fleet

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Speaker 1: being shut down, the Japanese power market has continued to

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Speaker 1: face our host of challenges, not only natural disasters, but

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Speaker 1: the global energy crisis and more extreme periods of weather.

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Speaker 1: To many, this may seem unattractive or too challenging, and

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Speaker 1: yet the world's third largest liberalized power market has been

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Speaker 1: attracting more attention from foreign investors than ever. While Japanese

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Speaker 1: power demand has been in decline in recent years, we

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Speaker 1: are now seeing this trend reverse with new data centers

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Speaker 1: and semiconductor manufacturing plants connecting to the grid. With these

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Speaker 1: comes the need for further power sources. Utility scale renewables

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Speaker 1: such as wind and solar would be a natural fit

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Speaker 1: for most in this situation, but as we are to

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Speaker 1: discuss today, land constraints and local factors opposing their own

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Speaker 1: set of challenges For these two to discuss, the Japanese

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Speaker 1: power market further. Today, I'm joined by two of BNF's

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Speaker 1: Global Power Market's Teamly it's Mariko O'Neil and Yumi Kim,

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Speaker 1: to review findings from the report Japan Power Market Outlook

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Speaker 1: too H twenty twenty four Tailwinds Ahead. BNF clientsill be

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Speaker 1: able to access this and other related research at BNF

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Speaker 1: go on the Bloomberg terminal and at BNF dot com. Now,

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Speaker 1: let's talk to Marico and Num about the Japanese power market.

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Speaker 1: So I'm joined here today by Mariko. Mariko, thank you

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Speaker 1: for joining.

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Speaker 2: Thanks for having me, and Yumi.

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Speaker 3: Thanks a lot for inviting me too.

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Speaker 1: So we're talking about the Japanese power market. First off,

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Speaker 1: there's a lot of interest in it right now. It

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Speaker 1: seems to be a hot topic, not just in Japan

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Speaker 1: but around the power world. So why is it that

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Speaker 1: everyone's talking about Japan right now?

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Speaker 2: Yeah, good question. So this might be controversial, but I

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Speaker 2: think there's an argument to be made that the Japanese

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Speaker 2: power market might be the biggest power market in the

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Speaker 2: world never And we can get into sort of like

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Speaker 2: all the parameters of whether it is or it isn't later,

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Speaker 2: But in terms of why now, Japan has been slowly

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Speaker 2: but surely liberalizing its power market over the past couple

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Speaker 2: of decades, and its efforts really accelerated after twenty eleven

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Speaker 2: and when they had to remove nuclear capacity from the

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Speaker 2: grid after Fukushima. So you could say that it was

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Speaker 2: properly liberalized in twenty sixteen, and since then trading volumes

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Speaker 2: have been climbing. And given that it's an island with

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Speaker 2: no almost no natural resources and almost entirely dependent on

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Speaker 2: fuel imports, there's been a lot of interest sort of

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Speaker 2: across the commodities space on what's going on in the

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Speaker 2: Japanese power system.

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Speaker 1: So, actually, I mean on this topic, you both spoke

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Speaker 1: at a seminar that we held in our Tokyo office

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Speaker 1: quite recently after releasing the Japan Power Market Outlook, and

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Speaker 1: it was part of Japan Power Week, which I presume

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Speaker 1: is like a bigger thing where everyone is coming in.

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Speaker 1: So how much of the people in the room there

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Speaker 1: would you say were people who do their business in

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Speaker 1: Japan versus global companies.

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Speaker 2: Yeah, at the moment, it's quite a nice, almost straight

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Speaker 2: down the middle, half and half split, i'd say, of

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Speaker 2: market participants, with half of them being domestic Japanese players,

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Speaker 2: and then the other half being from everywhere from Sydney

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Speaker 2: to Singapore to Hamburg to Chicago. So that's been quite international.

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Speaker 2: One of the things about Japan having liberalized its power

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Speaker 2: market more recently is that those who've been involved in

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Speaker 2: the US or European power markets are looking at it

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Speaker 2: and thinking, I can play the same game or a

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Speaker 2: similar game to what I did in the US or

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Speaker 2: in Europe in Japan.

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Speaker 1: So just before we started recording, I was talking about

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Speaker 1: my cats. I adopted two kittens recently, and one of

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Speaker 1: the things that my wife said, and she'd never had cats,

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Speaker 1: was a surprise to her, is that if you didn't

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Speaker 1: know cats, you'd think they're all the same, and when

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Speaker 1: you have them, you realize they have distinct personalities. So

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Speaker 1: liberalized power markets, you know, and you mentioned that people

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Speaker 1: who are familiar with liberalised power markets see japan'ze here

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Speaker 1: is a power market that is becoming more like what

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Speaker 1: I'm used to. But just like a cat, the Japanese

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Speaker 1: power market must have its own personality. So what are

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Speaker 1: the characteristics that define the Japanese power market as distinct

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Speaker 1: from the others that we're used to.

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Speaker 2: One of the things might be like geography. So, as

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Speaker 2: I mentioned, Japan is an island with no electrical interconnections

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Speaker 2: to any other country, so in that sense, it's quite

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Speaker 2: self contained. Those people who've been involved in Europe or

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Speaker 2: the US, this might be a bit different to them,

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Speaker 2: where there's a bit of interconnection between different markets. Another

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Speaker 2: thing is that it's sort of like a very long

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Speaker 2: and thin island, you could say, so in terms of

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Speaker 2: climate and weather, you have subarctic regions like hock Guido

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Speaker 2: in the north, all the way down to subtropical regions

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Speaker 2: like Qushu in the south, with really different climates throughout

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Speaker 2: the year, which obviously affects electricity consumption or what I

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Speaker 2: guess we call power demand. And another thing actually that

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Speaker 2: is a very particular quirk is that the grid is

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Speaker 2: essentially split into two. So East Japan, which is composed

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Speaker 2: of the region's hock Guide or Tohoko and Tokyo, is

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Speaker 2: on fifty hertz, and then West Japan, composed of the

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Speaker 2: six other power regions of Japan, is on sixty hurts,

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Speaker 2: and there's very little transformer capacity between the two, which

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Speaker 2: makes it sort of a tale of two cities.

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Speaker 3: You could say, Yeah, I'd also like to add that

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Speaker 3: the fuels market in Japan is quite unique because, as

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Speaker 3: Marco said, Japan is quite important dependent. It doesn't have

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Speaker 3: a lot of natural resources within that country. So when

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Speaker 3: we look at the normal power mix in Japan, there's

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Speaker 3: almost a fifty to fifty split between call and gas,

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Speaker 3: and within those fuel technologies, there's quite complicated contract structure

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Speaker 3: compared to markets like Europe and US. So that's another

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Speaker 3: feature in Japan that's quite unique to the market.

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Speaker 1: We're going to talk about that, that sort of the

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Speaker 1: complexities of the spot versus contract markets, because I think

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Speaker 1: that is something to understand the Japanese paner market you

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Speaker 1: have to really understand as much as the power dynamics.

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Speaker 1: But just generally on this point around fuels all being imported,

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Speaker 1: does that translate to relatively expensive power in Japan, then, I'd.

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Speaker 3: Say so to a certain extent. In Japan because as

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Speaker 3: we highlighted, it has to import almost all of its fuel.

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Speaker 3: That's particularly true for gas because gas prices tend to

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Speaker 3: be more expensive than cool So unlike US, where it

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Speaker 3: has a huge capacity of domestic gas procurement, like Japan

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Speaker 3: has to really quite a lot on the spot procurement

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Speaker 3: and also the long term contracts from other countries like

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Speaker 3: Middle East and also US, so all of that costs

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Speaker 3: is translated into higher power prices in Japan.

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Speaker 1: So we have an island kind of divided into sort

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Speaker 1: of two islands. We could say a fifty hertz and

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Speaker 1: a sixty hertz island. Could we just explain quickly for listeners,

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Speaker 1: why are there two different grids with different frequencies?

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Speaker 3: They have a different frequency when it comes to grid

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Speaker 3: because Japan's powermark used to be dominated by nine incombine utilities,

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Speaker 3: so they used to have control over generation, transmission and

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Speaker 3: operation and also the retail side. So because it was

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Speaker 3: basically a monopoly of those nine incombineutilities, they had very

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Speaker 3: little incentive to cooperate with each other because they kept

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Speaker 3: control over specific power regions. But because Japan now faced

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Speaker 3: the regulation of the power markets, now obviously they have

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Speaker 3: to cooperate more. But unfortunately, because of this historical legacy

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Speaker 3: of incombine utilities, the greed system is not as holistic

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Speaker 3: as we want to be.

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Speaker 1: So we have this thin island with very diverse weather,

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Speaker 1: not a lot of its own natural resources, and relatively

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Speaker 1: expensive imported fuel, and then we know that if those

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Speaker 1: are the equations you're dealing with, maybe a logical thing

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Speaker 1: would be nuclear. And obviously nuclear has had a rollercoaster

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Speaker 1: of a story in Japan. Could you tell us where

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Speaker 1: we are right now? Give it maybe a little bit

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Speaker 1: of a background into the history of it, but could

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Speaker 1: you tell us what the current dynamic sell when it

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Speaker 1: relates to nuclear.

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Speaker 2: Yeah, so funny that you asked this bit. So in

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Speaker 2: twenty eleven, after the Mount Dan up for Kushuma, Japan

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Speaker 2: turned off all of its nuclear reactors for power generation,

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Speaker 2: so it went from having significant chunk of power generation

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Speaker 2: being nucleared to none and thankfully, actually there were limited

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Speaker 2: blackouts because they had pretty strong contingency plans for other

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Speaker 2: sources of power. But it has meant that obviously they've

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Speaker 2: substituted a lot of nuclear generation with gas and coal generation.

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Speaker 2: And since twenty eleven there's been a big effort to

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Speaker 2: restart some of the reactors. So they want to basically

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Speaker 2: check all of the nuclear reactors to make sure they're

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Speaker 2: safe to operate and in the event of anything like

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Speaker 2: an earthquake or another tsunami, there is a sufficient backup

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Speaker 2: plan in place to ensure everyone's safety, and they've restarted

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Speaker 2: a handful, particularly in West Japan, so I think nuclear

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Speaker 2: generation last year was just shy of ten percent of

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Speaker 2: power generation in Japan. However, they have set quite ambitious

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Speaker 2: targets for restarting the nuclear fleet, So because of its

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Speaker 2: role as sort of cheap, marginal cost and low carbon

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Speaker 2: source of power generation, Japan wants to have twenty to

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Speaker 2: twenty two percent of its power generation coming from nuclear

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Speaker 2: by twenty thirty. However, the process of restarting the reactors

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Speaker 2: has been really slow and riddled with delays, and actually

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Speaker 2: the first nuclear reactor in East Japan has restarted since

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Speaker 2: twenty eleven, so if you think about that, that's taken

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Speaker 2: over thirteen years to restart that reactor. And based on

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Speaker 2: our recent analysis, actually even if Japan were to restart

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Speaker 2: all of the reactors that have applied to its Nuclear

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Speaker 2: Regulation Authority for approval to restart, it still wouldn't hit

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Speaker 2: this twenty thirty target of having over a fifth of

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Speaker 2: its power generation coming from nuclear. So it is kind

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Speaker 2: of stuck in a tricky position because obviously, even if

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Speaker 2: the government would like to emphasize nuclear as a source

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Speaker 2: of clean and low cost power generation. It's extremely politically contentious,

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Speaker 2: and there's very little control of an independent regulator deciding

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Speaker 2: whether or not a reactor is safe to restart. So

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Speaker 2: that's sort of the whole pickle with nuclear power.

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Speaker 1: That's really interesting, And I would have just thought that

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Speaker 1: in this scenario that the natural next question would be

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Speaker 1: why aren't we seeing a huge increase in the buildout

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Speaker 1: of renewables, whether it's wind or solar. Seems like a

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Speaker 1: market primed for that, But they're not. I mean, I

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Speaker 1: don't know what the numbers are. Am I right in

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Speaker 1: saying they're not actually a huge part of the film mix?

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Speaker 3: Yeah, you're right that for solar and wind products, it's

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Speaker 3: taking quite a bit of time in Japan to be developed,

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Speaker 3: and that's because of relatively high cost of development compared

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Speaker 3: to other countries. And the main reason is that Japan

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Speaker 3: there's quite a lot of mountains, so it's really difficult

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Speaker 3: to build large scale solar products, for example, within its

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Speaker 3: land and that's why it's been pretty expensive to generate

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Speaker 3: from renewable sources. And that provides a reason why Japan's

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Speaker 3: government wants source focus on nuclear products by restarting them,

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Speaker 3: because it's less expensive compared to building new large scale

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Speaker 3: solar and wind products in Japan. But even with those

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Speaker 3: slower build out of solar and wind products in Japan,

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Speaker 3: we're starting to see quite a lot of latility when

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Speaker 3: it comes to power price dynamics because there's still quite

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Speaker 3: a bit of solar products coming in in certain regions

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Speaker 3: like qu in the down South, and that's causing some

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Speaker 3: interesting power price dynamics, like we're seeing much lower prices

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Speaker 3: during the midday when more solar products tends to generate

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Speaker 3: electricity together.

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Speaker 1: And I mean your point around the sort of the

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Speaker 1: geography is taken, you know, the mountainous aspects, are we

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Speaker 1: seeing significant uptake of rooftop solar.

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Speaker 3: There's quite a lot of share of roof puff solar

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Speaker 3: because of the same issue that we highlighted earlier, because

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Speaker 3: of a lot of mountains hindering large scale utility solar.

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Speaker 3: So we're seeing a lot of top solar products being

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Speaker 3: built on top of residential properties, and that tends to

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Speaker 3: take up a lot of share in Japan's solar product capacity.

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Speaker 4: Got it.

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Speaker 1: So if we're thinking solar in Japan, probably our starting

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Speaker 1: point is rooftop solar, right interesting, and then we alluded

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Speaker 1: to it earlier, but the sort of the situation when

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Speaker 1: it comes to fuel is a little bit complicated. And

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Speaker 1: this is a market dynamic that is maybe I'd be

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Speaker 1: wrong set it's unique to Japan, but it's not something

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Speaker 1: you see in every market, and you do see it

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Speaker 1: in Japan. I know, you me, You've spent a lot

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Speaker 1: of time trying to figure this out. But when we're

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Speaker 1: thinking about power market dynamics, obviously a thing we always

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Speaker 1: think about is what is the fuel price? And in

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Speaker 1: a lot of markets as easy, you know, because whether

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Speaker 1: it's gas or coal, there's pretty liquid market with prices

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Speaker 1: that are constantly reported, and so it's very easy to

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Speaker 1: sort of relate what's going on power markets to that.

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Speaker 1: It's not quite so simple in Japan. So can you

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Speaker 1: just explain a little bit why it's not quite so simple?

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Speaker 2: Sure?

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Speaker 3: I do think that the fuel's market and Japan is

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Speaker 3: very unique, and sometimes it can be causing a lot

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Speaker 3: of headache to the traders. It is quite complicated, and

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Speaker 3: that's because it has made two ways of procurement. And

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Speaker 3: first of all, the fuels can come from a spot

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Speaker 3: market or the currently traded market where utilities can buy

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Speaker 3: fuels on the spot or relatively for a short shorter

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Speaker 3: period of time, and then there's another procurement method for

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Speaker 3: long term contracts and for Japan's gas market, oftentimes those

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Speaker 3: long term contracts are indexed to oil prices like Brent,

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Speaker 3: and those deals can last up to almost fifteen to

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Speaker 3: twenty years. When I started covering this sector, it didn't

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Speaker 3: seem very obvious why long term contract guess would be

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Speaker 3: indexed to oil, and that seemed very random to me.

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Speaker 3: And actually there's quite a bit of long history behind

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Speaker 3: this because the utility started indexing long term contract to

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Speaker 3: oil back in eighties and nineties and that's when Japanese

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Speaker 3: utility started inputting gas to using the power sector. And

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Speaker 3: back then is used oil indexes to price that because

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Speaker 3: they are more familiar with the oil pricing and that

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Speaker 3: could give more stability in terms.

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Speaker 2: Of price outlook.

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Speaker 3: So fast forward, even today, a lot of the procurement

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Speaker 3: are still based on this kind of long term contract

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Speaker 3: gas prices index to oil and it can take up

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Speaker 3: around almost ninety percent of Japan's gas procurement currently. Even

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Speaker 3: for coal, it does have a quite complicated structure. It

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Speaker 3: both has spot and contract market to it, But for

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Speaker 3: coal it's less complicated because contract coal prices are index

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Speaker 3: to spot core prices, so it's easier compared to gas

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Speaker 3: market in Japan.

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Speaker 1: I remember you were telling me the other day that

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Speaker 1: the rules have changed recently about when say, if you're

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Speaker 1: a gas generator you're placing your bids in the power market,

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Speaker 1: what you should treat as your underlying fuel price. So

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Speaker 1: what are those rule changes and what led to those

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Speaker 1: rule changes happening?

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Speaker 3: Sure, so when it comes to power prices, you can

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Speaker 3: imagine that that's determined why utilities bidding into the wholesale

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Speaker 3: power market. And that's the biggest driver for that is

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Speaker 3: the marginal cost of generation or the fuel procurement costs

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Speaker 3: for these utilities. And as I just explained, because there's

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Speaker 3: a huge component of long term contract gas prices in

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Speaker 3: gas procurement, you two ties used to calculate those beasts

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Speaker 3: almost based on their long term contract gas prices. And

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Speaker 3: then like in the recent few years, there has been

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Speaker 3: more volatility in the spot gas market, and then the

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Speaker 3: utilities realized that they could resell the cargoes that they

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Speaker 3: procure from the long term contract market to the spot

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Speaker 3: gas market when there's such an opportunity, and then that

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Speaker 3: caused a huge spike in the power market because utwoties

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Speaker 3: were more incentivized to sell gas rather than to use

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Speaker 3: it to burn gas at their gas generation fleet. So

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Speaker 3: then Japanese government decided to revise the guideline in terms

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Speaker 3: of how the utilities calculate those bidding costs. And nowadays,

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Speaker 3: after twenty twenty and twenty one, now the youtuities tend

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Speaker 3: to reflect more spot gas prices in their beating costs,

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Speaker 3: and to a certain extent that has raised the power

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Speaker 3: prices in Japan. But also for you tities, now they

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Speaker 3: don't have to resolve gas in the spot market when

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Speaker 3: there's such a spike in the gas prices.

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Speaker 1: This is interesting if we take a step back, what

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Speaker 1: you've just described to me in totality seems like an

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Speaker 1: example of a market going from this very regulated world

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Speaker 1: of you know, regulated monopolies, bilateral contracts doing what is

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Speaker 1: need to sort of keep the lights on, and then

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Speaker 1: trying to transition towards a very liquid, liberalized market. And

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Speaker 1: it seems like this sort of thing are kind of

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Speaker 1: some of the I don't know whether you would want

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Speaker 1: to call it growing pains that you hit along the

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Speaker 1: way where suddenly there are things happening that seem very

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Speaker 1: contradictory and complexity because you're going from one system that's

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Speaker 1: very simple to another system that's very simple. But in

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Speaker 1: the middle of that transition you have complexity. And that

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Speaker 1: seems to me part of what's going on here in

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Speaker 1: Japan right now. What makes it an interesting market is

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Speaker 1: that it's not fully there yet in terms of being

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Speaker 1: a liberalized power market.

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Speaker 2: I think I think you're right, it's sort of a

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Speaker 2: long road. And I would say, given sort of some

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Speaker 2: of the geographic constraints that we've discussed, energy cost and

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Speaker 2: energy security is obviously a big concern for regulators, and

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Speaker 2: I think it makes them quite risk averse to move

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Speaker 2: too quickly. Obviously, like the electricity grid is such a

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Speaker 2: complicated thing, and you know, finding yourself at any moment

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Speaker 2: a little bit short of power can really lead to disaster.

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Speaker 2: And so, you know, I mentioned that it has been

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Speaker 2: liberalizing for several decades, and we sort of assume that

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Speaker 2: the reforms will, you know, continue.

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Speaker 1: So, speaking of being worried about keeping the lights on,

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Speaker 1: everywhere in the world, when we talk about power, there

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Speaker 1: is always a question about Ai data centers, And I

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Speaker 1: know this is something that you looked at in the

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Speaker 1: recent Japan power market outlook. So we've talked about this

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Speaker 1: really tight power market, you know, particularly with the historical

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Speaker 1: retirements of nuclear and then it being very load to

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Speaker 1: bring them back, and then on top of that, users

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Speaker 1: to say, oh, there's a new source of demand in

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Speaker 1: the form of data centers. Is that a going to

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Speaker 1: be a major part of this story in Japan?

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Speaker 2: Yeah, So I guess that there are a couple of

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Speaker 2: components to this query about the recent boom in AI technologies.

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Speaker 2: The main one is around data centers and basically the

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Speaker 2: build out of these data centers that are really energy intensive,

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Speaker 2: and to what extent is that going to strain the grid.

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Speaker 2: Having looked at basically what's in the pipeline in Japan,

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Speaker 2: it looks like most of the data centers that will

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Speaker 2: be coming online in the next couple of years will

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Speaker 2: be in areas that already have really high power demand,

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Speaker 2: so very populous areas like Tokyo and Orsaka, which is

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Speaker 2: in the Kansai area. And there's a question, I guess,

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Speaker 2: when you're looking a little bit further out as to

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Speaker 2: whether that will continue to be the trend. So having

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Speaker 2: demand concentrated in certain areas is not ideal for Japan because,

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Speaker 2: for example, the less populous areas of how I Do

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Speaker 2: and Qsu have a lot of renewable generation. There's a

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Speaker 2: lot of power supply there, but not a lot of demand.

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Speaker 2: And then you know, when you get into Orsaka, Tokyo,

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Speaker 2: you have a lot of power demand but not so

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Speaker 2: much power supply, let alone clean power supply and new

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Speaker 2: AI technologies like training large language models, doesn't have as

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Speaker 2: much of a need to be close to the end

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Speaker 2: user so close to big cities. So that's sort of

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Speaker 2: an open question, I guess as we look a little

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Speaker 2: bit longer term. But the other facet of it in

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Speaker 2: Japan is that the government has big ambitions to make

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Speaker 2: Japan a bit of a powerhouse in terms of the

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Speaker 2: supply chain and in particular for semiconductor manufacturing, so it

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Speaker 2: has quite generous subsidies for companies looking to open semiconductor

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Speaker 2: fabs or fabrication plants we call them. And the tricky

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Speaker 2: thing with those, I guess, is that a lot of

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Speaker 2: these technology companies, be it for the data centers or

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Speaker 2: the semiconductor manufacturing, have quite ambitious climate targets as well,

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Speaker 2: even though their processes really require around the clock power.

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Speaker 2: And so this is kind of something that has also

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Speaker 2: been reopened the nuclear question in Japan because obviously wind

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Speaker 2: and solar is intermittent and only generates power when the

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Speaker 2: sun is shining or the wind is blowing. But there

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Speaker 2: are lots of market entrants, particularly given recent geopolitical risks,

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Speaker 2: that are looking to open facilities in Japan that need

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Speaker 2: to consume a lot of power out of twenty four

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Speaker 2: to seven around the clock basis, while also meeting company

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Speaker 2: wide targets to have that be carbon free. And so

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Speaker 2: there's been a lot of attention on nuclear as that

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Speaker 2: low carbon, around the clock source of power. But also

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Speaker 2: the government I suppose, has been trying to promote some

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Speaker 2: of these facilities to be in those areas like cock

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Speaker 2: Guide or Qushu that have a lot of renewable power.

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Speaker 2: Water is also an important question. So yeah, those are

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Speaker 2: some of I guess the variables at play when it

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Speaker 2: comes to AI. But in the sort of like next

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Speaker 2: couple of years, we looked at the data centers that

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Speaker 2: will probably come online, and I think in terms of prices,

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Speaker 2: it won't really do that much. There's not a huge

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Speaker 2: amount I think in the pipeline, and some of us

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Speaker 2: scenarios are seeing like a plus minus one percent I

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Speaker 2: think change in power prices over the coming couple of years.

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Speaker 2: So yeah, I wouldn't I wouldn't get too over excited

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Speaker 2: about it in the near term, but there are a

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Speaker 2: bit more uncertainties when we look further into the future.

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Speaker 1: So beyond the next two years, we don't think it's

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Speaker 1: going to make too much of a difference. But beyond that,

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Speaker 1: there's a lot of you know, it starts getting into scenarios,

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Speaker 1: you know, rather than as actually be able to say,

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Speaker 1: because like what you've just described, there is quite a

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Speaker 1: lot of different dynamic questions that, like, you know, and

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Speaker 1: that kind of leads you back to geopolitical considerations, which

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Speaker 1: are obviously extremely difficult to predict.

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Speaker 2: Yeah.

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Speaker 1: Interesting, I suppose it sort of leads me to this question,

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Speaker 1: which I have asked before and I'm going to ask

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Speaker 1: it again. It seems like Japan is not privileged when

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Speaker 1: it comes to the energy transition. The geography. It means

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Speaker 1: it's not that easy to build renewables there. It doesn't

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Speaker 1: have its own domestic sources of fuel, nuclear has a

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Speaker 1: problematic history in Japan, and you know there are efforts

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Speaker 1: to try and address that and still make the best

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Speaker 1: of nuclear, but not just from an energy transition point

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Speaker 1: of view, but just from an energy strategy point of view.

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Speaker 4: What options does Japan have given all of this? There

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Speaker 4: doesn't seem to be an easy option for Japan. So

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Speaker 4: am I wrong?

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Speaker 1: There is there an easy option? And if there isn't

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Speaker 1: an easy option, what do you think the strategy should be?

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Speaker 1: So really put you on the spot here. Obviously, you know,

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Speaker 1: hopefully the Japanese government is listening intently.

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Speaker 4: Were like, you, me and Mariko, what's the answer?

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Speaker 2: I think, honestly, it might take a sort of reframing maybe.

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Speaker 2: I think, you know, you mentioned earlier about when you

433
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Speaker 2: know kats you kind of realize how different niache Cat

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Speaker 2: is and so like in that vein, I think maybe

435
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Speaker 2: some of the frameworks that we use to think about

436
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Speaker 2: de carbonization solutions that optimize for things like costs in

437
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Speaker 2: other countries are maybe we have to think about them

438
00:22:58,800 --> 00:23:02,000
Speaker 2: a little bit differently when it seems like every option

439
00:23:02,119 --> 00:23:06,600
Speaker 2: is a little bit tricky, and this difficulty has led

440
00:23:06,600 --> 00:23:11,040
Speaker 2: the government to somewhat unconventional places. So, for example, one

441
00:23:11,080 --> 00:23:13,280
Speaker 2: of the things that is being promoted at the moment

442
00:23:13,480 --> 00:23:18,000
Speaker 2: is sort of co firing of coal with hydrogen or ammonia, which,

443
00:23:18,240 --> 00:23:22,040
Speaker 2: on balance, we think, based on the actual abatement possibilities

444
00:23:22,040 --> 00:23:24,879
Speaker 2: of those technologies as well as the cost, doesn't really

445
00:23:24,920 --> 00:23:27,840
Speaker 2: make sense, and it doesn't really help on the sort

446
00:23:27,880 --> 00:23:31,600
Speaker 2: of energy security or import dependence side of things either.

447
00:23:31,760 --> 00:23:34,800
Speaker 2: But I think, like taking a step back, even before

448
00:23:35,080 --> 00:23:38,600
Speaker 2: decarbonization really became a priority, I guess things were never

449
00:23:38,720 --> 00:23:41,760
Speaker 2: really easy for Japan. It's always had sort of the

450
00:23:41,800 --> 00:23:44,920
Speaker 2: fault lines being a risk for nuclear, and it never

451
00:23:45,000 --> 00:23:47,399
Speaker 2: had coal or gas, so it was paying a higher

452
00:23:47,440 --> 00:23:50,760
Speaker 2: price for a lot of things than some of its neighbors.

453
00:23:50,880 --> 00:23:53,879
Speaker 2: So I think rather than having that be a reason

454
00:23:54,080 --> 00:23:57,200
Speaker 2: to give up on things like renewables, it might be

455
00:23:57,320 --> 00:23:59,600
Speaker 2: more of a reason to double down on some of

456
00:23:59,640 --> 00:24:01,520
Speaker 2: those things that look difficult.

457
00:24:01,920 --> 00:24:04,800
Speaker 1: Right. It's it's because I mean we were speaking earlier

458
00:24:04,840 --> 00:24:09,000
Speaker 1: about how I used to think that Japanese people, you know,

459
00:24:09,040 --> 00:24:11,399
Speaker 1: in my ownivity, this is like a decade of Japanese

460
00:24:11,400 --> 00:24:14,560
Speaker 1: people just inherently more energy efficient. Well, in reality, it's

461
00:24:14,640 --> 00:24:17,280
Speaker 1: like you're in an island that has an expensive electricity.

462
00:24:17,359 --> 00:24:20,560
Speaker 4: By necessity, you have to use energy in a more

463
00:24:20,640 --> 00:24:21,400
Speaker 4: mindful way.

464
00:24:21,560 --> 00:24:23,800
Speaker 1: So is what you're saying there that in all of

465
00:24:23,840 --> 00:24:27,960
Speaker 1: these things, whether it's nuclear, renewables, fossil fuels, it has

466
00:24:28,000 --> 00:24:32,440
Speaker 1: to be just done in an extremely smart and targeted way,

467
00:24:32,480 --> 00:24:35,720
Speaker 1: and we may see certain innovations on, you know, making

468
00:24:36,200 --> 00:24:38,119
Speaker 1: more out of what Japan has.

469
00:24:38,680 --> 00:24:40,960
Speaker 2: Exactly. Yeah, I mean, at least that's sort of what

470
00:24:41,080 --> 00:24:41,480
Speaker 2: I think.

471
00:24:42,800 --> 00:24:45,359
Speaker 3: I think you Tommy, you raised a really good point

472
00:24:45,520 --> 00:24:49,960
Speaker 3: about Japan facing challenges when it comes to cheap energy,

473
00:24:50,119 --> 00:24:54,240
Speaker 3: clean energy, but also security of electricity. And for Japan,

474
00:24:54,560 --> 00:24:57,439
Speaker 3: as you mentioned, because it's an island nation, it faces

475
00:24:57,480 --> 00:25:01,920
Speaker 3: a particularly difficult challenge around energy security. And that's why

476
00:25:02,280 --> 00:25:06,280
Speaker 3: in the historical period, Japan's Energy Ministry or the METI

477
00:25:06,480 --> 00:25:10,440
Speaker 3: try to prioritize energy security, and I guess that's why

478
00:25:10,440 --> 00:25:14,360
Speaker 3: we're hearing less exciting news when it comes to renewables,

479
00:25:14,359 --> 00:25:17,880
Speaker 3: and they've been I guess somewhat cautious around nuclear restarts

480
00:25:17,920 --> 00:25:21,080
Speaker 3: as well. But even though we're not very positive about

481
00:25:21,160 --> 00:25:24,399
Speaker 3: Japan's ammonia co firing strategy and a lot of different

482
00:25:24,440 --> 00:25:27,280
Speaker 3: renewable strategy that the government has, I think it still

483
00:25:27,320 --> 00:25:30,639
Speaker 3: opens up a debate in terms of what can Japan

484
00:25:30,800 --> 00:25:35,680
Speaker 3: do to decarbonize its energy on top of providing secure electricity.

485
00:25:35,800 --> 00:25:38,840
Speaker 3: So I think there's kind of discussions around nuclear restarts,

486
00:25:38,920 --> 00:25:42,920
Speaker 3: ammonia co firing, and also auctions for different kind of renewables.

487
00:25:42,960 --> 00:25:45,639
Speaker 3: It is a step towards right direction for Japan to

488
00:25:45,800 --> 00:25:48,080
Speaker 3: so we start decarbonizing its power sector.

489
00:25:48,520 --> 00:25:50,800
Speaker 2: Can I just add something which is also on the

490
00:25:50,960 --> 00:25:54,040
Speaker 2: like the points that Ami mentioned, but also on making

491
00:25:54,080 --> 00:25:57,520
Speaker 2: the most of what it has And this obviously could

492
00:25:57,560 --> 00:25:59,879
Speaker 2: open up a whole new episode on grids, But one

493
00:26:00,119 --> 00:26:02,439
Speaker 2: of the ways it can do that is also like

494
00:26:02,560 --> 00:26:05,720
Speaker 2: around transmission capacity. And I know we haven't really gone

495
00:26:05,760 --> 00:26:08,240
Speaker 2: into it in much length today, but there's quite limited

496
00:26:08,240 --> 00:26:10,840
Speaker 2: transmission capacity at the moment in Japan, again for the

497
00:26:10,960 --> 00:26:14,440
Speaker 2: historical legacy reasons that you me mentioned where regional state

498
00:26:14,480 --> 00:26:18,040
Speaker 2: owned utilities didn't really have much incentive to cooperate historically.

499
00:26:18,160 --> 00:26:21,320
Speaker 2: But one of the things that could really help, I suppose,

500
00:26:21,400 --> 00:26:24,200
Speaker 2: into getting more bang for your book. We're already seeing

501
00:26:24,280 --> 00:26:27,359
Speaker 2: solar curtailment or like solar power not being used in

502
00:26:27,359 --> 00:26:29,919
Speaker 2: places like Yushu where there's not much power demand, but

503
00:26:30,000 --> 00:26:33,600
Speaker 2: having really really good grid infrastructure could be one of

504
00:26:33,640 --> 00:26:34,840
Speaker 2: the things that helps.

505
00:26:35,080 --> 00:26:37,359
Speaker 1: And I suppose, you know, going back to the original point,

506
00:26:37,400 --> 00:26:39,359
Speaker 1: because in a way, it sounds like I've kind of

507
00:26:39,400 --> 00:26:41,280
Speaker 1: spun a little bit of a downer here. You know,

508
00:26:42,119 --> 00:26:45,199
Speaker 1: Japan has so many challenges when it comes to energy,

509
00:26:45,359 --> 00:26:48,560
Speaker 1: and when we started with, Japan is the most exciting

510
00:26:48,640 --> 00:26:51,600
Speaker 1: market power market in the world right now. So how

511
00:26:51,640 --> 00:26:53,879
Speaker 1: do we reconcile the two? And I suppose to this

512
00:26:53,960 --> 00:26:58,199
Speaker 1: point around being smart and making the right decisions, is

513
00:26:58,240 --> 00:27:01,560
Speaker 1: this liberalization of the power market which is also bringing

514
00:27:01,560 --> 00:27:04,199
Speaker 1: in a lot of foreign players. You know, it's kind

515
00:27:04,240 --> 00:27:06,399
Speaker 1: of like maybe bringing the best of the world to

516
00:27:06,480 --> 00:27:09,000
Speaker 1: Japan in terms of intelligence. Do you see that these

517
00:27:09,480 --> 00:27:12,200
Speaker 1: things you've just described, that this liberalization of the market

518
00:27:12,240 --> 00:27:15,200
Speaker 1: is a necessary step to enable all of that to happen.

519
00:27:15,680 --> 00:27:19,120
Speaker 2: It's a really interesting question, and at the moment, I'm

520
00:27:19,119 --> 00:27:21,840
Speaker 2: sort of of the opinion that liberalization of the market

521
00:27:21,920 --> 00:27:26,040
Speaker 2: is not the end goal or necessarily the only solution

522
00:27:26,440 --> 00:27:28,719
Speaker 2: to enable a lot of these changes to happen, but

523
00:27:28,760 --> 00:27:31,359
Speaker 2: it might be a necessary intermediate step.

524
00:27:31,840 --> 00:27:35,760
Speaker 3: Coming from Korea, which is completely unliberalized market, I think

525
00:27:35,800 --> 00:27:38,959
Speaker 3: there's a real value to liberalizing the market and bringing

526
00:27:39,000 --> 00:27:42,520
Speaker 3: more participants, because like in countries like Japan, where there's

527
00:27:42,760 --> 00:27:46,080
Speaker 3: in company utilities whose powers are so strong, we can't

528
00:27:46,080 --> 00:27:49,600
Speaker 3: really imagine a lot of innovations to happen if they

529
00:27:49,640 --> 00:27:52,119
Speaker 3: have a lot of generation assets. So I think when

530
00:27:52,160 --> 00:27:54,719
Speaker 3: it comes to energy, we do require some type of

531
00:27:54,760 --> 00:27:57,960
Speaker 3: regulations and so we still need some support from the

532
00:27:58,000 --> 00:28:01,480
Speaker 3: government to decobronize and also by security. But it's a

533
00:28:01,480 --> 00:28:04,760
Speaker 3: good opportunity for Japan to face liberalization and let the

534
00:28:04,840 --> 00:28:07,440
Speaker 3: participants figure out what's best for them.

535
00:28:07,720 --> 00:28:10,119
Speaker 4: It's a really interesting point comparing Japan and Korea.

536
00:28:10,480 --> 00:28:15,840
Speaker 1: Are there other countries in Asia that are starting to

537
00:28:15,920 --> 00:28:19,280
Speaker 1: pursue the path of the Japan is pursuing right now?

538
00:28:19,400 --> 00:28:21,639
Speaker 1: And is Japan in the region the sort of the

539
00:28:21,680 --> 00:28:22,600
Speaker 1: leader on that front.

540
00:28:22,960 --> 00:28:27,399
Speaker 3: I'd say Japan and Australia are the leaders in terms

541
00:28:27,440 --> 00:28:32,520
Speaker 3: of liberalized power market. Government is pursuing that direction, and

542
00:28:32,560 --> 00:28:36,480
Speaker 3: there's also financial products like the futures market that brings

543
00:28:36,480 --> 00:28:42,160
Speaker 3: different competitors. I'd say my next pick might be China.

544
00:28:42,440 --> 00:28:44,840
Speaker 3: And now when it comes to China, it's it used

545
00:28:44,840 --> 00:28:48,880
Speaker 3: to be a very unliberalized market with long term contracts

546
00:28:48,920 --> 00:28:52,320
Speaker 3: instead of the wholesale power market. But Chinese government is

547
00:28:52,360 --> 00:28:56,240
Speaker 3: really pursuing to move towards liberalized direction and it's opening

548
00:28:56,320 --> 00:28:59,719
Speaker 3: up wholesale markets in certain provinces. So I think in

549
00:29:00,120 --> 00:29:03,480
Speaker 3: Kina there are on conversations starting to open in terms

550
00:29:03,520 --> 00:29:07,000
Speaker 3: of what can the government and the participants do. And interestingly,

551
00:29:07,080 --> 00:29:10,120
Speaker 3: when we attended the Japan Power Week a few months ago,

552
00:29:10,240 --> 00:29:13,360
Speaker 3: we did see some Chinese participants coming for our events,

553
00:29:13,360 --> 00:29:16,080
Speaker 3: So I think that really highlights the interests from Chinese

554
00:29:16,160 --> 00:29:17,040
Speaker 3: market as well, and.

555
00:29:17,080 --> 00:29:18,640
Speaker 4: I think Southeast Asia as well.

556
00:29:19,720 --> 00:29:22,120
Speaker 1: This is something that's spoken about, but I think, you know,

557
00:29:22,160 --> 00:29:25,400
Speaker 1: we spoke about Japan has is going on this long

558
00:29:25,480 --> 00:29:29,560
Speaker 1: process of going from very regulated to very much more deregulated,

559
00:29:29,600 --> 00:29:31,520
Speaker 1: and you encounter these bumps along the road, like the

560
00:29:31,560 --> 00:29:35,200
Speaker 1: ones that you'd described earlier, Umi, and it sounds like,

561
00:29:35,600 --> 00:29:37,960
Speaker 1: if you're wanting to understand that some of the challenges

562
00:29:38,000 --> 00:29:40,440
Speaker 1: that other markets in Asia might be facing on going

563
00:29:40,480 --> 00:29:43,480
Speaker 1: on that same journey, maybe Japan is a couple of

564
00:29:43,480 --> 00:29:46,800
Speaker 1: steps ahead. And that's also what makes Japan an exciting

565
00:29:46,800 --> 00:29:50,320
Speaker 1: and interesting market because it's it's sort of maybe leading

566
00:29:50,320 --> 00:29:51,560
Speaker 1: the way for the region.

567
00:29:51,800 --> 00:29:53,720
Speaker 4: Is that a fair statement.

568
00:29:53,600 --> 00:29:55,640
Speaker 3: Yeah, I think so. I think Japan would have a

569
00:29:55,640 --> 00:29:58,120
Speaker 3: lot of trials and errors, which is going to be

570
00:29:58,160 --> 00:30:01,239
Speaker 3: really tough for Japan, Japan's harmarket and also for US

571
00:30:01,440 --> 00:30:03,640
Speaker 3: was analyzing the market. But then it's going to be

572
00:30:03,640 --> 00:30:06,600
Speaker 3: a really good learning experience for Japan, but also other

573
00:30:06,640 --> 00:30:09,120
Speaker 3: countries in APEG that faces liberalization.

574
00:30:09,680 --> 00:30:12,400
Speaker 2: Yeah, I think so. One of my favorite and now

575
00:30:12,440 --> 00:30:15,320
Speaker 2: almost trite subtitles to use when I'm writing about Japan

576
00:30:15,440 --> 00:30:19,120
Speaker 2: is liberalization and transition, and that I think what's been

577
00:30:19,160 --> 00:30:21,120
Speaker 2: really interesting in Japan and that lot a lot of

578
00:30:21,160 --> 00:30:24,000
Speaker 2: other countries will be watching closely, is the fact that

579
00:30:24,080 --> 00:30:26,920
Speaker 2: they really are liberalizing their power market very much at

580
00:30:26,960 --> 00:30:29,360
Speaker 2: the same time as they're trying to decognize it.

581
00:30:29,640 --> 00:30:32,040
Speaker 4: Got it, Mariko, thanks for joining us today.

582
00:30:32,200 --> 00:30:33,720
Speaker 2: Thanks so much for having me, and.

583
00:30:33,720 --> 00:30:35,280
Speaker 4: Youu me, thanks for joining us today.

584
00:30:35,520 --> 00:30:42,840
Speaker 3: Thank you so much for having me too.

585
00:30:45,840 --> 00:30:49,240
Speaker 1: Today's episode of Switchdown was produced by Cam Gray with

586
00:30:49,320 --> 00:30:52,800
Speaker 1: production assistants from Kamala Shelling. Bloomberg ne EF is a

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00:30:52,840 --> 00:30:56,000
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588
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00:30:58,840 --> 00:31:02,760
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