Speaker 1: This is Tom Rowland's Reese and you're listening to Switched
Speaker 1: on the BNF podcast. Today we're discussing the Japanese power market,
Speaker 1: a market which, as one of our guests boldly claims,
Speaker 1: could be the most important power market in the world.
Speaker 1: Since the Fukushima disaster and its entire nuclear power fleet
Speaker 1: being shut down, the Japanese power market has continued to
Speaker 1: face our host of challenges, not only natural disasters, but
Speaker 1: the global energy crisis and more extreme periods of weather.
Speaker 1: To many, this may seem unattractive or too challenging, and
Speaker 1: yet the world's third largest liberalized power market has been
Speaker 1: attracting more attention from foreign investors than ever. While Japanese
Speaker 1: power demand has been in decline in recent years, we
Speaker 1: are now seeing this trend reverse with new data centers
Speaker 1: and semiconductor manufacturing plants connecting to the grid. With these
Speaker 1: comes the need for further power sources. Utility scale renewables
Speaker 1: such as wind and solar would be a natural fit
Speaker 1: for most in this situation, but as we are to
Speaker 1: discuss today, land constraints and local factors opposing their own
Speaker 1: set of challenges For these two to discuss, the Japanese
Speaker 1: power market further. Today, I'm joined by two of BNF's
Speaker 1: Global Power Market's Teamly it's Mariko O'Neil and Yumi Kim,
Speaker 1: to review findings from the report Japan Power Market Outlook
Speaker 1: too H twenty twenty four Tailwinds Ahead. BNF clientsill be
Speaker 1: able to access this and other related research at BNF
Speaker 1: go on the Bloomberg terminal and at BNF dot com. Now,
Speaker 1: let's talk to Marico and Num about the Japanese power market.
Speaker 1: So I'm joined here today by Mariko. Mariko, thank you
Speaker 1: for joining.
Speaker 2: Thanks for having me, and Yumi.
Speaker 3: Thanks a lot for inviting me too.
Speaker 1: So we're talking about the Japanese power market. First off,
Speaker 1: there's a lot of interest in it right now. It
Speaker 1: seems to be a hot topic, not just in Japan
Speaker 1: but around the power world. So why is it that
Speaker 1: everyone's talking about Japan right now?
Speaker 2: Yeah, good question. So this might be controversial, but I
Speaker 2: think there's an argument to be made that the Japanese
Speaker 2: power market might be the biggest power market in the
Speaker 2: world never And we can get into sort of like
Speaker 2: all the parameters of whether it is or it isn't later,
Speaker 2: But in terms of why now, Japan has been slowly
Speaker 2: but surely liberalizing its power market over the past couple
Speaker 2: of decades, and its efforts really accelerated after twenty eleven
Speaker 2: and when they had to remove nuclear capacity from the
Speaker 2: grid after Fukushima. So you could say that it was
Speaker 2: properly liberalized in twenty sixteen, and since then trading volumes
Speaker 2: have been climbing. And given that it's an island with
Speaker 2: no almost no natural resources and almost entirely dependent on
Speaker 2: fuel imports, there's been a lot of interest sort of
Speaker 2: across the commodities space on what's going on in the
Speaker 2: Japanese power system.
Speaker 1: So, actually, I mean on this topic, you both spoke
Speaker 1: at a seminar that we held in our Tokyo office
Speaker 1: quite recently after releasing the Japan Power Market Outlook, and
Speaker 1: it was part of Japan Power Week, which I presume
Speaker 1: is like a bigger thing where everyone is coming in.
Speaker 1: So how much of the people in the room there
Speaker 1: would you say were people who do their business in
Speaker 1: Japan versus global companies.
Speaker 2: Yeah, at the moment, it's quite a nice, almost straight
Speaker 2: down the middle, half and half split, i'd say, of
Speaker 2: market participants, with half of them being domestic Japanese players,
Speaker 2: and then the other half being from everywhere from Sydney
Speaker 2: to Singapore to Hamburg to Chicago. So that's been quite international.
Speaker 2: One of the things about Japan having liberalized its power
Speaker 2: market more recently is that those who've been involved in
Speaker 2: the US or European power markets are looking at it
Speaker 2: and thinking, I can play the same game or a
Speaker 2: similar game to what I did in the US or
Speaker 2: in Europe in Japan.
Speaker 1: So just before we started recording, I was talking about
Speaker 1: my cats. I adopted two kittens recently, and one of
Speaker 1: the things that my wife said, and she'd never had cats,
Speaker 1: was a surprise to her, is that if you didn't
Speaker 1: know cats, you'd think they're all the same, and when
Speaker 1: you have them, you realize they have distinct personalities. So
Speaker 1: liberalized power markets, you know, and you mentioned that people
Speaker 1: who are familiar with liberalised power markets see japan'ze here
Speaker 1: is a power market that is becoming more like what
Speaker 1: I'm used to. But just like a cat, the Japanese
Speaker 1: power market must have its own personality. So what are
Speaker 1: the characteristics that define the Japanese power market as distinct
Speaker 1: from the others that we're used to.
Speaker 2: One of the things might be like geography. So, as
Speaker 2: I mentioned, Japan is an island with no electrical interconnections
Speaker 2: to any other country, so in that sense, it's quite
Speaker 2: self contained. Those people who've been involved in Europe or
Speaker 2: the US, this might be a bit different to them,
Speaker 2: where there's a bit of interconnection between different markets. Another
Speaker 2: thing is that it's sort of like a very long
Speaker 2: and thin island, you could say, so in terms of
Speaker 2: climate and weather, you have subarctic regions like hock Guido
Speaker 2: in the north, all the way down to subtropical regions
Speaker 2: like Qushu in the south, with really different climates throughout
Speaker 2: the year, which obviously affects electricity consumption or what I
Speaker 2: guess we call power demand. And another thing actually that
Speaker 2: is a very particular quirk is that the grid is
Speaker 2: essentially split into two. So East Japan, which is composed
Speaker 2: of the region's hock Guide or Tohoko and Tokyo, is
Speaker 2: on fifty hertz, and then West Japan, composed of the
Speaker 2: six other power regions of Japan, is on sixty hurts,
Speaker 2: and there's very little transformer capacity between the two, which
Speaker 2: makes it sort of a tale of two cities.
Speaker 3: You could say, Yeah, I'd also like to add that
Speaker 3: the fuels market in Japan is quite unique because, as
Speaker 3: Marco said, Japan is quite important dependent. It doesn't have
Speaker 3: a lot of natural resources within that country. So when
Speaker 3: we look at the normal power mix in Japan, there's
Speaker 3: almost a fifty to fifty split between call and gas,
Speaker 3: and within those fuel technologies, there's quite complicated contract structure
Speaker 3: compared to markets like Europe and US. So that's another
Speaker 3: feature in Japan that's quite unique to the market.
Speaker 1: We're going to talk about that, that sort of the
Speaker 1: complexities of the spot versus contract markets, because I think
Speaker 1: that is something to understand the Japanese paner market you
Speaker 1: have to really understand as much as the power dynamics.
Speaker 1: But just generally on this point around fuels all being imported,
Speaker 1: does that translate to relatively expensive power in Japan, then, I'd.
Speaker 3: Say so to a certain extent. In Japan because as
Speaker 3: we highlighted, it has to import almost all of its fuel.
Speaker 3: That's particularly true for gas because gas prices tend to
Speaker 3: be more expensive than cool So unlike US, where it
Speaker 3: has a huge capacity of domestic gas procurement, like Japan
Speaker 3: has to really quite a lot on the spot procurement
Speaker 3: and also the long term contracts from other countries like
Speaker 3: Middle East and also US, so all of that costs
Speaker 3: is translated into higher power prices in Japan.
Speaker 1: So we have an island kind of divided into sort
Speaker 1: of two islands. We could say a fifty hertz and
Speaker 1: a sixty hertz island. Could we just explain quickly for listeners,
Speaker 1: why are there two different grids with different frequencies?
Speaker 3: They have a different frequency when it comes to grid
Speaker 3: because Japan's powermark used to be dominated by nine incombine utilities,
Speaker 3: so they used to have control over generation, transmission and
Speaker 3: operation and also the retail side. So because it was
Speaker 3: basically a monopoly of those nine incombineutilities, they had very
Speaker 3: little incentive to cooperate with each other because they kept
Speaker 3: control over specific power regions. But because Japan now faced
Speaker 3: the regulation of the power markets, now obviously they have
Speaker 3: to cooperate more. But unfortunately, because of this historical legacy
Speaker 3: of incombine utilities, the greed system is not as holistic
Speaker 3: as we want to be.
Speaker 1: So we have this thin island with very diverse weather,
Speaker 1: not a lot of its own natural resources, and relatively
Speaker 1: expensive imported fuel, and then we know that if those
Speaker 1: are the equations you're dealing with, maybe a logical thing
Speaker 1: would be nuclear. And obviously nuclear has had a rollercoaster
Speaker 1: of a story in Japan. Could you tell us where
Speaker 1: we are right now? Give it maybe a little bit
Speaker 1: of a background into the history of it, but could
Speaker 1: you tell us what the current dynamic sell when it
Speaker 1: relates to nuclear.
Speaker 2: Yeah, so funny that you asked this bit. So in
Speaker 2: twenty eleven, after the Mount Dan up for Kushuma, Japan
Speaker 2: turned off all of its nuclear reactors for power generation,
Speaker 2: so it went from having significant chunk of power generation
Speaker 2: being nucleared to none and thankfully, actually there were limited
Speaker 2: blackouts because they had pretty strong contingency plans for other
Speaker 2: sources of power. But it has meant that obviously they've
Speaker 2: substituted a lot of nuclear generation with gas and coal generation.
Speaker 2: And since twenty eleven there's been a big effort to
Speaker 2: restart some of the reactors. So they want to basically
Speaker 2: check all of the nuclear reactors to make sure they're
Speaker 2: safe to operate and in the event of anything like
Speaker 2: an earthquake or another tsunami, there is a sufficient backup
Speaker 2: plan in place to ensure everyone's safety, and they've restarted
Speaker 2: a handful, particularly in West Japan, so I think nuclear
Speaker 2: generation last year was just shy of ten percent of
Speaker 2: power generation in Japan. However, they have set quite ambitious
Speaker 2: targets for restarting the nuclear fleet, So because of its
Speaker 2: role as sort of cheap, marginal cost and low carbon
Speaker 2: source of power generation, Japan wants to have twenty to
Speaker 2: twenty two percent of its power generation coming from nuclear
Speaker 2: by twenty thirty. However, the process of restarting the reactors
Speaker 2: has been really slow and riddled with delays, and actually
Speaker 2: the first nuclear reactor in East Japan has restarted since
Speaker 2: twenty eleven, so if you think about that, that's taken
Speaker 2: over thirteen years to restart that reactor. And based on
Speaker 2: our recent analysis, actually even if Japan were to restart
Speaker 2: all of the reactors that have applied to its Nuclear
Speaker 2: Regulation Authority for approval to restart, it still wouldn't hit
Speaker 2: this twenty thirty target of having over a fifth of
Speaker 2: its power generation coming from nuclear. So it is kind
Speaker 2: of stuck in a tricky position because obviously, even if
Speaker 2: the government would like to emphasize nuclear as a source
Speaker 2: of clean and low cost power generation. It's extremely politically contentious,
Speaker 2: and there's very little control of an independent regulator deciding
Speaker 2: whether or not a reactor is safe to restart. So
Speaker 2: that's sort of the whole pickle with nuclear power.
Speaker 1: That's really interesting, And I would have just thought that
Speaker 1: in this scenario that the natural next question would be
Speaker 1: why aren't we seeing a huge increase in the buildout
Speaker 1: of renewables, whether it's wind or solar. Seems like a
Speaker 1: market primed for that, But they're not. I mean, I
Speaker 1: don't know what the numbers are. Am I right in
Speaker 1: saying they're not actually a huge part of the film mix?
Speaker 3: Yeah, you're right that for solar and wind products, it's
Speaker 3: taking quite a bit of time in Japan to be developed,
Speaker 3: and that's because of relatively high cost of development compared
Speaker 3: to other countries. And the main reason is that Japan
Speaker 3: there's quite a lot of mountains, so it's really difficult
Speaker 3: to build large scale solar products, for example, within its
Speaker 3: land and that's why it's been pretty expensive to generate
Speaker 3: from renewable sources. And that provides a reason why Japan's
Speaker 3: government wants source focus on nuclear products by restarting them,
Speaker 3: because it's less expensive compared to building new large scale
Speaker 3: solar and wind products in Japan. But even with those
Speaker 3: slower build out of solar and wind products in Japan,
Speaker 3: we're starting to see quite a lot of latility when
Speaker 3: it comes to power price dynamics because there's still quite
Speaker 3: a bit of solar products coming in in certain regions
Speaker 3: like qu in the down South, and that's causing some
Speaker 3: interesting power price dynamics, like we're seeing much lower prices
Speaker 3: during the midday when more solar products tends to generate
Speaker 3: electricity together.
Speaker 1: And I mean your point around the sort of the
Speaker 1: geography is taken, you know, the mountainous aspects, are we
Speaker 1: seeing significant uptake of rooftop solar.
Speaker 3: There's quite a lot of share of roof puff solar
Speaker 3: because of the same issue that we highlighted earlier, because
Speaker 3: of a lot of mountains hindering large scale utility solar.
Speaker 3: So we're seeing a lot of top solar products being
Speaker 3: built on top of residential properties, and that tends to
Speaker 3: take up a lot of share in Japan's solar product capacity.
Speaker 4: Got it.
Speaker 1: So if we're thinking solar in Japan, probably our starting
Speaker 1: point is rooftop solar, right interesting, and then we alluded
Speaker 1: to it earlier, but the sort of the situation when
Speaker 1: it comes to fuel is a little bit complicated. And
Speaker 1: this is a market dynamic that is maybe I'd be
Speaker 1: wrong set it's unique to Japan, but it's not something
Speaker 1: you see in every market, and you do see it
Speaker 1: in Japan. I know, you me, You've spent a lot
Speaker 1: of time trying to figure this out. But when we're
Speaker 1: thinking about power market dynamics, obviously a thing we always
Speaker 1: think about is what is the fuel price? And in
Speaker 1: a lot of markets as easy, you know, because whether
Speaker 1: it's gas or coal, there's pretty liquid market with prices
Speaker 1: that are constantly reported, and so it's very easy to
Speaker 1: sort of relate what's going on power markets to that.
Speaker 1: It's not quite so simple in Japan. So can you
Speaker 1: just explain a little bit why it's not quite so simple?
Speaker 2: Sure?
Speaker 3: I do think that the fuel's market and Japan is
Speaker 3: very unique, and sometimes it can be causing a lot
Speaker 3: of headache to the traders. It is quite complicated, and
Speaker 3: that's because it has made two ways of procurement. And
Speaker 3: first of all, the fuels can come from a spot
Speaker 3: market or the currently traded market where utilities can buy
Speaker 3: fuels on the spot or relatively for a short shorter
Speaker 3: period of time, and then there's another procurement method for
Speaker 3: long term contracts and for Japan's gas market, oftentimes those
Speaker 3: long term contracts are indexed to oil prices like Brent,
Speaker 3: and those deals can last up to almost fifteen to
Speaker 3: twenty years. When I started covering this sector, it didn't
Speaker 3: seem very obvious why long term contract guess would be
Speaker 3: indexed to oil, and that seemed very random to me.
Speaker 3: And actually there's quite a bit of long history behind
Speaker 3: this because the utility started indexing long term contract to
Speaker 3: oil back in eighties and nineties and that's when Japanese
Speaker 3: utility started inputting gas to using the power sector. And
Speaker 3: back then is used oil indexes to price that because
Speaker 3: they are more familiar with the oil pricing and that
Speaker 3: could give more stability in terms.
Speaker 2: Of price outlook.
Speaker 3: So fast forward, even today, a lot of the procurement
Speaker 3: are still based on this kind of long term contract
Speaker 3: gas prices index to oil and it can take up
Speaker 3: around almost ninety percent of Japan's gas procurement currently. Even
Speaker 3: for coal, it does have a quite complicated structure. It
Speaker 3: both has spot and contract market to it, But for
Speaker 3: coal it's less complicated because contract coal prices are index
Speaker 3: to spot core prices, so it's easier compared to gas
Speaker 3: market in Japan.
Speaker 1: I remember you were telling me the other day that
Speaker 1: the rules have changed recently about when say, if you're
Speaker 1: a gas generator you're placing your bids in the power market,
Speaker 1: what you should treat as your underlying fuel price. So
Speaker 1: what are those rule changes and what led to those
Speaker 1: rule changes happening?
Speaker 3: Sure, so when it comes to power prices, you can
Speaker 3: imagine that that's determined why utilities bidding into the wholesale
Speaker 3: power market. And that's the biggest driver for that is
Speaker 3: the marginal cost of generation or the fuel procurement costs
Speaker 3: for these utilities. And as I just explained, because there's
Speaker 3: a huge component of long term contract gas prices in
Speaker 3: gas procurement, you two ties used to calculate those beasts
Speaker 3: almost based on their long term contract gas prices. And
Speaker 3: then like in the recent few years, there has been
Speaker 3: more volatility in the spot gas market, and then the
Speaker 3: utilities realized that they could resell the cargoes that they
Speaker 3: procure from the long term contract market to the spot
Speaker 3: gas market when there's such an opportunity, and then that
Speaker 3: caused a huge spike in the power market because utwoties
Speaker 3: were more incentivized to sell gas rather than to use
Speaker 3: it to burn gas at their gas generation fleet. So
Speaker 3: then Japanese government decided to revise the guideline in terms
Speaker 3: of how the utilities calculate those bidding costs. And nowadays,
Speaker 3: after twenty twenty and twenty one, now the youtuities tend
Speaker 3: to reflect more spot gas prices in their beating costs,
Speaker 3: and to a certain extent that has raised the power
Speaker 3: prices in Japan. But also for you tities, now they
Speaker 3: don't have to resolve gas in the spot market when
Speaker 3: there's such a spike in the gas prices.
Speaker 1: This is interesting if we take a step back, what
Speaker 1: you've just described to me in totality seems like an
Speaker 1: example of a market going from this very regulated world
Speaker 1: of you know, regulated monopolies, bilateral contracts doing what is
Speaker 1: need to sort of keep the lights on, and then
Speaker 1: trying to transition towards a very liquid, liberalized market. And
Speaker 1: it seems like this sort of thing are kind of
Speaker 1: some of the I don't know whether you would want
Speaker 1: to call it growing pains that you hit along the
Speaker 1: way where suddenly there are things happening that seem very
Speaker 1: contradictory and complexity because you're going from one system that's
Speaker 1: very simple to another system that's very simple. But in
Speaker 1: the middle of that transition you have complexity. And that
Speaker 1: seems to me part of what's going on here in
Speaker 1: Japan right now. What makes it an interesting market is
Speaker 1: that it's not fully there yet in terms of being
Speaker 1: a liberalized power market.
Speaker 2: I think I think you're right, it's sort of a
Speaker 2: long road. And I would say, given sort of some
Speaker 2: of the geographic constraints that we've discussed, energy cost and
Speaker 2: energy security is obviously a big concern for regulators, and
Speaker 2: I think it makes them quite risk averse to move
Speaker 2: too quickly. Obviously, like the electricity grid is such a
Speaker 2: complicated thing, and you know, finding yourself at any moment
Speaker 2: a little bit short of power can really lead to disaster.
Speaker 2: And so, you know, I mentioned that it has been
Speaker 2: liberalizing for several decades, and we sort of assume that
Speaker 2: the reforms will, you know, continue.
Speaker 1: So, speaking of being worried about keeping the lights on,
Speaker 1: everywhere in the world, when we talk about power, there
Speaker 1: is always a question about Ai data centers, And I
Speaker 1: know this is something that you looked at in the
Speaker 1: recent Japan power market outlook. So we've talked about this
Speaker 1: really tight power market, you know, particularly with the historical
Speaker 1: retirements of nuclear and then it being very load to
Speaker 1: bring them back, and then on top of that, users
Speaker 1: to say, oh, there's a new source of demand in
Speaker 1: the form of data centers. Is that a going to
Speaker 1: be a major part of this story in Japan?
Speaker 2: Yeah, So I guess that there are a couple of
Speaker 2: components to this query about the recent boom in AI technologies.
Speaker 2: The main one is around data centers and basically the
Speaker 2: build out of these data centers that are really energy intensive,
Speaker 2: and to what extent is that going to strain the grid.
Speaker 2: Having looked at basically what's in the pipeline in Japan,
Speaker 2: it looks like most of the data centers that will
Speaker 2: be coming online in the next couple of years will
Speaker 2: be in areas that already have really high power demand,
Speaker 2: so very populous areas like Tokyo and Orsaka, which is
Speaker 2: in the Kansai area. And there's a question, I guess,
Speaker 2: when you're looking a little bit further out as to
Speaker 2: whether that will continue to be the trend. So having
Speaker 2: demand concentrated in certain areas is not ideal for Japan because,
Speaker 2: for example, the less populous areas of how I Do
Speaker 2: and Qsu have a lot of renewable generation. There's a
Speaker 2: lot of power supply there, but not a lot of demand.
Speaker 2: And then you know, when you get into Orsaka, Tokyo,
Speaker 2: you have a lot of power demand but not so
Speaker 2: much power supply, let alone clean power supply and new
Speaker 2: AI technologies like training large language models, doesn't have as
Speaker 2: much of a need to be close to the end
Speaker 2: user so close to big cities. So that's sort of
Speaker 2: an open question, I guess as we look a little
Speaker 2: bit longer term. But the other facet of it in
Speaker 2: Japan is that the government has big ambitions to make
Speaker 2: Japan a bit of a powerhouse in terms of the
Speaker 2: supply chain and in particular for semiconductor manufacturing, so it
Speaker 2: has quite generous subsidies for companies looking to open semiconductor
Speaker 2: fabs or fabrication plants we call them. And the tricky
Speaker 2: thing with those, I guess, is that a lot of
Speaker 2: these technology companies, be it for the data centers or
Speaker 2: the semiconductor manufacturing, have quite ambitious climate targets as well,
Speaker 2: even though their processes really require around the clock power.
Speaker 2: And so this is kind of something that has also
Speaker 2: been reopened the nuclear question in Japan because obviously wind
Speaker 2: and solar is intermittent and only generates power when the
Speaker 2: sun is shining or the wind is blowing. But there
Speaker 2: are lots of market entrants, particularly given recent geopolitical risks,
Speaker 2: that are looking to open facilities in Japan that need
Speaker 2: to consume a lot of power out of twenty four
Speaker 2: to seven around the clock basis, while also meeting company
Speaker 2: wide targets to have that be carbon free. And so
Speaker 2: there's been a lot of attention on nuclear as that
Speaker 2: low carbon, around the clock source of power. But also
Speaker 2: the government I suppose, has been trying to promote some
Speaker 2: of these facilities to be in those areas like cock
Speaker 2: Guide or Qushu that have a lot of renewable power.
Speaker 2: Water is also an important question. So yeah, those are
Speaker 2: some of I guess the variables at play when it
Speaker 2: comes to AI. But in the sort of like next
Speaker 2: couple of years, we looked at the data centers that
Speaker 2: will probably come online, and I think in terms of prices,
Speaker 2: it won't really do that much. There's not a huge
Speaker 2: amount I think in the pipeline, and some of us
Speaker 2: scenarios are seeing like a plus minus one percent I
Speaker 2: think change in power prices over the coming couple of years.
Speaker 2: So yeah, I wouldn't I wouldn't get too over excited
Speaker 2: about it in the near term, but there are a
Speaker 2: bit more uncertainties when we look further into the future.
Speaker 1: So beyond the next two years, we don't think it's
Speaker 1: going to make too much of a difference. But beyond that,
Speaker 1: there's a lot of you know, it starts getting into scenarios,
Speaker 1: you know, rather than as actually be able to say,
Speaker 1: because like what you've just described, there is quite a
Speaker 1: lot of different dynamic questions that, like, you know, and
Speaker 1: that kind of leads you back to geopolitical considerations, which
Speaker 1: are obviously extremely difficult to predict.
Speaker 2: Yeah.
Speaker 1: Interesting, I suppose it sort of leads me to this question,
Speaker 1: which I have asked before and I'm going to ask
Speaker 1: it again. It seems like Japan is not privileged when
Speaker 1: it comes to the energy transition. The geography. It means
Speaker 1: it's not that easy to build renewables there. It doesn't
Speaker 1: have its own domestic sources of fuel, nuclear has a
Speaker 1: problematic history in Japan, and you know there are efforts
Speaker 1: to try and address that and still make the best
Speaker 1: of nuclear, but not just from an energy transition point
Speaker 1: of view, but just from an energy strategy point of view.
Speaker 4: What options does Japan have given all of this? There
Speaker 4: doesn't seem to be an easy option for Japan. So
Speaker 4: am I wrong?
Speaker 1: There is there an easy option? And if there isn't
Speaker 1: an easy option, what do you think the strategy should be?
Speaker 1: So really put you on the spot here. Obviously, you know,
Speaker 1: hopefully the Japanese government is listening intently.
Speaker 4: Were like, you, me and Mariko, what's the answer?
Speaker 2: I think, honestly, it might take a sort of reframing maybe.
Speaker 2: I think, you know, you mentioned earlier about when you
Speaker 2: know kats you kind of realize how different niache Cat
Speaker 2: is and so like in that vein, I think maybe
Speaker 2: some of the frameworks that we use to think about
Speaker 2: de carbonization solutions that optimize for things like costs in
Speaker 2: other countries are maybe we have to think about them
Speaker 2: a little bit differently when it seems like every option
Speaker 2: is a little bit tricky, and this difficulty has led
Speaker 2: the government to somewhat unconventional places. So, for example, one
Speaker 2: of the things that is being promoted at the moment
Speaker 2: is sort of co firing of coal with hydrogen or ammonia, which,
Speaker 2: on balance, we think, based on the actual abatement possibilities
Speaker 2: of those technologies as well as the cost, doesn't really
Speaker 2: make sense, and it doesn't really help on the sort
Speaker 2: of energy security or import dependence side of things either.
Speaker 2: But I think, like taking a step back, even before
Speaker 2: decarbonization really became a priority, I guess things were never
Speaker 2: really easy for Japan. It's always had sort of the
Speaker 2: fault lines being a risk for nuclear, and it never
Speaker 2: had coal or gas, so it was paying a higher
Speaker 2: price for a lot of things than some of its neighbors.
Speaker 2: So I think rather than having that be a reason
Speaker 2: to give up on things like renewables, it might be
Speaker 2: more of a reason to double down on some of
Speaker 2: those things that look difficult.
Speaker 1: Right. It's it's because I mean we were speaking earlier
Speaker 1: about how I used to think that Japanese people, you know,
Speaker 1: in my ownivity, this is like a decade of Japanese
Speaker 1: people just inherently more energy efficient. Well, in reality, it's
Speaker 1: like you're in an island that has an expensive electricity.
Speaker 4: By necessity, you have to use energy in a more
Speaker 4: mindful way.
Speaker 1: So is what you're saying there that in all of
Speaker 1: these things, whether it's nuclear, renewables, fossil fuels, it has
Speaker 1: to be just done in an extremely smart and targeted way,
Speaker 1: and we may see certain innovations on, you know, making
Speaker 1: more out of what Japan has.
Speaker 2: Exactly. Yeah, I mean, at least that's sort of what
Speaker 2: I think.
Speaker 3: I think you Tommy, you raised a really good point
Speaker 3: about Japan facing challenges when it comes to cheap energy,
Speaker 3: clean energy, but also security of electricity. And for Japan,
Speaker 3: as you mentioned, because it's an island nation, it faces
Speaker 3: a particularly difficult challenge around energy security. And that's why
Speaker 3: in the historical period, Japan's Energy Ministry or the METI
Speaker 3: try to prioritize energy security, and I guess that's why
Speaker 3: we're hearing less exciting news when it comes to renewables,
Speaker 3: and they've been I guess somewhat cautious around nuclear restarts
Speaker 3: as well. But even though we're not very positive about
Speaker 3: Japan's ammonia co firing strategy and a lot of different
Speaker 3: renewable strategy that the government has, I think it still
Speaker 3: opens up a debate in terms of what can Japan
Speaker 3: do to decarbonize its energy on top of providing secure electricity.
Speaker 3: So I think there's kind of discussions around nuclear restarts,
Speaker 3: ammonia co firing, and also auctions for different kind of renewables.
Speaker 3: It is a step towards right direction for Japan to
Speaker 3: so we start decarbonizing its power sector.
Speaker 2: Can I just add something which is also on the
Speaker 2: like the points that Ami mentioned, but also on making
Speaker 2: the most of what it has And this obviously could
Speaker 2: open up a whole new episode on grids, But one
Speaker 2: of the ways it can do that is also like
Speaker 2: around transmission capacity. And I know we haven't really gone
Speaker 2: into it in much length today, but there's quite limited
Speaker 2: transmission capacity at the moment in Japan, again for the
Speaker 2: historical legacy reasons that you me mentioned where regional state
Speaker 2: owned utilities didn't really have much incentive to cooperate historically.
Speaker 2: But one of the things that could really help, I suppose,
Speaker 2: into getting more bang for your book. We're already seeing
Speaker 2: solar curtailment or like solar power not being used in
Speaker 2: places like Yushu where there's not much power demand, but
Speaker 2: having really really good grid infrastructure could be one of
Speaker 2: the things that helps.
Speaker 1: And I suppose, you know, going back to the original point,
Speaker 1: because in a way, it sounds like I've kind of
Speaker 1: spun a little bit of a downer here. You know,
Speaker 1: Japan has so many challenges when it comes to energy,
Speaker 1: and when we started with, Japan is the most exciting
Speaker 1: market power market in the world right now. So how
Speaker 1: do we reconcile the two? And I suppose to this
Speaker 1: point around being smart and making the right decisions, is
Speaker 1: this liberalization of the power market which is also bringing
Speaker 1: in a lot of foreign players. You know, it's kind
Speaker 1: of like maybe bringing the best of the world to
Speaker 1: Japan in terms of intelligence. Do you see that these
Speaker 1: things you've just described, that this liberalization of the market
Speaker 1: is a necessary step to enable all of that to happen.
Speaker 2: It's a really interesting question, and at the moment, I'm
Speaker 2: sort of of the opinion that liberalization of the market
Speaker 2: is not the end goal or necessarily the only solution
Speaker 2: to enable a lot of these changes to happen, but
Speaker 2: it might be a necessary intermediate step.
Speaker 3: Coming from Korea, which is completely unliberalized market, I think
Speaker 3: there's a real value to liberalizing the market and bringing
Speaker 3: more participants, because like in countries like Japan, where there's
Speaker 3: in company utilities whose powers are so strong, we can't
Speaker 3: really imagine a lot of innovations to happen if they
Speaker 3: have a lot of generation assets. So I think when
Speaker 3: it comes to energy, we do require some type of
Speaker 3: regulations and so we still need some support from the
Speaker 3: government to decobronize and also by security. But it's a
Speaker 3: good opportunity for Japan to face liberalization and let the
Speaker 3: participants figure out what's best for them.
Speaker 4: It's a really interesting point comparing Japan and Korea.
Speaker 1: Are there other countries in Asia that are starting to
Speaker 1: pursue the path of the Japan is pursuing right now?
Speaker 1: And is Japan in the region the sort of the
Speaker 1: leader on that front.
Speaker 3: I'd say Japan and Australia are the leaders in terms
Speaker 3: of liberalized power market. Government is pursuing that direction, and
Speaker 3: there's also financial products like the futures market that brings
Speaker 3: different competitors. I'd say my next pick might be China.
Speaker 3: And now when it comes to China, it's it used
Speaker 3: to be a very unliberalized market with long term contracts
Speaker 3: instead of the wholesale power market. But Chinese government is
Speaker 3: really pursuing to move towards liberalized direction and it's opening
Speaker 3: up wholesale markets in certain provinces. So I think in
Speaker 3: Kina there are on conversations starting to open in terms
Speaker 3: of what can the government and the participants do. And interestingly,
Speaker 3: when we attended the Japan Power Week a few months ago,
Speaker 3: we did see some Chinese participants coming for our events,
Speaker 3: So I think that really highlights the interests from Chinese
Speaker 3: market as well, and.
Speaker 4: I think Southeast Asia as well.
Speaker 1: This is something that's spoken about, but I think, you know,
Speaker 1: we spoke about Japan has is going on this long
Speaker 1: process of going from very regulated to very much more deregulated,
Speaker 1: and you encounter these bumps along the road, like the
Speaker 1: ones that you'd described earlier, Umi, and it sounds like,
Speaker 1: if you're wanting to understand that some of the challenges
Speaker 1: that other markets in Asia might be facing on going
Speaker 1: on that same journey, maybe Japan is a couple of
Speaker 1: steps ahead. And that's also what makes Japan an exciting
Speaker 1: and interesting market because it's it's sort of maybe leading
Speaker 1: the way for the region.
Speaker 4: Is that a fair statement.
Speaker 3: Yeah, I think so. I think Japan would have a
Speaker 3: lot of trials and errors, which is going to be
Speaker 3: really tough for Japan, Japan's harmarket and also for US
Speaker 3: was analyzing the market. But then it's going to be
Speaker 3: a really good learning experience for Japan, but also other
Speaker 3: countries in APEG that faces liberalization.
Speaker 2: Yeah, I think so. One of my favorite and now
Speaker 2: almost trite subtitles to use when I'm writing about Japan
Speaker 2: is liberalization and transition, and that I think what's been
Speaker 2: really interesting in Japan and that lot a lot of
Speaker 2: other countries will be watching closely, is the fact that
Speaker 2: they really are liberalizing their power market very much at
Speaker 2: the same time as they're trying to decognize it.
Speaker 4: Got it, Mariko, thanks for joining us today.
Speaker 2: Thanks so much for having me, and.
Speaker 4: Youu me, thanks for joining us today.
Speaker 3: Thank you so much for having me too.
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