Mr. Takeuchi Kazuhiro of Japan Renewable Energy Corporation reflects on the firm’s recent acquisition by the ENOES group, and his vision for an energy independent and carbon neutral Japan.
From your point of view, how do you believe Japan can lessen its dependence on foreign energy, and what is the main obstacle to Japan becoming more energy independent?
We have been living in this situation for a long time and we will continue to do so. As we have been dependent on fossil energy, naturally we lived with the importing of energy for a long time. However, we can now see the vulnerability of that situation, because of the Ukrainian state of the affairs and the hike in the price of natural resources. So it’s essential that we solve this problem.
Though the government has emphasized the restart of nuclear power, I believe the only energy resource Japan can rely on without import is renewable energy. And we need to expand it as fast as we can.
If we attain our goal for 2050, where majority of energy will come from renewable energy, we can overcome the challenges of becoming more energy independent and reducing greenhouse gas emissions. It’s not easy because there are many issues to resolve but it’s the only way for Japan to move forward on those challenges.
What do you see as being the main challenge or the biggest hurdle for renewables to overcome?
It is generally said that the weak points of renewable energy are the instability and the relatively high cost. As far as cost is concerned, due to recent geopolitical incidents, we are reaching to the point of “grid parity” where costs of conventional and renewable energy become almost same. In the past, the cost of fossil fuel energy was less than 10 yen per kWh, which was much lower than renewable energy of around 15-20 yen per kWh. I guess the cost of fossil energy has increased to the high teens.
In order to solve the instability problem, we have to be able to store and transport the power generated from renewable energy. One solution is battery to charge and discharge the power to the grid as required. Also, to transport energy generated by natural resources, hydrogen would be a good solution.
Japan was the first country to create a national hydrogen plan all the way back in 2017. What do you see as the key challenges for hydrogen to play important part for Japan's energy sector?
The challenge for hydrogen is the cost. The technology is there. We can generate hydrogen from natural resources, but conversion costs are still high. I would expect this cost will decrease by around the year 2040-50 due to technology breakthroughs. According to government projections, by the year 2050 hydrogen will be one of the main sources of energy.
Japan’s power and gas market deregulation created all kinds of opportunities for interesting companies with these kinds of technologies to take advantage of this need in the energy sector. Do you see the need for storage as an advantage for your firm, and what do you see as the potential of a more decentralized energy infrastructure?
Japan was trying to introduce renewable energy by providing a feed-in tariff system where we secure a fixed price for renewable energy generators for certain period, 20 years for example. The government then tried to shift from that fully secure system to a semi secure system, called feed-in premium. Under the new feed-in premium system, we have to find the customers or trade the electricity we generate through the market.
One way to cope with that change is batteries which would be charged in the daytime when generation is high and prices go down, and discharged in the evening when prices go up.
Under the new system, we have to sell electricity to non-utility customers or through the market. And we recently launched a subsidiary for that purpose.
As the power and energy markets are deregulated, we've seen something of an evolutionary arms race amongst all these new firms popping up to be as appealing as possible and selling the power that they generate, centered on digital technologies. How are you incorporating digital technologies in terms of both the services and the marketing of energy that you generate?
We’re still in an experimental phase, but we're seeing more and more importance in digital technology for our business. When you sell electricity to the market you have to speculate on the level of generation for the next day and avoid both oversupply and undersupply. We have to speculate as accurately as possible analyzing the weather forecast and other available data.
Also, when we use batteries there would be a way to know the ideal mix of how much you should charge during the daytime and how much you discharge during the evening. I think digital technology or artificial intelligence is very useful in this area, and we are conducting research in this “renewable energy aggregation” field.
I would like to add one more initiative related to digital technology. In a recently established solar power plant, we’ve set a datacenter where we try to sell data transaction capacity to a cloud technology company. That’s another new business model we are exploring.
You were talking about being in an experimental phase in terms of implementing digital technology. Is this an in-house project or are you collaborating with other actors to develop it?
For the renewable energy aggregation testbed, we are collaborating with different players forming consortiums, one of which is led by Toshiba group.
For a datacenter project, currently we are working with a cloud technology company, and the service will start soon in October this year.
Your new plant that was opened in January of this year was the first to introduce these storage batteries as part of the infrastructure. Can you tell us a little more about whether this will be the new standard for these kinds of plants going forward? How are you integrating the batteries and what kind of success have you had?
Partly due to the very high market price, our experiments have been very successful so far. The average trading price is much higher than the price for feed-in tariff. The price of batteries is very important. It is getting lower and lower, and it has become more realistic for us to introduce batteries, particularly in the new system of feed-in premium.
What kind of continuity plan do you have in place for replacing facilities in the power plants?
At the start of the project, we anticipate replacements of facilities in the future. The initial cost of setting up a plant is very high in Japan. Once we’ve cleared and recovered those initial costs, there’s no reason for us to abandon that plant.
You may replace panels, batteries or turbines with bigger or more efficient ones, and that’s happening on a wind turbine project in Sakata, Yamagata. We are going to demolish the current turbines in the spring of next year and replace them with bigger ones. We have already secured a grid connection and the land.
That sounds like a holistic approach, considering JRE has operation and maintenance function as a group company.
That’s an important part of our strength. The strength of JRE lies in two areas. One is the diversity of the energy sources we use. We don’t exclude any kind of source. Currently it’s solar, onshore wind and one biomass plant, but we're exploring offshore wind and small-scale hydro also.
We don't exclude any energy source because it is the best way to follow the government’s policy and their system. When a focus of the government policy shifts from one energy source to another, it is our strength being able to cope with that change.
Another point of our strength is that we cover all phases including development, construction and then operation for long into the future. By doing this we can capture the benefit from all the value chain. It also helps us to secure the best talent and expertise in the industry.
You mentioned that one of your strengths is diversity, and you've been branching out in recent years by collaborating with Eco Green Holdings for biomass power.
Eco Green is a company which we acquired back in 2015 in preparation for developing a biomass plant. It is a recycling company in the construction industry dealing with the recycling of demolished structures.
In Japan, it is required to fully recycle old materials, and Eco Green makes chips out of wood-based materials and sells them to customers as either fuels or recycled materials like particle boards. We explored many ways to develop biomass power generation. Many Japanese companies import wood chips or palm kernel shell (PKS), or use palm oil, but we couldn’t find a good clean source of material that was stable in terms of both volume and price. So we came up with the idea to only use domestic material. That’s how we decided to invest in Eco Green and established our biomass power plant.
From now on we will stick with the same strategy using domestic material. We use not only the recycling material, but also use forest material for our biomass. Now we are collaborating on a new type of biomass project. When we talk about forestry material, humidity is very important. A small change in humidity makes a big difference. The idea is to have a small plant generating power using 100% forest material. That alone is not enough to ensure the viability of the project, so we use the heat from the generating process for drying the material which is used at the existing Kamisu power plant and increases the efficiency of generation.
We are also exploring the possibility of establishing a mid-sized power plant of around 20 megawatts using recycled material for about half of it. That's an integral part of our biomass plan.
In October of last year, it was announced that JRE was to be acquired by the ENEOS Group as part of their push towards renewables. Could you tell us more about your relationship with the ENEOS Group?
This company was established by Goldman Sachs using their infrastructure fund. We knew since the very beginning that someday in the future a transaction would happen, as it is a very natural process for them to divest their investments.
There are some preconditions that have been fulfilled so the actual share transfer was completed this January. We are currently in the process of handling the integration. Among the reasons why ENEOS bought us is because they are very serious about achieving their aggressive sustainability targets. They plan to convert their entire supply chain to being carbon neutral by 2050 and renewable energy is a very important part of their strategy.
You operate more than 50 renewable power plants across Japan but only one overseas, which was opened in Taiwan in September of 2020. Why did you choose Taiwan, and are you looking to replicate the success of that overseas project in other countries in Asia? How do you plan to evolve your business overseas?
I would say the only main target for us is Japan, as there are many things still to do. We try to concentrate 100% of our energy on the Japanese market, but the reason why we expanded our operations to Taiwan is because the Taiwanese market is very similar to Japan, with similarities in social and legal systems.
Japan is in a more advanced position compared to Taiwan in terms of solar plants, especially large-scale plants. So, I believe that our experience and knowledge can be applied to the Taiwanese market. Our perspective is that our Taiwan projects are an extension of our solar business in Japan. We initially bought a small sized business and we’re now in the development phase of several greenfield projects.
You mentioned the strength of a comprehensive end-to-end approach. For the Taiwan operation, both the current and the planned, are you planning on working with local partners, or are you going to send staff from Japan in terms of the management and the maintenance?
We are trying to establish good relationships with local developers and financial institutions. Partners are essential when you go outside of your mother market.
Talking about partnership, we'd like to be a good partner in the Japanese market especially for offshore wind businesses. There are international players who has interest in offshore wind business in Japan with good experience in Europe or other areas. And we have good expertise here in Japan. We know natural conditions and have good relationship with local communities.
Let's say we come back to interview you again in five years' time for your company’s 15th anniversary. What would you like to tell us about your goals and dreams for the company in that timeframe, and what would you like to have achieved by then?
JRE is already one of the leading companies in the Japanese renewable industry. In collaboration with the new owner, we will continue to develop renewable energy sources, and through the activity, we would like to contribute Japan achieving the international commitment towards 2030 and 2050. And if you come back five years from now, you will see the definite number one company in the Japanese renewable business.