Is Japan ready to tackle its coal problem?

Media reports of a policy shift to close less efficient coal plants could create significant upside for LNG demand

1 minute read

Japan has a problem with coal. With little indigenous resources, Japanese policy remains focused on ensuring long-term energy security and competitively priced hydrocarbon imports. Coal has fit the bill for decades. Domestic and international criticism of the country’s coal consumption may be growing more vocal, but Japan today remains the world’s third largest importer of coal.

Given this, a report in the Yomiuri Shimbun newspaper last week that Japan’s government is now looking to mothball or retire up to 100 ageing and inefficient coal-fired power plants by the end of the decade raises the prospect of a significant transformation of the country’s power sector. The Nikkei Asian Review also reported that the Ministry of Economy, Trade and Industry (METI) will arrange a conference with relevant parties to develop firm plans for the closure of these older plants, with generators expected to set limits on output.

What are the prospects of this happening? Does LNG stand to benefit? What would it mean for Japan’s emissions? To get a better understanding of the potential impact I spoke to Frank Yu in our APAC Power & Renewables team for his perspective.

What exactly has the Japanese government announced? 

We need to be cautious. As reported by the Yomiuri Shimbun, no formal change to existing policy has been announced. The report indicates that Japan is considering closing around 100 of its older and less efficient coal-fired units commissioned before the mid-1990s by 2030. This would be significant, but we need to consider if this is achievable and whether it would really represent a U-turn on coal.  

The speculation around what plants may be closed has been focused on vintage - Japan’s pre-1995 coal-fired fleet – but, it is more likely that all lower efficiency plants could be targeted. This is a significant proportion of the current mix, with around 24 GW of currently operation coal plants being considered low efficiency (using a definition of requiring more than 8,600 btu per kWh of output). This represents about 51% of Japan’s operational coal-fired units.

Read also: Is the scene set for coal-to-gas switching in Japan and South Korea?

What would be the impact of closing these plants by 2030? 

If we assume that a gradual phasing out takes place over the next decade then Japan’s power mix has little option but to become more reliant on nuclear and imported LNG. ‘Lost’ coal generation could reach around 160 TWh by 2030. Nuclear would have to be increased but gas would fill most of the gap. By 2030, up to an additional 13 Mt of LNG could be required to help fill the gap. Any issue with nuclear restarts – an obvious risk - and LNG demand could be higher still. This will inevitably increase generation costs.

Japan is also expected to build over 50 GW of renewables capacity out to 2030, including a major increase in offshore wind. However high costs in Japan make an accelerated ramp up challenging.

What about less efficient plants being replaced with cleaner coal projects? 

This really is the key point, and one which neither government statements nor media reports have yet cast any light on. Japan is one of the few countries in the G20 that continues to develop new coal-fired power plants. We see around 6.1 GW of ultra-supercritical and integrated gasification combined cycle coal plants currently under-construction. Others have been proposed.

With higher operational efficiencies, adding a significant volume of newer units to replace less efficient plants would clearly support a continued role for coal in Japan’s power mix. This would also allow the government to continue to push towards its existing 2030 targets to reduce the share of coal in the energy mix to around 25%.

You might be interested in: 2020 Wood Mackenzie Japan Gas Series - presentations and recordings

What about Japan’s emissions targets? 

With a mature economy and falling population, Japan’s carbon emissions are in long-term decline, but are still not falling quickly enough to meet the country’s Nationally Determined Contributions (NDCs) under the Paris Agreement. Japan’s NDC goal is to reduce emissions by 26% below 2013 level by 2030. This target is unlikely to be met without a significant shift in the energy mix towards zero-carbon energy.

Currently, there is so much we still do not yet know about the potential policy shift. A more aggressive push to close ageing and less efficient plants would mean Japan will have to ramp up gas, nuclear and renewables but at what pace and what magnitude of switching remains unclear and would be determined by the timing of plant closures. This would come at huge cost and is likely to also face acute opposition from Japanese industry. We keenly await more details.  

APAC Energy Buzz is a blog by Wood Mackenzie Asia Pacific Vice Chair, Gavin Thompson. In his blog, Gavin shares the sights and sounds of what’s trending in the region and what’s weighing on business leaders’ minds.

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