Format: Analysis
Date: 21 December 2020

Minimizing the cost of integrating wind and solar power in Japan

Insights for Japanese power system transformation up to 2030

#Scaling up renewable energy

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Preface
Key findings

Preface

Japan has committed to reduce its greenhouse gas emissions to net zero by 2050. This pledge is a game changer for an industrialized nation such as Japan and a fantastic opportunity to fundamentally change the Japanese energy system, which still relies heavily on fossil fuels.

While in Japan the costs of renewable energy are still high compared to international standards, they are expected to continue their decrease. By 2025, the generation costs of solar PV and wind energy will be close to or even lower than any other sources of electricity generation. With these sharply declining costs of solar PV, wind power and storage units, the transformation towards a low carbon economy in Japan can be massively based on renewables and electrification.

Yet, wind and solar power are different than conventional power. They may induce additional system costs, such as for reinforcing the grid, balancing, and variability.

These system costs of variable renewables – sometimes called “integration costs” – are a hotly debated subject in academic and policymaking circles. With this paper, we shed light on those controversies. We also offer some insights on how to quantify those integration costs in Japan, and more importantly on how to minimize them.

We hope to make a positive contribution to informed debate towards a renewable-based transformation of the Japanese energy system.

Key findings

Between 2025 and 2030, the cost of generating electricity (LCOE) from solar PV and wind power in Japan will be lower than from any other technologies.

. In 2025, the LCOE of utility-scale PV should reach about 6.3 ¥/kWh (5.2 €cts/kWh). Onshore wind could reach those levels in 2030. Those costs will be significantly lower than those of new fossil-fuelled power plants, comparable to lifetime extensions of nuclear and far below new nuclear and CCS projects.
Adding the “integration costs” (costs for grid, balancing, and variability) on top of the LCOEs does not fundamentally change the competitiveness of variable renewables in 2030.

Japan can reach a share of at least 45% renewables in 2030 (corresponding to a share of 35% wind and solar power) with integration costs below 1.5 ¥/kWh. Integrating 66% renewables (corresponding to 50% wind and solar power) would come only at a slightly higher cost of 2 ¥/kWh.
Integration costs for grids and balancing are well defined and rather low.

These costs are estimated at below 1 ¥/kWh for Japan. Various measures exist to minimize those costs, in particular through optimal grid planning, optimised grid operation, and well-functioning and non-discriminatory intraday and balancing markets.
Integration costs for compensating the variability of renewables are much more disputed.

The calculation of those costs can vary tremendously depending on the assumptions. A total system cost approach would circumvent some of the uncertainties, in particular the controver-sial attribution of system effects to specific technologies. Rather than to speak about integra-tion costs, we should speak about interaction costs. If the system adapts to renewables (reduc-ing baseload power plants), the cost of variability for integrating 50% PV and wind energy in Japan is estimated at about 1.25 ¥/kWh. If not, the costs of variability could be much higher. This finding calls for a refinement of energy markets design, so as to incentivize rather than to hamper flexibility.

Bibliographical data

Authors: Dimitri Pescia
Publication number: 198/07-A-2020/EN
Version number: 1.0
Publication date: 21 December 2020
Pages: 26
Suggested Citation: Agora Energiewende (2020): Minimizing the cost of integrating wind and solar power in Japan.
Project: This publication was produced within the framework of the project Integration Costs of Wind and Solar Photovoltaics.