Is FIT getting obsolete? Introduction and possibility of FIP, advancing in Germany which is an environmental advanced country
In order to achieve the goal of “reducing 26% of greenhouse gases such as CO2 compared to 2013 by 2030” that Japan declared to the world prior to the Paris Agreement, a major challenge is how to reduce CO2 emissions due to electric power generation which account for about 40% of Japan’s CO2 emissions. Under these circumstances, it is essential to expand the introduction of renewable energy that does not emit CO2 such as photovoltaic (PV) power generation and wind power generation.
In 2012, Feed-in Tariff (FIT) system, which obliged electric power companies to purchase renewable energy at a fixed price, was introduced in Japan as a measure to increase renewable energy. The amount of PV power generation has dramatically increased after the introduction of FIT system; however, at the same time, critics have come out, such as that the burden on consumers is increasing due to the high FIT price.
On the other hand, Germany, which took the lead by adopting FIT in the world, moved from FIT to Feed-in Premium (FIP), which aims to introduce renewable energy more efficiently with utilizing market principles in 2017. It is expected that the introduction of a new electric power system with FIP will be promoted in the future.
What is the problem with FIT? And why did Germany move to FIP?
FIT is a system that obligated major electric power companies to purchase electricity generated by renewable energy at a fixed price, and aimed to actively introduce renewable energy. Due to the high cost of renewable energy introduced earlier, the FIT price for the electric power companies is set higher than the retail price. The amount of difference is collected from users by being added to the regular electricity charge as an energy surcharge of several yen per kWh. This surcharge was the subject of the criticism mentioned at the beginning.
PV power generation increased sharply due to the introduction of FIT. The amount of annual power generation in Japan grew approximately 11 times in 2017 compared to 2011 before its introduction. It can be said that the situation went in the direction the government aimed.
During that time, while the FIT price determined by the government continued to fall, the surcharge rose due to increasing number of solar installations: it was 0.22 yen per kWh in 2012, and 2.64 yen in 2017. In terms of the total amount, it reached 2,100 billion yen in fiscal 2017, and the size of the amount had been standing out. There is no doubt that FIT has contributed to the increase in renewable energy. If there is a problem with the system, it can be improved. It is Germany in an environmentally advanced country that is making such improvement.
In Germany, due to the significant price drop of PV panels, the generation cost of renewable energy got lower than retail electricity for household use, which raised the possibility to cause the market to distort with excessive protection. If electric power companies just purchase electricity, competitiveness in the market does not grow.
Then in 2017, Germany introduced “FIP” is a system that pays a subsidy called premium added to the FIT price when selling renewable energy directly in a wholesale electricity market. Since the market price fluctuates with the balance between supply and demand, there is a possibility that subsidies can be reduced compared to FIT, and it is also expected to promote the competitiveness in the electricity market.
With FIT, major electric power companies are obligated to purchase electricity at a high price, even if the electricity is oversupply; but in the case of FIP, renewable energy companies will not oversupply because the selling price is lowered by the market principle, so that the total amount of premium will be reduced. On the contrary, electricity can be sold at a high price when electricity supply is scarce, which will increase the profits of renewable energy companies. If the balance between supply and demand can be determined properly, renewable energy companies can increase sales.
Although, in order to introduce FIP in Japan, it is necessary to liberalize power generation, transmission and distribution. The journey may have a bit longer way.
In addition, lack of ability to adjust supply and demand is also one of the issues: in October 2018, the amount of PV power generation increased in Kyushu, and Kyushu Electric Power Co., Inc. temporarily curbed acceptance. There is no problem if the amount of power generation increased in Kyushu can be diverted to other areas.
Long-term growth of renewable energy, which has increased due to the introduction of FIT, should be essential for the future of Japan. It is required to revitalize the energy market in Japan while learning from the cases of other countries.