Crony capitalism nouveau: green and Japanese
Posted by ampontan on Sunday, June 19, 2011
ONE OF Japan’s wealthiest men, entrepreneur Son Masayoshi made his mint by distributing software and taking on the NTT monopoly to provide broadband services. His idea to shift Japan from nuclear power to solar power, combined with Prime Minister Kan Naoto’s out-of-the-blue proposal at the recent summit for an impossibly sharp and rapid increase of solar power generation, has again turned him into a media darling while cogenerating suspicions of crony capitalism gone green.
University professor, author, and blogger Ikeda Nobuo wrote an article last week examining the Son scheme. Here’s part of it in English:
Mr. Son has established the Natural Energy Council to work with local governments for building solar power generating plants, and they’ve already announced the cooperation of 34 of those governments. The governments will provide the land and Softbank (Son’s company) will provide the capital investment. They plan to build 10 solar energy plants nationwide generating 20,000 kW. Softbank has even modified their Articles of Incorporation to include “the power generation business” in the section dealing with their business content.
This enterprise has a serious problem, however. The unit cost of solar power generation is more than JPY 40/kWh, much higher than the unit costs for atomic or thermal power, which are less than JPY 10/kWh, so power companies won’t buy the power generated. Therefore, Mr. Son held a meeting with Prime Minister Kan Naoto on the day before he launched his initiative and extracted the promise that a system would be instituted in which all renewable energy would be purchased at a fixed cost.
This is a mandatory system in which the power companies must purchase the expensive solar power at a price the government determines. There is at present a scheme for purchasing the surplus power generated by homes and companies using solar cells at a price of JPY 42/kWh. The Cabinet approved a bill in March, however, that will require the purchase of all this power. Because that means the generated solar power will be purchased at JPY 42, anyone who can hold the costs below that amount will make a profit.
Meanwhile, the utilities charge about JPY 15 kWh for power consumption, so the new scheme creates a negative margin. But the power companies will pass that differential on to the consumer through a solar power surcharge. In short, those who bear the liability of the higher costs of Softbank’s solar power plants will be those who use electric power. This is tantamount to Softbank receiving subsidies from the government and taxing the user.
The more basic problem is what these solar power plants will resolve. Mr. Son seems to be inclining toward natural energy to shift from nuclear power, but solar power is useless for reducing nuclear power reliance. If all 10 mega-solar power plants are built, they will generate only 200,000 kW, or one-fifth the amount of one nuclear plant. Solar power generation requires 40 times the land area of nuclear power generation. The amount of land required to generate the one million kW of power produced by a nuclear plant would be equal to 1.5 times the land inside JR East’s Yamanote Line in Tokyo. Further, the solar power plants can’t be used on rainy days. It is not possible to rely on them to replace nuclear power.
If the objective is to reduce the reliance on nuclear power, a more effective way would be to increase thermal power. When the costs of waste material disposition and compensation for damages are factored in, the cost of generating nuclear power is not that much different from thermal power. Fuel costs will rise over the short term, but over the long term, cost savings will be achieved for the facilities and reprocessing.
Natural gas is a particularly important type of thermal power. There have been recent advances in the technology for extracting shale gas, and the costs are said to be cheaper than coal. The Middle East has been the major natural gas production region until now, so there was considerable political risk. But the United States is the largest producer of shale gas, and is estimated to have 160 years’ worth of reserves. It has become the view in the energy industry that natural gas will become the mainstay in 10 years’ time at the least.
Gas turbines are said to have poor energy efficiency, but using the combined cycle technology, the residual heat from using gas to operate the turbines can convert water to steam, achieving 1.5 times the conventional efficiency of thermal power. Cogeneration technology, in which the heat used in blast furnaces, for example, is created simultaneously with electric power, is also becoming more sophisticated. Greater innovation is likely to result if companies other than the power utilities become involved.
The power companies, however, control the transmission lines, making it difficult for other companies to get involved. It is the same situation that Mr. Son claimed was unfair competition when NTT monopolized the telecommunications infrastructure. Attempting to compete with them will require an investment of at least JPY 10 billion. None of the so-called independent PPS power companies could even seriously compete with Tokyo Electric and its zaibatsu affiliations and ties to gas companies.
This is yet another demonstration that the fundamental things still apply as time goes by in the eternal intercontinental love match between Big Business and Big Government.
The calls for the separation of the power generation and transmission operations were so numerous and made so much sense that even Kan Naoto has come out in favor of them. Mr. Deregulation.
In an amusing piece of journalism, the Asahi-published weekly magazine Aera suggested that Mr. Kan’s support for this was the motivation behind the recent no confidence motion. They offered neither evidence nor quotes from suspicious anonymous sources (and actually allocated more space quoting named sources talking about the rambling wreck of Tokyo Tech). They said Tokyo Electric made substantial political contributions, which they surely do, but specified none of the people who received them. They also admitted the contributions were not close to the scale of the largesse distributed by construction companies.