Japan: Promising Market for Small Scale Distributed Generation

Being one of the most advanced digital societies in the world, the ever-growing demand for electricity in Japan is hardly surprising. Despite the economic stagnation during the 90s, power consumption in 1999 was 30 percent more than that of a decade ago. Moreover, the Federation of Electric Power Companies in Japan has projected a 2 percent average annual growth rate in power demand during the current decade.

Rising living standards has further redefined the peak load requirements, with extensive use of air-conditioning and heating facilities, during extreme climates. While regional power supply monopolies and very high cost of power were the defining characteristics of the electricity industry until the beginning of liberalization (albeit partially) in 1995, the new industry order in a competitive market has posed problems for the electric utilities to meet the growing demand. Large-scale capacity expansion through centralized systems (hydel, thermal, or nuclear) for non-base load applications is increasingly becoming nonviable. The fact that Japan, which is starved of natural resources, imports almost 80 percent of its primary energy has compounded the problem. This has pushed the Government to look toward new models of power generation and supply, with the emphasis on sustainability and energy security. These factors have helped to bring the concept of distributed generation (DG) center stage. While captive generation by industry already accounts for about 25 GW and 10 percent of the country's total installed capacity, the use of DG for other non-industrial applications is on the rise.

Frost & Sullivan believes that the market for small scale DG is very promising in Japan and the key technologies that are expected to compete in this growing market are fuel cells, microturbines, and solar photovoltaic cells.

Fuel Cells

While testing and development of fuel cells has been a strong focus area in Japan, most of the early activities were in portable applications for the automobile industry. However, both foreign and Japanese companies have recently shown increased interest in DG applications. Ballard Generation Systems (BGS) have supplied five 250 kW systems to the Nishimachi Sewage Treatment Center. Osaka Gas, that serves over 6 million customers, has positioned fuel cells as its strategic product for the future and has planned to commercialize 1 kW and 0.5 kW residential Polymer Electrolyte Fuel Cells (PEFC) by 2005. The heightened activity in the DG fuel cells market is also evident from the series of alliances between the North American technology developers and the Japanese firms (see table). Due to the fact that most of the residential systems are designed to operate in urban areas, parallel with the grid, the codes and standards for fuel cells are more stringent in Japan. This could prove to be a major challenge for their rapid commercialization.

Japan: Alliances for Fuel Cell Development

North American Technology Developer	Japanese Partner	Details of partnership
Ballard Energy Systems, Canada	Tokyo Gas Company	Development and commercialisation of 1kW cogeneration stationery fuel cell generator
Nuvera Fuel Cells, Massachusetts, U.S.A	Mitsui & Company	Joint-venture for complete services-from feasibility, manufacture to after market
H-Power Corporation, U.S.A	Osaka Gas Company	Technical venture for development of 500W residential cogeneration fuel cell system for Japanese market
Westinghouse, U.S.A	NKK Corporation	Marketing and distribution of Westinghouse's Solid Oxide Fuel cell
GE Microgen, U.S.A	Kubota Corporation	Marketing and distribution of GE Homegen 7000 unit

Bowman Power - UK microturbine supplier in Japan through JV

Microturbines have emerged as a favorite technology for Combined Heat and Power (CHP) co-generation applications in Japan. Capstone has been active in the Japanese market through a strategic partnership with Takuma Company for manufacture and distribution of its 28 kW TCP-30 microturbine CHP system. Bowman Power Systems (BPS) of the United Kingdom has also entered the market through a joint venture with three Japanese organizations, Mitsui Co., Kubota, NTT, for development and supply of microturbines and cogeneration systems in the capacities of 50 kW, 80 kW, and 200 kW with natural gas, kerosene, and propane as fuel options.

Lack of adequate natural gas resources and the highly regulated environment had been the major bottlenecks for development of larger co-generation facilities in Japan. However, recent changes to the regulatory framework --empowering the gas companies to fix tariffs depending on market needs and acceptance of performance based and international practices with regard to safety standards-- will hold the key to the development of the microturbine market. Moreover, the diverse and demanding needs (power, heating, and cooling) of offices, hotels, supermarkets, hospitals, and other commercial establishments will fuel its growth.

Solar Photovoltaic (PV) Cells

Many of Japan's leading companies are in this promising market

Japan is a world leader in the production of solar PV cells. While the total installed PV capacity is about 200 MW, more than 75 percent of it is for grid-based applications. However, the use of PV for DG applications got a boost during the mid 90s through a government subsidy. Japan spent about $150 million under its 'solar roof top program' for installing 64 MW capacity in 17,500 households, in 1999 alone. This subsidy has helped to reduce the installed costs from $37,500/kW in 1994 to about $8,500/kW in 1999. The Ministry of Economy Trade and Industry (METI) predicts that costs will drop further to about $3,750/kW by 2003, beyond which point it plans to discontinue the subsidy, in order to boost competition in the industry. This could well be a reality considering the highly competitive environment, with a number of Japanese companies in the PV business - Fuji Electric, Kaneka, Kyocera, Matsushita Battery, Mitsubishi Electric, Sanyo, Sharp, and Showa Solar Energy. Others including Kawasaki Heavy Industries, Kobe Steel, Matsushita Deiko, and Mitsubishi Heavy Industries are probable new entrants to the already crowded marketplace.

Conclusion

Thus, deregulation, increasing power demand, and fluctuating load patterns will remain the major drivers for the growth of the small-scale DG market in Japan. With regard to technology, while the PV has reached near maturity, microturbines are expected to become commercially viable by 2005. Frost & Sullivan expects that widespread use of fuel cell technology for domestic applications could take as long as 2008. However, if the utilities increase their exposure and commitment to DG technologies, the pace of introduction will no doubt be accelerated.

e-mail: power@frost.com

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