Japan – Asia’s Biggest Energy Market Opportunity in 2019?

Louis Brasington

One of the largest economies in the world and the fourth largest consumer of electricity, Japan has long been a recognized leader in energy technology development. The 2011 earthquake and the subsequent Fukushima nuclear accident triggered a major overhaul of the energy market in Japan. As a result, local and foreign innovators are now looking to capitalize on emerging opportunities.  Start-ups and players with established customer bases are entering the market, seeing the opportunity to capture new value. Over the past seven months, Global Cleantech 100 companies Moixa Technology, AutoGrid and LO3 Energy have had new market interactions in Japan. The accelerating adoption of retail competition, deregulation, renewable energy and behind-the-meter solar and energy storage is creating opportunities for energy innovators.  While 2011 was a low-point, today Japan is widely considered as the biggest market opportunity for new energy innovation.

Why is Japan so Interesting?

After the 2011 Fukushima Daiichi disaster, Japan’s nuclear fleet was shut down and replaced with more expensive fossil fuels, leading to higher electricity prices. These consequences drove momentum to deregulate markets and introduce efficiencies via new technologies and business models. Japan’s deregulation commenced in April 2016 and around the same time, imbalance settlement based on the market price was enacted, meaning that from 2017, procurement of balancing power could begin. This in turn, saw hundreds of new deregulated energy retailers entering the market.

Japan’s government has also mandated a near doubling of renewable energy generation by 2030, reducing greenhouse gases by 26% compared to the 2013 totals. This, as well as a prioritization on energy security signaled for decreasing energy imports and increasing renewables utilization supported via subsidies for deployment.

Lastly, Japan’s feed-in tariff, initiated in November 2009 is coming to an end. Households with a combined generating capacity of 6.7 million kilowatts will stop qualifying for this program by 2023, creating the opportunity for new entrants and technologies including behind-the-meter battery storage providers.

These factors combined have resulted in around 600 players entering the Japanese energy market in the past three years, including both new Japanese companies and foreign companies.

“Japan’s government has also mandated a near doubling of renewable energy generation by 2030, reducing greenhouse gases by 26% compared to the 2013 totals.”

How are the Japanese Corporates Responding?

Since 2016 the ten electric utilities have broken up their core businesses into separate groups within generation, transmission/distribution and retail. The past three years have proven tough; a reported 6 million retail customers have moved to alternative providers. As a result, the utilities are focusing time and resources on exploring new ways to win back customers. 

Tokyo Electric Power Co. (TEPCO) has been one of the most progressive corporates, engaging with global innovation via funds, accelerators and venture investment. The group set up a corporate venture capital arm in 2018 with capital of YEN 5 billion to engage with local and oversea innovation, and has since made seven cleantech investments including start-ups such as battery virtual power plant provider, Moixa; peer-to-peer energy trading player, Electron; and vehicle-to-building innovator, Fermata Energy. The group has also backed several cleantech energy funds in 2019, including the Southeast Asia fund managed by Cleangrid Partners. These strategic engagements are helping TEPCO keep pace with the rate of technological innovation in their home market and enabling them to extend out and explore new markets.

Other Japanese corporates have also been actively engaging with external innovation. Since February we’ve seen:

  • US-based LO3 Energy has partnered with Japanese general trading company Marubeni; using blockchain to connect Marubeni’s power production facilities into in a virtual marketplace.
  • Kyocera, a ceramics and electronics manufacturer, is testing the feasibility of a blockchain-managed virtual power plant (VPP) and received an equity investment from Sumitomo Corp and Shell to accelerate international role out.

UK – the Proven Model for Japan’s Future

Noticeably, UK-based innovators are actively piloting and partnering with Japanese companies. This is no coincidence. Given that the country was deregulated back in the 1990s, start-ups have had time to understand the challenges of market reform, and as a result Japan is keen to learn as much as possible. The UK’s progressive regulator has created opportunities that have enabled grid market stakeholders to utilise centralized energy in flexibility auctions, providing an alternative to network upgrades. In June, GreenSync, Smarter Grid Solutions and Nexant announced plans to enable 500MW of flexibility for UK power networks. Japanese players are looking to the UK to see how the flexibility capacity markets operate. Furthermore, UK innovators such as Moixa have established a new foothold in Japan, entering the Japanese market last year in partnership with Itochu.  The company has integrated its GridShare software into the Japanese company’s Smart Star batteries and manages 60 MWh of battery capacity across 6,000 homes throughout Japan.

What Kind of Innovation is Succeeding?

In line with Silicon Valley’s blitz scaling software approach, Japanese players are looking at software-based business models and are keen to invest in commercially developed solutions which make use of AI and machine learning. Technologies which can be quickly be deployed into the home market are attractive compared to hardware solutions where the need for channel partners, certification and regulation create deployment constraints. A range of technologies are seeing increasing demand:

1) Virtual Power Plant (VPP)

Japan has some of the biggest VPP markets potential in the Asia Pacific region. It’s renewable goals, over capacity and robust grid infrastructure mean that additional value already exists. Much of the rest of the region suffers from intermittency, regulation and lack of infrastructure.

This July, software innovator AutoGrid established a subsidiary in Japan, AutoGrid KK, to serve utilities and retailers Looking to deploy flexibility management solutions. The company offers a SaaS product which helps Japanese energy players leverage proven VPP capabilities. The news came on the heels of the company’s announcement that they will develop the largest energy storage VPP globally, aggregating over 10,000 assets between 2020 and 2021 with Japanese energy services and trading company ENERES.

2) Vehicle-to-X (V2X)

Vehicle-to-X technology is an area which we visited in more detail in a previous blog, and has become increasingly popular in countries with a relatively high and growing percentage of renewables, with utilities becoming interested in V2X as an option to balance the impact of electric vehicles and renewables on the grid.

In January of this year TEPCO, Ventures invested $2.5 million in Fermata Energy, a vehicle-to-building software company which allows customers to reduce their peak electricity demand occurring in their buildings by using the on-board batteries of the customer’s electric fleet vehicles, earning money while they are parked.  TEPCO see car batteries as another DER asset which can be used to help balance the grid, and a way to attract new customers.

3) Distributed Resource Management Systems (DERMS)

Given Japan’s geography, some areas have an abundance of high capacity solar and wind renewables. Combined with low demand, has opened the energy markets to pricing vulnerabilities. As result, the use of DERMS will become vital to maintaining system balance.  Whilst there are fewer active participants in this area due to the regulatory hurdles in the space, grid operators will need to aim to control power on the localized level in the coming years.  There are growing opportunities for leading DERMS providers such as Enbala and Opus One Solutions, whose CEO, Joshua Wong, in a recent interview disclosed to Cleantech Group they are closely monitoring the Japanese market.

Keep an Eye on…

  • Transactive energy in Japan. TEPCO invested in the Energy Web Foundation, to accelerate the commercial deployment of blockchain technology in the energy industry and in 2017, invested in Electron, a UK-based blockchain vendors specializing in the energy sector.
  • Green hydrogen’s integration in the Japan energy market. The Japanese government adopted a basic hydrogen strategy in 2017 to promote wider hydrogen use: Increasing production volume to 4000 t/year by 2020. Also, in 2018 Japan H2 Mobility was launched, the first collaborative group consisting of hydrogen station owners and operators, automobile corporates, and investors working on hydrogen.

Want more expert insight on Asia’s energy outlook? Join us for research-led sessions covering hydrogen, batteries, microgrids and more on 8-9 October in Singapore for Cleantech Forum Asia.