A Pathway to 80% Renewable Energy
A Pathway to 80% Renewable Energy
A conversation with Kae Takase, Renewable Energy Institute
This fiscal year is a critical juncture for Japan's climate and energy policies. As we speak, the government is revising the Strategic Energy Plan (SEP), a document that’ll shape the direction of the country's energy policies and investments for over a decade, while also reviewing its climate targets under the UN climate change framework.
Against this backdrop, there have been increasing calls for a more ambitious rollout of renewable energy. One of the most authoritative voices is the Renewable Energy Institute (REI), Japan’s leading energy think tank. REI has produced a number of sophisticated analyses and policy recommendations aimed at creating a carbon-neutral energy system in Japan that can genuinely reduce greenhouse gas emissions.
In June this year, REI published a report titled "Energy Transition Scenarios for Decarbonization: 80% Renewable Energy by 2035." As the title suggests, the report's analysis concludes that, with a significant expansion of energy storage systems and the strengthening of power grids, renewable energy could account for 80% of Japan’s energy mix by 2035. This would enable a reduction of domestic CO2 emissions by over 65%, while also maintaining the competitiveness of Japan’s export industries like steel making and encouraging the establishment of new sectors like data centers and semiconductor manufacturing that are expected to drive up energy demand. This would prevent the hollowing out of domestic industries while promoting decarbonization, all the while nudging up the demand for infrastructure like offshore wind power and transmission lines.
The report also discusses ways to equitably phase out coal-fired power plants, create a more balanced and democratic policymaking process, and offers a vision of “a day in the life” in a world powered by renewable energy.
In early September, I had the opportunity to interview Kae Takase, the lead analyst of this report and Senior Manager at the Renewable Energy Institute. Before joining REI in 2023, Takase served as Associate Director at CDP Japan, where she engaged with companies and financial institutions on target-setting, renewable energy procurement, climate disclosure, and low-carbon transition planning.
I asked her to elaborate on the report’s key findings and recommendations.
Significance of the report
Walter: How do you see the conclusions of this report fitting into the current discussions about Japan’s energy policy?
Kae: Up until now, I think REI has been mainly targeting experts with our content. But, in discussions outside of expert circles, we often hear arguments like “nuclear power and coal-fired power are necessary for stable supply and grid stabilization” or “Japan is unique, so we can’t rely on renewable energy as the main power source.” Proposals like ammonia-fired power generation emerge as a result of these discussions.
One of the purposes of this report was to clearly show, through Japan’s own simulations, whether nuclear and coal-fired power are truly necessary. We wanted to demonstrate that it’s not impossible for renewable energy to be the main power source.
Low-cost renewable energy
Walter: The report estimates that even with 80% renewable energy, the cost of electricity generation would remain low, at levels similar to what prevailed before Russia-s invasion of Ukraine. What’s behind the low cost of renewables?
Kae: The cost of renewable energy is already lower than that of any other power source, and while offshore wind in Japan is currently expensive, globally it’s cheaper than fossil fuels. The current debate focuses more on how we can reduce reliance on countries like China to ensure energy security. In Japan, even solar power remains 10-20% more expensive than the global average due to the complexity of supply chains and high construction costs. But even so, solar power in Japan is already slightly cheaper than nuclear or coal.
Is nuclear power practical?
Walter: During this year’s LDP leadership race, candidates frequently made arguments that, because of the rapid increase in electricity demand from AI and data centers, we have no choice but to restart idled nuclear reactors and even to build new nuclear power plants. Is it realistic to rely on nuclear to meet future electricity demand?
Kae: When it comes to nuclear power, even if we max out the capacity of restarted reactors, it would only cover about 10% of the energy mix. Proponents of nuclear occasionally talk about new reactor construction, but building a new plant takes at least 20 years. That means that by the time a new reactor comes online, we’re looking at 2044-2045, which is far too late to meet Japan’s climate targets. We need to reduce nuclear power now, and one of the report’s objectives was to show that it is indeed possible.
Grid connections, energy storage, and demand response
Walter: The REI report points out that increasing grid interconnections, energy storage, and demand response are key to relying heavily on renewable energy.
Kae: There’s a political push to build up offshore wind as a domestic industry right now, but our simulation clearly shows that, to fully utilize wind power, we need to significantly strengthen grid connections. The best areas for wind power are Hokkaido, Tohoku, and Kyushu, but the highest demand is in Tokyo, Kansai, and Chubu. If we build wind farms in Hokkaido, Tohoku, and Kyushu, the current grid limitations mean we won’t be able to transmit all that power to Tokyo, Kansai, and Chubu. Strengthening the grid connections from Hokkaido to the Kanto region would greatly reduce these constraints.
While grid reinforcement is expensive, the high utilization rate makes it very cost-effective on a kilowatt-hour basis. Our report shows that even after accounting for the costs of strengthening grid connections, it’s not prohibitively expensive. Grid reinforcement should definitely be pursued to support wind power deployment.
If we can’t strengthen the grid, we’d have to build power plants closer to where demand is, which raises questions like, “Are we going to build nuclear plants in Tokyo Bay?” With solar power, we can install panels on rooftops and buildings, but with policy discussions leaning toward nuclear, the implication of not reinforcing the grid is that we would have to build nuclear reactors in Tokyo. That’s not politically feasible.
At the same time, Japan still has enormous potential for solar power. Solar can be built near energy storage facilities, which makes it easier to use than offshore wind, where grid connections play a bigger role.
Then there’s demand response. If electricity prices are allowed to fluctuate based on supply and demand, and if we send clear price signals to electricity consumers, industries will respond. For example, on days when the sun isn’t shining or the wind isn’t blowing, high-consumption industries like steel plants could take a break or scale back operations, effectively living in harmony with nature. That’s what demand response is all about.
Managed Coal Phase-Out
Walter: Japan’s reliance on coal-fired power is often criticized internationally. REI has also been critical of Japan’s stubborn use of coal. I noticed the phrase “managed coal phase-out” in the report. What does this mean?
Kae: Companies that own coal plants are businesses, so they can’t voluntarily take a financial loss by shutting them down. A managed coal phase-out means providing compensation to help these companies close their coal plants. Several countries are already attempting this. By balancing their books—bringing them to break-even financially—companies can be persuaded to give up coal.
So the question becomes, “Who will pay for it?” In some cases, it’s the government. For example, in Germany, they have a schedule to reduce coal and they hold auctions where companies bid on how much compensation they’d need to close down their plants. The company with the lowest bid gets the money, and they stop operating the coal plant.
In Asia, where governments may not be as enthusiastic about phasing out coal, it’s the investors who are stepping in. The Glasgow Financial Alliance for Net Zero (GFANZ) has proposed managed coal phase-outs where companies can issue carbon credits for phasing out coal, and financial institutions would buy those credits, creating financial streams to support the transition.
In Japan, we have GX bonds, which could be used for exactly this kind of transition. Phasing out coal is a perfect example of what GX bonds are meant to support.
Walter: If Japanese companies were to phase out coal, would Japanese financial institutions be involved in engaging with those companies and purchasing carbon credits? How proactive is Japan’s financial sector about decarbonization?
Kae: Many Japanese financial institutions are part of various GFANZ initiatives. From their perspective, coal phase-out is already becoming an international trend, so they’re now in a position to tell companies that this is the direction things are headed. Over the past seven or eight years, I’ve seen a shift where financial institutions, who once couldn’t even broach the subject, now feel compelled to address it.
GFANZ is excellent at engagement. They don’t impose standards but instead facilitate internal discussions, listening to stakeholders and gradually guiding them toward decarbonization.
Mark Carney, the former governor of the Bank of England and a GFANZ envoy, has even met with Prime Minister Kishida, and I can see that Japan’s financial sector is gradually engaging with the coal phase-out issue.
A National Debate on Energy Policy
Walter: Japan’s energy policy is mainly decided by the Ministry of Economy, Trade, and Industry (METI), and there’s frequent criticism that the advisory councils are stacked with representatives from power companies and high-emission industries. The REI report suggests that energy policy should be decided through a “national debate” that includes demand-side companies, financial institutions, civil society organizations, and future generations. In concrete terms, what kind of process do you envision?
Kae: The main point is that the process for selecting advisory council members is too opaque, and I don’t think the councils are functioning as true deliberative bodies. In international examples, the selection process for council members is often outsourced to third-party organizations. They ensure not just gender balance but also a balance in expertise that represent the full range of stakeholders. That way, policymaking will be a result of genuine discussions, not foregone conclusions.
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