Government-affiliated think-tank the Institute of Energy Economics Japan (IEEJ) has emphasised the need to add value to biomass power projects in the country, as it will be difficult to reduce biomass power generation costs to a level that can compete with wholesale electricity prices under current market conditions.
The IEEJ expects capacity expansion of renewable power sources such as solar to continue to cap a rise in or dent wholesale electricity prices. This will make it even harder for biomass power to gain a competitive edge, as the fuel's generation costs have been high compared with thermal power sources.
It is important to find out other values and applications of the fuel besides energy production and create a mechanism to better recognise those values and uses, the IEEJ said on 27 August at the second meeting of a study group under the trade and industry (Meti) and agriculture and forestry (Maff) ministries.
The cross-government group was set up in July to study the best way to reduce biomass fuel procurement costs, which account for around 70pc of total power costs, while ensuring stable and sustainable supply of the fuel.
It is necessary to make efforts to reduce biomass fuel costs but given a lack of competition in the wholesale electricity market, it is also important to look at other values and uses of the fuel, the IEEJ said.
Biomass power generation can be used to adjust power demand fluctuations, which should offer benefits more than value per kWh, the IEEJ said. Co-generation of heat and power and the local production-local consumption model will also add value to biomass power operations, it said.
The IEEJ also stressed that biomass power projects will help stimulate the country's forestry industry, such as through the development of carbon resources, and expand the fuel's use beyond building material applications.
Possible contributions from such projects to environmental, social and governance, and sustainable development goals, as well as to forest environment conservation, are another priority.
Most Japanese biomass power projects are currently supported by the country's feed-in-tariff (FiT) scheme, which ensures power firms can sell electricity for 20 years at a fixed price. The feed-in-tariff committee under Meti decided this year to keep power firms' purchasing costs of electricity from a woody biomass plant with less than 10MW capacity under the FiT scheme at ¥24/KWh ($227.65/MWh) in the April 2020-March 2021 fiscal year.
The FiT price for a woody biomass power plant with more than 10MW capacity is decided through a tender system. But the 2019-20 tender failed to award any projects because of high bid prices. The 2020-21 tender is scheduled to be concluded in late December.
But concerns are rising in the biomass power industry over continuous and stable operations after the FiT support period ends. This has prompted industry participants to reduce biomass power costs to achieve a selling price of around ¥15/kWh (14¢/kWh), similar to gas-sourced electricity.
Only three of 54 biomass power firms, or 5.6pc, can run on prices below ¥15/kWh, according to a survey conducted by Meti last year. It is possible to continue business at ¥15-20/kWh for six firms, ¥20-25/kWh for 20 firms and ¥25-30/kWh for 17 firms. The remaining eight firms need more than ¥30/kWh.
Japanese wholesale electricity prices came under pressure last year from rising solar power output and a fall in thermal fuel costs. System-wide prices for day-ahead contracts on the Japan electric power exchange averaged ¥7.92/kWh in 2019-20, down by 18.8pc from ¥9.76/kWh in 2018-19. Daily day-ahead prices rose to ¥13.98/kWh on 27 August, supported by strong electricity demand for cooling purposes. But this was still lower from a target price of ¥15/kWh for biomass power supplies.