• Virtual Power Plant
  • Energy Policy
  • Energy Transformations
  • Energy Resources

Virtual Power Plants Can Help Japan Meet Its Energy Goals

Dan Power
Jul 07, 2022

Guidehouse Insights

Over the past two decades, Japan has been in the process of reforming its electricity market structure to facilitate more competition between energy suppliers to improve service to customers. A feed-in tariff scheme for renewable generation was created to encourage renewable energy development and increase the renewable energy capacity acquired by utilities as the country looked to move away from nuclear sources. After more than 10 years of those tariffs, the country saw an increase in generation from renewable sources but because of supply-side volatility and recent global energy supply concerns, the country is exploring all possible methods to increase its self-sufficiency, firm up its generation mix, and reduce emissions.

New Regulations and Markets Present Opportunities for Virtual Power Plants

Japan’s government has taken several steps to further foster competition in the nation’s newly established electricity markets. In April 2020, the nation’s ten vertically integrated electric utilities were unbundled, separating their transmission and distribution businesses from their generation businesses. This was done to increase competition in the energy markets; however, the incumbent utilities have dominated the markets in the 2 years since, despite many new electricity retailers registering with the government. In April 2022, a new wholesale license for the aggregation of electric power resources went into effect, opening the door to more distributed energy resources (DER) aggregations participating in the nation’s electricity markets. Those using the new license would aggregate and adjust electricity of DER and then sell to electricity retailers or other buyers. 

Virtual Power Plants Are Versatile Energy Resources

Moving forward, Japan’s Sixth Strategic Energy Plan, published just prior to COP26 in late 2021, increases the share of power generation it is targeting for renewable sources and does not increase the share it is seeking from nuclear power by 2030 compared with the previous iteration. Virtual power plants (VPPs) represent an opportunity for Japan to capitalize on the increases in renewable energy capacity already connected to its grid and to increase its energy resilience in the wake of more frequent natural disasters. Because VPPs are distributed in nature with no single point of failure, they can be more resilient than centralized generation sources during adverse events such as natural disasters. 

Japan imports more than 90% of the resources needed to meet its energy needs, meaning it is heavily dependent on other nations. VPPs can use resources already connected to the grid and can overcome some of the challenges associated with increasing renewable energy capacity presented by the nation’s geography, all while maintaining reliable grid operations. In densely populated cities such as Tokyo, Osaka, and Nagoya, VPPs can also be used to defer or replace the need for traditional grid infrastructure upgrades that may otherwise be expensive and time consuming. VPPs can help Japan harden its energy supply and establish its energy independence while reducing and eventually eliminating greenhouse gas emissions from its power sector.