Japanese Energy Market - Optimum Use of

Distributed Energy Resources for Demand-side Response -

Yasuhiro SAKUMA

Deputy Director, Advanced Energy Systems and Structure Division

Agency for Natural Resources and EnergyMinistry of Economy, Trade and Industry, Japan

22 April 2021

0

2000

4000

6000

8000

10000

12000

55606570 1975 1980 1985 1990 1995 2000 2005 2010 2015 2017

新エネ等

石油等

ＬＮＧ

水力

石炭

原子力

(TWh)

(FY)

3.1%

8.7%

39.8%

32.3%

7.9%

8.1%

1952

100

294

485

738

940

1056

1150Renewables (excl. hydro)

Oil

LNG

Hydro

Coal

Nuclear

Source: Energy White Paper 2019 in Japan

Power generation and supply

1,200

1,000

800

600

400

200

Based on “Outline of electric power development (METI)” and “Outline of power supply plan (METI)” Based on “Comprehensive energy statistics (METI)”2

80% Thermal power, 8% Hydro, 8% RE and 3% Nuc.

Hokkaido5GW

Tohoku14GW

Kansai25GW

Hokuriku 5GW

Kyushu15GW

Chugoku10GW

Shikoku5GW

5.6GW

Chubu 24GW

Tokyo50GW

Frequency: 60Hz

Frequency: 50Hz

16.7GW

5.6GW

5.6GW

2.4GW 1.4GW

12.6GW（Installed capacity）

0.6GW

5.6GW

0.3GW

Frequency Converter

1.2GWOkinawa

2GW

*The figures below indicates the maximum electricity demand in 2016.

3

0.6GW→0.9GW by2019

（Total Capability）5.7GW→10.28GWby2027

1.2GW→2.1GWby2020

2.1GW→3.0GWby2027

Power Grid

10 TSOs/DSOs manage grid stabilization.

Two frequency areas exist

Japan’s Responsibility for Energy Transition

4

Mission/ Background

Measures;

3”Es” + Safety

Energy trilemma

Energy security

Environment (Sustainability)

Economic affordability (Cost)

Energy Efficiency

Renewable energy

Nuclear energy

CCS + Fossil fuels

Hydrogen

5

1. Lower Cost, 2. Strengthen Grid, 3. Flexibility system

(FY)

(GW)

10.4%10.0%

10.9%

12.5%

14.3%14.6%

16.0%

0%

3%

6%

9%

12%

15%

18%

0

20

40

60

80

100

120

2011 2012 2013 2014 2015 2016 2017

Solar PV

Wind

Geothermal

Biomass

Hydro

Renewable generation ratio (right axis)

Capacity Renewablegeneration ratio

More Renewable requires 3 key actions

Interactive supply system based on both BERs and DERs

＜Electricity＞Interactive supply by DERs, using IoTtechnology

＜Heat＞Flex. and sharing energy consumption

＜Players＞Liberalization encouraging various companies to enter the market

Energy system reform

Non-interactive supply systembased on bulk electricity resources (BER) and large-scale transmission

＜Electricity＞One-way supply by thermal power generation, varied with demand

＜Heat＞Not consumed enough

＜Players＞Vertically integrated companies

Past Current and Future

6

Consumer

Generator

Retail

Generator

Retail

Consumer

Transmit/Distribute

Transmit/Distribute

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

100

200

300

400

500

600

700

800

900

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

1st half(Left)

2nd half(Left)

Cumulative capacity(Right)

7

Steady growth of DER’s market in Japan

Existence of post FIT solar PV in 2019 happened. 2GW solar PV in household graduated from FIT in 2019. Residential PV in Post-FIT will reach 7GW in 2023.

Lithium-Ion battery storage in behind the meter marked market record of annual additions, 800MWh in 2019. Cumulative battery storage-BTM reached 3GWh at the end of 2020.

LiB market (Behind the Meter BS)

（MWh）

0.5

0.7

1.0

1.3

1 Million

0.4 Million

0.2 Million

0.6 Million

0.8 Million

1.2 Million

1.4 Million

1.6 Million

Cumulative No.

1 GW

2 GW

3 GW

4 GW

5 GW

6 GW

7 GW

8 GW

Cumulative Capacity 1.7

Household Solar PV (Post FIT)

EV × V2X

Local governments

Residents

TSO

V2H

Repurposing Batteries. V2G

Offices／Bus Com.／Transport Com.

V2B

3. Solar PV Prosumers

5. Flexibility resources for grid stabilization

1. Emergency power sources for blackout

V2B

6 EVs/PHEVs in V2G site

80 EVs/PHEVs in Kansai

4. Reducing peak demand

2. Smart charging with price signal (Dynamic Prc.)

Combination of EV and V2X enhances their values. 1.Emergencypower sources, 2.Smart charging, 3.Solar prosumer, 4.Reducingdemand, 5.Grid stabilization. Key element is EV Aggregation business.

8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0:0

0~

0:3

0

1:0

0~

1:3

0

2:0

0~

2:3

0

3:0

0~

3:3

0

4:0

0~

4:3

0

5:0

0~

5:3

0

6:0

0~

6:3

0

7:0

0~

7:3

0

8:0

0~

8:3

0

9:0

0~

9:3

0

10:0

0~

10:3

0

11:0

0~

11:3

0

12:0

0~

12:3

0

13:0

0~

13:3

0

14:0

0~

14:3

0

15:0

0~

15:3

0

16:0

0~

16:3

0

17:0

0~

17:3

0

18:0

0~

18:3

0

19:0

0~

19:3

0

20:0

0~

20:3

0

21:0

0~

21:3

0

22:0

0~

22:3

0

23:0

0~

23:3

0

システムプライス 九州エリアプライス

9

Recent transaction prices in Kyushu area

Renewables are installing rapidly in Kyushu, traded by lowest prices. Need to use lower electricity.

Source: JEPX

11:00～15:000.01JPY/kWh

［円/kWh]

System price Kyushu area price

System price and area price in Kyushu, as of 24 Feb. 2019

DR providing reserve power in severe peak time

Source: Energy Pool Japan

DR dispatched in Jan. 2021

1.8 GW Demand-side Response (DR) was awarded in TSO’sauction of reserve power.

Major resources: Large-scale loads of factories in industry sector.Requirement: 3 hours duration, 3 hour response, 12 times/year.

DR (Load curtailment) provided huge contributions in severe peakperiod in January 2021. Energy Market welcomes more activeparticipants of DR. Challenges are how to encourage large-scaleloads in industry sector to DR businesses.

4GW DR won auction in Capacity Market, which will deliver in 2024.

Source: EGC

Total DR Capacity in TSO’s auction

10

95.8 96.1 89.3

128.9

175.9

0

50

100

150

200

2017年度 2018年度 2019年度 2020年度 2021年度

960 960 890

1,300

1,800（MW）

500

1,000

1,500

2,000

Aggregation Communication Structure- protocol and cyber security -①Transmission System Operator (Demand Response Application Server) ②Retailer

Resource Aggregator

HEMS

BACnet,FL-net等

Proprietary standard

OpenADR

Proprietary standard

GW

Output control (one way)

Output control(two way)

controllerECHONET Lite

Output control

GW

Aggregation Coordinator

GW GW GW BEMS

R3

R2

R5

R4

R1

R4

R4R4

R5R5R5R5R5R5

R5

Aggregator

controller

11

TSO TSO

12

12

Third Party Aggregators enhancing DERs values

Current business model in Japan

– Major resources: Large-scale loads in industry sectors

– Major business area: Demand response in sever peak time

New business models in Japan

– New resources: Small-scale DERs (EVs, Battery Storages, Fuel Cells in Households), Solar PV, Wind, Grid-scale Battery Storages. DERs need to be cost down and market entrance.

– New business area: Balancing Market, Capacity Market, JEPX(FIP Scheme for REs), and Local Residents in Micro-Grid

Large Loads in industries

Elec. Retailers (FIP)

CHP Fuel Cells

PV Wind Grid Scale Batteries

EVs BS(FTM or BTM)

Near future

Current

Micro-grid

CHP BS

VPP national demonstration project (2016-20)

Aggregation Coordinators

Resource Aggregators

13

About 100 participants joined.

Major Resources: BTM Battery, CHP, EV, HP. Total Capacity: 60MW

Outcomes: Demand response for Replacement Reserves for FIT, Demand shift by dynamic pricing, EV aggregation (V2H or V2G)

VPP flattening demand load

VPP can reduce use during peak generation (kWh) (which is costly) and reduce the need for investment in peak operating capacity (kW) by reshaping the demand load flat.

3.8GW

Source: METI

ｌｌ7.5%

ofPeak

demand

電力供給設備量（イメージ）

×

0 8,760hHour

GW

Top 88 hours

50GW

Reduction of peak generating time (kWh value)

Reduce investment in peak capacity (kW value)

||1％ of annual hours

0 8,760hHour

GW

Top 88 hours

Peak generation

Middle generation

Base-load generation

50GW

Flattening duration curves

14

Base-load generation

Middle generation

Solar PV output produced 73% of demand in Kyushu. VPP can help solar PV to generate electricity by shifting

demand to necessary times, similarly pumped hydro storage

Demand Pumping

Solar PV output: 5.65 GW (73% of demand)

Pumped storagegeneration

Thermal

Nuclear, Hydro and Geothermal

Pumped storagegeneration

00:00 06:00 12:00 18:00 24:00

12

10

8

6

4

2

0

[GW]

15

VPP helping PV to generate power in low-demand period

Aggregators provide reserve power by controllingmultiple distributed energy resources.

VPP shifts electric power to necessary time for gridstabilization.

VPP provides new reserve power sources

16Source : KEPCO

Baseline

Demand

Dispatch Command

Resources: Thermal power, Industrial Battery, Household Battery, A/C

(kW)

Power Controlled by Aggregators

17

Market Reform Schedule

Energy market reform has been progressed. Replacement Reserves for FIT in Balancing market has opened in April 2021.

FIP scheme, new business license of Aggregators or Distributed Network Operators and new imbalance price based on JEPX price will be in force in April 2022.

FIP scheme requires aggregators to support VREs to enter JEPX.

2020FY 2021FY 2022FY 2023FY 2024FY 2025FY~

CapacityMarket (C.M.)

BalancingMarket (B.M.)

FIP scheme

License of Aggregators,

DNOs

Main auction in C.M. for

2024

Additional auction in

C.M. for 2024

Delivering in C.M.

R.R.-FIT in B.M.

R.R. in B.M.F.F.R. and

F.C.R. in B.M.

TSO’s auctions for reserve power

In force

In force

18

（Ref.）Product specification in balancing market

Frequency Containme

ntReserves

(FCR)

Synchronized Frequency

ContainmentReserves (S-

FCR)

Frequency Restoration

Reserves(FRR)

Replacement Reserves

(RR)

Replacement Reserves for FIT (RR-FIT)

Ref.Auction :

Severe peak reserve

Ref.Capacity

Mechanism

Open of Markets

2024 2024 2024 2022 20212017-2023

2024

Responsetime

Within 10 Sec.

Within 5Min.

Within 5 Min.

15 Min. 45 Min. 3 hours 3 hours

Durationtime

5 Min.or more

30 Min. or more

30 Min. or more

3 hours 3 hours 3 hours 3 hours

Minimum Capacity

5MW(1 MW Of-line)

5MW 5MW 5MW 1MW 1MW 1MW

Market specification decides who can enter the balancing markets.

Major requirements in balancing market, as of now

19

(Rf.) Transaction schedule

Balancing Market

Capacity Market

AuctionAdditional auction

4 YR before 1 YR before 1 mo. before 1 wk. before A day ahead Intraday Days after intraday

RR-FIT

RR

FRR

S-FRR

FCR

Flexibility

Wholesale MarketDay-ahead market

Intraday market Bid closed at GC

Response：within 15minDuration ：3hrs

Response ：within 5minDuration ：30min

･Ancillary services

Price

･Imbalance Price

Day-ahead spot market

Response：within 5minDuration ：30min

Response：within 10secDuration ：5min

kWh bid

kWh bid

ΔkW bidkWh bid

Bid is closed at 2pm previous day, and price must be agreed by 3pm.

Bid is closed at 2pm on Wednesday previous week, and price must be agreed by 3pm.

10am 12pm 2pm 5pm Gate Close(1 hr before delivery)

Day-ahead spot market

0am0am

Response：within 45minDuration ：3hrs

ΔkW bidkWh bid

ΔkW bidkWh bid

ΔkW bidkWh bid

kWh price Changeable till GC

Natural disasters require more resilient energy system

Damaged floating solar power plant

Collapsed transmission tower

Destroyed utility poles and fallen trees

Typoon No.15 hit Tokyo area in Sep. 2019

20

DERs making energy system more resilient

• DERs (CHP, FCV/PHEV, Battery Storage), provided electricity to the locals in Chiba Prefecture, when power outage happened.

21

給電活動の様子

Power outage in MutsuzawaWellness Smart Town

(Distributed Energy System)

FCV/PHV supplies electricityto homes

Local micro-grid system

Local micro-grid system can contribute to reducing cost to runprivate power distribution lines and improving power sectorresilience to natural disasters.

2 local micro-grid projects has been developed in Odawara andMiyako in Okinawa. 25 feasibility studies was conducted as of now.

Flexibility power system

Storage Battery

Disconnected from power grid when power outage occurs, and the micro-grid system continue to supply power.

Biomass energy

Solar PV

CHP

Load in local area

1. Local micro-grid project in Miyako• Membership: NEXTEMS, Okinawa EPCO.,

Miyako-city • Location: Miyako island, Okinawa• Resources: Residential PV, Industry-

scale BS

2. Local micro-grid project in Odawara• Membership: Kyocera, TEPCO,

Odawara-city• Location: Odawara-city, Kanagawa• Resources: Solar PV, EVs, Large-scale

loads

Local micro-grid projectsLocal micro-grid system

22

23

Conclusions

DER market development;

Residential PV in Post-FIT accounts for 2GW in 2019, and will reach 7GW in 2023.

Lithium-Ion battery storage in BTM reached 3GWh at the end of 2020.

Demand-side Response (DR);

Reducing loads by DR for severe peak time accounts for 1.8 GW in 2021.

4GW DR won the auction in Capacity Market, which will deliver in 2024.

Reshaping load curves based on JEPX prices make use of electricity from renewables. Smart charging system of EV has possibilities to improve energy system.

DR has started to enter RR-FIT in April 2021.

Micgro-grid systems can use renewables as much as possible, reduce cost to construct and run private power distribution lines, and improve power sector resilience to natural disasters.