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Unlocking Geothermal Potential in Japan Through Small-scale Generation

MD Staff

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Thousands of natural hot springs (or onsen) dot Japan’s countryside, providing a haven for relaxation and contemplation for millions of people. For thousands of years, they have been an important part of the historical and social fabric of the country, and they are represented everywhere from famous ukioy-e woodblock prints from the 18th century to contemporary sitcoms.

Today, however, they have the potential to be an important part of the transformation of Japan’s energy sector, with a power output equivalent to 23 megawatts (MW) lying beneath the surface in the form of geothermal energy, the world’s third-largest store. The world’s installed capacity for geothermal power was 12.9 gigawatts (GW) in 2017, with a levelised cost of electricity (LCOE) for recent projects ranging from USD 0.04 to around USD 0.13 per kilowatt-hour.

Geothermal power plants are not new to Japan.  The first geothermal plant in the country opened in 1924 in Bepphu, with the steam also being used to heat houses and cook food in restaurants.  However, it wasn’t until 1952 when Japan’s first commercial geothermal power station opened, in the city of Hachimantai in northern Japan.  Built by Japan Metal & Chemicals and with turbines by Toshiba, the plant originally provided about 9.5 MW of power, about 40% of its output today, with the residual hot water used for agricultural applications.

Today, Toshiba is the world’s largest supplier of geothermal turbines, followed by Mitsubishi and Fuji, also Japanese companies.  Japan is also one of the world’s largest developers of geothermal projects outside of the country. In Indonesia, Japanese companies are currently financing and building the Sarulla plant, whose output once completed will be 320 MW, the world’s largest.  Japanese companies also support Kenya’s geothermal-powered energy transformation, providing turbines, supplying equipment, and constructing mega-projects like the 158 MW Olkaria V steam power plant in Naivasha.

But despite Japan’s technical and construction preeminence and its significant energy potential, there are only around twenty geothermal plants in Japan, with a total output capacity of around 535 MW, only 0.3% of the country’s total electricity generation.  High upfront costs and rigorous regulatory processes are some of the reasons that the Wasabizawa plant, currently under construction in Akita prefecture, is the first large-scale geothermal project in about 20 years.

However, in the wake of the Fukushima nuclear disaster the Japanese government introduced new policies to accelerate geothermal power plant deployment. These included streamlined procedures for the approval of projects in national parks and, crucially, a new higher feed-in tariff (FIT) for small geothermal plants to more than one-and-a-half times of that of larger facilities.  This made it profitable to build plants with an output below 7.5 MW, which do not require environmental impact assessments and can be built in around half the time of larger plants.

These policies have not been unopposed. More than half of the geothermal sources are located around national parks or near the country’s 27,000 thermal springs that onsen rely on for their hot water supply.  Critics believe that geothermal projects will adversely affect water supply or quality, or that the plants will have a detrimental impact on hot spring resorts or national parks.

As a result, an important role of the small-scale geothermal plants built since 2012 has been to work closely with onsen operators, hotels and inns to prove that small-scale geothermal power generation can coexist with tourism facilities, without negatively impacting Japan’s natural beauty.

The first geothermal plant established within a national park was in the Tsuchiyu Onsen hot spring resort in Fukushima city.  The plant uses binary cycle geothermal power generation, which relies on working fluids with a boiling point lower than water, such as ammonia or certain hydrocarbons, to drive the turbines. Small-scale binary plants are compact and can take as little as one year to build, and, with a wide distribution of the required low-medium temperature geothermal resources across the country, there is huge potential for this power source to grow in Japan.

The 2011 earthquake, tsunami and related nuclear accident, had a devastating effect on Fukushima, and on Tsuchiyu Onsen.  Aside from the catastrophic impact of the events themselves, the onsen saw a sharp drop in tourists and subsequent closure of a number of ryokan (traditional Japanese inns).  Undaunted, local residents determined to rebuild the town, forming the TsuchiyuOnsen Town Reconstruction and Revitalization Council to lead the creation of an eco-town relying on locally-available clean energy.

According to Katsuichi Kato, President of Genki Up Tsuchiyu, the company in charge of the geothermal power plant, the town started virtually from scratch, without any local expertise in binary power generation, and with substantial administrative and financial hurdles to overcome.  Despite this, the town remained resilient and all stakeholders—from ryokan and onsen tourism operators to those in charge of the power plant—worked together to bring about a “miracle”. As Mr. Kato put it, “When forced to stand at the edge of a cliff, unprecedented wisdom and power can arise, but you must have courage, determination and responsibility to make your vision of the future happen.”

For Mr. Kato, the success of the project hinged on the fact that the council developed the plant not solely as a profitmaking venture, ceding control and operations to outside experts, but as a revitalization exercise for the whole town.  This, he believes, imbued it with the sense of purpose and cooperation necessary to rally the spirit of the town to work together to develop a model for an eco-friendly town where benefits are shared.

And benefits there are.  According to Mr. Kato, the geothermal plant has been a boon to tourism, adding to the number of people coming to visit the onsen for recreation or health purposes.  This is supported by others, including Mr. Kazuhiro Watanabe, owner of the Sansuiso Tsuchiyu Spa, who points out that thousands of people come from all over Japan each year to learn about how the binary plant does not affect the onsen water, bringing a new source of income. As an added bonus, the warm waste water from the binary power plant is supporting aquaculture of giant river prawn. The prawn are served in local hotels and restaurants, and can also be fished by tourists.

Other projects have emulated the success of the Tsuchiyu Onsen geothermal plant. For example, in 2014 the 2 MW Kumamoto geothermal plant, built by Chuo Electric Power Company, was developed in close cooperation with a local hot spring company Waita-kai and the Oguni resort. In March of this year, oil company Idemitsu Kosan launched a 5MW binary facility in Oita prefecture. A 7 MW plant in Iwate prefecture is expected to begin operation later this year, and is being developed by a venture that includes Japan Metal & Chemicals.  Tokyo-based financial services company Orix plans to develop up to 15 small-scale facilities throughout the country, starting with a 4.4 MW plant on the island of Hachijojima in 2022.

Another innovative new approach is a small 70 KW power generator the size of a small freight container that uses hot springs already tapped for hotels and inns to produce power. Developed by Kobe Steel, the system is being introduced in hotels such as the Yufuin Spa in Yufuincho, who can expect to recoup their initial investment in only four years under the government FIT.

Strengthened research and development, especially with regards to binary and other low temperature systems, can further increase efficiency and reduce the environmental footprint of geothermal plants, while actively engaging onsen and tourism operators as partners in plant development will ensure mutual benefits while reducing negative perceptions.

For Japan, already a global leader in renewable energy technologies and development, that is looking to reduce the risks associated with nuclear energy and the costs and air pollution associated with fossil fuel imports, domestic geothermal energy development can be a win-win scenario.  Japan also has a lot to share in terms of its experience and innovations, and can take advantage of global platforms like the International Renewable Energy Agency and the Global Geothermal Alliance to continue to help other countries develop their own geothermal capacity.

IRENA

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Attack on Saudi oil facilities: Consequences and solutions

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As expected, oil markets started Monday trading with an unprecedented jump in prices following the attacks on Saudi Arabia’s oil facilities which wiped nearly five percent of the global oil supply from the market.

Drone attacks claimed by Yemen’s Houthis on Saturday struck two of Saudi Aramco’s major oil facilities in Khurais and Abqaiq – the world’s largest oil processing facility and crude oil stabilization plant.

Now, few days after the attacks, global oil markets are waiting to see how the disrupted oil is going to be compensated for.

 Will Saudis be able to get their production back to its full capacity in a short period of time? If not, what are the options for replacing the lost barrels to keep the market in balance?

The market’s reaction

A few hours after the strikes, Aramco released a statement confirming that production of 5.7 million barrels of crude (more than half of the kingdom’s output) was affected by the attacks.

Aramco’s statement sparked a wave of panic in the oil markets across the globe, causing for bets on oil prices to go as high as $100. 

As it was expected, in the first minutes of the Monday morning trades, Brent crude jumped $12 to reach $71 per barrel, posting its biggest ever surge in a day.

The market’s significant reaction to the incident could also be translated as an indication of the skepticism about the promises of recovery by the Saudis or vows of taping into emergency oil reserves by the United States. 

It is also a manifestation of yet another aspect of the world’s energy cycle, that is the realization a

bout the vulnerability of the global oil market and the magnitude of the impact of geopolitical factors on this market.

As Ed Morse from Citigroup Inc. wrote in a research note, “No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure — that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil.” 
So, despite all the reassurance, oil markets around the world are once again overshadowed by the geopolitical risks and at least for some time the geopolitical risk premium will be seen in the oil prices.

Replacements for the lost oil

Many analysts and experts believe that Saudi Aramco won’t be able to get all the lost capacity back over a short period of time and it would at least take a couple of weeks to get back to the full capacity.

Considering the worst case scenario, some analysts believe that the oil market should be looking for new sources of crude supply in case the damage to the Aramco facilities turn out to be more than what is seems and the Saudi’s oil production takes more time than expected to get back to its full capacity.

One option, as previously mentioned, is the U.S. emergency reserves which Trump has promised to release to balance the market. However, analysts believe that such an action will likely not be taken in the short term.

“I don’t think a release is imminent,” Bob McNally, president of Rapidan Energy Group, told S&P Global Platts. “Everything depends on how much damage has been done and how long will it last.”

There is also the matter of distance and time, as Sandy Fielden, analyst at Morningstar puts it, “It takes 19-20 days to ship Ras Tanura (Saudi) to Singapore, but 54 days from Houston to Singapore. So U.S. ‘relief’ will take time.”

It should also be mentioned that, although the U.S. strategic reserves are estimated at about 625 million barrels, but its offshore borders have restrictions on oil transportation. As the U.S. Department of Energy said in a report in 2016, the United States could release up to 2.1 million barrels a day from its strategic reserves.

Another option which is more likely in the short term is Saudi Arabia’s own reserves in countries like China and Japan, but with the kingdom’s limited reserves, the loss could only be replaced for approximately 30-45 days, according to McNally.

“Saudi Arabia has about 188 million barrels of oil stockpiled, which can offset the 5-million-barrels of lost oil only for about 37 days,” McNally said.

Even if Aramco manages to recover 2 million barrels of the disrupted capacity in short term (as they have claimed), the other 3.7 million barrels should be supplied from the reserves.

So if the oil which has been disrupted is not replaced before the company’s stored supplies end, the market would go into an even more complicated situation.

Finally, some other believe that the easiest solution is to waiver the Iranian oil.

 “The obvious short-term fix would be waivers on Iran sanctions, but politically that’s a hard pill for the Trump administration to swallow. By all accounts the Iranians have tankers full of storage ready to go,” Sandy Fielden said.

Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University also believes that Iran could be a reliable source of additional supply in case the disruptions prolong.

From our partner Tehran Times

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Energy and Poverty

Todd Royal

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Energy and poverty are intertwined. In the last ten years India according to the United Nations (UN) 2019 Multidimensional Poverty Index, lifted over 270 million Indian citizens out of extreme poverty; since they acquired growing electrification and access to energy. But many nations believe chaotic, intermittent renewables – mainly wind and solar – will achieve these results. Meanwhile, the world watches passively while the weaponization of energyled by China, Russia and Iran (CRI) is teetering Asia towards memories of 1939 and the emergence of World War III.

Europe and the U.S. wholeheartedly believe renewables will power billions in China, India, Africa, and Asia hungry for energy and electricity. Europe even welcomes with open arms, Iranian terrorist-monies for their dispirited economies. What the U.S. should do is “drown the world in oil.”Build power plants, and watch the planet flourish with affordable electricity. Nations need energy now.

Whoever controls energy – mainly oil, natural gas, coal and increasingly nuclear power – rules with either an iron fist or a benevolent one? But the world is in a stage of chaotic order with CRI challenging the US-led liberal order in place since the end of World War II (WWII). Energy is the new superpower.

Never before has energy and electricity played the leading role in alleviating poverty. Social order, religion, and family structure are still important – though all three are under attack over environmental extremism – but nothing has done more for human achievement, increased life expectancies, and ameliorating hunger like access to oil, natural gas, and coal that brings scalable, reliable affordable, abundant and flexible energy and electricity.

Allowing the Guardian newspaper, and green clergy parading as environmentalists such as Bill McKibben, Paul Ehrlich and John Holden to determine energy policies that lead to poverty is evil and shameful. These men then attack human reproduction, productivity, longevity, and technological progress through delaying or crushingenhanced infrastructure projects.

Renewables and believing an existential crisis exists via climate change when there are serious doubts (research the Oregon Petition and Marc Moreno for starters) won’t stop CRI from becoming the new hegemonic powers. Even NASA has admitted it is the sun that affects the earth more than burning fossil fuels. Then the last seventy five years of fighting poverty will be overturn over dubious, global warming claims, and relying on the sun and wind for electricity backed up by fossil fuels onto electrical grids.

We have entered the era of allowing Al Gore-types (whose predictions and science are generally wrong) to set national security, foreign policy, and realist balancing based on inaccurate predictions of the weather. But the former U.S. Vice President isn’t the only doomsayer whose global warming/climate change prognostications are deceptively incorrect. This has profound implications for energy, poverty, and global peace.

Renewables, and setting energy polices based on global warming/climate change only leads to poverty and geopolitical chaos. Poverty is now in the form of:

“Trillions in subsidies, rocketing power prices, pristine landscapes turned into industrial wastelands, wrecked rural communities and bird and bat carnage.”

The U.S. and European led “Green New Deals” will destroy humanity, and lead to backbreaking poverty. It’s why India has chosen reliable, affordable coal-fired power plants over solar and wind farms for electricity. China is following India’s lead, and slashing renewables, clean energy and technology subsidies by 39 percent; and building coal-fired power plants at a record pace.

Chinese has even used “green finance” monies for coal investments.Overall “global renewable growth (and investment) has stalled,” particularly in Europe.Why are global subsidies, production credits and tax incentives for renewables are being cut by governments and private investors?

Solar and wind have led to electrical grid blackouts in Australia, Britain, New York City, and grid instability in U.S. state, Texas, and substantially higher electricity costs. Additionally, renewables cannot replace the approximately6,000 products that came from a barrel crude oil.

Renewables (solar and wind) will never be enough for decades ahead to power modern, growing economies, or countries, and continents such as China, India and Africa, which are emerging from the energy and electrical dark ages. A city, county, state, nation, or continent needs reliable electricity 24/7/365, and renewables are chaotically intermittent. U.S. energy firm Duke Energy now believes solar farms are increasing pollution; Michael Shellenberger, Time Magazine environmental hero recipient echoes the same sentiments. Mr. Shellenberger also includes wind power with solar increasing emissions.

Moreover, renewable investments are plummeting, because unless electricity markets are skewed towards favoring renewables, the entire market for solar and wind produced electricity breakdowns. Then the entire renewable to electricity model relies on energy storage systems that do not have enough capacity or technological progress currently available to provide uninterrupted, on-demand electricity to all ratepayers and recipients from the grid.

It energy-nihilism to think, or believe storage from wind and solar will generate affordable, reliable, scalable, and flexible electricity. If fossil fuels are replaced on a large-scale basis it will lead to increased pollution, higher than average levelized cost of electricity, grid instability, environmental destruction, and poverty. This why most people don’t want renewables near them; meaning, there isn’t a green transition-taking place.

But geopolitics is where energy and poverty collide, and renewables replacing fossil fuels based on the overarching belief of anthropogenic global warming (whose climate models consistently fail) is how the global instability could deepen and grow.

According to the Bloomberg Economic gauge, China’s economy is dramatically slowing, “due to its vast self-made problems.” Which means as long as President Trump is in office the U.S.-China trade war will continue. The U.S. is winning, and Iran is still in Trump’s and the U.S.’ “crosshairs.” Both strategies receive negative media attention, but are causing geopolitical consternation. China and Iran will forcefully respond.

Nations and governments better have policies in place for energy and electrical stability to counter renewables instability, and the nation-state rivalry occurring between the U.S., NATO, and Asian allies against CRI. Either reliable energy will be chosen, or geopolitical wars over blackouts leading to lower military preparedness will happen. Either way energy and poverty are intertwined, or poverty can be defined as lower per-capita-GDP leading to conflicts that destroys countries. Choosing renewables and global warming-based energy policies will likely lead to poverty and possibly wartime catastrophes.

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Rethinking Energy Sector Reforms in a Power Hungry World

MD Staff

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Every country aspires to provide reliable, affordable, and sustainable electricity to its citizens. Yet during the past 25 years, some countries made huge strides, while others saw little progress. What accounts for this difference?

A new World Bank report—Rethinking Power Sector Reform in the Developing World—looks at the evidence on the ways in which developing countries have attempted to improve power sector performance and on what the outcomes have been.

Since 1990, many countries embarked on market-oriented power sector reforms that ranged from establishing independent regulators and privatizing parts of the power industry, to restructuring utilities and introducing competition. Each of these reforms has a story to tell.

Regulation: Regulation proved to be the most popular of the reforms, with about 70 percent of developing countries creating quasi-independent regulatory entities to oversee the task of setting prices and monitoring the quality of service. Although many countries enacted solid legal frameworks, the practice of regulation continues to lag far behind. For example, while almost all countries give the regulators legal authority on the critical issue of determining tariffs, this authority is routinely overruled by the governments in one out of three countries. While three out of four countries have adopted suitable regulations for quality-of-service, these regulations are only enforced in half of the cases.

Privatization: Thanks to the widespread adoption of Independent Power Projects, the private sector has—remarkably—contributed as much as 40 percent of new generation capacity in the developing world since 1990, even in low-income countries. However, the privatization of distribution utilities has proved much more challenging. Latin American markets drove an initial surge in the late 1990s, but there has been relatively little impetus to continue subsequently. Where distribution utilities were privatized, countries were much more likely to adhere to cost-recovery tariffs. Many privatized utilities also operate at high levels of efficiency; and their performance is matched by the better half of the public utilities. Irrespective of ownership, more efficient utilities have adopted better governance and management practices, including: transparent financial reporting, meritocratic staff selection, and modern IT systems.

Restructuring: Most developing countries continue to operate with vertically integrated national power utilities that operate as monopolies. Only one in five countries implemented both vertical and horizontal unbundling of utilities, separating out generation from transmission and transmission from distribution and creating multiple generation and distribution utilities. Restructuring is intended primarily as a stepping stone to deeper reforms, and countries that went no further tended not to see significant impacts. Indeed, restructuring of power systems that are very small and/or poorly governed—as in the case of many Sub-Saharan African countries—can actually be counter-productive by reducing the scale of operation and increasing its complexity.

Competition: Only one in five developing countries has been able to introduce a wholesale power market during the past 25 years, in which generators are free to sell power directly to a wide range of consumers. Most of these power markets are in Latin America and Eastern Europe. Such countries have reaped the benefits of more efficient allocation of generation resources, but they have typically needed to introduce more incentives to ensure adequate investment in new capacity. A demanding list of structural, financial, and regulatory preconditions for power markets prevents most other developing countries from following suit. Such a transition is rarely possible until power systems reach a size of around 3GW and a wholesale power turnover of around US$1 billion. For countries that are not yet ready, participating in a regional power market can bring many of the benefits of trade.

Reflecting on these experiences leads to conclusions that can inform future efforts to improve power sector performance. The main takeaways from the study are as follows.

Power is political: The implementation of market-oriented power sector reforms raises political challenges. Many countries announced reforms that did not subsequently go through, and some countries enacted reforms that later had to be reversed. In practice, electricity reforms proved to be most feasible in countries that already espoused a broader market ideology and in political systems based on the decentralization of power. Reform champions often played a crucial role in driving the change process, but broader stakeholder alignment proved to be equally important for reforms to be sustained in the longer term. For example, in the Dominican Republic, a far-reaching market-oriented reform was enacted in an unsupportive political environment and a turbulent macro-economic context that eventually led to the renationalization of the power utilities.

Starting conditions matter: Market-oriented reforms are complex and presuppose a power system that is already largely developed, adequately governed, and financially secured. Countries starting from this vantage point generally saw quite positive outcomes from power sector reform. But those that embarked on the process before these basic conditions were in place faced a much more difficult trajectory, with outcomes that often fell short of expectations. Thus, market-oriented power sector reform led to much better outcomes in relatively developed middle-income countries like Colombia, Peru, or the Philippines, than in more challenging environments such as Pakistan or the Indian State of Odisha. For example, in Peru, the power sector was fully restructured by 1994; private sector investment substantially increased in generation, transmission, and metropolitan area distribution networks, amounting to about $16 billion over 20 years. The creation of an effective sector regulator and wholesale power market institutions has driven the efficiency of the Peruvian power sector to best-practice levels and led to a significant reduction in the cost of energy.

One size does not fit all: Power sector reform is a means to an end. What ultimately matters are good power sector outcomes, and there may be different ways of getting there. Among the best-performing power sec­tors in the developing world are some that fully implemented market-oriented reforms, as well as others that retained a domi­nant and competent state-owned utility guided by strong policy mandates, combined with a more gradualist and targeted role for the private sector. This reality makes a case for greater plural­ism of approaches going forward. In Vietnam, for instance, the central policy focus was on achieving universal access to electricity and rapid expansion of generation capacity to achieve energy security in a fast-growing economy. These objectives were achieved through strong leadership of state-owned entities, complemented by gradual and selective adoption of market reforms and targeted private sector investment.

Goal posts have moved: It used to be enough to achieve energy security and fiscal sustainability, but countries now have more ambitious 21st century policy objectives, notably, reaching universal access plus decarbonizing electricity supply. Market reforms can be helpful in improving the overall efficiency and financial viability of the power sector, and in creating a better climate for investment. However, they cannot—in and of themselves—deliver on these social and environmental aspirations. Complementary policy measures are needed to direct and incentivize the specific investments that are needed. For example, in Morocco, an ambitious scale-up of renewable energy was achieved through the creation of a new institution parallel to the traditional utility, with a specific policy mandate to direct private investment toward the achievement of government policy goals.

Technology disrupts: Rapid innovation is transforming the institutional landscape through the combined effect of renewable energy, battery storage, and digitalized networks. What used to be a highly centralized network industry is increasingly contested by decentralized actors. These include new entrants and consumers who may have the ability to generate their own electricity and/or adjust their demand in response to market signals. How this ultimately reshapes power sector organization will depend on the extent to which regulators open up markets to new players and reconfigure incentives for incumbent utilities to adopt innovative technologies.

In sum, a nuanced picture emerges from the experiences of developing countries that have aimed to turnaround power sector performance in the past 25 years. Drawing on this wealth of historical evidence, and informed by emerging technological trends, this report offers a new frame of reference for power sector reform that is shaped by context, driven by outcomes, and informed by alternatives.

The complete report can also be accessed at http://www.esmap.org/rethinking_power_sector_reform

World Bank

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