White & Case Tokyo office’s Webinar series is bringing together the Firm’s partners and industry experts to explore how digital transformation (or DX) and green energy transformation (or GX) are likely to affect strategic business decisions in Japan, Asia, and globally.
This article highlights the key points discussed at the first session of the DX and GX series: How technology can accelerate the green energy transition.
Arthur Mitchell, Senior Advisor was joined by Paul Harrison, Partner, Project Development and Finance and Dr. David Albagli, Local Partner, Intellectual Property to explore the status of energy transition along with real-world applications of the technologies supporting green transition.
Big Picture: Will recent events cause GX to slow down or speed up in Japan?
The ambitious climate goals set at the recent COP26 summit are reflective of the significant push towards accelerating energy transition in recent years. Five months on from COP26 however, the global energy landscape has shifted dramatically as a result of major supply chain disruptions caused by recent global events.
As a nation that relies primarily on imports for its energy supply, Japan is reevaluating its energy security plans.
“In 2015, METI announced that as part of its energy policy, Japan should observe the principle of 3E+S: energy security, economic efficiency, environment and safety. While the consideration of each of these elements has always been part of a ‘balancing act’, in large part due to the war in Ukraine, increased weight is now being given to energy security. …. Whilst the reality is that the world is still 80% fueled by hydrocarbons, the decreasing costs of producing green energy (such as solar and wind) means that there is an alignment between economic efficiency and the environment,” Paul Harrison noted.
Paul went on to observe that although businesses and nations will still be committed to GX in the long-run, especially to meet the 2030 and 2050 carbon neutral targets, in the short-term there will likely be a higher dependence on hydrocarbons in order to meet energy security needs.
This view is consistent with trends emerging in other developed nations such as the US, UK and Germany where imminent energy security demands are being met through a continued reliance on hydrocarbons, at least for the immediate future.
Japan’s green energy developments
Arthur Mitchell discussed Japan’s evolving basic energy policy and legal regulatory framework for green energy further with Paul, with a particular focus on recent key developments.
Paul noted that, “As a highly industrialised nation with a lack of hydrocarbon resources, there has historically been a dependence in Japan on imported oil and gas. Post-Fukushima, there has also been a significant decrease in the nation’s nuclear fleet from around 30% to around 10% of the energy mix. While there was previously a strong focus on onshore solar power, with the feed in tariff (FIT) regime being particularly successful in mobilising the solar market, the focus has shifted towards offshore wind with a number of ongoing auction processes in recent times.”
Paul added that, “In terms of the legal and regulatory developments, these may considered in light of the two parallel processes in the market. First, there are the various inputs into the power mix, and second, there are considerations as to how the electricity generated is being sold into the grid.”
Some notable recent developments discussed also included the following:
- The shift from the FIT regime to the feed in premium (FIP) regime as of 1 April 2022 is intended promote green energy usage. The FIP is a payment received by supplier of renewable power on top of the price they get paid in the wholesale market.
- There is a higher focus on the functioning wholesale market as approximately 30% of the country’s power is now sold on the JEPX wholesale market.
- The regulatory regime is being further liberalised, making it easier to enter into corporate PPAs (long-term contracts under which a business agrees to purchase electricity from an energy generator, rather than from a retailer).
- Significant research and development (R&D) efforts are continuing to be made by Japanese entities in the hydrogen industry (both upstream and downstream), as supported by the Japanese government.
Considering these developments together, the market is seeing a greater flexibility and creativity in terms of producing and purchasing green power and there is a clearer path being created to meet the 2030 and 2050 targets.
Block chain and the energy industry
While block chain technology is most commonly associated with crypto-currency, it will likely have a range of applications in the energy industry in the coming years. “There is really a lot more to block chain …than many people in the market recognise”, David Albagli noted.
David highlighted the use of block chain in a range of new platforms including that of White & Case’s client MineHub and SAP’s GreenToken, which assist in the tracking and tracing of minerals and raw materials including, for example, hydrogen molecules.
Additionally, there are an ever-growing number of applications for block chain and smart contract technology, which have the potential to revolutionise the way in which electricity is distributed and traded—along the path from generation to consumption.
Some of the more notable uses of block chain in the energy sector include:
- Validating carbon credits or certificates generated from operating renewable assets, along with enhancing the viability of trading in these commodities.
- Smart contracting platforms, which enable the types of direct peer to peer and peer to grid trading activity that will underpin ‘smart grids’.
- Enhancing metering and billing, through providing more accurate and transparent usage information to both providers and consumers.
- Aiding in the distribution of energy and distributed control of networks. Block chain and smart contracts, when used in tandem with software, can be used to manage grid distribution and storage systems, such as batteries, as well as support other ancillary services.
- Building greater trust with customers through verified and transparent supply chains, which will allow consumers to track energy from generation to consumption.
Supply chain and tech in Japan
Japan has recently passed a new economic security bill that focuses on supply chain resilience, security and reliability of critical infrastructure, public-private technology cooperation and a non-disclosure system for selected patent applications that may pose a risk to national security. This will cover critical emerging technologies such as artificial intelligence (AI) and quantum computing, along with access to certain raw materials that underpin the modern economy.
David offered his perspective on the challenges for Japan on the advanced technology front: “When looking at advanced technology, the first two areas that come to mind would be AI and the internet of things (IoT)…They provide an interface from software to hardware, which brings its own unique issues. But, nonetheless we are seeing these technologies power forward with many applications in robotics, autonomous vehicles and medical devices which are really moving the frontier of technology forward.”
The other aspect of advanced technology concerns intellectual property, David noted. Fundamentally, AI is software and the question becomes whether the typical forms of protection for software – such as copyright, patent, trade secrets – are adequate for software itself as well as the new challenges that AI brings. For example, who has access to, and ownership of, training data and whether the output material can be copyrighted or patented, and if so, who is the author or inventor? These issues will be further discussed in upcoming sessions of the DX/GX series.
Focus on AI
In terms of AI, David noted that AI and the power of software are going to come into play in the energy industry to assist with the integration of energy supply, demand and renewable sources into the electricity grid. While new uses are constantly emerging, examples of AI applications in the energy sector currently include:
- Energy planning, control and demand-side management: To balance grid stations, manage load demand requirements, enable self-healing of the network, negotiate actions and facilitate new services and products.
- Load demand forecasting and supply management: David highlighted that AI has potential applications in “forecasting or at least anticipating where things are moving in real time, so as to allow one to shift load, reduce it, or otherwise control [a network] in real time in an efficient way”.
- Predictive maintenance: To have AI enabled predictive maintenance algorithms to analyse, collect and use data from different manufacturing sources such as sensors, machines and switches in order to better control how the equipment is used and preempt any failures.
Outlook on GX and DX
In terms of integrating new technologies with the green energy transition, the Japanese government is taking the approach to back various R&D efforts of Japanese companies. Using the hydrogen economy as an example, Paul noted that both governments and lenders have to take a view on which technologies to “back” as it is still unclear which technologies will become successful in both the upstream and downstream supply chains.
Despite the short-term setbacks resulting from the recent energy crisis and subsequent supply chain issues, it is unlikely that the green energy transition will lose its traction in the long-term. In view of this, multiple areas of new technology are continuing to be integrated into and utilised within the energy industry. Although GX, aided by DX technologies, will be a gradual process, both DX and GX are certainly progressing in the right direction to make an impact especially if coupled with the appropriate legal and regulatory reforms and frameworks.