Japan energy policy: interview for The Economist on YouTube
by Gerhard Fasol
Japan energy policy – interview outline:
Japan energy policy Question: Is the new energy policy of Japan’s Government an appropriate response to the situation or a missed opportunity
Answer summary:The Government in its new strategy summarizes Japan’s energy situation and proposes a cocktail of different energy sources. Everyone knows that Prime Minister Abe is pro-nuclear energy, but that does not mean that he is against other energy sources, such as renewables. The new energy strategy paper though misses KPIs, Key Performance Indicators. There are no many numerical targets.
Japan energy policy Question: It is often repeated that Japan is poor in energy sources, is this true?
Answer summary:Yes, that is often repeated without thinking, and thats also the case in the introduction of the new policy paper. This is only true as long as we restrict our view to traditional carbon based primary energy sources such as oil, gas, or coal. But if we widen the view to renewables such as wind, water, solar, biomass, and geo-thermal energy sources, then Japan is actually very rich in primary energy sources, and could even aim for energy self-sufficiency. Off-shore wind alone would be sufficient to make Japan energy self-sufficient.
Just by repeating the statement many times, that Japan is poor in energy sources, does not make this statement true.
The new energy policy paper also starts out by saying the Japan is poor in primary energy sources. This is not true if we widen the view to renewable energy sources.
Japan energy policy Question: Re-engineering the electricity grid. Can you explain the concept?
Answer summary:The electricity grid has evolved over many years, maybe 100-150 years. The traditional architecture of the electricity grid is a top-down one-way distribution network from large central power station such as large coal-, gas- or oil-fired power stations or nuclear power stations, to consumers. The traditional electricity grid is similar to the arteries in the human body, where there is the heart in the center, and the arteries distribute the blood to the extremities. This traditional top-down grid has served us very well for a long time, but the time as come now to evolve the grid to the next stage. There will be more distributed power generation, which feed in electricity in the opposite direction from the extremities, and there will be more intelligence in the grid.
Japan energy policy Question: How do you see Japan deal in the future with supply and demand management, how do you see electricity prices evolve in Japan?
Answer summary:With the liberalization there will be more flexibility in the pricing of electricity and supply and demand management. Prices will not necessarily go down, but will depend much more on the timing of demand, on demand/supply management, or on the value of electricity. For example, mission critical electricity consumers such as data centers or hospitals will need a different type of electricity supply, than washing machines in households. Demand/supply management and smart grid will manage the timing of less critical electricity usage.
Originally posted by ACCJ Journal on January 15, 2011 in “Chamber Events” based on a talk given by Dr. Gerhard Fasol to the Members of the American Chamber of Commerce (ACCJ) on July 12, 2010, at the Westin Hotel, Tokyo.
(c) 2011 Copyright by The American Chamber of Commerce in Japan (ACCJ). Reproduced with kind permission of ACCJ.
Dr. Gerhard Fasol, the founder and CEO of Eurotechnology Japan KK, spoke to ACCJ members about Japan’s “Galapagos Effect” at the Westin Hotel in Tokyo. The “Galapagos Effect,” for those unfamiliar with the term, is used to describe Japan’s unique culture of technology that has not expanded beyond Japan’s borders, in the same way that the Galapagos Islands exemplify unique evolutionary developments in nature.
Where Japan Leads
Investment is a prime reason why such developments as Internet-related mobile communications are so advanced in Japan. As Fasol pointed out, Japan has seven times the number of 3G base stations as the United Kingdom. Many of the related technical developments in mobile handsets that are only just coming onto the market outside Japan have been standard for many years in this country—Fasol gave high-quality camera phones as an example.
Quoting a Nokia spokesman, he claimed one reason for this leap was that Europe is conservative in regards to standards, which take a long time to develop and ratify in contrast to Japan. He amplified the Galapagos analogy by stating, “Japan is a Galapagos island, and doesn’t have to care about standards.”
Fasol also claimed that Japan is 10 to 15 years ahead of other nations in its use of electronic money. He contrasted Europe’s fragmented and overly bureaucratic nature with Japan’s, where large decisions—such as i-Mode and Suica—can be made by a mere two or three people, which may come as a surprise to those who see Japan as a bureaucratic nightmare.
The reverse side of the Galapagos effect, however, is that Japanese phones designed for the home market fail to find buyers outside Japan. Electronic money is another area where Japanese technology seems destined to remain within the borders of Japan, despite the fact it is now quite common and accounts for a relatively large proportion of currency in circulation at about two percent. Fasol claimed that the U.S. and Europe are not yet ready for the mass introduction of such a payment system like Japan. In the long term, he believes, non-Japanese global giants will probably win out over the Japanese innovators.
Shedding Light on Genius
Another area where Japan has led innovations in the commercialization of technology is the revolution in lighting, which is poised to offer new environmentally-friendly illumination options. Based on the invention of the blue LED by Shuji Nakamura, the new lighting systems are also wallet-friendly in that they offer a 6,000-fold advantage in terms of price for the same amount of light over kerosene-powered lighting, still a staple in many parts of the world.
However, Nakamura was largely ignored by the Japanese business community; he is not even named on the website of the company that employed him (Nichia), and is now working at a university in California—Tokyo University claimed they wanted more “ordinary professors.” According to Fasol, the “Galapagos effect” means that there is no room or need for geniuses like Nakamura in Japan.
Up to 1995, Japan’s economy was growing, but is now static, a unique situation within the G8. Indeed, extrapolated from present trends, South Korea’s economy could overtake Japan’s in 2022.
Japan has a huge electronics sector, from giants to smaller specialist makers with a $600 million market about the same as the Netherlands. However, the growth is almost zero compared with that of 10 years ago. The net income of the top 20 companies of the sector is actually less than that of a single U.S. company, GE or of Korean rival, Samsung. This has a disadvantageous effect on pension funds, who are the major shareholders of these companies, but the governance of Japanese corporate affairs by shareholders is much less than, say, in the U.S. Still, Japan enjoys a very large national market (unlike the UK, for example), which can help companies survive. On the other hand, this may have prevented companies from “going global” as their internal market has reached saturation. Fasol mentions rice cookers as an example of a consumer durable that is not purchased frequently, and accordingly has a relatively small and finite market footprint. Even so, every major electrical manufacturer designs and produces a range of rice cookers, with a very low profit margin of well under one percent, which may be part of the legacy of the zaibatsu (the large pre-war conglomerates). This legacy means that most present-day conglomerates feel the need to do everything—for instance, there are three global makers of trains, but ten in Japan.
The Galapagos Study Group
Fasol then went on to describe the 26-person interdisciplinary Galapagos Study Group—of which he was the only non-Japanese member—which met monthly for a year and concentrated on the mobile phone industry.
The results of these meetings were summarized in three sets of recommendations to telecom carriers, electrical manufacturers, and content companies, with the second category receiving the recommendations that Fasol described as most radical.
He surprised his listeners by saying, “I think it would be best for Japan if in five years or so there were no more Hitachi, or Fujitsu, or Toshiba.” This, of course, was not meant as a direct attack on these specific companies, but as an attack on their conglomerate nature. Instead of the current state, he suggested a move towards smaller companies, focused on profitable businesses, would be preferable and would restart growth.
On the content side, Fasol claims that Japan is the only country in the world with the intellectual and creative resources to create characters that can stand up to Mickey Mouse and the Disney empire, but has not succeeded in creating global businesses based on Pikachu or Doraemon. Accordingly, the committee made a recommendation that platforms similar to Disney be created in order to create global businesses using such characters.
Coming to Japan from the Outside
On the subject of breaking into “the Galapagos market,” Fasol pointed out that good foreign companies can succeed in Japan if they know the market. As an example, he cites traffic lights, whose specifications in Japan are controlled by the police. Any company failing to recognize this kind of local quirk, no matter what its global standing, is doomed to failure when it comes to Japan. Examples of dramatic failures he cited were Nokia, Nasdaq, and Vodafone. To paraphrase the traditional real estate tag, Fasol claimed that the three biggest mistakes foreign companies coming to Japan make are “arrogance, arrogance and arrogance.” He claimed that this has nothing to do with Japan’s closed markets, quoting the iPhone’s success as an example.
He pointed out that there are other reasons for the failure of foreign entrants. Apart from the failure to listen to customers and understand the market, reasons include partnership with the wrong joint venture partners, and the management of Japanese ventures by managers who fail to understand the country.
However, the Japanese service lifestyle, allied with what he terms a “fashion society,” is a great opportunity for outsiders to break into the Galapagos market, and Fasol claimed that foreign companies can tap Japan’s creativity and use it to their advantage.
He also claimed that the relative isolation of Japan from global standards and practices in some cases actually enriches the global experience. But at the same time this also introduces life-threatening issues for Japan and this isolation must be addressed through two-way dialog from inside and outside of Japan.
(c) 2011 Copyright by The American Chamber of Commerce in Japan (ACCJ). Reproduced with kind permission of ACCJ.
Thank you to all those who attended the event “Japan’s energy – myths vs reality” at the Embassy of Sweden – an event organized by the European Institute for Japanese Studies of the Stockholm School of Economics.
We had about 120 registrations for 100 seats in the Alfred Nobel Auditorium of the Embassy of Sweden – participants included an official from Japan’s Prime Minister’s Cabinet Office, Officials from several Embassies including the Swedish, US, Norwegian, Swiss, Hungarian and more Embassy, executives from Japanese and European telecom and energy companies, including also several independent power producers (IPPs), legal professionals, and groups of students and MBA students from Tokyo University, Hitotsubashi University and others.
We had very vivid discussion, and continued the discussions over nijikai.
Detailed data, statistics and analysis of Japan’s energy markets:
All the data of the talk are from our reports on Japan’s energy sector: