Japan Turns to Smart Grids, Cities, and Homes to Raise Energy Efficiency and Boost Renewables

September 2011--Put simply, a smart grid is an electricity network that uses computer intelligence to integrate the activities of power generators and consumers to efficiently deliver sustainable, economical, and secure electricity supplies. Just a few years ago most Japanese had never heard of smart grids, and of the small minority who knew what they were, their reaction was frequently "Japan does not need a smart grid" -- an opinion often echoed throughout the utility industry.

The widely held belief that a smart grid was unnecessary derived in part from the mistaken notion that it merely ensures a secure and stable power supply that prevents blackouts. Unlike the US and other countries, for decades Japan had experienced few power blackouts, so it's hardly surprising that a smart grid wasn't given high priority.

After the Earthquake, Japan's energy situation has obviously changed. Even post Fukushima, however, smart grid recognition is limited: according to a survey conducted by JD Power, only 11% of consumers have varying degrees of familiarity with the term, compared with 21% in the US and 58% in China. Recognition of the term smart meter in Japan, at 8%, is even smaller.

Changing definition and recognition
But continuing power shortages promise to raise awareness and demand for smart grid implementation. This trend will be enhanced by the shift in consciousness of what a smart grid in Japan will encompass. In its recent enumeration of the merits of a smart grid, the leading Japanese environmental publication Kankyo Business does mention avoiding power blackouts, but it gives at least equal prominence to these other benefits: (1) raising energy efficiency by shifting peak demand; (2) increased use of renewable energy; and (3) broader infrastructure for electric vehicles.

Pre-Fukushima, none of these advantages might have been seen as essential. In the current environment, however, renewable energy resources and energy efficiency, especially, have moved from "nice to have sometime" objectives to "we need this now" priorities. So while smart grid may not yet be a household term in Japan, the changes wrought by the Earthquake have set the stage for its adoption.

In late August, Japan's Diet passed a clean energy bill, effective July 2012, that includes a European-style, feed-in-tariff plan requiring utilities to purchase renewable energy at fixed prices -- including energy generated by solar-powered individual households. With the passage of this plan, a new type of power transmission network will be necessary. The mission of this new grid will be very different from that of the current transmission network: instead of just downstream operations that deliver electricity from power plant to end user, the new system will be both upstream and downstream, i.e., electricity will be transmitted wherever its most needed, both to and from the many homes and businesses that will be generating their own electricity.

Smart City
Along with smart grids, there has also been the rise of smart cities, which are planned, energy-efficient communities that integrate environment-friendly power, transportation, and water supply systems utilizing advanced IT and other technologies.

Worldwide, there is a huge potential market for building the infrastructure required for smart cities. The potential market through 2030 for transportation systems alone is estimated at $10 trillion, and for water systems it is $20 trillion.

In comparison to the U.S. -- where more than 130 smart city projects have been initiated since passage of the American Recovery and Reinvestment Act (ARRA) in 2009 provided support for renewable energy and environmental projects -- smart city projects in Japan have been few in number.

However, both the New Energy and Industrial Technology Development Organization (NEDO) and Ministry of Economy, Trade and Industry (METI) launched consortiums and experiments at several target cities in 2010. Some of the best known examples are the Kashiwa Smart City, which includes a new campus of the University of Tokyo, and the Yokohama Smart City Project, in which the city is working in cooperation with five major private companies, including Accenture from the U.S.

Other multinational smart grid giants are also taking aim at the Japanese market. According to Nikkei, ABB of Switzerland, IBM, and General Electric have each announced plans to enhance their presence in Japan. ABB, strong in high-voltage DC (HVDC) technology which saves transmission losses, has launched a Japanese smart grid division. IBM, which concentrates on smart building infrastructure, is working with Takenaka, a major construction company. And General Electric will start selling commercial smart meters, as well as develop residential models in a joint venture with Fuji Electric Co.. These leading companies are all working under the assumption that the smart grid will be widely adopted in Japan.

Smart Home
One attribute of Japan's smart cities is the importance placed on energy efficiency and power generation by the individual home, or smart home. This emphasis stands in notable contrast to smart city developments in the US, where advanced metering through smart meters has been highlighted. While the Japanese smart home does incorporate smart meters, its overall scope is much wider, including renewable energy generation such as solar panels, batteries, electric vehicles, as well as home energy management (HEMS), home electronics, and lighting.

Aside from government-led consortiums, private companies (especially housing and electronics makers) are actively researching and testing various strategies related to the smart home. Thus HEMS has received much of the attention and resources; this makes sense, given that Japan has many strong home appliance and home electronics providers.

But for products and technologies from different companies to work together, common standards must be established. Toward that end, in July ten of the major home technology and power industry companies established the HEMS Alliance consortium to establish technical standards and accelerate the development of energy efficient home electronics.

Low-Carbon Society
Finally, it's important to note that Japan's smart energy projects have traditionally been framed in the context of lowering carbon emissions. This orientation contrasts with the objectives expressed for the various smart energy projects in the US, which have been seen as solutions for power blackouts (traditionally a much greater problem in the US than in Japan) and, with the funding provided by ARRA, as a stimulus to the economy and job creator. Post Fukushima, greater emphasis will be placed on the everyday concerns of providing a stable energy supply at reasonable cost to the Japanese public. Nevertheless, given the strong commitment of Japan to reducing carbon emissions, smart energy projects will likely continue to be conceived and executed with regard to a vigorous national policy of reducing greenhouse gases and protecting the environment.


Note: This article was written by Cando Advisors -- a consulting firm supporting clients on international business development, strategic alliance, and investment, focusing on the Japanese market -- and co-author Bob Schneider.