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New Energy Group

For workable RPS system

The 5th Keio-Tsinghua Students’ Environmental Symposium


Keio Univ. Faculty of Economics

Yamaguchi Seminar

New Energy Group

Kaname Shirata

Haruka Tanigiwa

Akio Tominaga

Sayaka Nakano

Contents

New Energy Group


Introduction

Chapter1: The current situation of new energy

1.1 What is new energy

1.2 The necessities of new energy

1.3 Nuclear power

Chapter2: The existing systems for introducing new energy

2.1 The voluntary activities by electric power companies

2.1.1 Purchasing of surplus electric power

2.1.2 Green power system

2.1.3 Payment from the government

Chapter3: RPS system in Japan

3.1 Restructuring of electric power

3.2 RPS system in Japan

3.2.1 The outline

3.2.2 The target amount of RPS system

3.3 The evaluation of RPS system

Chapter4: Point at issue – for cost effective accomplishment

4.1 Our point at issue

4.2 encourage new entries in new energy generation market

4.2.1 grid network issue

4.2.2 appropriate amount of the obligation

4.2.3 information disclosure

4.3 Appropriate pricing of account

4.3.1 Seller’s market

4.3.2 Over the counter trading (bilateral market)

4.3.2.1 Entries of brokers

4.3.2.2 The information disclosure by administrator of account

4.4 Conclusion

Postscript

Introduction

New Energy Group


There are 3 targets of energy policy such as energy security, environmental protection,

and economic growth (3E). However it is very difficult to accomplish these 3 targets at the

same time. Therefore we expect more introduction of “new energy” that contributes to 3E.

However the share of “new energy” in supply of primary energy is at most 1.2% so that we

should introduce new systems for more introduction of “new energy”

In this paper, focusing on RPS system, which is the measure to extend the market of “new

energy”, consider the way to work the system well. It is necessary to work the system well in

order to accomplish the obligation of “new energy” cost-effectively. Firstly, in this paper, the

characteristics and definitions of “new energy” and the necessities of new energy will be

explained. Secondly, the traditional policies will be introduced, and then the newly

introduced system called RPS system will be explained. At last, the idea that makes RPS

system workable for introducing new energy will be suggested as a conclusion.

Figure 1-1 image of 3E

well balanced 3E

Energy security

Environmental protection Economic growth

Chapter1 The current situation of new energy

New Energy Group


1.1 What is “new energy”?

First of all, we will explain what “new energy” is1. According to the enforcement of “the

new energy law” in 1997, “new energy” was defined that is technically available, but not

marketable, and also the alternative energy resource to oil. What should be noticed is that

“new energy” is not equal to the renewable energy. According to the chart below,

renewable energy, such as water power and geo-thermal generation is not included in

“new energy”, because they are more marketable than the most of “new energy”.

Figure 1-2 Categories of “new energy” and renewable energy

・solar energy

・wind power

・solar thermal

・cryogenic power by snow ice

biomass energy

such as・・・

waste combustion

such as・・・

・generation

・thermal utilization

・fuel fabrication

・water power

・geo-thermal energy

・generation


・fuel fabrication

・clean energy automobile

・LNG co-generation

・fuel cell

・temperature difference

・ocean energy

・solar energy

・wind power

・solar thermal


biomass energy

such as・・・

waste combustion

such as・・・

・generation


・fuel fabrication

・solar energy

・wind power

・solar thermal


biomass energy

such as・・・

waste combustion

such as・・・

・generation


・fuel fabrication

・water power

・geo-thermal energy

・generation


・fuel fabrication

・clean energy automobile

・LNG co-generation

・fuel cell

・temperature difference

・ocean energy

new energy

the patterns of energy use

renewable energy

recycled energy

natural energy

new energy


renewable energy

recycled energy

new energy


renewable energy

recycled energy

natural energy

There are 14 kinds of “new energy”:

① solar energy generation

② wind power

③ solar thermal generation

④ cryogenic power by snow ice

⑤ waste combustion energy generation

⑥ waste combustion energy thermal utilization

⑦ waste fuel fabrication

⑧ temperature difference energy

⑨ biomass energy generation 1 “new energy” is different from the target energy of RPS system.

New Energy Group


⑩ biomass energy thermal utilization

⑪ biomass fuel fabrication

⑫ clean energy automobile

⑬ LNG co-generation

⑭ fuel cell

The merits and demerits of “new energy” will be described. The merits are small CO2

emissions, domestically produced, and not exhaustible energy. The demerits are the

unstable power because of its dependence on conditions of nature, low energy conversion

efficiency, and high power cost. However we could express so many energies, so many

merits and demerits.

1.2 The necessities of new energy

First of all, we will explain energy policy in Japan. There are three 3 targets of new

energy policy, those are energy security, environmental protection and economic growth.

1.2.1 Energy security

There is a problem such as energy security in Japan. The most of the energy resources

that are used in Japan are imported from foreign countries. The share of imported energy

in domestic consumption is up to 80%, and the share of imported oil is up to 100%2.

Therefore, Japan must diversify the energy resources. Increasing the kinds of new energy

resources can contribute to energy security. This is why we focus on “new energy”

because “new energy” such as wind power and solar energy is not exhaustible, moreover it

is domestically produced, and the alternative energy resource to oil. Therefore we can

consider that “new energy” resources are indispensable for the energy security.

1.2.2 Environmental protection 2 From data of Ministry of Economy, Trade and Industry (1999).

New Energy Group


Secondly, there is a problem such as environmental protection in Japan. Recently, the

global warming is in progress. Thus Japan has the obligation to reduce 6% of CO2

emissions to 1990 by 2010. In order to prevent the global warming, the restraint of the use

of fossil fuels will be necessary. Figure 1-2 shows the amount of CO2 emissions of every

energy resource. According to this figure, that of “new energy” is less than that of fossil

fuels. Therefore, “new energy” can contribute to environmental protection.

Figure 1-3 CO2 emissions of every energy resource

0.0590.037 0.022 0.011 0.018

0

0.2

0.4

0.6

0.8

1

1.2

coal oil ＬＮＧ solar wind geo-thermal

nuclear water

kg-C

O2/kW

h

emissiocombu

emissioconstrgenera

1.2.3 Economic growth

“New energy” has a possibility to create new industry and new employment. For

example, solar energy is related to electric equipment industry and housing industry,

therefore solar energy can create new industry and new employment. Additionally, wind

power is geographically distributed; therefore introduction of wind power can promote local

economy.

As identified above, “new energy” is high at its cost, but in aspect of creating new industry

and new employment, “new energy” can contribute to the economic growth.

1.3 Nuclear power

0.99

0.653

0.733

New Energy Group


The nuclear power generation, which is the pillar of an energy policy of Japan, will be

described. About 35% of electric power of Japan is provided by nuclear power as the chart

1-4. Moreover, as shown in figure 1-3, atomic power can lessen the burden on the

environment as 0.011 kg-CO2/kWh. Also for its power costs, they are 5.9 yen/kWh, which

are cheaper than other power supplies.

Figure1-4 Breakdown of electric energy

nuc lear34 .6％

new energy0 .3％

geo-thermal

0 .4％

water9 .5％oi l　7 .9％

coal20 .5％

LNG26 .8％

From such conditions, atomic power seems to be a perfect power from a viewpoint of

three targets of an energy policy of Japan. Japan is planning to introduce atomic power for

40.7% (418,6billion kWh) of the total electric power production by 2010. However, there is

a concern of its safety and it is getting difficult to construct a nuclear power plant. Reliance

got lost, and the opposite movement to nuclear power plant construction has happened in

many places. At present, Japan is planning to construct 13 nuclear power-generating

stations, and three of them are now under construction. To achieve the target of Kyoto

Protocol, the government was planning to construct 7～13 nuclear power plants. However,

if this plan got delayed, to consider about other plan would be better. However, thermal

power plants give high burden to the environment, therefore the expectation for “new

energy” is great.

New Energy Group


However, the introduction of “new energy” is not in advance, because the cost is higher

than the other energy resources. For example, while the cost of wind power is

0.078~0.2US$/kWh, that of nuclear power is 0.049US$/kWh. In the next chapter, we will

explain traditional policies, and then we will refer to RPS system; the main point of our

paper.

New Energy Group


Chapter 2 The existing systems for introducing new energy

In this chapter, the achievement of introducing new energy until now and the existing systems will be described.

The achievement of introducing new energy

Figure 2-1

the achievement of introducing wind power and solar power

05

101520253035

1996 1997 1998 1999 2000

year

10 th

ousa

nd ｋ

W

wind powersolar power

As you can see in this figure, new energy has been introduced in several years. This is in the background of voluntary activities by electric power companies and payout from the government. In the following sections, these systems will be explained.

2.1 The voluntary activities by electric power companies

At present, there are some voluntary activities by electric power companies for promoting new energy. The existing activities for promoting new energy in power generation field are “purchasing surplus electric power” and “green power system”. These activities contribute to promote public understanding and establish a basis for social foundation, which are necessary for increasing new energy smoothly.

New Energy Group


2.1.1 Purchasing of surplus electric power

Purchasing of surplus electric power started in 1992. This is a system which electric companies purchase surplus electric power from solar power, wind power and waste power generated by private power generator at a given price. This system aims to promote new energy in a private sector. The amount of purchased surplus electric power is soaring from 1992 to 2000 (figure 2-2). Purchasing surplus electric power has been contributing to the increase in solar power, wind power and waste power. Especially, it is making great contributions to solar power, which is the best in the world in production of electricity and solar cell.

Figure2-2 The amount of purchased surplus electric power （sum total of solar power, wind power and waste power）

the amount of purchased surplus electric power

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

1992 1993 1994 1995 1996 1997 1998 1999 2000

year

thousand kWh

year 1992 1993 1994 1995 1996 1997 1998 1999 2000

number of cases 74 114 525 1,552 3,496 8,519 14,717 28,724 51,638

amount

（thousand

kWh）

738,948 835,268 971,738 1,279,538 1,640,496 2,225,390 2,260,063 2,634,036 2,941,619

New Energy Group


2.1.2 Green power system

Power companies have been playing active roles in helping the introduction of new energy. Recently, more people and companies tend to contribute to environmental issues at their own initiative. At the same time, it becomes obvious that wind power is localized. In the background of these circumstances, the green power system started in 2000 as a new voluntary activity for promoting new energy by utilizing the payment by contributions to environment from consumer and companies and the backup by electric power companies effectively. Green power system is to utilize the fund for setting up public solar power and wind power facilities. This activity is divided into two systems. One is “green power fund”, which is for consumers. The other is “green power certificates system”, which is for private companies.

“Green power fund” for consumers is introduced in October 2000. The electric companies raise funds in increments of 500 yen per month from the consumers who wish to participate in this system at the same time of their monthly payment of electricity bill. The electric companies add their own funds to the funds from the consumers. They finance these funds for construction and operation of new energy power facilities. One of the purposes of this system is to promote new energy in the long term with the partnership among consumers, private companies and electric power companies. The other is to promote it nationwide efficiently by the flexible operation over regions.

In “green power certificates system” for private companies, the private companies get green power certificates based on the amount of the wind power generation by the generators financed the premiums from the private companies. With these green power certificates, they can take the electricity, which was used by themselves as that produced by wind power. Therefore, they can use these green power certificates for their environmental management. For example, they use for indicating energy saving or reducing CO2 emissions and improving the image of themselves.

New Energy Group


Figure 2-3 the image of green power system

2.1.3 Payment from the government

From figure 2-4, the budget for new energy is increasing from 1996 to 2002. The

budget for new energy in 2002 accounts for about a hundred and fifty billion yen increased from the last year by thirty five billion yen, trying to enforce the policy.

For example, they pay for setting up solar energy / heat from houses and introducing clean energy cars.

Private companies using w

ind power electricity

Japan natural energy

Wind pow

er generator

The electric companies in the

area with the consum

ers

The electric

companies

inthe area w

ith wind pow

ergenerators

Sell the electricity

Sell the premium for the environment

② commit to the

efficient generator

④⑤ green power

certificates

③report the amount of

wind power electricity

Supply

electricity

as usual

⑦ trade

electricity

Certificated bythe third parties

①commit to generate

wind power

⑥pay the premium

New Energy Group


Figure 2-4

the budget for new energy （Economic Ministry）

0

200

400

600

800

1000

1200

1400

1600

1996 1997 1998 1999 2000 2001 2002

year

100 million yen

In this chapter, the current situation of introducing new energy by the existing systems was explained. The amount of new energy is increasing compared to the amount before these systems have started. We can recognize the achievement. However, it is still not enough only with the existing systems taking some circumstances around energy in Japan into consideration as we described in chapter 1. Especially when considering to accomplish the objection of introducing new energy in the generation field by 11.5 billion kWh by 2010, it is essential to introduce new policy for promoting new energy besides the existing systems.

(Ministry of economics trade and industry)

New Energy Group


Chapter 3 RPS system in Japan

In chapter two, we described that we need another policy for promoting new energy because it is not enough with the existing systems. In this chapter, we explain RPS system, which is a newly introduced policy to expand the share of new energy in market.

3.1 Restructuring of electric power

Here, the current situation in the electric power industry before explaining RPS system will be described.

As technical development and globalization become more actualized, the whole system in supplying electricity was reinvestigated as one of the restructuring policy for correct high cost in industries. So far, the electricity market was monopolized by the 10 major electric power companies, which generate and supply electricity. However, since the liberalization of entries in the generation field has started in 1995, not only existing electric power companies but independent power producers (IPP) was able to enter the generation field. Besides, the liberalization in the supplying field has started in 2000. By this liberalization, power producer and supplier (PPS) became possible to sell electricity to large demand buyer. Because of this restructuring, the electric companies started to compete with each other in pricing. Therefore, it is expected that the electricity bill will reduced by the competition.

New Energy Group


On the other hand, the consumers tend to purchase the inexpensive electricity by the restructuring of electricity. This can have a bad influence on promoting new energy, which is not marketable.

Considering this current situation in electric power industry, RPS system is an agreeable policy to promote new energy.

IPP Other powers

PPS

Commitment 10 electric powercompanies

Private generators

Local power supplier

Large demander Other consumers

【generate】

【 supply】

Local demander

Figure 3-1 the electric industry in Japan

Competing field

New Energy Group


3.2 RPS system in Japan 3.2.1 The outline

The law for introducing RPS system in Japan will be enforce in April 2003. The outline of

this system will be described in this part.

The purposes of this system are as follows; 1. energy security, 2. environmental

protection, 3. economic growth. From these purpose, this system seem to take into

account especially in the energy security and climate change.

The object energies of this system are the following six energies: 1. wind power, 2. solar

energy generation, 3. geothermal energy, 4. water power(small and medium) 5. biomass

energy generation, and 6. the other energy (except the energy generate from the heat which

origin the oil).

The utilization of more than certain amount of new energy according to the selling amount

of power generation will be obliged to the power supplier in this system. When the power

supplier (the obligation target) accomplishes their obligation, it is capable to select freely

from the following four options: 1. generate by themselves, 2. purchase the new energy from

the other power supplier, 3. purchase the “account” from the new energy power generator,

and 4. trade the amount of obligation with the other power supplier.

The power supplier (obligation target) is able to select freely from the options above

(figure 3-2). Whether the obligation is accomplished or not, it will be monitored by the

government which manage the account system.

When the obligation is not achieved, the advice will be invoked. The base line of the

advice invocation is only when not accomplished even after taking the banking, borrowing,

and cap price into consideration. Still, not achieved after the advice, the order will be given.

Moreover, after the violation of order, paying the forfeit will be required.

New Energy Group


Figure 3-2

The image of accomplishing the obligation amount

3.2.2 The target amount of the RPS system

About the target amount of the new energy is still under deliberation, therefore, the

specific amount have not determined yet. The basic method of thinking in setting the target

amount will be explained in this part.

The target amount to implement the new energy by 2010 will be envisioned 122billion

kWh. The break down of 122 billion kWh is the perspective amount of the new energy

generation; 115 billion and the generation by the small and medium water power; 7 billion

kWh. 115 billion kWh have a consistent with the generating amount by 2010 in the

“long-term energy supply-demand outlook”. In terms of this concordance, owing to

increase of the new energy according to this system, the accomplishment in the power

generation field will be feasible. It can be argued that the RPS system have consistent with

climate change issue.

In addition, the determination of the target amount will be made based on the identical

obligation proportion to the every obligation target on the assumption. At the present

moment, determination of the target installation amount of the new energy will be based on

the leading runner’s obligation proportion.

However, there is enormous difference in utilization degree between the energy suppliers

Source: The Japanese agency of natural resources and energy

Power supplier Ｂ

Obligation target

Power supplier Ａ

Obligation target

New energy generator Account trade

Account trade

Trade of theelectric power

The target of Issuing the account

Account trade

Trade is feasible (Trade of the obligation amount)

New Energy Group


(obligation target). It is considerable that it will bring insuperable difficulties to those who

are not in advance of utilization of the new energy. On the contrary, to the power supplier

whose actual performance of new energy utilization is low at the system initiation, by setting

the transitional measure period, realistic installation of the obligation amount will be

considered by the Ministry of Economic, Trade and Industry.

The transitional measure of the obligation proportion during the commencement period

seems to be advisable. However, the target amount by 2010 is still the same as

presupposition. There are concern that the obligation amount may escalate impractically

depend on the length of the transitional measure period, or the amount of the obligation.

Figure 3-3

Source: The 9th new energy sectional meeting; Ministry of Economy Trade and Industry

The most important role of the RPS system is that enable the increase of the

implementing amount of new energy by oblige the implementing amount. However, RPS

system is not only to oblige the amount of new energy, but also there is a value to

accomplish the obligation amount cost effectively by trading the generating amount of the

new energy.

In next part, the evaluation of the RPS system will be described.

Trial calculation for supply potential

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008 2009 2010

Year

Hundr

ed

mill

ion k

Wh

case 2

case 1

obligation quantity

objectiveutilizationquantity

Leading runner

Considering the transitional measure

New Energy Group


3.3 The evaluation of the RPS system

In the first place, the certainty of the counter measure effect is excelled. The will be

imposed based on the amount, not by the cost of the new energy. Therefore, the risk the

new energy not implemented is small. Moreover, there is high flexibility in choosing the

option when accomplishing the obligation amount. Since there is a high flexibility on

selecting the power supply. In addition, it is feasible to select the accomplishing option

from the four options; 1. generate by themselves, 2. purchase the new energy from others, 3.

purchase the account, 4, trade the certain amount of the obligation amount. Thus, the high

flexibility can be secured in accomplishing the obligation amount. Moreover, when the

market mechanism functioned effectively, there will be a competition among the energy

supplier, therefore, it will urge the cost reduction. At the same time, there is a prospect to

carry out the accomplishment cost effectively. Therefore, the method of accomplishing the

objective amount most effectively will be described afterwards.

There is consistency between the RPS system and the restructuring of the electric power.

The goal of the restructuring of electric power is to lower the general electricity price. On

the other hand, the goal of RPS system is to implement the new energy cost effectively. It

is feasible to accomplish both by enhancing the cost effectiveness through the utilization of

the market mechanism. In this way, it is feasible to express that there is consistency

between RPS system and the restructuring of the electric power.

Finally, the consistency between the voluntary effort in existence (purchasing surplus

electric power) and RPS system will be described. The influence to the previous

“purchasing surplus electric power ” or the payment from the government must be taken into

consideration. For the time being, RPS system and “purchasing surplus electric power ”

will be used together. On “Green power system ”, since there is an independent

significance, it is described that there is no contradiction mutually. For instance, the cost

competition effect is not sufficient in solar energy generation. Therefore, it is considered

that the measure a sort of the payment from the government will be needed. In addition,

the end user does not have flexibility in selecting the power supply in RPS system. To cope

with the consumer who is eager to select the new energy power generation, the continuation

of “Green power system” is required.

For conclusion, the system design that enables the coexist with the voluntary effort

is required.

Chapter 4 Point at issue －for cost-effective accomplishment

New Energy Group


4.1 Our point at issue As shown in the preceding chapter, the most important thing in the RPS system is to set the obligation for electric power supplier. This ensures the increase of new energy as long as the electric power supplier fulfills their obligation. Additionally, by adjusting the obligation, 11.5 billion kWh objective amount of new energy generation can be accomplished. However, merit of RPS system is not only to set the obligation but also to accomplish cost-effectively. In this chapter, we will consider about the cost-effective accomplishment. Consequently the following two points will be important for the cost-effective accomplishment, and will be explained one by one in detail.

① encourage new entries in new energy generation market ② the appropriate pricing of account

4.2 Encourage new entries in new energy generation market To reduce cost for new energy generation, encouraging new entries in new energy

generation market will be important. Also, it is important for activating the competition.

To encourage new entries, these three things will be important.

① grid network issue

② appropriate amount of the obligation

③ information disclosure

4.2.1 Grid network issue Grid network issue is the barrier to spread new energy in Japan, especially in wind

power. To send generated electric power, “grid network” which connect power generator and power supplier is needed. Especially wind power is unstable and their power plants tend to be constructed in distant place where conditions of wind are sufficient, to strengthen grid network is necessary. In the report of new energy council, cost of grid network for wind power in the decade

is estimated to 220 billion yen～550 billion yen. System, which decides fair charge for maintaining or expanding grid network, is indispensable. At present, traditional electric power supplier is absorbing the costs for grid network. However, in the future, benefit by strengthen grid network will be given to all electric power supplier, therefore to decide

New Energy Group


fair charge system for maintaining or expanding grid network will be important. To work out this issue is necessary in order to encourage new entries. Since the actual cost to share the grid network is important information. However, the problem to share the cost of grid network belongs not only to new energy

industry but also to the whole electric power industry. Restructuring of electric power also encourages new entries, therefore the fair charge system for maintaining or expanding grid network is important. Therefore, comprehensive resolution will be necessary. As the restructuring of electric power industry moves forward, we hope the problem will be solved as soon as possible.

4.2.2 Appropriate amount of the obligation Encouragement of new entries depends on the amount of the obligation. If the amount

of the obligation is too low, it will decrease the new entries. Also, additional generation would be needless because the demand of new energy decreases. Therefore, too low obligation leads to decrease of new entries. At the same time, too high obligation also leads to decrease of new entries. If the

amount of the obligation is too high, there is a possibility for energy suppliers to give up their achievement. When they give up their achievement, it will also decrease demand for new energy. Therefore, too high obligation also leads to decrease of new entries. Consequently, to set the appropriate amount of the obligation is necessary in order to

encourage new entries.

4.2.3 Information disclosure In the account trade that was previously described, information disclosure is necessary.

Information about the price of new energy will be important to encourage new entries, because they decide their entry by considering the benefit after they enter new energy industry. Therefore, sending cost signals will be important when encouraging new entries. We will describe about it in the next part with concrete example in abroad.

New Energy Group


4.3 Appropriate pricing of account As stated above, new entries in new energy generation market is necessary to make

the accomplishment of obligation cost-effectively. It encourages the competition among new energy generators. As a result, the cost of new energy power generation will be reduced. However, the reduction of generation cost is not enough to make the accomplishment of obligation cost effectively. See figure 4-3.

Figure 4-3

Figure3-4 shows the account market. We assume that the account will be traded actively as the way to accomplish the obligation in RPS system. Therefore, whether the market mechanism will work well or not in account market will be discussed in the following.

Suppose that the new energy power generation cost is reduced by the competition among the new entities. If the account price reflects the cost reduction of new energy power generation, the accomplishment will be cost-effective. However, if the account price does not reflect the cost reduction of new energy power generation appropriately, the cost which electric power companies bear to accomplish the obligation will be the same even though the generation cost will be reduced greatly. If so, it will be impossible for electric power companies to accomplish their obligation cost-effectively by utilizing the market mechanism.

Therefore, when concluding whether RPS system will work cost-effectively or not, it

New energy power generators

(Target of publishing account)

Electric power suppliers

(Target of the obligation)

Will the price reflect the cost reduction of new

energy power generation?

The cost will

be reduced

The price of the

account will be???

New Energy Group


will be important to look into whether the account pricing will be appropriate or not. To tell the conclusion, there is a fear that the account pricing would not be appropriate

because there are two characteristics in account market. One is “seller’s market”. The other is “over the counter”. First, we explain why the account pricing would not be appropriate in each characteristics. Then, we suggest measures to make the account price appropriate.

4.3.1 Seller’s market First, the reason why the account market will be seller’s market will be explained. In

RPS system, as the objects of publishing account are new energy power generators, the sellers in account market will be new energy power generators. On the other hand, the buyers in account market will be electric power suppliers who are the object of the obligation (figure 3-4). As the electric power suppliers must accomplish the obligation in RPS system, the demand for account will be inelastic. So, the account market can be seller’s market, which can make the price unfairly high. There is a similar example in oil market that the oil crisis occurred owing to the manipulation by the oil producing country. The market for the inelastic goods tends to be seller’s market.

To avoid that the accomplishment goes difficult owing to a sudden rise of the account price by seller’s market, it is discussed to establish the measures such as “banking”, “borrowing” and in new energy council. Establishing these measures enables the demand for account to be more elastic. The manipulation owing to seller’s market can be avoided if these measures come into force.

4.3.2 Over the counter trading (bilateral market) There are two types in trading, exchange and Over the Counter (OTC). Whether

which type is desirable depends on the number of the players participating in the trade. Generally, OTC is workable in the market with small player because of the risk of

manipulation. Here, we take an example of the power market in California. This is a failure example owing to the exchange by small player. In this market, the number of the major players was only 8 though there were actually 40 suppliers in this market. Therefore, the manipulation occurred and made the price of electricity unfairly high. As a result, the market mechanism did not work well and the balance between supply and

New Energy Group


demand broke down. 2 suppliers also manipulated the power market in UK. There is another example of CO2 emissions trading. There was an anxiety that the manipulation would occur if the players were only nations. It was discussed that not only nations but also companies and other individuals should have participated in the market. Therefore, exchange market needs enough players to avoid the manipulation.

The number of the players in RPS system is estimated to be 24 players (10 traditional electric power companies, 4 local electric power companies and 10 PPS). The type of trading assumes to be OTC.

Then, can the account pricing be appropriate in OTC? OTC is a closed market, so there is a fear that the price signal will be blinded. This means that the players will not have the common information. This will lead to a fear that the account pricing will not be appropriate resulting that the cost-effective accomplishment will be impossible. Thus, as a conclusion, it is necessary for the appropriate pricing of account in OTC to give the price signal.

In the following sections, we suggest two measures for providing information including price signal.

①entries of brokers ②information disclosure by the administrator of account 4.3.2.1 Entries of brokers As stated above, generally, it is difficult to trade goods efficiently in OTC. However,

there is an example of the success of efficient trading even though in OTC, such as SO2 emissions trading in USA. By taking this example, the way to accomplish the obligation cost-effectively in OTC will be considered.

Almost every trade in SO2 emissions trading in USA was OTC. This trading system is said to work well, since both SO2 emissions and cost have been reduced even if the amount of trading is small. One of the causes of this success is the entry of brokers. In this SO2 emissions trading market, the broker’s ability to collect information contributed to the price decision of SO2 emissions. From this example the entries of brokers who collect information is effective for the appropriate pricing in OTC. However, we should take the charge for the brokers into consideration even if the mechanism to accomplish the obligation cost-effectively can be established by the appropriate pricing in this way.

New Energy Group


4.3.2.2 Information disclosure by administrator of account In case that it is not efficient to open the market for brokers, another measure, the

information disclosure by administrator of account, can be considered efficient. In Italy, where RPS system has already started, the type of the trade is both in OTC

and on the web. In the case of OTC, some information about the trade is registered on the database, which only the company itself can see, and is administrated by the third-party. The third-party controls this information and discloses average trading price and the lowest trading price after the trade. This kind of information disclosure can provide the price signal for players, which contributes to the appropriate pricing of account.

In RPS system in Japan, the administrator will be the government. If the government controls all the information about the price and the amount of the trade, also can provide the price signal in some ways, the information disclosure on account will bring about the appropriate pricing. The considerations here are the administered cost and whether they can keep the classified information or not.

In Japan, RPS system will start in next April. It is worth observing whether this system works well with the cost-effective accomplishment. In case it does not work well, these measures can support the cost-effective accomplishment.

4.4 Conclusion In this chapter, we described how to accomplish the obligation cost-effectively in RPS

system as the point of our issue. As the requirements for the cost-effective accomplishment, we proposed the promotion for new entries in new energy generation market and the appropriate pricing of account, and suggested how to carry out in each section. We hope that RPS system will become workable by these measures and bring about the promotion of new energy.

New Energy Group


Postscript

New energy is expected for its contribution to the energy security or environmental issues

such as global warming. Therefore even more promotion of new energy is demanded.

The RPS system, which will be enforce in April 2003, is a system to expand the market in

order to promote new energy by setting the obligation amount. Therefore, the essences of

RPS system are to oblige the “amount” of the electric power generated by new energy to the

liable entities and to make the liable entities accomplish the obligation amount. If the

objective amount of RPS system can be accomplished, it can contribute partly to the 6%

reduction to 1990 level of the Kyoto protocol action plan. The RPS system, which we

consider desirable, is to accomplish the objective amount of introducing new energy cost

effectively. To accomplish cost effectively, we consider these 2 things are important;

1.promoting the new entries in new energy power generator, 2. appropriate pricing of the

account.

By functioning the RPS system effectively, the cost reduction of new energy generation

will proceed and new energy can be competitive to other energy supplier. If it realized, we

consider it can contribute to the energy security and environmental issues such as global

warming.

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