Local Energy Governanceabout Japanese Case:

RE in Japan at CommunityLevel

Internationalworkshopon“LocalEnergyGovernanceinanAgingSociety:Towarda

SustainableCommunityusingRenewableEnergy”25-26June2016,Hanoi

Takuo Nakayama, Ph.D.Assistant Professor

Graduate School of Economics, KYOTO UNIVERSITY 0

The Era of Renewable Energy (RE)

• Japanese Situation• After FUKUSHIMA DISESTER• Issue of Widespread use of RE

• Quantitative expansion is not only the purpose• In the first place REs are decentralized (distributed)energy sources

• REs can contribute to local sustainable development• It is necessary to raise to make it so

• Case study of ”Ohisama Shinpo Energy CO., LTD”

1

IncreasingRenewableEnergyCapacityinJapan

PV

Wind

Biomass

Geothermal

SmallHydro

Annualrateofgrowth

Annualrateofgrowth

Annualrateofgrowth

(10MW)

2

Source:METI

ExceptLargeHydro RPSSystem Surpluspowerbuybacksystem FITsystem

JapaneseFeed-in Tariff (FIT)System

• JapaneseFIT system has Introduced in July 2012• Remarkable growth of REs Capacity (33%from2012to2014)• Promoted investment especially in PV

• Some problem has occurred• Grid Capacity (PV or Wind are Variable Power)• Necessityof transformation from ”Centralized PowerSystem”(20 century style) to ”Decentralized PowerSystem”(21 century style)

• By the way, Japanese FIT system is oneofthe mostsuccessful public policy• Compared to “Environmental Taxes” or “Emission TradingScheme”

3

FromCentralizedSystemtoDe-CentralizedSystem

1. TrendofDe-Centralizedpowersupply• Inthefirstplace,REs(Solar,Wind,SmallHydroandBiomasses)areDe-Centralizedpowersources

2. AnotherpurposeofFeed-inTariffSysteminJapan• Revitalizationoflocaleconomy

• InadditiontoquantitativeexpansionofREs• Byensuretheprofitability

4

JapaneseChallengetowardLocalRevitalizationbyDe-CentralizedREs• Attractingexternalcompaniesdoesnotcontributerevitalizationoflocaleconomy• Thisbusinessmodelbringfewlandrentorpropertytax

• REprofitshouldbeattributedtolocalsubject• LocalresidentsorlocalcompanyhavetolaunchREbusinessbythemselves• Withoutrelyonexternallargecompany

• Itisquitehardwaybutlocalsubjectcannotmakenewincomeoremployment

5

HowtoImplement“LocalEnergyGovernance”?

• Tomakelocalfundflow• Localfundingcollaboratewith“LocalBanks”or“LocalCreditAssociations”

• Forsustainablelocaldevelopment• Re-InvestingREsprofitinlocalsubject

• Itisnoteasybutimpossible• Thischallengeisworthatry

• De-CentralizedREscouldbeacoreoflocaleconomyrevitalization

• Constructionoflocalunitetackleinrelationship• Howtodevelophumanresources?• HowtosuccesstheREbusiness? 6

TechnicalandSocialIssuesofRE

• TechnicalissueofRE• Focusedonmainlyuptonow

• SocialissueofRE• Developinghumanresources• CompanyorganizationorCorporateform• Constructingthebusinessmodel• Structureofthegovernance• Finance

• BasedofTechnicaldimension,SocialdimensionismoreimportanttosuccessREbusiness.

7

Whatis“LocalEnergyGovernance”?

1. Localresidentsandlocalcompaniescreatebusinessentityincooperationeachother

2. Startelectricpowersalesbusinessbyconvertinglocalresourcestoenergy

3. Makelocaleconomiccirculation4. Gotowardsustainablelocaldevelopment• “LocalAutonomyForce”isinevitablefor“LocalEnergyGovernance”• Localresidentshavetodiscussandmakedecisioneachother

• Implementthedecisionbythemselves

8

Purposeof“LocalEnergyGovernance”inJapan

• TransitionfromCentralizedpowersystemtoDe-Centralizedpowersystem• Revolutionarychangeofenergysupplysystem

• Centralizedsystem:20centurystyle• De-Centralizedsystem:21centurystyle

• Whatdoes“De-CentralizationofEnergySupply”mean?• Democratizationofenergyproductionandconsumption• DemocratizationandIndependenceoflocaleconomy

9

“Ohisama Shinpo EnergyCo.,Ltd.”asamodelof

Japanese“LocalEnergyGovernance”• “Ohisama Shinpo EnergyCo.,Ltd.”inIidaCity,NaganoPrefecture• PopulationofIidaCity:

• 101,618(asofFeb.2016)• 4thlargest

• Area:• 658.66㎢

• Industry• Agriculture• Manufacturing

10

Establishment“Ohisama Shinpo”

• “Ohisama”Symposium• Sep.2001• CitizenofIidaCityagreedtopromotePVtowardglobalwarming

• Establishmentof“MinamiShinsyu OhisamaShinpo”asaNonProfitableOrganization(NPO)• Feb.16,2004• “LocalEnergyProductionforLocalConsumption”principle

11

Firstactivityof“Ohisama Shinpo”

• 3kWPVonNurseryrooftop• Donationtype• Enhancedconsciousnesstolocalchildren,nurserystaff,parentsandresidentsforimportanceofenvironmentalpreservation• ”Sanpo-Chan”,trademarkof“Ohisama Shinpo”workedwellforchildreneducationaboutEnvironmentalEnergyissue

12

“Mahoroba”project(2004)

• ”Mahoroba（まほろば）”meansNicePlaceorLivablePlaceinJapaneseoldletter• Partnershipwithlocalgovernment,privatesectorandNonProfitableOrganizationinthisarea• IntroductionofPV,Pelletboilerandstove,ESCO,Naturalenergycollegemanagement• Establishmentof“Ohisama Shinpo”Limitedcompany• Dec.2004• Asanoperatingbodyofthisproject

13

Citizen’sJointPowerStationSystem

• Howtofund?• Citizen’scoInvestment(JointInvestment)• Danishwindpowermodel

• Farmersinvesttogetherwindpowergeneration• Profitcanbeallocatedbasedontheinvestmentratio• Japanesepioneeris“HokkaidoGreenFund”

• “Hamakaze-chan”(2001)• Hamatonnbetsu towninHokkaido

• ApplyCitizen’sJointPowerStationSystem• StartedcitizensinvestmentfromFeb.2005• Wantedamount(201,500,000JPY) hadexpiredonly2month

• ThissystembecameuniversalinJapan14

CitizenscoInvestment• NotCharitybutProfitable

• Investorcangetallotment• Changethe“culture”aboutEnvironmentalEnergyissue• Inmanycases,EnvironmentalEnergyIssueprojectsdon’thaveprofitability

• Tosolvetheissue,grantoffund(taxesanddonation)areusuallycasted

• REpowergenerationcannotonlyprofitablebutalsocontributetosolveEnvironmentalEnergyissue

(ifFITsystemexistasofnowinJapan)• RelationshipwithEnvironmentalissueandEconomicissuearenotnecessarilytrade-off

• Thisisrevolutionary15

MakingLocalMoneyFlow

• LargeshareofCitizenInvestorsarelivinginMetropolis(e.g.TokyoorOsaka)• LocalprofitfromREsarebacktoMetropolis

• Asformofprincipleorallotoment

• NecessityofLocalfunding1. InvestlocalmoneytoREproject2. Re-investREprofittolocalindustry3. Sustainablelocaldevelopmentwillbeavailable

• ItisimportanttomakeLocalFundFlowbasedonRE

16

“Ohisama 0Yen”System

17

“OhisamaShinpo”

LocalBankingFacility

IidaCitygovernment

CitizenInvestor

HousingOwner

ElectricUtility

Support

Lowinterestloan

Pay19,800Yenpermonth9years

(After10yearsPVpropertyrightswilltransfertohousingowner)

3.3kWPVinstallwith0Yen

・PayelectricitybillfromElectricUtility・Sellsurpluselectricity

Revenuefromelectricitysales

Invest81,000,000

Yen

・Returnin10years・2%yield

Source:Morotomi (2015)p.22

”Ohisama 0Yen”System

• NoinitialInvestmentforhouseholdPV(3.3kW)• “Ohisama Shinpo”setPVsystemonhousingrooftop• Housingownerpay19,800Yenpermonthfor9years

• HousingownercanselltheirsurpluselectricitygeneratedbyPV• Ifhousingownerreducepowerconsumption,sellingsurpluspowerincrease(Incentiveforenergysaving)

• After9 years,PVsystemistransferredtothehousingowner• LoweringthehurdletointroducePVtohousingowner

18

RoleofLocalBankingFacilities• Inthissystem,“Ohisama Shinpo”bearsinitialPVsystemandinstallationcost• Financingof“Ohisama Shinpo”becomessevere• Localbankingfacilities(IidaCreditUnion)playimportantrole• JapaneseCreditUnionworksmainlyfromlocalcompanyorresidents

• Low-interestloanto“Ohisama Shinpo”• IidaCitygovernmentalsosupportthisscheme

• REpowergenerationprojectisgoodinvestmentprojectinJapan• IntermsofBankFinance• ExpectedreturnofinvestmentaslongasRPSorFITschemeexistasofnowinJapan

19

Example:RooftopPVsysteminstalledby“Ohisama 0Yen”system

20

IidaCityasBirthPlaceofJapaneseFeed-inTarrif (FIT)

• AacheninGermany:BirthPlaceofFIT• IntroducedFITsystemaheadoftheFederalgovernmentin1995

• AtMunicipalitylevel

• IidainJapan• IntroducedFITsystemaheadoftheNationalgovernmentfor“Ohisama Shinpo”(2005〜)

• IidaCitybeardtheriskofvariableelectricitysellingprice• UndertheRenewablesPortfolioStandard(RPS)schemeinNationallevel

21

LocalValueAddedAnalysis

• DevelopedbyInstituteofEcologicalEconomics(Institutfürok̈ologischeWirtschaftsforschung:IÖW)inBerlin• ValueChainapproach

• BasedonPorterM.E.(1985)CompetitiveAdvantage:CreatingandSustainingSuperiorPerformance

• AimtomeasureREeconomiceffectpreciselyatmunicipallevel• ApplyingJapaneseREpowersources

22

ComponentsofLocalValueAdded

23

revenues, on the other hand, flow directly into the muni-cipal treasury.

ProfitsTo determine profits at each step of the value chain, the op-erating profit margin is utilized, which compares the annualprofit (before taxes) of an enterprise to the turnoverachieved in the same period. In this case, before-tax resultswere used for the calculation. The profit-turnover ratio isdrawn from statistics compiled by Germany's central bank,the Deutsche Bundesbank [9], which extrapolates figuresbased on data from the annual financial statements ofGerman companies for the years 1997 to 2009. Thesepooled data include results from approximately 140,000 fi-nancial statements per year of non-financial enterprises,including both incorporated and non-incorporated com-panies. The classification of enterprises according to busi-ness activity in the Deutsche Bundesbank study is based onthe German Classification of Economic Activities (WZ-2003) from the Federal Statistical Office. Because the variousREs are not specifically itemized here, comparable branchesfor each value chain step were consulted. The averageprofit-turnover ratios of the various branches were used toestablish a mean value for the years 2000 to 2009. In twocases, a different method had to be applied. For the assess-ment of the profits in the system operator stage, before-taxearnings were calculated with the help of average return onequity for each of the corresponding RE technologies; thisinformation was drawn from the Renewable Energy SourcesAct (EEG) Progress Report [10]. The profits earned in con-nection with the provision of wood fuels were calculatedfrom turnover minus cost of provision.

Employment and income effectsIncome effects as a function of turnover are determinedfor each of the value chain steps; in addition to the data

on income, this method also provides results on employ-ment effects. Initially, the employment effect is calcu-lated as the number of persons employed. The FederalStatistical Office publishes figures on employment num-bers and turnover according to business branches fol-lowing its own German Classification of EconomicActivities (WZ-2008); these figures, broken down bybranch, are allocated to the corresponding steps of thevalue chain. Thus, an indication of jobs per euro of turn-over can be determined, which, when multiplied byturnover per kilowatt (kW) of installed capacity, yields afigure for the number of employees per kW. Wages andsalaries in euros per kW are determined on the basis ofaverage gross annual income in the business branch ofthe corresponding value chain step, as determined fromFederal Statistical Office sources.An exception is the calculation of management salaries

for the system operator stage. Here, typical specific man-agement compensation figures on a per kW basis weredrawn from an analysis performed as part of the IÖWproject EXPEED [11]. The number of employees per kWis then determined as the quotient of the specific incomeand a typical gross monthly income for the correspond-ing Federal Statistical Office occupational category. Inthe case of the provision of wood fuels, the employmentand income effects are determined on the basis of thespecific working-time requirement for each of the valuechain steps.

TaxesCalculation of the tax load of an enterprise is dependenton its corporate structure. The enterprises generatingvalue added are therefore subdivided into incorporatedand non-incorporated companies in order to account fordifferences in tax treatment. The calculation of net in-come is derived from gross annual incomes of the

municipal value added

after-tax profitsof the participating

enterprises

taxes paid to the

municipality

trade tax(almost entirely paid to the

municipality)

municipal share of income tax

net incomes of the employees

involved

Figure 1 Components of municipal value added.

Heinbach et al. Energy, Sustainability and Society 2014, 4:1 Page 4 of 10http://www.energsustainsoc.com/content/4/1/1

Source:Heinbach etal.(2014)p.4

LocalValueAddedfrom“Ohisama Shinpo”Projects

税

所

投資投資投資投資 地域経済地域経済地域経済地域経済

O&M 事業運営・ファンド管理 融 地方税収

税

所2222222222222222 22222222 9797979797979797111111110303030303030303 22222222 66666666売上売上売上売上685685685685

地域経済地域経済地域経済地域経済付加価値付加価値付加価値付加価値333333333333

9898989898989898 33333333

土地

投資投資投資投資のののの段階段階段階段階（（（（一時的効果一時的効果一時的効果一時的効果投資投資投資投資のののの段階段階段階段階（（（（一時的効果一時的効果一時的効果一時的効果////////¥¥¥¥¥¥¥¥百万百万百万百万））））百万百万百万百万））））

事業運営事業運営事業運営事業運営のののの段階段階段階段階（（（（継続的効果継続的効果継続的効果継続的効果事業運営事業運営事業運営事業運営のののの段階段階段階段階（（（（継続的効果継続的効果継続的効果継続的効果/2004~2013/2004~2013/2004~2013/2004~2013/2004~2013/2004~2013/2004~2013/2004~2013年累計年累計年累計年累計年累計年累計年累計年累計////////¥¥¥¥¥¥¥¥百万百万百万百万））））百万百万百万百万））））

おひさまおひさまおひさまおひさま進歩進歩進歩進歩エネルギーエネルギーエネルギーエネルギー（（（（株株株株））））事業事業事業事業によるによるによるによる地域経済付加価値地域経済付加価値地域経済付加価値地域経済付加価値おひさまおひさまおひさまおひさま進歩進歩進歩進歩エネルギーエネルギーエネルギーエネルギー（（（（株株株株））））事業事業事業事業によるによるによるによる地域経済付加価値地域経済付加価値地域経済付加価値地域経済付加価値のののの累計累計累計累計ポテンシャルポテンシャルポテンシャルポテンシャルのののの累計累計累計累計ポテンシャルポテンシャルポテンシャルポテンシャル （（（（（（（（2004~20132004~20132004~20132004~20132004~20132004~20132004~20132004~2013年度年度年度年度））））年度年度年度年度））））

21Sep-15

太陽光発電事業太陽光発電事業太陽光発電事業太陽光発電事業 省省省省エネエネエネエネ（（（（エスコエスコエスコエスコ））））事業事業事業事業 グリーングリーングリーングリーン熱供給事業熱供給事業熱供給事業熱供給事業

#1#1#1#1信州信州信州信州おひさまおひさまおひさまおひさまファンドファンドファンドファンド（（（（2004)2004)2004)2004)

#2#2#2#2温暖化防止温暖化防止温暖化防止温暖化防止おひさまファンドおひさまファンドおひさまファンドおひさまファンド

(2007)(2007)(2007)(2007)

#3#3#3#3おひさまおひさまおひさまおひさまファンドファンドファンドファンド(2009)(2009)(2009)(2009)

#4#4#4#4信州信州信州信州・・・・結結結結いのいのいのいの国国国国おひさまおひさまおひさまおひさまファンドファンドファンドファンド(2010)(2010)(2010)(2010)

#5#5#5#5信州信州信州信州・・・・結結結結いのいのいのいの国国国国おひさまおひさまおひさまおひさまファンドファンドファンドファンドIIIIIIII(2011)(2011)(2011)(2011)

#6#6#6#6地域地域地域地域ＭＥＧＡＭＥＧＡＭＥＧＡＭＥＧＡおひさまおひさまおひさまおひさまファンドファンドファンドファンド(2012)(2012)(2012)(2012)

#7#7#7#7おひさまおひさまおひさまおひさまファンドファンドファンドファンド7777(2013)(2013)(2013)(2013)

投資・資 運用投資・資 運用

営業・企画 据付け・建設 電気工事 地方税収

所5151515151515151 1111111111111111 17171717171717177070707070707070 66666666 2929292929292929 44444444

投資投資投資投資額額額額

1,8131,8131,8131,813

付加価値付加価値付加価値付加価値188188188188

OperationStage(continuously/cumulative)(million JPY)

Sales

NetIncom

e

ProjectManagement

AfterTaxProfit

Finance Rent LocalTa�

LocalValueAdded

LocalValueAdded

LocalValueAdded

AfterTaxProfit

InvestmentStage(onetime)(million JPY)

Sales,Planning Installation ElectricalConstruction LocalTa�

PVProjects ESCOProjects ThermalSupplyProjects

Investment/FundManagement Investment/FundManagement

Fund Fund Fund Fund Fund Fund Fund

Investment

24Source： Nakayamaetal.(2016)p.110

1,000

1,500

2,000

おひさまおひさまおひさまおひさま進歩進歩進歩進歩エネルギーエネルギーエネルギーエネルギー（（（（株株株株））））事業事業事業事業によるによるによるによる地域経済付加価値地域経済付加価値地域経済付加価値地域経済付加価値おひさまおひさまおひさまおひさま進歩進歩進歩進歩エネルギーエネルギーエネルギーエネルギー（（（（株株株株））））事業事業事業事業によるによるによるによる地域経済付加価値地域経済付加価値地域経済付加価値地域経済付加価値のののののののの累計累計累計累計ポテンシャポテンシャポテンシャポテンシャ累計累計累計累計ポテンシャポテンシャポテンシャポテンシャルのルのルのルの予測予測予測予測ルのルのルのルの予測予測予測予測 （（（（（（（（20302030203020302030203020302030年年年年までまでまでまで））））年年年年までまでまでまで））））

地域経済付加価地域経済付加価地域経済付加価地域経済付加価値値値値（（（（累計累計累計累計））））

事業者収事業者収事業者収事業者収益益益益（（（（累計累計累計累計））））

1,778

715

100万万万万¥

9人 雇用創出人 雇用創出人 雇用創出人 雇用創出（（（（2013年まで）年まで）年まで）年まで）

23Sep-15-500

0

500

1,000

補助補助補助補助金金金金（（（（累計累計累計累計））））

事業者収事業者収事業者収事業者収益益益益（（（（累計累計累計累計））））

従業員可処分所得従業員可処分所得従業員可処分所得従業員可処分所得（（（（累計累計累計累計））））

市町村 税収市町村 税収市町村 税収市町村 税収（累計）（累計）（累計）（累計）

688715

634

373

MillionJPY

9PersonEmploymentUntil2015

LocalValueAdded(cumulative)

AfterTaxProfit(cumulative)NetIncome(cumulative)

Subsidy(cumulative)

LocalTax(cumulative)

SimulationofLocalValueAddedby“Ohisama Shinpo”Operation

25Source:Nakayamaetal.(2016)p.112

おひさまおひさまおひさまおひさま進歩進歩進歩進歩エネルギーエネルギーエネルギーエネルギー（（（（株株株株））））事業事業事業事業ににににおひさまおひさまおひさまおひさま進歩進歩進歩進歩エネルギーエネルギーエネルギーエネルギー（（（（株株株株））））事業事業事業事業にににによるよるよるよる南信州南信州南信州南信州ののののよるよるよるよる南信州南信州南信州南信州のののの地域地域地域地域地域地域地域地域経済付加経済付加経済付加経済付加経済付加経済付加経済付加経済付加価値価値価値価値価値価値価値価値（（（（（（（（累計累計累計累計累計累計累計累計））））））））

689

3731,500

2,000100万万万万¥

1,778

971

全国全国全国全国全国全国全国全国

南信州南信州南信州南信州南信州南信州南信州南信州

85.7%

8.7%

おひさまファンドへ 出資者比率おひさまファンドへ 出資者比率おひさまファンドへ 出資者比率おひさまファンドへ 出資者比率おひさまファンドへ 出資者比率おひさまファンドへ 出資者比率おひさまファンドへ 出資者比率おひさまファンドへ 出資者比率（出資額）（出資額）（出資額）（出資額）（出資額）（出資額）（出資額）（出資額）

それ以外それ以外それ以外それ以外それ以外それ以外それ以外それ以外

長野県長野県長野県長野県南信州南信州南信州南信州 5.6%

25Sep-15

103 8

716

43133

133

689

68997

75

239

0

500

1,000

216333

971

事業者収益事業者収益事業者収益事業者収益

従業員可処分所得従業員可処分所得従業員可処分所得従業員可処分所得

市町村 税収市町村 税収市町村 税収市町村 税収

全国全国全国全国全国全国全国全国 南信州南信州南信州南信州南信州南信州南信州南信州

85.7%

2013までまでまでまで 2030までまでまでまで

MillionJPY

InvestmentRatioto“Ohisama Shinpo”

IidaAreaNaganoPref.

OtherArea

Until2013 Until2030

Japan IidaArea

Japan

IidaArea

LocalTax

NetIncome

AfterTaxProfit

SimulationofLocalValueAddedofIidaArea:InvestmentRatio

26Source:Nakayamaetal.(2016)p.112

Result:SimulationofLocalValueAddedfromthisCaseStudy

• REinvestmentatcommunityormunicipalitylevelcontributeLocalValueAddedcreation• CumulativeLocalValueAddedexceedthesubsidyforabout10yearsin“Ohisama Shinpo”case.

• CumulativeAfterTaxProfitoftheREoperatorexceedthesubsidyforabout20yearsin“Ohisama Shinpo”case.

• LocalinvestmentisthemostimportantelementforeconomicdevelopmentofCRE(CommunityRenewableEnergy)• InvestmentforCREsaremainlyfrommetropolisnow• AfterTaxProfitofCREoperatorattributemetropolis• Thisisquite“MOTTAINAI”forlocaleconomy

27