Problem
The company was struggling to deal with the risk of fluctuations in electricity sales revenues associated with the transition from the FIT system to the FIP system, under which electricity sales prices are linked to the electricity market, as well as with the responsibility for balancing imposed under the FIP system.
Solution
Toshiba ESS purchases electricity at a long-term, fixed price, eliminating the risk of fluctuations in electricity sales revenue. Meanwhile, it also takes on responsibility for balancing on the client company’s behalf.
Problem
The company was struggling to deal with the risk of fluctuations in electricity sales revenues associated with the transition from the FIT system to the FIP system, under which electricity sales prices are linked to the electricity market, as well as with the responsibility for balancing imposed under the FIP system.
Solution
Toshiba ESS purchases electricity at a long-term, fixed price, eliminating the risk of fluctuations in electricity sales revenue. Meanwhile, it also takes on responsibility for balancing on the client company’s behalf.
Background
Aiming to develop new hydroelectric power plants in anticipation of falling solar power sales prices
Shinobuyama Fukushima Power Co.,Ltd. (below, Shinobuyama Fukushima Power) is a renewable energy business development company based in Fukushima City, Fukushima Prefecture.
After the Great East Japan Earthquake in 2011, Fukushima Prefecture revised the Fukushima Prefecture Renewable Energy Promotion Vision and set a target of “generating energy equivalent to more than 100% of the prefecture’s energy demand from renewable energy sources by around 2040.” In response to this prefectural policy, the Fukushima Mirai Kenkyukai General Incorporated Foundation was established in 2013. Then, Shinobuyama Fukushima Power was established in 2016, with the foundation as a joint operator.
Shinobuyama Fukushima Power operates a power generation business based on three key areas: solar power, wind power, and hydroelectric power. At first, it began its operations with a focus on large-scale solar power generation, such as the Shirakawa Solar Park (73,892 kW). Subsequently, in wind power generation, it started operating the Azumakogen Wind Farm (32,400 kW), and in hydroelectric power generation, it is mainly engaged in small-scale hydroelectric power generation, including the Surikami Water Treatment and Small Hydroelectric Power Plant (49.9 kW).
In 2016, when Shinobuyama Fukushima Power was established, the fixed purchase price for solar power generation under the FIT system was 24 yen/kWh.
“Our entry into the solar power generation business was undeniably somewhat late. The fixed purchase price has been decreasing year by year, and we determined that it would be unprofitable once the price fell below 20 yen/kWh. That is when we began to think about focusing on the development of new hydroelectric power plants. (Kazuhiro Watanabe, Shinobuyama Fukushima Power)
Initial Challenges
Transition from the FIT to an FIP system — the need to address the risk of fluctuations in electricity sales revenues
The disadvantage of hydroelectric power plants is that it is difficult to find suitable sites for power generation, and even if suitable sites are found, water rights and other issues may prevent the construction of power generation facilities, presenting significant obstacles to new development. It was amidst these circumstances that, in 2020, Fukushima Prefecture issued a public call for bids for a hydroelectric power generation operator to manage the multi-purpose Kido Dam. Shinobuyama Fukushima Power participated in the bidding as an opportunity to expand its hydroelectric power generation business, and succeeded in being selected as the project operator. After that, the company moved forward with procedures such as grid connection with the electric power company, but then an unexpected problem arose.
Initially, Shinobuyama Fukushima Power had planned to complete the various procedures and apply for certification under the FIT system by the end of FY2021. However, it took two years to connect to the grid, and the procedures could not be completed on schedule. Since the Kido Dam generated 2,300 kW of electricity, from FY2022 it was no longer eligible for the FIT, instead being covered by the newly launched FIP system.
With the FIT, it was easy to make a business plan and raise funds because the purchase was guaranteed at a fixed price for 20 years. However, with FIP, the income from electricity sales fluctuates according to market prices, and the handling of premiums is difficult to understand, making it hard to make projections for the years ahead.” (Kazuhiro Watanabe, Shinobuyama Fukushima Power) (Problem 1 and 2 in the figure)
While it was envisioned that the FIP system would include bilateral transactions with retail electricity providers, there were other issues for power generators in terms of their responsibility for balancing (submission of generation plans and settlement of imbalances). (Problem 3 in the figure)
“Since our company was not able to perform planned value balancing, we had no choice but to work with some aggregator. That’s when we decided to consult with Toshiba ESS, which had been operating a business that supported the FIP system from an early stage.” (Kazuhiro Watanabe, Shinobuyama Fukushima Power)
Why the Challenges were Overcome
Using a pseudo-FIT scheme to avoid the risk of fluctuations in the price of electricity sold and responsibility for balancing
Toshiba ESS proposed a “pseudo-FIT” scheme to Shinobuyama Fukushima Power in which electricity generated at Kido Dam would be purchased at a fixed price for 20 years. Under this scheme, in addition to purchasing the electricity at a fixed price*, Toshiba ESS also performs planned value balancing on the power generation operator’s behalf. As such, Shinobuyama Fukushima Power will no longer have to bear the risk of fluctuations selling price of electricity or the obligation to perform planned value balancing.
“We can operate our business with the same peace of mind as we did with a FIT. Because fixing the purchase price over a long period of time is exactly the same as a FIT, it was easy to explain to financial institutions and investors, and we were also able to get them to move forward smoothly with the loan approval process. (Kazuhiro Watanabe, Shinobuyama Fukushima Power)
In addition to the Kido Dam, we also made a proposal involving solar power generation. As mentioned earlier, the fixed purchase price of the FIT continued to decline, so Shinobuyama Fukushima Power did not undertake the construction of any new solar power plants. Accordingly, we informed them that there is a subsidy program to promote the introduction of solar power generation and that Toshiba ESS could assist them in the application process.
“We had been keeping out of new solar power projects, so we didn’t even know there was a new subsidy program. We spoke with Toshiba ESS and realized that we could make a profit if we took advantage of the subsidies, so we decided to put our efforts into solar power once again.” (Kazuhiro Watanabe, Shinobuyama Fukushima Power)
*The pseudo-FIT scheme adjusts the purchase price of electricity in line with changes in the premium price, thereby in effect providing a fixed price.
Benefits following Implementation
With the uncertainty of transaction operations eliminated, a focus on equipment installation for the start of operations
Construction of power generation facilities at the Kido Dam will take until the fall of 2024, with operations scheduled to begin around April 2026.
Shinobuyama Fukushima Power’s hydroelectric power generation business began with a micro hydroelectric power plant with an output of approximately 50 kW, followed by the Shinobuyama/Kodai-ji small hydroelectric power plant with an output of approximately 872 kW, and then the Kido Dam with an output of approximately 2,300 kW, gradually amassing expertise in the management and operation of large power generation facilities. A comparison of micro hydropower (less than 100 kW) and small hydropower (over 1,000 kW) shows that the former is less profitable due to the higher cost per kW of facility construction. Shinobuyama Fukushima Power intends to further focus on small hydroelectric power generation with output exceeding 1,000 kW, and the operation of Kido Dam will serve as a testbed for this.
“The first step is to get the Kido Dam properly up and running as planned. That is our immediate goal, and we are able to focus on that thanks to the fixed-price purchase and long-term contract guaranteed under the pseudo-FIT scheme proposed by Toshiba ESS.” (Kazuhiro Watanabe, Shinobuyama Fukushima Power)
Feedback from the Customer
CEO Kazuhiro Watanabe, Shinobuyama Fukushima Power Co.,Ltd.
Solar, wind, and hydroelectric power complement each other to generate stable power in any weather conditions
Hydroelectric power generation is stable throughout the year, day and night, and can produce 5 to 8 times more electricity than solar power generation. This method of power generation is ideal for Fukushima, which has abundant water resources. Although there are difficulties in finding suitable sites for power generation, we plan to be proactive in adding facilities going forward. In particular, we operate synchronous generators*, allowing us to handle small hydroelectric power of 1,000 kW or more. We can also control and operate foreign-made generators to suit Japanese rivers, and it is this kind of expertise and technology where our strength lies.
Our three types of renewable energy generation complement each other: solar when the weather is clear and sunny, wind when it is windy, and hydroelectric when it rains, enabling us to generate stable power in any weather conditions. Going forward, we intend to deploy a good balance of each, and we look forward to continued support from Toshiba ESS in this endeavor.
*Due to their complicated rotating configuration, synchronous generators are more difficult and expensive to operate than induction generators, which are most commonly used in small hydroelectric power generation, but they offer higher power generation efficiency and can generate several thousand kW or more, amounts that induction generators are not capable of handling.
Company Profile
Company name
Shinobuyama Fukushima Power Co.,Ltd.
Foundation
2016
Representiative
CEO Kazuhiro Watanabe
Headquarter Location
25 Matsuyama-cho, Fukushima City, Fukushima Prefecture
Business Contents
Renewable Energy Business Utilizing Solar, Wind, and Hydropower
Solutions to this problem
I want to stabilize revenues under FIP, as in FIT (pseudo-FIT)
By utilizing the premium granted by OCCTO, we set the monthly purchase price to be equivalent to the FIT price, achieving revenue stabilization similar to FIT
