LAUSR

Following the dominant firm-competitive fringe model, this paper analyses the response of Japan’s nonrenewable electricity utilities to the renewable portfolio standards (RPS) and feed-in tariff (FIT) scheme. The output of electricity from renewable energy sources (RES-E) is primarily correlated with the magnitude of the RPS requirement and the fixed tariff. Nonrenewable firms suffer a reduction in revenue due to increased RES-E production under both schemes. The RPS requirement has direct impact on the renewable energy certificate (NEC) price. If the incumbent nonrenewable electricity utilities gain market power in both electricity and NEC markets, they can suppress the RPS quota to preserve their vested benefits. In the FIT scheme, the above-market RES-E generation cost is passed on to consumers via a surcharge. Since grid-connected RES-E accelerated rapidly under FIT, nonrenewable electricity utilities would face a substantial increase in costs to maintain network reliability due to the intermittent and variable nature of RES-E technologies. The Japanese government should therefore take measures to ensure variable renewable power occupies a higher share of the electricity system, and to do so in a cost-effective manner.