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No.11 ,Culture  May 19, 2012

TURNING SMART COMMUNITY PRODUCTS INTO NEW EXPORT ITEMS

Photo : Kashiwagi TakaoThe Key is Local Production of Energy for Local Consumption
Japan has been a manufacturing nation, with a dominant manufacturing industry. As such, it has relied on fossil fuels such as oil and coal to maintain a steady supply of electric power. With the global push to reduce total carbon dioxide (CO2) emissions, however, Japan has faced calls to scale back its use of fossil fuels, particularly given accelerating economic growth in emerging economies such as China and India and the resultant surge in the driving population. Japan had planned to respond to these calls by raising the proportion of electric power generated by nuclear power.

However, the accidents at the nuclear power plants in Fukushima have upturned these plans. To ensure that we have a reliable source of electricity, I think we need to be very cautious before ruling out the nuclear option. Still, looking ahead, it is unquestionably difficult now to construct new nuclear power plants in Japan. So how can we secure alternative energy sources?

Renewable energy, such as solar power, wind power, biomass, and geothermal power, is best suited to the concept of “local energy production for local consumption” and should help Japan secure a domestic supply of electricity that can reduce its reliance on imports. In August 2011, the Diet approved the Act on Special Measures concerning the Procurement of Renewable Energy by Operators of Electric Utilities, which is designed to bolster use of renewable energy. The pillar of this act is the feed-in tariff system for renewable energy, in which businesses can sell electricity generated by renewable energy sources to the electric utilities.

The act is designed to encourage use of this system by setting a fixed purchase price to help ensure that it is profitable for operators, particularly for the first three years. With this system, there is no question that use of renewable energy will rise in the future. This will not only bolster the nation’s energy self-sufficiency; it will also expand “local energy production for local consumption” in Japanese communities. Promoting renewable energy will also create new business opportunities, and could potentially become part of Japan’s growth strategy.

Age of Consumer-Generated Electricity

In light of these prospects for renewable energy, how should Japan proceed with an energy system based on the concept of “local energy production for local consumption”?

First, we need to promote the smart house. The smart house will be equipped with solar panels (photovoltaic solar cells) and will generate electricity for baths, toilets, the kitchen, and other facilities when the weather is fine. It will store excess electricity generated in storage batteries for use when the weather is bad. The smart house will concurrently use other items such as the ene-farm battery, which generates electricity mainly using natural gas and biomass.

To use these three batteries efficiently, a smart meter is needed. A smart meter is an electricity meter that has both communication and management functions for home electronic appliances. For example, the meter can determine which power source, photovoltaic generation or electricity supplied by electric utilities, is more cost-efficient and can automatically control the use of electricity.

In addition, a smart meter or a home server that is separately installed can also function as a home gateway that connects in-house and external networks. With this function, residents will be able to monitor their use of electricity from their mobile phones or other devices–even when outside the home–and select which electricity sources and home electronic appliances to use.

The system that comprehensively controls these functions is the home energy management system (HEMS). Think of it as the “conductor” of home electric power.

Detached houses, particularly new homes, are likely to be equipped with these systems as standard from 2015 through 2016. Until now, the only way for general consumers to contribute to energy independence and environmental issues was to practice energy saving. With these systems, people who live in a smart house will enter the age of independent “energy creation.” Some home electronic appliances, such as a hair dryer after a bath, need to be used immediately; others, such as dishwashers and washing machines, do not have that time-sensitive aspect. An appliance, such as a heat pump water heater, can boil water when needed and save it in a hot-water cylinder. Some air conditioners can cool down a cooling storage when excess electricity is available, and in turn, cool a room just by sending air out from the storage. These will enable the control of appliances remotely by a mobile phone and other communication equipment via the home gateway.

When this potential becomes reality, home electronic appliances will become “smart home electronic appliances” that automatically optimize energy consumption through the use of information and communication technology (ICT) that operates in tandem with the smart meter. Use of these types of smart home electronic appliances is expected to begin to rise in 2014. Panasonic aims to bring appliances to market as early as 2013. Just as television broadcasting switched to digital in July 2011, a wide range of home electronic appliances that we use in daily life are likely to become smart home electronic appliances

Panasonic’s Alliance Strategy

The emergence of the smart house and smart home electronic appliances that generate and use energy will represent something of an electric power revolution. Although Japanese manufacturers are increasingly entering these new businesses, Hitachi, Toshiba, and other heavy electric machinery manufacturers that make electric power generation systems for existing electric utilities may find it difficult to act on the new opportunities.

For this reason, the initiatives of Panasonic, which traditionally has had relatively little to do with electric utilities, have been attracting attention. Launching smart home electronic appliances in 2013 ahead of its competitors appears to show its commitment to these new businesses.

Moreover, Panasonic has developed the “Fujisawa Sustainable Smart Town Project,” comprising about a thousand households and set on one of its former factory sites in Fujisawa City. It plans to open the town in 2013. Several demonstrations and experiments involving the smart town concept have already taken place in locations such as Kitakyushu City, Fukuoka Prefecture, all predicated on the use of electricity provided by electric utilities.

In contrast, in Panasonic’s smart town project, users can choose their own type of electricity. As a result, depending on the volume and cost of electricity use, users may not end up using electricity supplied by the utilities. They can also purchase and store electricity at night when charges are low and sell it when prices rise. This would also benefit the utilities, since it would alleviate the concentration of electricity demand during peak hours.

Panasonic has been handling a full range of home electronic appliances, but it has faced severe competition from emerging Chinese and South Korean manufacturers of home electronic appliances. To differentiate its operations from its overseas competitors, Panasonic will likely focus its resources on the smart use of electricity in the energy business. Its recent move to make Sanyo Electric, which excels in manufacturing fuel cells, a wholly owned subsidiary appears to be part of this initiative. Sanyo Electric has strong manufacturing platforms for three types of batteries, including batteries for Toyota hybrid cars and household fuel cells, which are essential for the smart use of energy.

In addition, in devising systems that will make an entire town “smart,” Panasonic will likely seek alliances or acquisitions to offset any shortfall from the technologies of its own group companies.

Turning Disaster Zones into Smart Towns

In 2011, Japan faced two serious challenges: the historically strong yen and reconstruction in the wake of the Great East Japan Earthquake. Having now entered 2012, how should we address these challenges? I believe that the answer lies in critical roles played by smart houses, smart home electronic appliances, and projects to build smart towns (smart communities and smart cities) that use these technologies.

As for issues related to the strong yen, with unfavorable exchange rates, Japanese manufacturers are facing adverse conditions against overseas competitors in exporting solar batteries. So I would like to suggest a change in concept that takes advantage of the strong yen by acquiring overseas electric utilities. For example, suppose that a Japanese electric manufacturer acquires one of the three thousand electric utilities in the United States. As a result of this acquisition, the Japanese electric manufacturer will have to meet demand from hundreds of thousands of households. As a strategy, it would be possible for this Japanese electric manufacturer to have its customers install solar batteries and collect the cost of the installation as an additional charge to electricity bills.

In adopting this strategy, the Japanese electric manufacturer can procure one-third of the solar batteries planned for installation through an international tender in a bid to minimize costs. Meanwhile, it can use its own products for two-thirds of the total demand. By adopting this strategy, the Japanese electric manufacturer can gradually improve its international competitiveness while also managing its business.

Moreover, while the yen is strong, Japanese manufacturers should actively acquire overseas manufacturers of smart meters and companies that possess an in-depth expertise of the Internet. In addition to adopting these initiatives, Japanese manufacturers should continue to carry out demonstrations and experiments of smart towns. With the expertise acquired through these experiments, the companies will be ready to export entire communities when it is appropriate in the future. From the start, Japanese manufacturers have possessed the technologies necessary for developing a smart town. In addition, Japanese manufacturers have the ability to develop an infrastructure that can meet a wide range of demands by matching its outstanding expertise to the characteristics of specific regions and countries.

Of course, there is no need to insist on only using products made in Japan for all projects. If appropriate products exist in countries where projects are exported, Japanese manufacturers can use those products. The important point for Japanese manufacturers is to hold patents for all the key products. If these companies can propose smart towns that will directly improve the convenience of people in their daily activities and keep a lid on energy costs, they will also probably be able to promote smart towns in emerging economies.

The concept of smart towns can be sold as a small electric power generation station to areas where electricity is not widely available. The strong yen will not be problematic because there will be no competitors in promoting this type of pioneering project.

With respect to reconstruction from the March 11 disaster, we should maximize the use of the aforementioned feed-in tariff scheme for renewable energy. For example, fixed-type mega solar panels can be installed in fields that were hit by the tsunami and damaged by seawater. This way, the land will be used efficiently until the fields are restored and able to be cultivated. Land that has become unusable because it has been contaminated by radiation can be used for wind power electric generation. In mountainous areas where water fluctuates greatly, small and midsize hydro-electric power generation can be developed. This is once again part of the promotion of “local production of energy for local consumption.”

In this context, the important thing is to establish business models that will contribute to the reconstruction of disaster zones. For instance, special purpose companies (SPC) capitalized mainly by contributions from local companies will mostly manage local production of energy for local consumption, while major home electronic appliances companies will participate only in activities that local companies cannot sufficiently manage. If local capital is directed to the business in this way, money will circulate in local areas. Another possible option is to have these special purpose companies issue corporate bonds and pay relatively high interest rates to local bondholders.

Moreover, if prices for purchasing electricity in disaster zones are fixed at higher rates than normal, local business operators can enjoy the benefits. I believe that these initiatives effectively translate to the redistribution of income in all of Japan, therefore, making it more significant than securing reconstruction funds by raising consumption taxes.

In terms of reconstructing towns in disaster zones from scratch, it can be said that promoting smart town projects would be ideal. We should turn the pain inflicted by the disaster into an opportunity to create a bright future. We must all unite and do our best to create comfortable living conditions in these areas, which will in turn serve as the driving force behind the creation of new industries.

Paving the Way for Electricity Deregulation

The concept of smart towns will eventually trigger the revolution of electric power, involving not only home electronic appliance manufacturers and electric manufacturers, but also auto manufacturers. Until now, electricity has been limited to something that is provided by electric utilities, so the recent birth of the concept of using a car as electricity storage is significant.

For example, Nissan Motor’s Leaf, an electric vehicle, has the capacity to store 24 kWh of electricity. Given the average consumption of electricity for each household is approximately 10 kWh per day, the Leaf can store enough electricity for two days’ use in one household. In the future, it will be possible for cars to run on electricity generated by solar batteries, and owners of cars to drive to certain places and sell electricity that has been stored in the cars. Here, I will illustrate an event that is likely to take place in the future.

“One day, when I went shopping in a fully-charged car, I learned that a shop needed electricity for operating air conditioners. The shop told me that if I could sell electricity at a lower price than that of electric utilities, it would purchase electricity from me. So I decided to sell the electricity charged in my car.”

In this way, consumers will develop the notion of selling, buying or sending electricity through cars as a medium. This will further lead to deregulation of electricity. The separation of electric generation and transmission did not make much sense when a large amount of electricity was generated at low costs by nuclear power plants. This is because even if diversified electric power generation companies are established, there would be no room for their participation in the market. However, as the situation has changed in the wake of the accidents in the nuclear plants in Fukushima Prefecture, smart generation and diversification of electricity have become essential.

To date, Japan has been working on research into smart towns with a focus on how electricity can be efficiently generated and used. Sooner or later, however, an issue regarding how excessive electricity will be distributed or traded will come to the fore. In fact, this is the way renewable energy is to be used to the fullest. There is a limit to what each household can do. It is important to involve thousands of households in each community. In other words, a cluster of houses will serve as an electric power generation station.

It is estimated that, by 2030, equipment and technologies related to smart towns will grow into a massive new market of 3,000 trillion yen.

By actively presenting the shape of future cities to the rest of the world, it is now important for Japan to create and capture great opportunities from its devastating experience inflicted by the unprecedented earthquake.

Translated from “Nicchu no shototsu wa karada wo hatte soshisuru (Avoid a Clash between Japan and China at All Costs),” Voice, March 2012, pp. 44-51. (Courtesy of PHP Kenkyusho)

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