Investigating Cost-Effective Policy Incentives for Renewable Energy in Japan

The Great East Japan Earthquake (GEJE) and Fukushima nuclear disaster that occurred in 2011 gave a sharp reminder to Japan’s energy security to reconsider the reduction of nuclear power dependence with a better energy mix. We use a recursive CGE model based on Japan’s renewable energy input–output model to analyze the energy composite of power generation and consumption to investigate cost-effective policy incentives to achieve an optimal energy mix to reduce the nuclear power dependence to less than 5% within 10 years. Moreover, we create scenarios of: (1) nuclear power decommission, (2) renewable energy promotion and (3) virtual power plant (VPP) implementation with public R&D expenditure and power infrastructure investment. The simulation results show that renewable energy could gradually replace nuclear power with capital-use subsidies. Under the direction of nuclear power decommission, the VPP installation could reduce the fiscal cost of wind power by 13%, solar energy by 8% and the social cost by 36%. We provide empirical evidence that the implementation of VPP should be promoted in addition to the renewable policy promotion policy to facilitate power allocation and overcapacity problems better.