Japan’s Seventh Strategic Energy Plan
At a Glance
The Strategic Energy Plan is a compass for Japan’s mid- to long-term energy policy, navigating the balance between energy security, economic efficiency, environmental sustainability, and safety (“S+3E”). The draft of the seventh plan was released on December 17, 2024, updating the sixth plan issued in 2021. The newest draft highlights a recalibration of Japan’s energy strategy in response to evolving geopolitical and technological landscapes.
Key updates include a more ambitious renewable energy target of 40–50% in FY2040, the positioning of renewables as a mainstream power source, and a shift in nuclear energy policy language to maximize its use alongside renewables. These changes aim to address the dual imperatives of ensuring a stable energy supply and advancing decarbonization, particularly as electricity demand rises with the development of digital transformation (DX) and green transformation (GX).
Business implications are profound. While the ambitious renewable energy target presents an opportunity for companies to expand their businesses, companies should be vigilant in risk management, as the target includes uncertainties around timeline and cost. The reinforced role of nuclear power through a major shift in the language (from “reducing the dependence on” to “maximum use of” nuclear energy) offers a pathway to stable and predictable energy prices. That said, companies should remain sensitive to public sentiment around nuclear power. Companies should continue to monitor policy developments closely, particularly the integration of the Strategic Energy Plan with the forthcoming “GX 2040 Vision”—an effort to relocate data centers and other technology industries near carbon-neutral energy hubs—which will further shape Japan’s decarbonization trajectory and industrial strategy.
Strategic Energy Plan—Compass for Japan’s Energy Policy
On December 17, 2024, Japan’s government officially released the Seventh Strategy Energy Plan draft (summarized here, Japanese only), updating the previous energy plan introduced in 2021. The draft is subject to public comment and is expected to be approved by the Cabinet in February or March.
The Strategic Energy Plan sets the direction of Japan’s medium- to long-term energy policy. It was first formulated in 2003 based on the Basic Act on Energy Policy enacted in 2002. Since then, the plan has been reviewed approximately every three years in accordance with the Act. The Ministry of Economy, Trade and Industry (METI) formulates the draft after consultations with experts on the Natural Resources and Energy Advisory Committee.
The three E’s—energy security, economic efficiency, and environment—have been the plan’s pillars since its inception. The Fourth Strategic Energy Plan (2014), the first revision since the Great East Japan Earthquake in 2011, positioned “safety” as a prerequisite for advancing energy policy, adding an S to the three Es. Since then, “S+3E” has been the plan’s fundamental principle.
Key Takeaways—Power Generation Mix and Nuclear Power
The FY2040 goal for power generation mix and the shift in language regarding nuclear power were the focal points of the latest plan. Major changes in the geopolitical environment and technological advancement over the past few years have prompted the government to calibrate its energy policy. Specifically, the growing need for ensuring economic security caused by Russian aggression against Ukraine and the situation in the Middle East, as well as the expected increase in demand for electricity due to the development of DX and GX, have led the government to focus on achieving a balanced power generation mix to enable stable energy supply to be compatible with decarbonization.
Power Generation Mix
The draft positions renewable energy as a mainstream power source, making it the most significant power source in the forecast for the first time. In the draft, the percentage goal of renewable energy for FY2040 has increased to 40–50% from the FY2030 goal of 36–38% set by the Sixth Strategic Energy Plan. The broad range set for the FY2040 renewables goal reflects the various scenarios toward 2040 taken into account. Considering the current power generation mix, with renewable energy constituting only 22.9%, Japan must accelerate renewable energy deployment. The draft addresses mainly five challenges:
- Strengthen business discipline and promote the understanding of renewable energy as a long-term stable power source to coexist with local communities amid concerns regarding the rapid expansion of renewable energy projects, particularly issues related to safety, disaster prevention, landscape, environmental impacts, and future waste management.
- Reduce the burden on citizens (as the power generation cost of renewable energy remains high by international standards) through utilizing the Feed-In-Premium (FIP) scheme, which aims to reduce overall costs for the energy system and minimize output control losses, and encourage the bidding system.
- Develop interregional grid capacity to accommodate renewable energy’s variability, connect generation areas with demand centers, and introduce storage batteries to adjust output fluctuations.
- Accelerate innovation and build supply chains by expanding introduction of perovskite solar cells, floating offshore wind power in Exclusive Economic Zones (EEZs), geothermal power generation through national drilling surveys, and one-stop follow-up for licensing; accelerating the social implementation of next-generation geothermal power; and promoting small- and medium-scale hydropower led by local governments.
- Develop systems that ensure appropriate disposal and recycling for used solar panels. Addressing the increasing volume of discarded solar panels expected after the 2030s, consider establishing a mandatory recycling system to ensure proper reuse, recycling, and disposal.
Nuclear Power
The three Strategic Energy Plans issued since the Fukushima Daiichi Nuclear Power Station Accident in 2011 have consistently adopted the phrase “Japan will reduce the dependence on nuclear power as much as possible.” The Seventh Plan saw a shift in the language, with the aforementioned phrase being replaced by “maximizing the use of both renewable energy and nuclear power.” The expected increase in electricity demand due to the development of DX and GX (particularly GX in the manufacturing industry, new demand in data centers and semiconductor factories) is the driving force for change in Japan’s stance toward nuclear power.
To reach the 20% nuclear power source goal by 2040, all 36 plants must operate—an ambitious goal considering only 12 nuclear power plants are operating today. The reconstruction of decommissioned power plants and resumption of reactor operations are vital. The plan has also eased regulations to permit the reconstruction of next-generation innovative reactors at sites where nuclear power plants are being decommissioned. This policy applies to the facilities of the three companies that have decided to retire their existing nuclear reactors. On operation resumption, the national government needs to take the lead in gaining the understanding and cooperation of the local government and community.
Implications for Businesses—Challenges and Opportunities
At a press conference on December 20, 2024, Mr. Kingo Hayashi, Chairman of the Federation of Electric Power Companies of Japan (FEPC), an industry organization of electric utilities in Japan, assessed the plan as “a realistic plan that takes balance into account.” In particular, he welcomed the policy of making maximum use of nuclear power together with renewable energy as a “major shift.”
Renewable energy business
For the first time, the latest Strategic Energy Plan presented a scenario in which renewable energy becomes Japan’s largest power source. While this presents an opportunity for renewable energy companies to expand their businesses, companies should know that the Japanese government’s ambitious renewable energy targets face significant uncertainties.
For example, in the case of offshore wind power, rising material costs and prolonged project timelines have recently forced many projects to record impairments or withdraw entirely. Ørsted, the world’s largest offshore wind company, dissolved its joint venture with Tokyo Electric Power Holdings last March after losing a government-led bid to Mitsubishi Corporation, one of Japan’s major trading and investment companies. Even Mitsubishi Corporation allegedly faces significant impairments due to yen depreciation, soaring resource costs, and project delays.
As for solar energy, there are plans to expand its use on abandoned farmland. However, coordination between the Ministry of Economy, Trade, and Industry (responsible for energy policy) and the Ministry of Agriculture, Forestry, and Fisheries (responsible for agricultural policy) has made little progress. Solar energy adoption is stagnating and its implementation rate is slowing. The Japanese government has identified perovskite solar cells—dubbed “bendable solar cells”—as a key technology. Yet, at present, these cells remain costly, and their timeline for commercialization is uncertain. This context likely influenced the broad target range of 40–50% set in the plan. In the previous Strategic Energy Plan, the target for 2030 was 36–38%. A 40% target allows for achieving the goal with only minimal progress.
Notably, the Japanese government frequently changes rules after projects are awarded, essentially “moving the goalposts.” Regardless of their merits or downsides, renewable energy businesses in Japan must carefully account for these regulatory risks when advancing their projects. At the same time, the government should demonstrate a clear commitment to achieving the ambitious goals it sets.
Nuclear power
The shift from “reducing the dependence on” to “maximum use of” nuclear energy marks a watershed for post-2011 Japan. The reinforced positioning of nuclear power will contribute to a stable energy supply and predictable energy price. At the same time, businesses should remain aware of the sensitivity of public sentiment around nuclear power.
GX2040
The formulation of a new national strategy called “GX 2040 Vision” is underway, which will guide decarbonization and industrial policy up to 2040. The draft explicitly stated that the Strategic Energy Plan and the “GX 2040 Vision” will be “carried out as a whole.” The outline for the vision was announced on December 19, 2024, and a draft was announced on December 26. The vision states that it will promote industry clusters near power generation facilities that are highly effective in decarbonization, such as renewable energy and nuclear power. Renewable energy-related businesses should closely monitor government announcements and media reports on concrete plans to capture business opportunities.
Materials presented by Edelman Global Advisory Japan. For additional information, reach out to Yuichi.Kori@Edelman.com
