10 T. WAKIYAMA ET AL.
investment on newly establishing fossil power plants. For instance, social
costs might increase, which are associated with climate policies, regu-
lations, and CO 2 countermeasures such as the introduction of carbon
pricing policies including carbon taxes and emission trading schemes
(Vithayasrichareon and MacGill 2012 ).
According to calculations by the governmental cost evaluation commit-
tee, solar PV generation costs are expected to decline from 28.7 JPY/kWh
in 2010 to 18.1 JPY/kWh by 2030, whereas coal plant costs may slightly
increase from 9.5 JPY/kWh in 2010 to 10.3 JPY/kWh in 2030 by includ-
ing CO 2 countermeasure costs (CAS 2012 ). The electricity generation
costs of coal plants include current fuel prices of 4.4 JPY/kWh and social
costs of 3.2 JPY/kWh as of 2010 (CAS 2012 ). On the other hand, in
the case of solar PV, fuel and social costs remain at zero JPY/kWh, and if
construction costs decrease to 150,000 JPY/kW (more than half the price
of current construction costs), generation costs can be reduced by 9.9
JPY/kWh. However, under current conditions, renewable energy sources
remain expensive compared to fossil fuel sources. Therefore, financing and
risk mitigation policies are required to increase renewable energy’s com-
petitiveness (Grubb and Newbery 2007 ).
Other barriers to promoting renewable energy investment involve the
technical and financial risks associated with the construction, operation,
and maintenance of renewable energy facilities. These risks are related
to common infrastructural investment risks such as landownership, envi-
ronmental impact assessment, and cash flow, as shown in Table 2.2.
Table 2.2 identifies potential investors at each stage of renewable energy
investment—from construction to operation and maintenance—and the
investment- related risks at each stage.
Under construction period of renewable energy facilities, investors
including power companies face risks such as completion delay risk and
financing as common risks of infrastructure investments. Following the
construction of renewable energy facilities, electricity producers can gener-
ate returns by producing and selling electricity, whereas investors can begin
enjoying future cash flows generated from producing and selling electricity.
However, at the operation stage, electricity producers and investors face
unique risks associated with the electricity market: price, quantity, and reg-
ulation risks (Grossa et al. 2010 ; Fagiania et al. 2013 ). For instance, prices
and quantities are supplied through an electricity market. Price risks are
associated with electricity, fuel, and carbon price uncertainties. Renewable
energy purchase prices are determined based on equilibrium supply and