12 T. WAKIYAMA ET AL.
demand in a market through competitiveness with other sources of energy
such as fossil power generation (Miera et al. 2008 ). Therefore, when renew-
able energy prices are high, demand drops, and prices decrease, which
means that suppliers may find it difficult to earn returns on their renewable
energy investment. In addition, quantity risks are a different type of risk
related to the uncertainties associated with renewable energy costs that are
influenced by electricity demand levels (Menanteau et al. 2003a, b).
2.2.2 Risk Mitigation ApproachesAs discussed above, one barrier to the deployment of renewable energy in
energy markets is related to risks involved with investment returns due to
future short- and long-term uncertainties of the market price (Finon 2013 ;
Varadarajan et al. 2011 ). However, price, quantity, and regulation risks
embedded in renewable energy sources are to some extent controlled by
policies, and electricity market competitiveness levels can be improved by
introducing financial systems. There are three main ways to increase compet-
itiveness and to mitigate the market risks of renewable energy in the electric-
ity market through financial support. The first one is to put values on carbon
such as by creating a carbon tax that increases the price of fossil fuels by
imposing tariffs as surcharges on electricity prices. The second is regulating
renewable energy purchases based on a fixed price or certain amount (Cory
et al. 2009 ; Haas et al. 2004 ). Quantity-based systems such as the renew-
able portfolio standard (RPS) and price-based systems such as FIT systems
are methods used to promote renewable energy purchases. The third one is
subsidies and funds to support the initial stage of technological deployment.
2.2.2.1 Renewable Portfolio Standard
Under quantity-based RPS systems, future renewable energy generation tar-
gets could be established (Jaccard 2004 ). Quantity risks can be neutralized
to some extent. However, prices are established through a market mecha-
nism based on supply and demand. Thus, it is difficult to mitigate price risks
in RPS markets (Suwa and Jupesta 2012 ; Fagiania et al. 2013 ; EC 2004 ).
In the case of Japan, power companies are required to purchase a certain
amount of renewable energy but the required target amount of renewable
energy is not so high (approximately only 1 % of total power supply). With
such low target amount, the RPS price is low at 7–8 JPY/kWh. Only waste
energy can cover the market cost at 6.8 JPY/kWh, while the generation