Circularity and the Energy Sector Part 1

The Circular Economy is not just an environmental regulation, but is being promoted in many countries as a policy to change the very structure of the economy. How is Japan faring in this context? How does it look to those who, like investors, keep a close eye on economic trends and changes?

 In 'Talk Circular x Economy', Mr. Andre-Hottinguer, who has been involved in investments in global companies for more than 10 years and has travelled back and forth between Europe and Japan, gives his unique perspective on these topics, drawing on his background as an investor and as a foreigner.  Let's enjoy his 'way of seeing' and explore the 'Circularity x Economy

Having explored the construction industry in our previous column, let’s shift our focus to another sector that plays a pivotal role in advancing the circular economy: the energy sector, with a particular emphasis on electricity generation.

The lack of natural resources in both Japan and many European countries led to the adoption of a circular mindset early on. However, the pace of change has picked up significantly in recent years, largely driven by the energy transition—where renewables, especially solar and wind, have emerged as key enablers.

Let's start by assessing the current landscape and exploring why circularity gained greater importance in today’s environment.

Circularity has become increasingly important in today’s energy landscape, shaped by evolving economic, geopolitical, and social factors.

Energy, after years on the back burner due to low prices and surplus capacity, has returned to the forefront. This renewed focus is the result of rising commodity prices, persistent supply chain disruptions, and geopolitical tensions, all of which have made energy affordability and reliability key concerns once again.

At the same time, demand is surging from new sectors—most notably electric vehicles and data centers. Data centers alone are projected to see their electricity consumption more than double by 2030, reaching around 945 terawatt-hours (TWh)—a figure comparable to the current annual electricity consumption of Japan. This rapid growth, fueled by advances in artificial intelligence, is putting unprecedented pressure on global energy systems.

Energy security and self-sufficiency have also become top priorities for many countries, especially those heavily dependent on energy imports like Japan and much of Europe. The rise of protectionist policies and the risk of supply disruptions have underscored the need for resilient, self-sufficient energy systems.

At the same time, more nations are setting ambitious energy transition targets, aiming to reduce emissions and achieve net-zero within the next two to three decades. Achieving these goals often means shifting away from imported fossil fuels toward renewable energy sources, which inherently supports circularity by reducing dependence on finite resources.

Renewable energy has become the most cost-effective option for electricity generation, with new wind and solar projects now outcompeting fossil fuel alternatives in most markets. Over the past two decades, a combination of strong public support, rapid technological advancements, and the positive feedback loop of growth and scalability has dramatically reduced the cost of renewables—often by 50-70%, and in some cases by as much as 90%.

Hydropower was the first widely adopted renewable energy source and has been a backbone of electricity generation in many countries for decades. In Europe, nations such as Norway, Iceland, Austria, Switzerland, and Sweden still rely on hydropower for more than half of their electricity needs. However, most viable hydropower sites in both Europe and Japan have already been developed, limiting further expansion in this area.

As a result, future growth in renewables will primarily come from solar—through upgrades and efficiency improvements—and wind, from both upgrades to existing installations and new offshore developments.

Interestingly, corporate are already onboard. Post the initial government support in the early 2010's, a major force behind the expansion of renewables over the past five years has actually been large corporations, especially tech companies, whose scale allows them to make a significant impact. These companies are electricity hungry and often commit to purchasing large volumes, sometimes the entire output of a specific wind or solar farm.
This is typically achieved through long-term contracts known as Power Purchase Agreements (PPAs), which usually span 10 to 20 years and guarantee that a company will buy electricity directly from a specific renewable energy facility. PPAs are mutually beneficial: they provide renewable energy operators with stable, predictable revenue streams—often a critical requirement for securing project financing—and offer buyers price certainty and access to certified and traceable renewable energy.

As government subsidies for renewables are reduced or phased out, PPAs serve as an effective tool to ensure continued investment in the sector and a smooth transition away from public support.

Nuclear energy is a highly polarizing topic but can't be dismissed in a decarbonation process. Supporters praise it for enabling energy independence in countries with limited natural resources and for being the only reliable source of carbon-free baseload power. On the other hand, critics point to its safety risk and the challenges of managing long-term radioactive waste. Even inside Europe views are diverging with Germany having decided to phase out its nuclear plants, while France is working on new projects. Japan is gradually reopening the plants it closed post Fukushima, but 19 still haven't resumed operations as of March 2025.

These contrasting perspectives are reflected in the differing nuclear policies adopted by various countries, as well as shifts in policy within individual nations over time.

However, for countries aiming to decarbonize their energy systems, nuclear power often stands out as the only option capable of delivering both significant carbon reductions and stable, affordable electricity. The operating costs of existing nuclear plants are generally low and predictable, making them an attractive component of the energy mix. As a result, many countries have extended the lifespans of their current reactors and are showing renewed interest in building new ones.

However, building new nuclear capacity is complex. Since the 1960s–70s boom, few reactors have been added in developed countries due to stricter safety standards and frequent cost overruns, as seen in recent European projects. Meanwhile, innovative technologies like Small Modular Reactors (SMRs) are emerging. With capacities up to 300 MW—around a third of a traditional reactor—SMRs offer greater flexibility and the potential for more cost-effective deployment.

In Part 2, we will examine the key tools that can enhance circularity in the medium term: renewable energy and modernized grid infrastructure.

The Next Article

The Last Articles