With no end in sight to sky-high prices for palm oil, Japanese businesses have idled their power plants that burn it to generate electricity.

And they do not appear ready to resume operations anytime soon.

Russia's invasion of Ukraine, and a poor oil palm harvest caused by extreme weather events, have sent prices shooting upward over the past two years.

One analyst said all that was enough to put the fledgling industry on the rocks.

“The business has become difficult to continue," said Ryosuke Sakaizawa, chief consultant at Mizuho Research & Technologies Ltd.

"(Electricity generating businesses are) susceptible not only to changes in price but also to environmental burdens caused by production and distribution, as well as current world events.”

The inflated costs come alongside the public relations problems the businesses face.

Farming oil palms has fallen under intense criticism for being incredibly environmentally destructive, which is another factor that makes it unclear whether these projects will be able to restart.

The businesses burn the oil extracted from the fruits of oil palm trees as fuel for diesel engines that power electricity generators.

BILLED AS RENEWABLE POWER

Japan considers palm oil to be a renewable energy source because the trees absorb carbon dioxide when they grow.

So, it made palm oil generation subject to its feed-in tariff (FIT) system, under which electric utilities are required to buy power created with renewable energy sources, such as solar power, at premium prices.

By September 2017, the central government approved  projects to generate a total of 4.59 million gigawatts of electricity nationwide--enough to power at least 10 million homes.

"I think many operators thought it would be easy to manage, thinking that all they had to do was run diesel engines with palm oil to generate power," said an employee of a biomass electricity producer based in western Japan.

They were soon proven wrong.

Most of the projects remain incomplete today. Only eight plants operated by five companies are still capable of generating about 140 megawatts. That is only about 3 percent of the initial plan.

A subsidiary of the major travel company H.I.S. Co. has a power plant in Kakuda, Miyagi Prefecture. It can generate about 41 megawatts of electricity--enough to power about 90,000 homes.

But the plant has languished since it was suspended in spring last year shortly after it started operations.

The other seven plants also stopped running during the same period.

Palm oil is mainly produced in Indonesia and Malaysia.

According to trade statistics from the central government, the import price of palm oil between 2016 and 2020 was around 80 yen ($0.60) per kilogram--a good price for using it as a power source.

But vegetable oil prices rose worldwide due to poor harvests of rapeseeds and soybeans caused by extreme weather conditions in 2020.

The price of palm oil rose to about 97 yen per kg in March 2021.

Under the FIT system, electricity generated using palm oil can be sold at 24 yen per kilowatt-hour.

Although 1 kg of palm oil can generate about four kilowatt-hours, it becomes unprofitable once fuel costs reach 97 yen per kg.

"We prepared our business plan on the assumption that (fuel costs would remain at) around 80 yen. It's ridiculous," said an employee of an electricity producer based in the Kanto region.

So, the business operators waited for palm oil prices to fall.

But when economic activities resumed as COVID-19 vaccinations progressed, demand for vegetable oils increased and palm oil prices topped 140 yen at the end of 2021.

Then in February this year, Russia invaded Ukraine.

Those two countries are major producers of sunflower oil, and once the war started, prices for many vegetable oils rose sharply.

And the price rise did not end there.

In late April, Indonesia, the world's top palm oil producer, temporarily imposed an export ban to give priority to domestic use.

The import price of palm oil from the Southeast Asian country topped 220 yen per kg in May, and the price continued to hover above 200 yen throughout June.

CULTIVATION CONTRIBUTES TO DEFORESTATION

Price is not the only factor causing difficulties for palm oil-based electricity generation.

It is feared in major oil palm production areas that the ecosystem is being destroyed by logging, as tropical rainforests are cleared to develop farms.

Human rights abuses such as child labor are also a major problem.

There are ethical providers of the commodity. The Roundtable on Sustainable Palm Oil (RSPO) certifies palm oil products that meet certain environmental and human rights standards.

Electricity producers in Japan are required to use certified palm oil.

But certified palm oil is more expensive, which has added to the difficulties of securing enough oil to continue operating the power plants.