Japan is poised to overtake Germany and Italy to become the world’s second-biggest market for solar power as incentives starting July 1 drive sales for equipment makers from Yingli Green Energy Holdings to Kyocera.
Industry Minister Yukio Edano today may set a premium price for solar electricity that’s about triple what industrial users now pay for conventional power, a ministry official said. That may spur at least $9.6 billion in new installations with 3.2 gigawatts of capacity, Bloomberg New Energy Finance forecast. The total is about equal to the output of three atomic reactors.
“The tariff is very attractive,” said Mina Sekiguchi, associate partner and head of energy and infrastructure at KPMG in Japan. “The rate reflects the government’s intention to set up many solar power stations very quickly.”
Prime Minister Yoshihiko Noda’s effort to cut dependence on atomic energy that provided about 30 percent of Japan’s power before the Fukushima nuclear meltdown in 2011 is a bright spot for the solar industry suffering incentive cuts across Europe. It’s also raising concern among Japanese business groups that clean power aid will raise bills and slow Japan’s economic recovery.
“This is a mechanism with a high degree of market intervention by setting tariffs artificially high and making users shoulder the cost,” said Masami Hasegawa, senior manager of the environmental policy bureau of Keidanren, Japan’s most powerful business lobby. “We question the effectiveness of such a scheme.”
Twice German rate
Utilities should pay 42 yen (53 cents) a kilowatt-hour for 20 years to solar power producers, almost twice the rate in Germany, the world’s biggest market by installations, under a proposal by a panel set up by the Ministry of Economy, Trade & Industry.
Edano plans to announce new clean-power tariffs on June 18, and the pricing will be as suggested by the panel, Masato Yasuda, an official in charge of the feed-in tariff program of the industry ministry, said by phone June 15.
Developers are counting on the subsidies and have accelerated solar-park construction plans this year.
“We hear every day a new announcement of a megawatt-scale project,” Izumi Kaizuka, an industry analyst at RTS, said in Munich, referring to projects 1 megawatt or bigger.
Japan ranked sixth worldwide by new installations last year, when it added 1.3 gigawatts of solar to bring its installed base to 5 gigawatts. Next year builders will erect roughly triple that level, or another 3.2 gigawatts to 4.7 gigawatts, New Energy Finance forecasts. A gigawatt is enough to supply about 243,000 homes in Japan.
Comparison with China
Only China will exceed Japan in terms of capacity growth as it supplants Italy and Germany, which held the top two positions in 2010 and 2011, the London-based researcher estimates.
Japanese companies such as Kyocera and Sharp that kept the photovoltaic industry alive when the US scrapped investments in the 1990s are gearing up to supply their home market, as the government converts a pilot program into one aimed at large, commercial solar farms.
“We no longer have enough electricity, especially during the day, and that is when solar power can help,” said Mikio Katayama, chairman of the electronics manufacturer Sharp and the Japan Photovoltaic Energy Association. “This is a very good rate to promote investment and mega solars.”
Suntech leadership
Germany’s Q-Cells SE overtook Sharp as the biggest PV cell producer in 2007, according to the International Energy Agency. Now Chinese manufactures such as Suntech Power Holdings and Yingli dominate the industry as they helped push Q-Cells and several other Western rivals into bankruptcy protection.
Japan got 1.6 percent of its energy from renewables in 2011, the second-smallest portion among Group of Seven countries after Canada. It trailed the US and France in the G-7 in atomic power consumption. The shift toward solar reflects concern that the cost of imported fossil fuels will rise in the coming decades.
“Japan’s manufacturing economy was severely challenged by the oil crisis of the 1970s,” said Arthur Mitchell, senior counselor in the Tokyo office of the law firm White & Case LLP, whose expertise includes environmental and power policies. “Assuming that the price of energy and almost everything else will rise, Japan is betting it will once again become the most efficient user of energy.”
A 42-yen solar rate, targeted for 10-kilowatt or bigger plants, is above the 38 yen price for 15 years the industry expected, said Takashi Watanabe and Daiki Takayama, Tokyo-based analysts for Goldman Sachs Group, in a note in April.
German subsidy cut
Germany is cutting subsidies and plans to offer 0.135 euros to 0.195 euros (17 to 24.6 US cents) a kilowatt-hour, depending on size. Italy’s rate is 0.128 euros to 0.237 euros.
Utility-scale projects may earn 6 percent internal rates of return, and that could increase to more than 18 percent if developers can bring system costs closer to international levels, Travis Woodward, a New Energy Finance analyst, wrote in a note on June 6. He also estimates residential solar systems are being sold in Japan for $6.28 a watt, more than double the $2.70 a watt price in Germany.
Japan is one of the highest average selling price markets dominated by a few large installers, Jefferies Group analysts Jesse Pichel, Min Xu and Scott Reynolds said in an April 30 report. “We expect Chinese and Taiwanese producers to erode the high domestic share through local partnerships to drive down cost,” the analysts said.
Surcharge to consumers
Under the new program, utilities will buy solar, biomass, wind, geothermal and hydro power. All costs will be passed on to consumers in surcharges, which the government estimates will average about 100 yen a month for an average household.
The industry ministry will set terms and rates annually for projects whose contracts are signed the same year with utilities for transmitting their power.
The measures beginning in July expand on a program started in November 2009 that requires utilities to buy surplus solar power that the generator didn’t need. That expanded the market for rooftop residential panels.
The new incentives will encourage utility-scale projects. Japan’s five largest solar projects planned or under consideration were all announced between October and April, as the government worked out details of the feed-in tariff program, according to New Energy Finance.
Dozens of companies have announced plans to take advantage of Japan’s subsidies. Yingli, based in Baoding, China, has set up a unit in Japan.
Closer to customers
“Being closer to the customers is extremely important for Yingli,” Masaki Mizuta, managing director of Yingli Japan, said on May 4. “We also believe that this is a key success factor in Japan.”
Kyocera is “aggressively” expanding its solar division, said Sanae Iwasaki, a spokeswoman for the company that’s based in Kyoto, Japan. It doesn’t disclose targets. It’s considering a 70-megawatt station with IHI and Mizuho Corporate Bank in Kagoshima on the southern island of Kyushu, which would be the largest in Japan when completed.
“More players will enter the market for investment purposes,” Iwasaki said. “‘There will be more importance on the quality. We will pursue cost-cutting by producing panels with higher conversion efficiency.’’
Panasonic, which also owns Sanyo Electric, plans to boost supply for its home market by shipping solar products from its new plant in Malaysia, said Kazuhiro Yoshida, who heads the company’s solar panel operation.
‘‘Japan is where the demand is,’’ Yoshida told reporters May 23. The plant will begin production in December, boosting the company’s capacity to 900 megawatts from 600 megawatts, according to the company’s statement.
