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Published on June 21st, 2012 | by Susan Kraemer

24

Japan Creates Potential $9.6 Billion Solar Boom with FITs

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June 21st, 2012 by
 

Very high new feed-in tariff payment rates coming into effect in July are widely expected to propel Japan to overtake both Germany and the current leader, Italy, to become the second largest solar PV market in the world.

As with the previous record-holders, it will be the generosity of the feed-in tariffs that drive the market. Japanese solar panel makers Panasonic and Sharp are among the potential solar industry beneficiaries of a generous 42 yen (53 cents) a kilowatt-hour feed-in tariff that utilities will be required to pay solar power producers starting next month.

The generosity of the new policy makes sense. The nuclear meltdowns at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant last year and subsequent shuttering of nuclear in Japan suddenly increased a gigantic amount of demand for new generation, and Japan’s first move had been to back down into fossil power, a disastrous decision.

The rates are at the level that feed-in tariff experts like Paul Gipe say is required to drive speedy adoption: about three times what industrial users now pay for conventional power.

This should very quickly motivate investment that is estimated to get 3.2 gigawatts of clean energy onto the grid to help replace the lost power from the closed reactors, which were supplying 21% of Japan’s power.

Japan had an installed nuclear capacity of 49 GW over 54 reactors. It had been getting one fifth of its total 228 GW of power generation from nuclear. So its needs are huge, and the policy is enough to quickly get solar in to help replace that capacity.

“The rate reflects the Government’s intention to set up many solar power stations very quickly,” explained Mina Sekiguchi, associate partner and head of energy and infrastructure at KPMG in Japan, conceding that the tariff is very attractive.

Fossil energy interests that were the first to benefit from the loss of nuclear power have jumped on the policy with concern over its high tariff rates that utilities will be paying for the next 20 years.

“This is a mechanism with a high degree of market intervention by setting tariffs artificially high and making users shoulder the cost,” complained Masami Hasegawa, senior manager of Keidanren, Japan’s most powerful business lobby. “We question the effectiveness of such a scheme.”

But Germany — the first to pioneer feed-in tariffs, boosting a staggering 22 GW of solar onto the grid, is now experiencing cheaper energy as a result of the merit order effect, in the peak energy hours of the afternoon when solar production peaks. Additionally, it has gotten solar installations down to a record average of $2.24/watt. For an explanation of how this works, Giles Parkinson at RenewEconomy explains the merit order effect in why fossil generators are terrified of solar.

Image: Paul D Smith for Shutterstock

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About the Author

writes at CleanTechnica, CSP-Today, PV-Insider , SmartGridUpdate, and GreenProphet. She has also been published at Ecoseed, NRDC OnEarth, MatterNetwork, Celsius, EnergyNow, and Scientific American. As a former serial entrepreneur in product design, Susan brings an innovator's perspective on inventing a carbon-constrained civilization: If necessity is the mother of invention, solving climate change is the mother of all necessities! As a lover of history and sci-fi, she enjoys chronicling the strange future we are creating in these interesting times.    Follow Susan on Twitter @dotcommodity.



  • tracy teresa

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  • akshay

    The need to set up the debt financing ecosystem.

    Most of the buzz around the fastest growing solar market for the 2013 vintage has been created by large Japanese corporates using their balance sheet to engage in a new line of business and some general construction firms looking to create solar track record. The ecosystem from the project finance perspective is still evolving and we sense the need for some underwriting guideline standardization. The lenders will eventually regroup and define this standard but just like the TruSolar initiative in the US, there is a need for and industry-driven standard for project selection, underwriting and approval. It should involve an underwriting process that rigorously tests and identifies higher yield, lower risk solar investment opportunities.

    As the solar industry comes out of its own blend of recession, panel prices are down at least 20% across the board and this has translated into a lowering of the FIT however as we superimpose the technology cycle that is probably going to increase efficiency or lower prices again we foresee the need for a market driven financing ecosystem.

    Some of the points that we have ascertained to be pivotal in the creation of the framework are

    Panels / Panel Manufacturers: There has always been a healthy debate around cost Vs quality equation that justifies the local panels being expensive, however for a 20 year long agreement and ROI calculation we like to look at the fundamentals of the manufacturer as well. Case in Point, the not-so-blunt firm that has inspired many technology leaps but now sees a large erosion of basic capital as well as brand capital. The underwriter usually assumes a basic efficiency degrades and a backstop panel manufacturer’s warranty against this degradation as well as the overall functioning. This should technically be correlated to the overall financial health of the manufacturer. Panel selection and manufacturer selection at the underwriter level could, and should be more global in nature. There are now manufacturers with significant installed capacity and some with 4-5 year performance track record. The Government’s exercise to have panels tested and certified to be eligible for the program is a step in the right direction and will hopefully be all-inclusive.

    Prefecture / Utility Counter party: While it is no longer a secret
    that the political-capital-deficient utilities are all probably going to
    counter the coercive policies of the government viz. the propagation and
    nurturing of the renewable energy gamut of technologies and projects. We think a few of them are significantly better set up to construct innovative
    evacuation infrastructure and do so as per schedule. There is also the over-arching equation of also actually having a healthy demand side within reach. Case in Point is the Hokkaido Utility (HEPCO) which has decided its limit as well as its projected demand. Cheap land and easy leasing conditions created a rush in the otherwise sparsely populated northern island. Generically speaking any utility can cite local geographic conditions, unavailability of power evacuation infrastructure, expensive scheduling of power evacuation development (usually a sister concern) firm etc to delay / offset any coercion.

    Developers: Globally there are many business models that can be
    followed in the renewable energy space. In Japan the first movers have been
    general industry looking for a government guaranteed margin and the larger
    EPC’s with access to land banks and cheap balance sheet finance. While these moves are to be lauded for the speed and tenacity, they may not lead to the creation of the project finance ecosystem. There are viable business models from IPPs, Cross-Over Real Estate funds, global green funds with little or no operating history in the solar space in Japan that can possibly create and be nurtured by the project finance ecosystem. This should and will create a wider investor base for these assets in Japan and perhaps reach-out into the rest of emerging Asia.

    Akshay Toby Syal, Director at
    Waterneer Technologies India Pvt. Ltd has been working with some of the
    developers & lenders to design the underwriting guidelines. His full analysis
    & opinion on the technicalities of the market and its nuances can be
    requested via mail (akshay@waterneer.com).

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  • ThomasGerke

    Solar power could cut the summer peaks without a problem and considering that even this high FiT means cheaper electricity production than the oil-fired power plants that are being replaced by solar energy, it makes all the economic sense. 

    Why spend billions on oil imports when you can send billions to japanese households and businesses. 
    Macro-Economic benefits approaching. ;) 

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  • http://ronaldbrak.blogspot.com.au/ Ronald Brak

    I know some people will say that the Japanese FIT will cost Japan billions, but I will point out that it is not a cost, but a transfer.  If you don’t know what I mean by this, if I take an apple from Johnny and give it to Jenny that will cost Johnny an apple but Jenny will gain an apple, so the total amount of apples will be the same as before the transfer.  But if I take an apple from Johnny and stomp on it or sprinkle radioactive fallout on it, then that act cost one apple as we have one apple less than what we started with. 

    • Bob_Wallace

      $9.6 billion. $9,600,000,000.

      Population of Japan 127,500,000

      Cost per person $75.

      $9.6 billion sounds like such a big number until you put into perspective.

      21 cents per day for a year to get massive amounts of solar install and get dangerous nuclear permanently shut down.

      • http://muckrack.com/dotcommodity Susan Kraemer

        Yes, it is a drop in the bucket that Japan needs to fill. Also, since rooftop solar is so well represented by Japanes companies, the clean economy of Japan (Ronald’s “Jill”) will be helped to grow, and the more massive the better.

    • Bill_Woods

       If you were Johnny, I bet you’d take a different view of this proposed transfer.
      Or perhaps not. Why don’t you give me $1000? Collectively, we’ll still have as much money.

      • RobS

        9.6 billion from 127 million Japanese Johnny and Jills, that would be $75 each, I’d pay several times that to avoid the risk of a nuclear disaster.

      • http://ronaldbrak.blogspot.com.au/ Ronald Brak

        Are you intentionally missing my point, or would you like me to explain it again?

  • Ross

    If the target is 3GW but the missing nuke capacity is 42GW this super motivating subsidy will be taken up very quickly.

  • http://ronaldbrak.blogspot.com.au/ Ronald Brak

    The reason that the Japanese feed in tariff is so high could be because for years the Japanese nuclear industry has been saying that the cost of solar was very high and the Japanese government believed them.  Way to shoot yourself in the foot, Atom-san.

    • Matt

      Look forward to see they growth over the next couple of years. That an the “problems” is causes. Will likely be more demand than current installition companys can handle.

      • http://cleantechnica.com/ Zachary Shahan

        Hopefully they’ve got a ton of folks setting up shop. They’ve seen what has happened in Europe.

    • http://cleantechnica.com/ Zachary Shahan

      haha, that would be a gem. :D

      think they just want to hurry and get a lot of solar up fast. and they seem to have a great evaluation and repricing system planned.

  • Matt

    First let me say, that is some FIT Japan!

    I always thought the FIT should be teired.
    - Highest rate for residental, non-profit, public (read schools, civic centers)
    - Middle level rate for
    - – rooftop/parking lot commerical user (they get faster return becaueof peak power use)
    - – Brownspace and landfill located
    - Lowest for Utility scale systems

    Making it where you need it cuts down/out the cost of transporting and loses during transporting it.

    • http://cleantechnica.com/ Zachary Shahan

      I’m soooo looking forward to seeing and writing about the explosion of solar power on the Japanese grid. Good stuff to come..

      • RobS

        I’m so looking forward to the 50-70% further drop in solar costs it will stimulate. The predicted solar LCoE graphs that we’ve been looking at over the last few months is about to be blown out of the water.

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