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Japan Creates Potential $9.6 Billion Solar Boom with FITs

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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