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Launch of feed-in tariff raises expectations for Japan’s PV market

December 28, 2011


The start of the new scheme–the ‘Renewable Energy Bill’ (‘Bill on Special Measures for the Procurement of Renewable Energy Electricity by Electric Utilities’) which was passed into law in the Diet on August 26, 2011 and scheduled to be enforced in July 2012─is going to pave the way to large-scale photovoltaics. Most of the past construction projects of mega solar power stations were of electric utilities, but in response to the anticipated launch of the FiT scheme, multiple mega solar projects had been already reported before the bill was passed.

FiT Starts in Japan in July 2012

The ‘Renewable Energy Bill’ (‘Bill on Special Measures for the Procurement of Renewable Energy Electricity by Electric Utilities’) was passed into law in the Diet on August 26, 2011 and scheduled to be enforced in July 2012. Coincidentally, this bill was adopted at a Cabinet meeting in the morning of March 11 and scheduled to undergo Diet deliberations, and shortly after that, the Great East Japan Earthquake occurred in the afternoon of the same day. As the national government was busy dealing with the earthquake disaster, the Diet proceedings for the bill was postponed and remained inconclusive for a while. However, the passage of the bill was highlighted from June as ‘one of the conditions for the former prime minister Naoto Kan to resign’ and its movement attracted considerable media attention. After discussions for several months involving the ruling and opposition parties and the industrial circle (Japan Federation of Economic Organizations), the bill was finally passed on August 26, 2011.

Bill on Special Measures Concerning Procurement of Renewable Energy Sourced Electricity by Electric Utilities

Under the new scheme, electric utilities are required to purchase renewable energy (photovoltaic, wind, small- and medium-scale hydro, geothermal, biomass) at fixed prices for certain periods of time determined by the national government. In this scheme, the cost incurred by electric utilities for such purchase will be added to electric bills as a surcharge and passed on to all electric consumers. The purchase prices and purchase periods are not yet determined and will be discussed at an independent panel of experts established in the Ministry of Economy, Trade and Industry (METI). The Minister of METI will eventually determine the prices and periods but it is required to report to the Diet the basis for calculation of the prices and period.

In terms of photovoltaics, purchase prices will be set according to the installation type and system capacity, and there will be no upper limit for the total amount of system installation. Basically, electric utilities are required to accept to connect electric power generated by renewable energy to their existing grid. Advantageous pricing to power producers is expected during the first three years after the enforcement, which are positioned as a ‘promotion period’ for the diffusion of renewable energy. However, the purchase prices can be revised semiannually and the overall scheme is scheduled to be reviewed once every three years and in the 10th year.

Because of the concern over decline in the competitiveness of domestic industries due to the electric rate hike, a measure was adopted to reduce the burden of commercial-scale utility customers using a lot of electricity. More specifically, upon request, 80% or more reduction will be applied to any business operators, whose power consumption based on sales is at least eight times higher than the average of the manufacturing industry. This measure is expected to be applicable to the oil, chemical, iron, paper/pulp and other industries. In addition, the regional differences of the surcharge were pointed out as a problem under the current surplus purchase scheme because it is calculated by each of the regional electric power utilities. In order to correct this problem and ensure that the cost will be evenly covered by all electric consumers over the country, some adjustments are expected to be made among the regions to have the same surcharge unit rate throughout Japan under the new scheme.

Markets with Growth Potential and Problems to SolveFor these several years, Japan has promoted its policy to introduce photovoltaics based on two major approaches, the subsidy for residential installation and the surplus power purchase scheme. The surplus power purchase prices for the fiscal year 2011 are ¥42 kWh for residential systems of less than 10 kW and ¥40 kWh for non-residential systems and residential systems of 10 kW and above. Seemingly, there is no significant difference. It is, however, difficult in practice to yield pro-FiTs under the current surplus purchase scheme because non-residential systems are mainly installed in offices, factories and public facilities, whose installation cost is relatively high, and most of the generated photovoltaic power is allocated to self-consumption. In addition, photovoltaic power plant (mega solar) projects are not covered by the surplus purchase scheme. Under these circumstances, Japan has created a unique phenomenon that its market is skewed to the residential segment and approximately over 80% of the systems of around 1 GW introduced during the fiscal year 2010 were intended for residential use.

The start of the new scheme is going to pave the way to large-scale photovoltaics. Most of the past construction projects of mega solar power stations were of electric utilities, but in response to the anticipated launch of the FiT scheme, multiple mega solar projects had been already reported before the bill was passed, including SOFTBANK, Mitsui & Co., Ltd., Mitsubishi Corporation, and a joint project of Toshiba Corporation, Mitsui Chemicals, Inc. and Mitsui & Co., Ltd. This is reminiscent of the situation where mega solar power stations were constructed one after another in Europe due to the powerful FiT policy after 2000. As Rakuten embarked on sales of residential systems, there are a number of newcomers into the photovoltaic industry from a wide variety of fields, including telecom companies, Internet providers, trading firms, electronics manufacturers and so on.

How much the purchasing prices will be is attracting the most attention of those concerned at this time. If the set prices are low, power producers will fail to yield sufficient profits, and investments in photovoltaic projects may lose momentum. Higher prices are expected during the first three years positioned as a ‘promotion period’, but all those concerned will not be able to relax until the determination of the purchase prices.

At a press conference held by the Japan Photovoltaic Energy Association (JPEA) in the afternoon of the day when the bill was passed, its representative director, Mikio Katayama President of Sharp Corporation spoke about his expectations and enthusiasm for the new scheme. “It is a very important act from the perspective of our country’s energy security, enhancement of international competitiveness of the photovoltaic industry and local revitalization such as industrial promotion and job development,” said Katayama. “In order to expand photovoltaics, it is essential to set purchase prices to allow us to yield appropriate profits for the purpose of increasing future investments and industrial motivations,” he stressed. In addition, he listed some urgent issue that must be addressed before the enforcement of the scheme, such as implementation of smooth system linkage, deregulation and legislation of the Factory Location Act, the Agricultural Land Act and others, and establishment of a new quality assurance examination system. In the course of promoting the FiT scheme, whether or not photovoltaics can grow explosively in Japan will depend on how these issues about surroundings will be solved.

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