The head of a Japanese panel suggested on Wednesday that utilities pay 52 cents per kilowatt-hour (kwh) for solar power supplies in a renewable energy incentive scheme, a rate that could encourage business investors to enter the budding market.
Japan will introduce in July a new feed-in tariff scheme, which was originally aimed to help cut fossil fuel consumption and has become a key policy as Japan tries to reduce its reliance on atomic power after last year’s Fukushima disaster.
The solar rate was in line with the industry’s request and could boost the sector, though it would come at a greater cost to electricity consumers, to whom the utilities pass on the burden.
“The law (mandating the tariff scheme) clearly states that for the first three years, we should pay special attention to profit (of the suppliers),” Kazuhiro Ueta, the head of the panel studying appropriate rates, told reporters.
“When you look at it from the viewpoint of households, this may be a burden through electricity costs. But to put it in other words, this is an investment to promote renewable energy. It is necessary to understand that this is a framework for promoting such energy,” he said.
Ueta recommended in a draft document released to the media that utilities pay 42 yen (52 cents) per kwh for solar supplies over 20 years.
He also suggested utilities pay 23.1 yen per kwh for wind power supplies coming from units with 20 kw capacity or above over 20 years, and 27.3 yen per kwh for geothermal power coming from units with 15,000 kw capacity or higher over 15 years.
Those rates include the country’s 5 percent sales tax.
Ueta’s calculation based the pre-tax internal rate of return for solar power suppliers at 6 percent, for wind power suppliers with capacities of 20 kw or higher at 8 percent, and geothermal suppliers at 13 percent, the draft showed.
“This means you’ve got a pretty appreciable profit level for business,” Andrew DeWit, a professor at Rikkyo University in Tokyo who studies energy policy, said about Ueta’s solar power pricing recommendation.
“They’re (potential investors) are happy.”
Under the state-backed scheme, operators will receive a fixed guaranteed price from utilities for renewable electricity produced for a set period of time and that cost will be incurred by customers as a part of their electricity bill.
Ueta did not clarify how much burden will be passed on to electricity users, but said the panel will try to calculate a rough figure soon.
The five-member panel will use Ueta’s suggestions to draw up its official recommendations as early as on Friday, when the next meeting is set to take place.
The recommendations will then be submitted to Trade Minister Yukio Edano, who is likely to make a final decision as early as end-May by also taking into account public opinion, an official from the Agency of Natural Resources and Energy said.
The rates will be reviewed annually, a document compiled by the panel and officials showed.
Solar power in Japan accounts for less than 1 percent of total power due to lack of sufficient subsidies in the past. ($1 = 81.1500 Japanese yen)