Japanese Energy Policy: Renewable Energy Subsidies Wane

Renewable energy loses steam as Asian subsidies wane:  Capacity growth slows, and coronavirus risks disrupting supply chains.

Global capacity for renewable energy ended 17 years of growth in 2019, as Asian governments scaled back expensive subsidies designed to make their power grids greener.

The trend could continue in 2020 as the coronavirus outbreak forces factory shutdowns for producers of the necessary equipment, delaying future green power projects and slowing the international shift away from fossil fuels.

Roughly 176 gigawatts of renewable generating capacity was added worldwide last year, according to the International Renewable Energy Agency, 2% less than in 2018. New solar power capacity totaled 97.68 GW, or 2.5% less than in 2018.

Asia was a major contributor to the slowdown, with the continent adding 12% less renewable power capacity than in 2018. China and Japan logged declines of 15% and 40%, respectively.

Global renewable capacity has grown continuously since 2003, as governments introduced feed-in tariffs and other incentives to promote green energy.

But these efforts carry an upfront expense. Japan’s feed-in tariffs have cost the public more than 2 trillion yen ($18.6 billion) so far. The country plans a switch to a feed-in premium system, where renewable energy producers receive a premium on top of market rates. China has reduced government subsidies for renewables.

“Even if we want to build new renewable plants, we have no choice but to be cautious,” an industry insider said.

The pandemic has upended the supply chain for renewable energy equipment. Denmark’s Vestas, the world’s leading producer of wind turbines, suspended production at two Spanish plants due to the virus outbreak. Rival Siemens Gamesa Renewable Energy halted work at six of its 10 Spanish factories.

In China, factory utilization rates for solar panel producers fell to about 60% in February. The figure has since rebounded, but many worry about the long-term effects of disruptions in the country, which produces 70% of the world’s solar panels.

Production stoppages could exacerbate other issues tied to renewable projects. Offshore wind farms cannot be built during the winter when waves are too choppy.

“Some projects could end up delayed for a full year,” an industry insider said.

Renewable energy has benefited in recent years as investors shy away from fossil fuels.

“Investments in renewables will remain active from an environmental, social and governance perspective,” said Mana Nakazora at BNP Paribas. But reduced incentives could slow the trend, since they make it harder for investors to recoup their funds.

Further growth in renewable energy also requires updates to electrical grids worldwide, as they have little excess capacity. More households and businesses will need to install batteries to smooth out fluctuations in supply and demand and ease the burden on electrical grids.


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