Land of the setting sun

Japan, the world’s fourth largest solar market, has been hungry for renewables after the 2011 Fukushima nuclear disaster. But while installed solar capacity tripled over the last three years, the country now seems wary of the sector.

In 2012, Japan’s Ministry of Economy, Trade and Industry (METI) introduced a feed-in tariff (FiT) scheme with a record-high rate to attract significant investment into the Japanese renewable energy market, especially into the solar sector. That has translated into some 80 gigawatts (GW) of solar FiT applications out of 85GW at total clean energy projects approved by METI since the scheme’s inception. 

The ambitious pipeline was expected to cater to the nation’s energy demand and help replace nuclear power. In 2010, the nation derived nearly 30 percent of its power from nuclear while renewables made up almost 10 percent, the majority of which came from hydropower. Yet only 29 percent, or roughly 23GW of approved solar facilities, have gone online and are generating power. 

Dick Talbert, chief executive of US-headquartered Greenpower Capital, sees Japan as a developed, stable market with predictable returns. Although he feels comfortable investing in the solar sector and working with local developers on new projects, he admits that grid connectivity is a big issue. 

Projects have been cancelled in the Hokkaido, Shikoku and Kyushu regions because the grid is unable to handle the electricity generated by solar plants. The construction of a solar plant can be completed within two years, but it could take up to six or seven years to get grid approval, Talbert explains. 

One solution, Talbert suggests, is for developers to pay extra to private contractors to build the required transmission lines and towers in order to speed up the grid connection process. Otherwise, “there is no point in building a solar farm without supplying its power to the grid,” Talbert argues. 

The business environment will become even more challenging to new entrants as the Japanese government is considering auctions as a way to manage the awarding of solar projects and resolve grid restrictions. The new system would only allow projects with grid connection approvals to get started. The FiT scheme rate for solar projects has also decreased from JPY40 ($0.34; €0.31) per kilowatt-hour (kWh) in 2012 to JPY27 per kWh today, in a bid to cool down the sector’s expansion. 

Another challenge is to find suitable sites for utility-scale solar farms. Considering the mountainous geography of the island nation, Nate Franklin, country manager at Japanese solar developer Pacifico Energy, believes the market for new build capacity is getting smaller. Some developers have shown creativity by turning abandoned golf courses into solar plants and even introducing floating-solar technology to tackle the land restraints.   

“However, Japan remains a good market to operate existing projects,” notes Franklin, although he is doubtful whether policy will be supportive enough going forward to encourage the sector to grow.

Talbert expects a number of projects to finish construction and commerce operations over the next two years, but then expects new build capacity to drop to a minimum after 2017, unless new incentives are put in place. 

What’s more, nuclear is back. While the renewable sector is making progress, some of the country’s regional power utilities, including Kansai Electric Power and Kyushu Electric Power, have restarted their nuclear operations, despite safety concerns among the Japanese public. 

The utilities argue they can’t supply reliable and steady power without nuclear energy and there is no economic incentive for them to add clean energy to the mix. An over-reliance on imported energy has already increased Japan’s power prices by 20 percent for homes and 30 percent for industry, according to local press reports. 

It’s that balance between energy security, price and environmental protection that Japanese renewables – and particularly solar – will have to contend with now that the boom is over.