Japan: Solar Slowdown in Land of the Rising Sun

Renewable and clean energy in Japan is set to account for 24% of the country’s energy mix by 2030, a large proportion of which was expected to be from solar PV installations. The Japanese Photovoltaic Energy Association targets 200 GW of new solar PV capacity installations by 2050. It is therefore not surprising that Japan’s Ministry of Economy, Trade and Industry (METI) approved almost 20GW of solar PV project each year between 2014 and 2018. However, Japan continues to be one of the most expensive countries to generate solar power, primarily due to the geographical constraints that drive high solar PV prices in the country. 

Reverse Auction

In 2016, METI announced the reverse auction as a mechanism to stimulate growth, cut power costs, and drive installations in Japan. The first auction, held in 2017, was undersubscribed, with only 141 MW awarded out of the 500 MW planned. The lowest successful bid came in roughly 28% lower than the current feed-in-tariff (FIT) rate of ¥24 ($0.22)/kWh, while the highest bid was ¥21 ($0.19). Eventually, only four projects totaling 41 MW paid the secondary deposit, while the other five, representing 100 MW, withdrew.

The results of two subsequent auctions were even more disappointing. The final prices desired by plant operators far exceeded government targets. The third auction, held in mid-December, witnessed prices higher than those generated by similar auctions in Germany, France, Brazil, and Argentina. The average prices were ¥15.01 ($0.136) per kWh compared to $0.035-0.060/kWh in European auctions. Poor guarantees, grid constraints, security deposits, and insufficient support were also highlighted as some of the main stumbling blocks.

The Feed-in-Tariff Act 

While the auction mechanism refused to yield positive results, METI introduced the Feed-in-Tariff Act. The Act reduces the FIT for large-scale PV projects approved between 2012 and 2014 that do not reach completion by March 2019. As a result of FIT reduction, more than 20 GW of solar projects currently entitled to a ¥40 ($0.35), ¥36 ($0.33), and ¥32 ($0.29)/kWh FIT would be assigned a new rate of ¥21/kWh. In a country that witnessed 95 solar company bankruptcies in 2018, FIT cuts could have had further unfavorable repercussions. In a recent update, METI has now extended its deadline for planned FIT cuts (from March 31, 2019 to September 30, 2019), to rebuild security and stability in the Japanese energy market and give developers the chance to finalize their projects. In a series of reforms between 2016 and 2018, Japan liberalized its electricity retail markets and established a non-fossil value trading market. The non-fossil value of renewables was certified and sold separately from the kilowatt-hour value of electricity by the government. This will require electricity retailers to have the non-fossil percentage of their sales at 44% or more by 2030. The first tender of non-fossil fuel energy value trading was met with reasonable success in May 2018, with a full rollout planned in February 2019.

As Japan aims to move away from conventional fuels, solar will continue to be an important contributor to its ambitious renewable energy targets. However, the solar PV market is expected to grow at a much lower rate over the next decade. Guidehouse Insights expects that a total of 83.4 GW of solar PV capacity will be installed in Japan between 2018 and 2027. Supportive government reforms and a further deregulation of the Japanese power system will drive the growth of the solar power market in the country.