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Shifting winds of Japan’s energy policy

Japan’s vision of a bright solar-powered future has clouded over. The likelihood of an abrupt change of tack in energy policy toward wind power became clear earlier this week when the government told an expert panel that feed-in tariffs for solar power “should be cut appropriately.”

In a report to the panel looking at Japan’s future energy mix, the economy ministry emphasized the importance of wind power, describing it as “reasonable and competitive” in terms of cost.

Japan introduced feed-in tariffs in July 2012 as it sought to expand the use of renewable energy. The legislation requires all of Japan’s 10 regional utilities to buy electricity generated by renewable energy projects approved by the government at specific rates for fixed periods.

The main beneficiary so far has been the solar power industry. That’s because solar power has high feed-in rates and relatively short project lead times, since projects don’t require an environmental assessment for approval. The capacity of solar projects approved by the government by the end of July 2013 was 23 gigawatts, 93% of the total renewable capacity approved since the feed-in tariff law came into force.

The tariff for solar power projects approved within nine months of their introduction was set at ¥42 per kilowatt-hour for a 20 year period for large solar power projects, compared with ¥23.10/KWh for a large wind power project for 20 years. While any large solar projects approved in the subsequent 12 months will get a reduced rate of ¥37.8/KWh because of falling solar cell prices, that’s still much higher than the unchanged rate for wind power, reflecting the higher costs of solar.

One factor behind the shift may lie in the changing fortunes of Japanese solar equipment manufacturers.

The turn to renewable energy came in 2009, long before the fresh urgency from the Fukushima nuclear accident in March 2011. At the time, the government’s proposal said that “Japan’s solar cell industry has been leading the world with many cutting edge innovations and the highest quality in their efficiency and product life time. There are many related industries, therefore promoting solar power would create many new jobs.”

But such optimism proved to be short-lived. Since then, Chinese solar cell manufacturers have sharply raised their production capacity, flooded the global market with less-expensive solar cells.

That has forced Panasonic to abandon its plan to convert its plasma panel factory in Japan into a solar cell factory, and instead decided to build a new solar panel factory in Malaysia in 2011. JX Nippon Oil & Energy gave up its plan to form a solar cell joint venture with Sanyo in 2012. Sharp, once the global top solar cell manufacturer, announced in 2012 that it would close three solar cell factories in Japan, leaving its Sakai factory the only solar panel manufacturing site at home.

According to the latest data from the Japan Photovoltaic Energy Association, an industry body, imports accounted for 56% of solar power generation systems sold in Japan in the April-June quarter this year, up from just 11% in 2009.

Whether wind power will be any more successful remains to be seen. In the report endorsed on Monday, the government suggests it would be difficult to boost the percentage of renewable energy-sourced electricity to 13.5% of Japan’s all power output by 2020 – a target set in 2009 – unless solar costs can be brought down and there is new investment – estimated at Y270 billion – for power grids to link remote areas where wind power is best utilized.

Nevertheless, the government is upbeat about the potential of wind power. In Monday’s report, it said “there are many remote places good for wind power in northern part of Japan. If sufficient investments eliminate the grid capacity problem, over 10GW of additional wind power projects would be feasible by 2030.” It didn’t offer any specifics on where the new investment may come from.