Japan PV Market: 2012 – the year of make or break

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In spite of the devastating disasters which struck Japan in March 2011, the PV market continued growing and exceeded the 1-GW mark in 2011. The market growth – 30% – was far less than in 2009 and 2010, when it exceeded 100%. China was twice as big as Japan in 2011, with the national Feed-in tariff (FIT) policy and ample of module supplies. This year, Japan embarking on a road to higher growth, by finally implementing a true FIT like other leading PV counties, and by diversifying its market beyond the residential segment.

The domestic PV market was originally created by a national policy in the early 1970s to lead the nation away from its dependence on foreign oil. Japan has virtually no domestic oil or natural gas reserves. In response to the oil embargo, the federal government funded R&D projects and created policies to support the introduction and dissemination of PV systems. One of the most important of the federal programs was the Residential PV System Dissemination Program, which provided up-front cash rebates. Between 1994 and 2005, it funded total installations of over 930MW, comprising over 250,000 residential PV systems. During this period, Japan dominated the world PV market in terms of both production and installation.

After 12 years, the federal government thought the PV market was self-sufficient and discontinued the residential incentive program, while Germany and several other countries moved ahead with national FIT policies. In 2006, Japan saw its first ever decrease in the annual PV market; it declined further to 230MW in 2007, and remained at about the same level in 2008. The market decline was due not only to lack of incentives, but also to lack of domestically-available modules, since Japanese module makers focused on exporting to Europe, where profit margins were much higher.

To stop the market from further decline, the federal government re-launched the national residential incentive program in January 2009. Since then, the Japanese residential PV market has been making a strong come back (Figure 1).

Furthermore, in November 2009, the federal government initiated a Net FIT policy, requiring electric power utilities (a total of 10) to buy excess electricity generated by PV systems at a premium rate. For example, residential PV owners currently get paid for 10 years a rate of ¥42/kWh, compared to the average of ¥20/kWh under the traditional net-billing. The main reason Japan is implementing the Net FIT policy – purchasing only excess generated electricity, instead of purchasing all generated electricity – is to incentivize energy conservation and to limit the program cost burden that is shared by all electricity ratepayers.

Many homeowners are qualified for not only federal incentives, but also incentives from their prefecture, city and town, respectively. As of October 2011, a total of 870 local governments offer PV support programs, including subsidies and loans.

The Japanese PV market is unique in the degree to which it has been built upon the residential market. The dominance of the residential sector remains strong, accounting for 86% of the total market in 2011, according to NPD Solarbuzz’s PV Market Quarterly Asia Pacific. The residential segment will continue to dominate domestic PV demand, though its share will fall gradually as the non-residential segment starts to take-off with a new FIT that will start in July 2012.

In the past, the federal government supported the non-residential PV segment with hefty upfront cash incentives (about 30-50% of the installed system cost), but the segment didn’t grow as fast and as large as the residential segment due to higher installed system costs and lower electricity rates. By 2011, the federal PV incentive program was no longer available for the non-residential segment. To compensate for the lack of incentives, the government raised the net FIT rate for the non-residential segment to ¥40/kWh in 2011 from ¥16/kWh in 2010. This increase has not been sufficient enough to drive the non-residential segment since this policy compensates only excess generated PV electricity,  is available only for systems below 500 kW, and is not available for power generators.

In August 2011, the federal government passed a full FIT bill, effective July 1, 2012, to accelerate the development of large-scale renewable technology. This will be a true FIT in the sense that all electricity generation will be compensated at a premium rate and open for systems over 500 kW for both on-site users and power generators.

This new bill has excited not only the declining domestic module makers, but also overseas module makers and project developers. Many domestic PV installers have created new divisions for the non-residential segment. Many local governments have listed available lands or buildings to lease for utility-scale PV projects to stimulate their economy and hedge against insufficient energy supply due to the shutdown of nearly all the nation’s nuclear power plants (as a result of the meltdowns in Fukushima). Many non-domestic module makers, such as Suntech, Trina, Canadian Solar and Q-Cells, have expanded into Japan, and SunEdison, one of the largest financing and developing companies, also has officially begun business development in Japan.

Until 2008, the Japanese PV market was fully supplied by domestic module markers including Sharp, Kyocera, Panasonic (formerly Sanyo), and Mitsubishi Electric. China’s Suntech entered Japan when the residential program was re-launched, one of more than 30 non-Japanese module makers with a presence in Japan. As the domestic market started growing again, imported modules have accounted for significant shares of the market, with close to 20% of the total module supply for 2011 (Figure 2). Some non-Japanese module makers have tied up with well-known retailers or distributors to take advantage of their partners’ brand name and recognition in Japan.

Many entities have been building up high expectations for the new full FIT, announcing intentions to deploy large-scale PV projects throughout Japan. The government has stated that the rates will be sufficient enough to provide high ROI for PV. As of early February, the government had not announced the FIT rates for July. The industry is speculating the rates to be around ¥38/kWh for the period of 15 years for the non-residential segment.

With only a few months before the true FIT is implemented in Japan, many projects are in limbo due to uncertainty in rates and terms for the FIT. The Japanese government is under pressure to come with the “right” rates to accelerate the domestic PV market, while at the same time minimizing the burden on homeowners and businesses who suffer from slow economic conditions, and also to prevent a repeat of the market swings seen in Spain and the Czech Republic.

Japan needs alternative energy to replace some of the energy supplied by nuclear power, which before Fukushima met a quarter of domestic electricity needs, and desperately needs to boost its economy. All the players are at the starting line – securing finance, modules and land permits. The only missing element is the “right” rates, which can make or break the Japan PV market of the future.

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