Japan has confirmed it will make big cuts to the feed-in tariff (FiT) payable for solar, which have been expected for some time, dropping the rate by around 16%, from ¥32 (US$0.27) per kWh to ¥27 per kWh by July.
The drop will be larger than the 10% or 11% cuts which were made in 2013 and 2014. Additionally, there will be two sets of cuts, instead of one annual round at the end of the financial year, as has been customary since the FiT was introduced in July 2012.
The first cut at the end of this month, which will take the rate from ¥32 per kWh down to ¥29, will usher in Japan’s new financial year at the beginning of March. This will be followed by a further cut on 1 July that will bring the price down to ¥27 per kWh. The rates will then be in place for 20 years once approved for a project.
As stated above, these cuts will not come as a massive surprise for the industry and have been expected for some time. They do however represent a change in tack for Japan’s Ministry of Economy, Trade and Industry (METI), which makes the call on behalf of the government and which issued a statement in Japanese this morning confirming the new rates.
Previously in the first two years of the FiT, the aim to promote new solar installations kept the rate high and cutting the tariff by around 10% a year was considered a “managed degression” of the price. For reasons including a perceived shortage of available grid connection for large-scale solar projects and rising consumer energy prices, political pressure has been placed on the government to cut the rates more drastically as the nation approaches the planned expiration of the FiT altogether by 2020.
At the recent PV Expo event in Tokyo, PV Tech heard from a number of industry figures that the latest cuts are not likely to be greeted with shock, although inevitably they will exert further competitive pressure on the industry.
Ye Chen, president and representative director for Chinese tier-one module manufacturer Trina Solar said that Japan’s forthcoming energy liberalisation process and cuts to the FiT were not unexpected, but also that, like other companies in other markets, Trina Solar’s goal is reaching price competition with traditional centralised power generation.
“How to build up competitiveness – there’s nothing more important,” Chen said, when asked what Trina Solar’s strategy might be as the end of the FiT comes into view.
“There are several factors. One is cost reduction, because compared to traditional power generation, the PV solar cost per Watt is much higher, so how to lower the price to make it comparable to traditional power generation or even lower than that [will be essential],” she said.
“The final target for us is to make the FiT zero, with no need to have any subsidies coming from the government. That is the target. So the FiT decreasing annually is not out of control. That’s why I say our efforts to keep costs down and meet certain targets are so important.”
Several other companies PV Tech spoke to at the Tokyo event also said they were planning well ahead of the FiT cuts, also aiming to hit something close to grid parity by 2020. It is not yet clear if there will be a big difference in impact on the various segments of the solar industry- for example Mitsui Chemical, a supplier of encapsulants to large-scale solar developers told PV Tech that it was possible firms with close to four years of experience in executing megasolar projects in Japan might look to carry out projects in other parts of the world as activity in Japan’s market for utility-scale PV plants quietens down.
Trina Solar’s Ye Chen also said it was important to continue to teach customers and the wider world of the enhanced social and long term value of solar, so that while price competition would be critical to development of the industry, more recognition could also be given to solar as a “great industry for the future”.
In common with other regional markets that are hoped to be coming close to maturity, the emphasis is also moving further away from large-scale, multi-megawatt “megasolar” projects and is expected to see more focus being placed on the residential and commercial rooftop PV markets.
Many other firms are already preparing for life beyond the FiT, some more proactively than others. With residential solar often sold in kits in Japan that include modules and inverters, many firms at February’s PV Expo were also marketing variations on home energy storage and energy management systems.
According to recent conversations with representatives of vertically integrated manufacturer-developers Kyocera and Solar Frontier, there is an increasing expectation that the self-consumption market for PV will grow in Japan, with both launching home energy management systems (HEMS) for domestic customers. Ichiro Ikeda, general marketing manager for solar at Kyocera, told PV Tech that storage, most probably using batteries, will be an important component of the new PV market.
“In order to reduce burden on the electricity grid, we expect that the market will shift from purchasing power from utilities to self consumption,” Ikeda said.
“Self power generation and electricity storage are essential for the self consumption of power. From this perspective, we believe that the combination of solar power generation and storage batteries will increase its importance.”
From the early days when the FiT was important in kick-starting the industry, Ikeda said, it was now important that Japan made this transition to a self consumption market. Additionally, Ikeda revealed that Kyocera is among the Japanese developers looking to share its knowledge and experience of developing megasolar in Japan by executing more projects abroad.
Meanwhile, at PV Expo in Tokyo, PV Tech was briefed by Panasonic on a product being prepared for when energy market deregulation is completed, in a process scheduled to begin in 2016. The Panasonic energy management system actively seeks out the cheapest purchase price of electricity to buy into the household, while also working out where to sell PV-generated electricity to at the most attractive price from the system’s battery.
For Andy Colthorpe's examination of the recent issues facing Japan’s solar industry, read the second volume of PV Tech Power, currently available online.