JAPAN (6)

SOLAR PV POLICY REPORT JAPAN
Nitin Maurya
EUREC (2015-16)
Northumbria University
April 2016

Solar PV Policy Report Japan
Table of Contents
List of Acronyms 2
Introduction 3
Existing Solar PV Policies and Framework 4
Current Solar Market Strategies 7
Analysis of policies and recommendations 8
References 10
Northumbria University,UK
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List of Acronyms
kW Kilowatt, 1000 Watt = 1 KW
MW Megawatt, 1000 kW = 1 MW
GW Gigawatt, 1000 MW = 1 GW
ABL Asset-based Lending
APRERD Act for the Promotion of Renewable Energy in Rural Districts
ASM Act on Special Measures Concerning the Procurement of Renewable Energy
CEE Chief Electrical Engineer
DSM Demand-Side Management
FIT Feed in Tariff
FLA Factory Location Act
HEMS Home Energy Management Service
IRR Internal Rate of Return
J-PEC Japan Photovoltaic Expansion Center
METI Ministry of Economy, Trade and Industry
NREL National Renewable Energy Laboratory
PV Photovoltaic
PPA Power Purchase Agreement
SIP Special Incentive Package
VRE Variable Renewable Energy
WTO World Trade Organisation
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Introduction
Globally profound changes are undergoing in the energy market.The renewable energy sector has
grown very rapidly in the last five years with tremendous growth in Solar Energy in spite of the fact that
the oil prices have fallen rapidly which makes the renewables economically less competent. Issues like
pollution, global warming,decarbonisation are forcing the policy makers worldwide to make renewables
the biggest source of electricity in the coming future.In order to do so the economic norms and policies
are going to play a crucial role. Due to technological advancement and energy efficient techniques
high level of incentives are not required to boost up the renewable electricity generation but still the
regulatory policies and economic framework has to be robust.The fluctuating policies undermines the
interest of the investors and is the most important risk that the renewable industry is facing worldwide.
Given the fact that the renewable energy contribution in the energy sector in itself is variable, the ever
changing policies possess much stronger risk which has to be overcome.For Solar Energy in
particular, the cost of solar is still higher than most other non renewable sources although there have
been remarkable reduction in the cost of the technology. Hence a sustained support by means of
policies and regulations is required. The energy policy makers in every country hence should include
an expansion in the generation of renewable energy so as to address critical issues like climate
change,electricity supply, dependable grid in remote locations and create green jobs and
employment.
Japan’s energy sector before the occurrence of Fukushima nuclear disaster in March 11,2011
witnissed very slow growth in renewable energy.However the denuclearisation that happened as a
result of the explosion saw a tremendous growth and government initiatives to promote the growth of
renewables and to make it a major contributor in the country energy feed.In July 2012 a Feed in Tariff
(FIT) was introduced by the government and within two years Japan became the second fastest
growing economy in Solar PV in the world.
In terms of content this report begins with the current energy situation in Japan and stating how it is
getting transformed followed by the analysis of the policies which the government has made for the
growth of solar PV which include the FIT schemes and various other policies implemented for various
solar pv applications. A study is also done on the international policies for collaboration in the field of
solar PV with recommendations for policy makers that will help in smooth transition such as resolving
the issues related to grid stability.
The Japanese government projections for year 2030 is that renewables cannot be economical without
providing incentives such as FIT which will support the projects and the expected assumption of Solar
PV in the electricity generation is only 7%. According to the assumption 64 GW of solar pv will be
commissioned until year 2030, out of which 55 GW will be utility scale. (Finance 2015). Even though
the cost of rooftop pv has come down the government is still relying on the FIT to play an important
role.
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Japan power sector has lately seen a rapid transformation in 2016. Due to a weaker growth in
economy and technological advancement in energy efficiency the electricity demand has decreased by
2.7%(Japan 2016). The fall in electricity demand can be estimated from the fact that in 2015, electricity
demand was registered as 806 TWh whereas the demand in 2010/11 was 906 TWH.The effects of
this change has lead to a decrease in Coal Power generation and it is predicted that a decline of 2-3%
annually is seen until 2020(Japan 2016).In addition to this the japanese government see offshore wind
as economically favourable and beneficial for energy security.
Existing Solar PV Policies and Framework
1- Introduction of the FIT Scheme
On 26th august 2011 after the Fukushima nuclear disaster the Acts on Special Measures(ASM)
related to the procurement of renewable energy in Japan was passed. This act was also seen as an
attempt by the government to counter the decommissioning of the 49 nuclear power plant. The Feed in
Tariff (FIT) was enacted in July 2012 which provided long term contracts to companies for their
renewable energy projects with fixed price of purchase. It is kept mandatory till the year 2021 with
policy revision every three years. It made it compulsory for the utilities to buy electricity at the fixed
price. The tariffs are reduced annually based on the market conditions by the lawmakers. Basically the
government gives a preferential tax benefit to non residential PV system that are submitted before FY
2016 and with one year extension for development. The price of the electricity was fixed by FIT and it
changed annually.The figures below shows the rates at which the electricity price fixed by FIT for
subsequent years.
There has been a gradual fall in prices over the years and the reason for this is the decrease in
CAPEX for PV projects which is a result of pv module price reductions and more efficient technological
advancement.
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Figure 1- FIT rates from year 2012- 2014(Hahn 2014)
Figure 2- FIT rates from year 2015-2016 (Hahn 2014; Clover 2016)
For the residential sector with power less than 10 KW the FIT guaranteed a purchasing price of 42
yen /kwh and come down to 37yen/kwh in 2014.For nonresidential system the FIT price started in
2012 with 40 yen/kwh including taxes and in 2016 it came down to 24 yen/kwh tax included. The price
fall in the nonresidential sector has been quite drastic. In addition to it another Renewable Energy
Surcharge has been levied on the consumers with the name Photovoltaic promotion charge from july
2012 with varying cost .
The Japan business federation framed a report stating that a surcharge of 2 yen/kwh results in 460
billion yen loss to the whole energy industry of Japan and industry such as steel,metal etc would be
highly affected. This made the government to reduce the surcharge by 80% for these industries.(Hahn
2014)
2- Regulatory Framework
Regulatory frameworks were formed for the growth of renewable energy based on reports of
Government Revitalization unit. It contains all the measures that the government should plan for
generating more renewable energy capacity in Japan. In the area of Solar PV two major regulatory
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areas were identified where regulations has to be defined. One of them was Land Usage and the other
being Grid access.
a) Land Availability and Usage-
Several measures were taken by the government to identify large potential areas for putting up utility
scale PV plants and also some changes in existing rules and laws were made to provide incentives to
Rooftop PV in large residential places. According to the Factory regulation Act (FLA) the government
has defined a ratio for the land usage for production facilities and for green areas. Solar PV was
included in the green areas to promote the development as an incentive so that the factories include it
to comply with the laws.In May 2013 the government came up with the Act for the Promotion of
Renewable Energy in Rural Districts(APRERD) .The advantage of the act was it provided immediate
resolutions to matter concerning renewable energy development. It comprise of a local body formed
by public representatives and knowledged professionals of academic standings that sit together to
review the applicability of new projects.(Hahn 2014)
b) Grid Access
A lot of changes are seen in the Electricity Utility Act in Japan since 2011.
Some changes until year 2014 are presented in figure below-
Figure 3- Grid access rules defined changing the Electricity utility act 2011 (Hahn 2014)
According to these changes PV plants smaller than 50 kW have the leverage of not submitting safety
regulation compliance report and does not require supervision of a chief electrical engineer (CEE).
Only projects having voltage level lower than 6.6 KV require to fulfill the CEE requirement.
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c) Permissions Required while setting up new plants
Permissions has to be seeked by project developers and installers before begining of the projects.
One of the primary requirement is acquiring the land or taking it on lease or to reach another suitable
agreement for the solar plant to begin installation.Approval from METI and local power utility service
board has to be obtained and a FIT rate has to be set. The developers have to pay some initial fees to
these regulatory bodies. Some additional permissions are required for things like cutting down trees or
changing the landscape etc. from local authorities.
Current Solar Market Strategies
The environmental concerns to increase the share of renewables in the power production has
compelled the policy makers to build policies that lead to new generation in both residential and
commercial sector is a strong driver that push the government to take strong measures. Strong
policies that are backed by Feed in tariff scheme is also a boost for attracting foreign companies to
invest in the sector.The Japanese electricity sector has great system flexibility which could further be
increased through planned reforms.Solar PV expansion over the period 2014- 2020 was predicted to
be 36 GW. A high level of expansion has been seen in the year 2015 but it is assumed to be followed
a gradual dip. The reason for this is mainly the grid constraints.(International Energy Agency 2015)
The LCOE of both Residential and utility scale PV is falling which creates a huge self consumption
potential. However the cost of PV in Japan as compared to the world is still higher owing to factors
such as less land availability and grid connections.Hence it becomes very necessary for the
government to frame policies for smooth transition to unsubsidized market.
Some of the latest policy measures that the government is planning to bring into action in the current
year 2016 are mainly related to bringing down the cost of electricity paid by the consumers.Some of
them are -
1- 11% reduction in current feed in tariff
2- No tax rebate for commercial solar installation
3- Auction process for new projects ,liberalization of the market
The reduction in FIT is owing to the rapid decline in PV Panel cost which is bringing the cost of
development down rapidly. According to the new proposal by METI the solar power operators that will
have the lowest cost will be awarded the large utility scale projects. Hence the current FIT process will
be replaced by an auction tender scheme.The Japanese government has already planned to bring the
auction process online in year 2017, thus liberalizing its power market.The new auction scheme that
will be followed by the liberalization of solar PV market has been predicted to create a sudden boom in
the sector. The competition in the market due to this is predicted to make a 15% cost reduction in
electricity retail prices.
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Bloomberg new energy finance (BNEF) has predicted a growth in the solar capacity between 13.2 GW
to 14.3 GW in year 2016(Clover 2016). However other sources such as Kyocera have predicted a
growth around 8 GW in their projections. They also project that around 80% of the growth in the PV
industry will be in residential and commercial.(Clover 2016).Japan has a lot of projects which are
passed under the FIT scheme and yet to be in the development phase. These projects are a matter of
concern as they will create a situation of market unrest.
End of tax break in commercial solar installation- Happened on March 31 2016.The reason for the
removal is the wide adoption of solar in Japan. Another reason is that it will lower the tax rate to under
30%. People before March 2016 were given incentives in terms of tax rebates with the condition that
the systems must be installed before march 31,2016.
Analysis of Policies and Recommendations
Many US and European solar companies see great potential in Japan’s small scale utility and
commercial sector. Projects within range of 1-2 MW range are most profitable and hence attractive.
The generous incentive set by FIT in 2012 made every fourth house in Japan to adopt residential
PV.An initial good response was seen in the industry for large utility scale projects but now the focus is
towards mid scale projects due to decrease in FITs and problems in Land availability.Trouble is much
because Japan’s land is either mountainous or populated and finding areas for building up large utility
scale plants has been challenging.
A solution to this in future could be use of advance CPV technologies and efficient MPP Tracking.Due
to the high FIT’s rate in the past the installers didn’t pay attention in reducing cost of the system
especially the BOS(Balance of System) which include batteries, wires, SCB etc as a result the cost of
BOS in Japan is quite high compared to other countries.This can be reduced by technological
advancement and use of highly efficient technology.
Another solution to the land availability issue is to utilise unused places or spaces like reservoirs,lakes
etc.For example Kyocera company in Japan is planning to build a floating solar pv plant in Tokyo
which they say will be biggest in the world in terms of power production. It is likely to be launched in
2018.
Some of the advantage of installing floating PV plants is that the efficiency of panels will increase by
nearly 10% due to the natural cooling environment and also reduces the amount of water evaporated.
Similarly solar farms can be build in places like abandoned golf course etc.
Apart from the benefit of lower electricity prices, a major disadvantage is the government cap of 2 GW
installation per year. This has been done to lower the power cost, but it will hamper the growth of solar
PV and reduce its pace.Another disadvantage is due to competition some companies bid a very low
price and the solar market being volatile may in future lead them to a non profitable situation leading to
dissolving of contracts and delay in productions.Issues like grid access ,financing and land acquisition
may further impact the projects and installation will be lower as is predicted by Bloomberg new energy
finance(BNEF). (Finance 2015)
Based on above problems some recommendations to Foreign companies thinking to enter the
Japanese Solar industry are listed below
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1- Non residential market is going to have a major turn around with the new auction scheme coming to
play in 2017.A strong bond with local partners would prove beneficial. As seen in the past many
manufacturers made collaborations with local companies and proved successful.
2- In the the mid scale market a big growth is been predicted.A great demand is in market right now for
technologies that allow more production output with very less land usage.Hence there is a lot in
demand for innovative solutions in integrated panels, mounting systems and technologies like thin film
which can be easily integrated in existing buildings.Also innovative solutions in operation and
management such as monitoring ,forecasting will also be in huge demand.
3- Rooftop applications in general offer less area in japanese housing structures hence demand is of
panels that can produce more using less space. Owing to the regular earthquakes the houses are
made of wood or lighter materials, hence lesser weighing and easy to mount panels are in high
demand.
To decrease the public burden of high electricity cost and balance it with profitable market for installers
a proper compatibility between other power source has to be adequate.Expansion and introduction of
other sources like geothermal, hydroelectric ,biomass should be cost effective and operable without
much effect of natural conditions. This would reduce the use of oil and gas and nuclear and improve
the renewable energy mix in the power supply by a great margin.The feed-in tariff has been the vital
driving force in the introduction of renewable energy.However looking at the decrease in the
installation price of solar power plants the decrease in FIT should be done with perspective of both
reducing public burden and also boosting the rapid development by involving foreign players. Net
metering is also a solution that has proved to be effective in some countries like Italy and Germany.
Japan till date have removed net metering from the FIT to boost the solar growth, but now since the
market is mature it could prove to be useful.
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References
Clover, I., 2016. PV EXPO Japan 2016 day one: 8 GW market lies ahead. PV Magzine.
Available at:
http://www.pv-magazine.com/news/details/beitrag/pv-expo-japan-2016-day-one--8-gw-mar
ket-lies-ahead_100023500/.
Finance, B.N.E., 2015. Energy Japan White paper. Bloomberg new energy finance. Available at:
http://about.bnef.com/content/uploads/sites/4/2015/06/BNEF_White_Paper_Japan_Outlook
_EN.pdf.
Hahn, E., 2014. The Japnese Solar PV market and industry. MINREVA EU Japan Fellowship.
Available at:
http://www.eu-japan.eu/sites/default/files/imce/minerva/pvinjapan_report_minerva_fellow.p
df.
International Energy Agency, 2015. Medium-Term Renewable Energy Market Report 2015:
Market Trends and Forecasts To 2020,
Japan, I., 2016. Japan Energy Transformation. IEEFA JAPAN. Available at:
file:///C:/Users/gebruiker/Desktop/Japan-Energy-Brief.pdf.
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