August 7, 2012


Japan's Feed-in-Tariff Scheme Kicks Off!

Keywords: Newsletter 

JFS Newsletter No.119 (July 2012)

System to Promote Renewable Energy Adopted

A feed-in-tariff (FIT) system that aims to promote renewable energy was launched in Japan on July 1, 2012. It is designed to oblige electric utilities to buy electricity generated from renewable energy sources over a fixed period (from 10 to 20 years) and at pre-determined prices.

So far, Japan has tried to promote renewable energy with the Renewable Portfolio Standard (RPS) Law, which obliges electric utilities to use over a certain percent of electricity generated from renewable energy sources. However, the buyback price for wind power has been around 10 yen (about 13 US cents) per kilowatt-hour (kWh), which is not attractive enough for utilities to help promote the energy. The low rate of renewable energy introduction required of power utilities was another reason for sluggish growth.

In November 2009, a buyback program for electricity generated by renewable sources started in Japan. However, the target was only surplus electricity that is generated but not used mainly at private homes with photovoltaic (PV) panels, and its impact was limited. Under the new scheme renewable energy source types have been expanded to include wind, hydro-power, geothermal and biomass, as opposed to simply solar power, and it is a "total purchasing program," not "excess power purchasing." In this regard the program is a breakthrough for Japan.

In Japan, the ratio of electricity generated by renewable energy sources for all power generated in FY 2010 was 9.7 percent. Not counting hydroelectric power generation, renewables accounted for only about 1 percent. And now, after the accident at the Fukushima No. 1 Nuclear Power Plant belonging to the Tokyo Electric Power Co., expectations regarding renewable energy sources have been mounting.

The ratios of renewable energy generation in European countries are said to be about 28 percent in Denmark, about 25 percent in Spain, and about 16 percent in Germany. The reason for renewables' unpopularity in Japan was said to be high initial introduction costs that were expected to lead to low profitability. This contributed to local governments and NPOs being the only organizations willing to introduce renewable energy. To increase the amount of electricity generation capacity from renewable energy sources, it is necessary to create a system in which private businesses can participate and make adequate profits.

The buyback price has now been set at a level that can help promote the new Feed-in Tariff scheme. It was set by an advisory council set up within the Ministry of Economy, Trade and Industry, which also gave a hearing to the opinions of renewable energy source operators. The internal rate of return for investment is 6 percent for PV, 8 percent for wind, and 13 percent for geothermal because the burden of resource development is high: for reference, 5 percent is standard for Germany. The buyback price functions as a system to surcharge profit margins on operators' expenses, and if they can generate electricity to the level planned, their profitability will be ensured.

To fill the gap between the buyback price and generation cost, 0.22 yen (about 0.3 US cents) per kilowatt-hour is added as a surcharge to consumers' monthly electricity bills so the burden will be shouldered widely and shallowly by the entire population of Japan. For example, in the case of a household whose electricity use is 300 kWh per month, a surcharge of 66 yen (about 0.84 US dollars) will be added to a monthly bill of about 7,000 yen (about 88.6 US dollars). This is expected to cut costs through the volume efficiency that will follow with increases of renewable energy. Reduced costs will be reflected in the buyback price, so the consumers' burden will not become overly swollen.

Rapid Increase of Solar Power Generation

The benefits of the FIT scheme introduced at this time have already become apparent. For example, the supply of electricity generated by solar power has been increasing, and is expected to rise by as much 40 percent from its current level just during the program's first fiscal year (which ends on the last day of March 2013). Of this increase, about 80 percent is expected to be those purchased from households. In Europe, PV power is mainly generated by mega-solar facilities, and only 10 percent by residential PV facilities. On the other hand, in Japan 80 percent is generated at households.

Regarding such PV power generation systems installed on the roofs of homes, one simulation study shows that the FIT scheme will make it possible for installation costs to be paid off in about 10 years, after which energy sold will be pure profit. It is estimated that about 12 million homes across the country currently meet requirements such as earthquake-resistance standards for PV panel installation. This potentially means an even larger future market for the PV business.

The expansion of the market so far has meant that the price of residential PV power generation systems over the last year decreased by 15 to 20 percent. The average cost per kilowatt is about 400,000 yen (about 5,063 US dollars) and above, but some home appliance stores are selling systems below this price. According to the Japan Photovoltaic Energy Association (JEPA), the number of residential PV power generation systems installed exceeded one million at the end of April 2012. More than 230,000 units were installed in fiscal 2011 alone.

Another remarkable development has been seen at the local level. Some local governments and communities are lending out the roofs of schools and other public facilities to promote PV power generation. For instance, Saitama Prefecture launched a service in cooperation with municipalities and other local governments in the prefecture to mediate between households and companies interested in solar energy by registering residences that can potentially install solar panels and so they can lend out their roofs to companies. With this service, the prefecture aims to encourage PV power generation by the business sector and as a result promote local production of energy for local consumption.

Mega-solar Systems Growing Fast

The new construction of mega-solar power systems is also being planned and promoted. Total power output is projected to rise to over 1.3 gigawatts (GW), more than the power generation capacity of a nuclear power plant.

So far, companies have invested in the PV power generation business mainly as an environmental measure, for example to reduce carbon dioxide emissions, or as a corporate social responsibility (CSR) measure. Now that the new FIT scheme has been introduced, many companies are approaching renewable electric power sales as a way to make profits.

For example, Softbank Corp., a major telecommunication business in Japan, is planning to build mega-solar facilities in seven prefectures across Japan by 2013, which will make the company the largest PV power generation business in the country with a total power generation capacity of over 250 megawatts (MW).

Kyocera Corp., one of the leading solar panel manufacturers in Japan, has started importing solar panels from its European plants to meet the surge of domestic demand that is exceeding its domestically-produced supplies. Also, the company has changed its articles of incorporation so that it can operate in the power generation business.

Solar Frontier K.K., a subsidiary of Showa Shell Sekiyu K.K., develops and manufactures solar cells. The company plans to increase its number of distributors by 50 percent over the next year or two. The domestic sales share of copper, indium and selenium (CIS) thin-film solar modules manufactured and sold by the company is expected to grow from 30 percent in 2011 to 60 percent in 2012; the company plans to sell 600 MW worth, a 50 percent increase from the previous year. At 900 MW capacity, the Kunitomi Plant in Miyazaki Prefecture, the largest CIS production plant in the world, started its full-capacity production.

World's Largest Solar Module Plant Completed in Miyazaki

Expectations for Offshore Wind Energy

One of the reasons why wind power generation has not grown much in Japan compared to other countries is poor conditions for wind power generation. In Japan, most windy areas have complex topography. Therefore, the direction and the speed of winds change often, making it difficult to stabilize output.

That is why off-shore wind power generation is showing promise. Wind direction and speed are stable, and noise and vibration are not important issues. Since there are not many shallow seas around Japan, floating facilities have more potential: currently, the world's only commercialized floating unit is in Norway. In Japan, a demonstration test of a floating offshore wind power generation facility is planned off the coast of Goto City in Nagasaki Prefecture. Another is scheduled for construction off the coast of Fukushima Prefecture.

Promising Floating Offshore Wind Farm Project Starts off Fukushima Prefecture

A massive volume of power generation is possible for wind energy in Japan, however, there is no grid network connecting areas rich in wind resources, such as Hokkaido and Tohoku, with urban areas that consume a lot of electricity. The government is considering support for building a grid network in some areas.

After the implementation of the FIT scheme, new solar and wind power generation projects now underway across Japan, could result in a total generation capacity of 20 MW, which is equivalent to two nuclear power plants (In terms of actual operation rate, this is equivalent to one half of a nuclear power plant).

Development of Geothermal Power Generation Resumed

No new geothermal power generation facility has been built in Japan since 1999, but nine companies including Idemitsu Kosan Co. released a plan to build the largest geothermal power plant in the country, with 270 MW capacity. The plant is scheduled to begin operation in 10 years.

The facility utilization rate is about 12 percent for solar power generation, about 20 percent for wind power. The rate for geothermal power generation is about 70 percent, the same as a nuclear power plant. According to the National Institute of Advanced Industrial Science and Technology, Japan's geothermal resource base is about 20 million kW, one of the largest in the world.

The scale of the renewable energy market in Japan is said to be about one trillion yen (about 12.7 billion US dollars), but a provisional calculation shows that this could expand to 10 trillion yen (about 126.6 billion US dollars) by 2020. As the market expands, an estimated 0.5 million jobs will be created.

In spite of having high technological ability, Japan has fallen behind other countries in renewable energy development due to limited installation and manufacturing capacities and a lack of appropriate market expansion measures. Finally, a feed-in-tariff scheme, one of the driving forces for promoting renewable energy, has been implemented. We look forward to seeing future developments and hope that Japan will set a precedent for other countries still lacking renewable energy resources in terms of operating a better system.

Written by Junko Edahiro