Japan sun subsidy fires electric spending rush

September 12, 2012

REUTERS

Japan's subsidies for renewable power suppliers have sparked more than $2 billion of investment since they were launched two months ago, as companies and homeowners try to profit from an anti-nuclear energy policy after last year's Fukushima crisis.

That money, the government believes, is only a tiny fraction of what could be a $640 billion spending boom by 2030 as Japan tries to phase out nuclear energy.

Nuclear reactors supplied about 30 percent of its electricity before Fukushima, but in response to a public backlash, Japan is set to soon announce an overall energy policy which may ultimately mean a total shutdown of atomic capacity.

Renewables -- solar, wind, geothermal, biomass and water power -- will be called upon to make up part of that shortfall.

A renewable energy law that came into effect on July 1 requires utilities like Tokyo Electric Power Co. and Kyushu Electric Power Co. to buy electricity from renewable sources at pre-set premiums for up to 20 years.

Taking advantage of those premiums are families installing solar panels on their homes to sell power to utility grids, and businesses across the economy buying into the market.

To encourage capacity-building, utilities must pay subsidies as much as 42 yen ($0.54) per kilowatt hour (kWh) to owners of solar, wind or other renewable energy capacity in this business year, compared with generation cost of about 10 yen per kWh for conventional gas or coal power plants.

That is double the tariff offered in world number one solar market Germany, which this year said it would cut subsidies as it tries to limit the impact of energy prices on consumers.

In the first month of the Japanese scheme's operation, 33,695 companies and individuals registered to sell renewable energy, data from Ministry of Economy, Trade and Industry (METI) shows. More than three-quarters of the registered capacity is solar.

"People are in a hurry to wrap up solar projects to avoid the uncertainty of whether the current high price level is maintained next business year," said Teiko Kudo, a banker involved in financing solar projects at Sumitomo Mitsui Banking Corp. Japan's business year runs from April to March.

Utilities which pay the extra money to suppliers then pass it on to consumers under a "feed-in tariff" (FIT) system.

When FIT began in July, consumers started paying an extra 0.22 yen per kWh to utilities to cover the subsidies for this business year.

SOFTBANK'S SOLAR FARMS

Many companies outside the traditional energy industry are keen to break into renewables. Mobile phone supplier Softbank plans to install 10 solar farms with total capacity of 182.2 megawatts (MW), and a 48 MW wind farm by March 2015. Two of its solar farms started commercial operation in July.

"We are hearing the voice of the public calling for a future without nuclear power and may respond by adding more capacity than planned," Masayoshi Son, president of Softbank, said at a Tokyo seminar last week.

"We now expect total installed solar capacity to be near 10,000 MW by the end of this business year, up from about 5,000 MW before the scheme's launch," said Hiroshi Komiyama, chairman of Mitsubishi Research Institute.

That would generate enough electricity for 2.7 million households a year, or around 5 percent of the country's homes, according to Reuters calculations.

Altogether, individuals and companies in July registered 567 MW of capacity that meets government requirements for selling electricity to utilities, according to METI.

That adds up to 170 billion yen ($2.17 billion), assuming capital investment of 300 million yen per MW, an industry standard.

Solar Frontier, a unit of oil refiner Showa Shell Sekiyu KK, forecasts this year it will sell more of its photovoltaic panels in Japan than overseas for the first time since it began commercial production in 2007.

"The passage of FIT really did increase interest," Executive Officer Brooks Herring said. "The interest is coming from a very broad spectrum."

Kyushu Electric Power, the regional monopoly on the southern island of Kyushu, says it has received more applications to sell it renewable power than it can process.

By Aug. 31, households and companies had applied to sell it electricity from 830 MW of projects, almost the same capacity as a reactor at its idled Sendai nuclear plant.

Kyushu has only been able to complete power supply agreements for 5 MW of capacity, a spokeswoman said.

Altogether, renewable energy excluding large hydro-electric dams currently supplies only 1 percent of Japan's electricity, a figure which rises to 10 percent with hydro power. This may have to hit 35 percent if Japan decides to fully phase out nuclear energy by 2030, a government estimate shows. Despite the initial burst of investment, some are skeptical.

"I don't think the share of renewable energy sources, including hydro, in electricity will exceed 20 percent because, for example, it requires some 3,000 times more area to put solar panels on than a combined cycle gas power plant," said Akira Ishii, senior visiting researcher in oil and gas business at state-backed Japan Oil, Gas and Metals National Corp.

* * *

FACTBOX: New investment in renewable energy projects in Japan

Japan has approved more than 33,000 renewable energy projects that can receive subsidies under a new energy law that took effect on July 1, as the country phases out nuclear power after last year's Fukushima disaster.

Of those, 81 are solar power projects with capacity of 1 megawatt (MW) or more each, totaling 243 megawatts, data for the first month of the scheme from the Ministry of Economy, Trade and Industry (METI) showed.

Six wind power projects totaling 122 MW have also been approved, as have homeowners and small companies which have installed solar panels on their roofs, totaling 202 MW, and small-sized hydro power projects coming to 0.2 MW.

These projects need to sign contracts with utilities by March 2013 to allow them to sell electricity at the premium set for the current business year, which runs until March 31.

Below are some of the biggest renewable power projects either approved by METI or being planned, according to company announcements and media reports:

- Toshiba Corp., heavy machinery maker Hitachi Zosen Corp., JFE Steel Corp. and three other firms are to jointly invest 120 billion yen ($1.5 billion) over 10 years to set up offshore wind turbines with combined output of 300 MW.

- Trading firm Marubeni Corp. and Wind Power Energy have won the rights from Ibaraki Prefecture Government to build separately two wind farms off the coast, north of Tokyo, with total capacity of 250 MW. Construction is set to start around 2015.

- Softbank Corp. has said it would build 10 solar farms and a 48-MW wind farm by March 2015, with total capacity of 230.2 MW. Of the 10 solar farms, it has two plants in Kyoto city, western Japan, and Gunma Prefecture, north of Tokyo, with combined capacity of 4.5 MW, already in operation.

- Zen-Noh, the country's main agricultural cooperative, will install solar panels with total capacity of 200 MW at 400-600 of its facilities by March 2015, costing 60 billion yen. Trading house Mitsubishi Corp. is involved in the project.

- Toshiba will build solar plants with total capacity of 100 MW on the tsunami-hit coastline of Fukushima Prefecture, at a cost of around 30 billion yen.

- Kyocera Corp., heavy machinery maker IHI Corp. and Mizuho Corporate Bank, will launch a 70-MW solar plant in southern Japan.

- Engineering firm JGC Corp. will construct and operate a 27-MW solar power plant in the city of Oita, southern Japan, at a total cost of 8 billion yen.

- A consortium of 10 companies and University of Tokyo will build a floating wind farm off the coast of Fukushima Prefecture, north of Tokyo, with a total capacity of 16 MW. The project, subsidized by METI, will start building a 2-MW floating turbine this business year.

- Real estate company Mitsui Fudosan Co. will construct a 13-MW solar facility in Yamaguchi Prefecture, western Japan, on industrial land leased from Taiheiyo Cement Corp.

- Solar Frontier will enter the power utility market by developing with Yano Industry Co. two solar power plants in Miyazaki Prefecture, southern Japan, with a combined capacity of 3.3 MW.

- Contractor Maeda Corp. will install solar panels at 5,000 convenience stores operated by Seven-Eleven Japan Co. nationwide, an order reported to be worth around 3.5 billion yen.

- Lawson Inc. will put solar panels made by Solar Frontier and Panasonic Corp. on the roofs of 2,000 of its convenience stores nationwide in two years.

- Leasing company Orix Corp. and West Holdings Corp. will operate solar farms with a total capacity of 500 MW to be constructed at 250 locations across the nation. A total of 100 billion yen is expected to be spent over five years.

- Orix will invest approximately 24 billion yen over the next three years to build 100 MW of solar facilities on top of more than 100 buildings.

- Mitsui & Co and Tokio Marine Asset Management Co. will construct 20 solar plants nationwide in two years, with capacity of a total 60 MW, to be financed by infrastructure funds the two companies will launch.

- The city of Sapporo on the northern island of Hokkaido will install solar modules on the roofs of all 311 of its public primary, middle and high schools.

- In the city of Uozu, Toyama Prefecture, a project led by local businesses has led to the establishment of a roughly 1 MW hydropower plant, with the project's cost of 1.05 billion yen financed mainly by residents.

($1 = 78.29 Japanese yen)

REUTERS
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Softbank Corp. operates a solar farm in Gunma Prefecture. (Asahi Shimbun file photo)

Softbank Corp. operates a solar farm in Gunma Prefecture. (Asahi Shimbun file photo)

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  • Softbank Corp. operates a solar farm in Gunma Prefecture. (Asahi Shimbun file photo)

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