Japan – the Next Big PV Market

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Generous FIT and limited domestic capacity present huge opportunities to overseas PV developers and manufacturers


Japan is shaping up to be the next hottest arena for profits and competition for the global solar PV companies as the heat cools in the EU market following the solar trade agreement between the EU and China over a month ago. This is thanks to policy incentives introduced by the Japanese government, which in effect guarantee profit gains, as well as the relative limited generation capacity of Japan’s own solar manufacturers and developers.

Recent moves by global solar companies are pointing to Japan as the next growth hotspot. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), currently the world’s largest solar manufacturer by volume, has announced its plan to significantly boost export to Japan. This year, the company plans to ship to the Japanese market a cumulative capacity of 450,000 kWh – a whopping 20 times increase year-on-year.  

At the same time, shipments to Japan from South Korea’s Hanwha Q-Cells have jumped by eight times the amount exported last year. Similarly, Canadian Solar Inc. (NASDAQ:CSIQ) plans to increase its Japan shipment by six times this year as well.

Competition Leveling Off in EU

The global strategic turn of focus to Japan comes against the backdrop of the calming of competition and contention in the EU market following the settlement reached between the EU and China. The unit price and volume limits reached in the trade agreement leave Chinese solar enterprises hungry for other markets to consume their overflowing capacity. 

Details about the solar trade agreement between the European Commission and the Chinese Ministry of Commerce are not publicly disclosed, but allegedly the minimum net import price in the EU for Chinese-made modules is EUR 0.56 per watt, with an annual import limit of 7 GW; the net import price for cells is EUR 0.29 per watt, with an import limit of 2.3 GW; and the net import price for wafers is EUR 0.66 each, with an import limit of 1 GW.

It is worthwhile to note that the 7GW annual cap on Chinese module export is less than half of the EU’s annual demand, which is approximately 15 GW. Given the Chinese solar companies’ previous dominance in the EU market, the set limitation means that about 5 GW worth of capacity from China is looking elsewhere for consumers.

Japan’s Favorable Policy Incentives

This is where Japan comes in. Amid the ongoing nuclear scare originating from the Fukushima Daiichi Nuclear Power Plant disaster, the Japanese government has launched a series of policies to encourage the development of renewable energy in the country, which sets Japan on track to become the world’s leading solar PV market in 2013.

A key incentive, introduced in July 2013, involves up-market FIT rates for electricity generated by solar PV, which is set at JPY 42 per kWh, twice the electricity price in Tokyo and four times that in the United Sates, according to National Geographic.

As a result, the Japanese PV market is seeing tremendous year-on-year growth of 150% in 2013. An additional 5-plus GW is projected to be installed by Q2 of 2014, with commercial and utility demand on the rise against residential consumption.

Meanwhile, Japanese PV companies are struggling to meet the demand despite rapid expansion in the sector. Currently, it is estimated that Japanese domestic PV developers make up only 20% of overall capacity demanded, which translates into huge market potential for international developers.

Competitive Advantages of Non-Japanese PV Manufacturers

It is questionable, however, whether Japanese PV manufacturers are going to profit the most from this lucrative market on their home turf, or internationally. Overseas developers can be expected to dominate the Japanese market on price and/or capacity volume advantages.

Domestically, a major advantage for Japanese PV manufacturers is the government stipulation that funding from Japanese banks is only granted to PV power generation projects that exclusively use Japanese-made PV modules and related products.

However, Japanese manufacturers alone cannot at the moment be depended upon to fulfill the 80% vacuum in domestic demand, despite their rapid expansion in capacity. It is a general recognition among industry insiders that, currently, Japanese PV manufacturing capacity has reached saturation. This gives ample room for overseas PV manufactures to take up the shares.

Also, in terms of unit prices, homemade Japanese PV modules and related products cannot compete due to higher production and labor costs in Japan, giving overseas manufacturers, most notably China, a competitive advantage. Japan’s track record also indicates that its government has not taken as tough a stance against foreign dumping or government subsidy as the EU or US, raising the hope that within acceptable bounds the low-price strategy will be an avenue into the market in the near-term future. In fact, Yingli is reportedly considering strategically lowering its prices in Japan to gain marketshare.

Culturally, the Japanese pursuit and prioritization of quality and customer service over volume also potentially prevent Japanese PV developers from rapid expansion in manufactured capacity.

Internationally, Japanese PV manufacturers are at a disadvantageous position due to the same factor of limited manufacture capacity as they face at home. 

Companies: CSIQ, YGE, Japan, China

Comments 

 
0 #2 Pop2mollys 2013-09-28 01:11
Great article,
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0 #1 Pop2mollys 2013-09-28 01:10
Great article, thanks for insight!
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