Japan Becomes Huge Solar Opportunity; Japanese May Keep It To Themselves

The announcement of the new FiT is a shot in the arm for the solar industry, moreover for the greater investor public who continues to only see solar as a subsidized game

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Japanese Solar Industry figures show 1.4GW of domestically dedicated shipments during the fiscal year ending March 31, 2012. Approximately 24%, or 302MW of those shipments, were the result of imports. Japan exported 1.2GW abroad, including to Europe and Asia.  Overall, Japanese corporations like Sharp, Panasonic, Kyocera and Mitsubishi possess 3.3GW combined capacity. The largest CIGS manufacturing corporation, Solar Frontier, has 900MW of capacity.  In total, the capacity exceeds last year’s market dynamic.  Japanese corporations have been suffering like everyone else the presence of large inventories and the drop in ASP, curtailing their production utilization. Despite Japan remaining as a lucratively priced environment, ASP had gone down there as well. Japanese modules are also on the top of shopping lists by retail customers globally, including the US.  The high price does not deter the public, which is looking for a well-known brand name that matches the television set in their living room, perceiving superior quality over other makers on the hint of assumption more than reality.  But in marketing, the name sells.

The announcement of the new FiT is a shot in the arm for the solar industry, moreover for the greater investor public who continues to only see solar as a subsidized game. The drop in ASP into the vicinity of $1 per watt had placed 100 countries in the world within grid parity, including Japan. Spain has no FiT anymore, but for a few companies it still makes sense to build solar installations in the country to obtain savings in the long-term production of energy, versus receiving an immediate subsidy. Subsidies are nice to have, but the greater realization is that solar is no longer an expensive source of energy. The decision of closing all 53 nuclear reactors by the Japanese government has been a great confirmation moment for the solar industry, tarnished somewhat by the fact that government had decided to restart two units of Ohi nuclear power station a couple of days ago.  To help silence the criticism, Japan gave a 42-yen, or $0.53, per kilowatt-hour subsidy for 20 years for any system above 10KW, double the rate of Germany and triple that of China, offsetting the public displeasure and protests from those fearing another nuclear disaster.

Even before the announcement Japan had attracted a number of companies, mostly Chinese, and some see that the new FiT may create a lot more demand for the Chinese. Suntech (NYSE: STP) has been active in Japan since 2006 when it purchased MSK Solar, making that company the most capable among the Chinese in the region. Ever since, other companies have tried to enter the market, including US-listed Canadian Solar (NASDAQ: CSIQ), Yingli Green Energy (NYSE: YGE), JA Solar (NADSAQ: JASO) and Trina (NYSE: TSL).  Some opened headquarters in Japan, like Yingli. Others opened offices in Singapore, in the case of Trina. Other public companies not listed in North America, yet significant in size, entering the Japanese market include Shanghai Chaori and Hareon.

The demand estimate, which depends on who is describing it, is around 3 to 5GW domestically. Japan does not have any restrictions, similar to India with domestic content, or now the US with the levies against Chinese-made cells.  The market is dedicated to rooftops, so high conversion cells/modules would be attracting the most attention by retail customers; industrial rooftops could still be fitted with less powerful units.  It remains to be seen how much uplift, if any, the Chinese can get. If it comes to pricing, the Chinese are the best around, but Japanese consumers had preferred home brands over anyone. About 24% of imports, a figure which has been increasing, is still worth 1GW of shipments with 5GW in estimated demand, the Chinese are the most capable to receive that share. Another motion is to see the Japanese concentrate efforts more on the domestic markets and reduce all exports to Europe, a place where the Chinese are the dominant force and can easily fill in the gap.  The US will probably remain a region of open competition; major tier ones will remain active in the region to circumvent  restrictions with Taiwanese- or Korean-made cells, until their own production locations in Thailand or Malaysia are created within 6 to 12 months’ time.

Overall, the Japanese market supplies a number of positive scenarios for the industry and for the Chinese, but this is not necessarily a homerun for China. The winning scenario we see may not be a direct interaction within it, despite Canadian Solar's plans to build a 120MW assembly factory in Japan, but through a global ripple effect and greatly based on actions of the Japanese solar companies and how they profit from this opportunity.  While many have criticized First Solar’s (NASDAQ: FSLR) ability to enter the market, first with the toxicity of cadmium and second with its poor module conversion, SunPower (NASDAQ: SPWR),which is growing shipments to its partner Toshiba, has none of the issues and all of the qualities  to see benefits from Japan’s demand.