According to recent reports, the Japanese government is planning to reduce the current feed-in-tariff (FiT) rate for non-residential solar projects after the end of the current fiscal year in an effort to cool down the current rate of installation. The country, unlike its Western peers, started the FiT program in July 2012 after the Fukushima nuclear disaster. Although the government officials haven’t decided on a number, industry analysts suggest that the FiT rate could decline by as much as 12.7%. The current rate is set at $0.47 (¥42) per kWh and with the new reduction planned, it could fall to $0.41 (¥37) per kWh for 20 years starting with the new fiscal year in April 2013.
Toshimitsu Motegi, the country’s minister for economy, trade and industry has said, “The solar tariff could possibly be cut somewhere in the range of ¥35 ($0.39) to ¥39 ($0.44) per kilowatt hour.”
The recent figures released by Japan’s Ministry of Economy, Trade and Industry (METI) states that 1.398GW of PV have been installed in the country since April 2012 and with a further 602MW of expected installations, the country’s total tally for the current fiscal year is expected to touch 2GW. Around 3.2 GW of solar projects have received approvals from the government, which represents about 90% of the total approvals for renewable energy projects.
However, the reductions will only be applied to the solar sector, as the installation costs of other renewables have not fallen.
The falling costs of solar power generation systems, coupled with the generous FiT and the relatively shorter time it takes to complete a solar energy project, has increased the internal rate of return (IRR) for investments in the country’s solar sector. According to Ministry estimates, average system costs for large solar projects have fallen by 14% from $3630.05 (¥325,000) per kW when the current FiT rates were set at the end of March 2012, to $3127.43 (¥280,000) per kW. Solar panel prices have also fallen sharply from $0.99 per watt on 16th January 2012 to $0.80 per watt on 14th January this year, which represents a 19.2% decline. These factors created a boom in the country’s solar industry which, according to Frost & Sullivan, grew by 20% in 2012; but, this growth is unsustainable in the long run. The Ministry has suggested that since the costs associated with PV systems have fallen around the world, it is appropriate that FiT rates are also cut to maintain the current level of 6% IRR.
The reduction in FiT is bound to make the Japanese solar sector less attractive for investment, but Motegi’s suggested rates have confirmed that it will remain profitable. Meanwhile, Global Logistic Properties (GLAP) has recently announced a massive 29.6MWh rooftop solar project for Japan that will use solar panels supplied by Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) on the roofs of 22 buildings. GLP will avail a FiT of ¥40 ($0.45 per) kWh.
