The newly projected 350 percent growth of Japan’s solar market from 2012 to 2013 dwarfs estimates made earlier this year.
“The Japanese feed-in tariff is one of the most lucrative in the world,” explained Adam James, GTM Research Solar Analyst for Global Demand. “As a result, there has been a gold rush. In the first half of 2013, we saw twice as much solar installed in Japan as in all of 2012. From 1.7 gigawatts last year, we expect the Japanese market to grow to well over 6 gigawatts of installed capacity in 2013.”
The latest forecast is almost a full gigawatt higher than the 5.3 gigawatts expected by analysts earlier this year.
The Japanese FIT was launched in 2012, in the wake of the Fukushima nuclear plant disaster. It was revised in April down to its present 42 yen (~$0.43) for every kilowatt-hour of electricity solar owners' systems send to the grid. The premium is guaranteed for ten years to residential buyers and twenty years for commercial/industrial and utility-scale installations.
Two nuclear reactors have come back on-line on an interim basis since the 2011 tsunami and nuclear emergency, and applications to restart several others are pending. But anti-nuclear sentiment became further entrenched in the country after recent reports of radioactive water spills at the Fukushima facility. “Turning their nuclear power industry back on would likely be the government’s last option before letting the country go without electricity,” James said. “The impetus is to build capacity of any other kind.”
Even with the FIT premium, Japan may find solar a better choice than very expensive imported liquid natural gas (LNG), James said. “Costs are certainly a part of it, as natural gas has a notoriously volatile price. But there is also a desire to avoid shipping a product through the risky Strait of Hormuz, and a fear of running into sell-through restrictions or seeing prices pegged to oil.”
James believes Japan’s solar incentive program will be more like Germany's success story than like Spain’s FIT-induced bubble.
"Because Japan faces a capacity shortfall, rather than a need for an incremental series of additions, a bubble like the one in Spain is unlikely,” he said. “Rates will probably go up, but the impact of solar here is not the only thing causing that. They are paying off investments in now-unused nuclear power and using expensive LNG."
Because of the FIT, “A lot of solar will get built, and the utilities will have some challenges making that work,” James added. “Germany had a few years of ramping up, even without anything near the year-over-year surge we expect in Japan,” he said. “I'd also bet they either cap FIT applications or reduce the rate this spring.”
The dominant domestic manufacturers in Japan are Sharp, Kyocera, and Solar Frontier, James said, and the big U.S. importers into the Japanese market are SunPower (SPWR) and First Solar (FSLR). Major Chinese manufacturers like Yingli, Trina, Suntech, and Hanwha are also selling aggressively there, he added. “If you are doing business in the solar industry, you are doing business in Japan.”
Japan’s module manufacturers are currently turning out product as fast as they possibly can, according to James. They are meeting about 44 percent of domestic demand. Japan Photovoltaic Energy Association statistics for Q1 2013 show that the solar industry shipped 1,653,873 kilowatts of modules for Japanese use. Of that total, 728,917 kilowatts were made in Japan and 924,956 were imported.
More significantly for Japan’s economy, the great majority of Japan’s domestically manufactured product is going into its home market. Of Q1’s 737,336 kilowatts produced by Japanese companies, 727,377 were used domestically.
Because of the FIT, Japan’s module manufacturers have no drive to export. The domestic module price has been quoted at over $1.00 per watt, James explained. In the U.S., that price is below $0.70 per watt.
A curious aspect of Japan’s boom is that far more projects are approved for the FIT than get built. Approvals were at 18 gigawatts in Q1 2013 and 17.9 gigawatts in Q2.
“The fear is that if they capped the FIT too soon or made the approval process more rigorous, the country wouldn’t get enough capacity built,” James explained. “The government does not want to be the roadblock. It would rather speed proposed projects through FIT approval and let them succeed or fail on their merits.”
Several factors make the threshold for getting a project built in Japan much higher than the threshold for getting a project approved, James said. Those factors include:
- A shortage of the qualified engineers required to oversee each project of 1 megawatt or larger
- A shortage of qualified construction companies
- A shortage of suitable land
- A shortage of grid access: “Each utility has unique demand and land limits that determine how much of the approved pipeline can be approved for interconnection,” James said.
“The market is huge, and the market is valuable,” James stressed. “But it has limits, and those limits are important to understand.”