Japan’s PV sector remains the third largest in the world in terms of installed capacity, at some 78.5GW, making it one of the leading global PV marketsplaces in the last decade. But as the world races to install more solar, it is one of the few markets in recent years that has charted a decline in new installs. An approach involving numerous government agencies is looking to restart the market, and not purely based on feed-in-tariffs (FITs), says Izumi Kaizuka, the director and principal analyst at RTS Corp.
From pv magazine 02/2022
pv magazine: The Japanese PV marketplace is one of the few globally that is declining year on year. What are the figures for installations in 2021?
Izumi Kaizuka, director and principal analyst, RTS Corp: Last year the market size was 6.5GW, although that is a preliminary number and might change, but at least 6.5GW based on the FIT projects, plus non-FIT projects.
It is declining, unfortunately. But still most of the installed numbers come from the FIT projects, approved two or three years ago. This year the market might decline further, but I think we have at least 5GW to 6GW.
From what I can see there is good news on the horizon, particularly given the high-level government goals of 46% emissions reduction and 36% renewable energy target by 2030. Do these deliver new market impetus?
Yes, the market will increase some years later, because the government has set the new PV target under the Strategic Energy Plan. By the 2030 fiscal year the government outlook is for 117.6GW for PV in the most ambitious scenario but this number is in AC, so we expect almost 140GW [DC] by 2030.
What is the current cumulative capacity for solar in Japan?
At the end of the last year, the cumulative capacity reached 78.5GW. So, by simple calculation we can maintain a 6GW annual market. But I think the government number is quite conservative. At RTS, we expect more PV because our electricity charges are increasing and recently we hear many projects outside of the FIT [program], mainly on-site corporate PPAs and also under the new action plan to achieve the Strategic Energy Plan. There are many concrete action plans.
What can you tell me about these plans?
The government is seeking to require 60% of new houses must have residential PV. It seems difficult to have that obligation, but the ‘new energy building code’ will push PV for new houses. Also, the Ministry of Land and Infrastructure is planning to introduce PV in airports all over Japan. The Ministry of Agriculture and Fisheries is now considering deregulating land zoning policy so that designated agricultural land could be used as a site for PV or wind. The Environment Ministry revised the climate law last year to establish carbon-neutral local governments, and they are now preparing the big budget for the local governments.
Have there been any setbacks with these new policy measures?
This year we have observed one issue. From April, the FIT premium program will start, but investors and the project developers are not sure whether to use this program because there are so many uncertainties about the electricity exchange prices and also the financing sector’s interest is not clear. So, most of the developers are now seeking so-called non-FIT projects, corporate PPAs – mainly on-site corporate PPAs.
Why is it that off-site PPAs are not being developed?
Independent power producers (IPPs) cannot directly sell electricity to users; They need to partner with licensed distributors and pay a wheeling fee – the transmission fee. This makes off-site corporate PPAs difficult but I expect if IPPs can reduce solar LCOEs and the government can remove some obstacles, this new market can grow.
Do you have any insight into the prices that on-site PPAs can come in at in Japan at the moment?
Current electricity charges are around JPY15 ($0.13)/kWh. So, the [on-site solar] PPA price is a little lower or level. But while electricity charges are expected to increase because of surcharges for FIT and fuel prices, on-site PPAs can fix the electricity price and give merit for electricity users.
How high are the transmission fees?
It depends, but one example, JPY3.36/kWh, would push the off-site PPA price beyond the point of profitability for the end user. Because of the regulations and the cost of the transmission fee plus the balancing fee, the major business model is on-site [PPAs]. Still, the Japanese solar LCOE is quite high. The recent tender result was that the lowest tender price was JPY10.23/kWh, which it is quite high. But while on-site PPAs will grow faster, some big companies are still pursuing off-site PPAs to meet their emissions reduction goals despite the lower economic advantages.
That has historically been the case with the Japanese solar LCOE. What are the ongoing drivers of those higher prices?
The cost of land is a factor, but also the soft costs and construction costs are quite high. Without enough flat land, the additional costs come from the land forming during construction. And, of course in 2021 PV module prices went higher.
What about dual-use applications, like agri-PV? Are they getting traction?
Dual use applications are quite popular and growing, because agricultural landowners can get solar FITs. But also, the potential for deserted agricultural land is huge and this is involved with the re-zoning reforms I mentioned earlier.
Turning back to policy, what do you think is the big takeaway from these new government efforts to support PV and renewables?
In the past, the action plan was made only by the Ministry of Economy, Trade and Industry (METI), but now also the Ministries for the Environment, Land and Infrastructure, and Agriculture. There are many committee meetings ongoing – so we at RTS are quite busy! And the rezoning work is important, because the Ministry for the Environment is wanting to set the positive and also negative zones for renewables.
You said that the government goals for PV may prove not ambitious enough. What do you expect at RTS looking out to the end of the decade for installed PV capacity?
Our estimation for the 2030 goal was at least 150GW [DC]. And RTS is currently working on our own outlook for 2030 and 2050 which I think will be released in early March. I expect RTS will give a higher number than in previous outlooks.
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