Pricing, Deregulation Key to Japan Clean Energy After Bill
Japanese companies may wait to invest in clean energy technology until the government determines renewable energy tariffs and a framework for deregulating the nation’s power industry, long monopolized by regional utilities.
The country’s parliament on Aug. 26 passed a clean energy bill that guarantees above-market rates for wind, solar and geothermal energy and will take effect in 10 months. The so- called feed-in tariff created a race to install solar panels when implemented in Germany and Spain.
“Though symbolically ground-breaking, there remain some unanswered questions regarding cost, surrounding infrastructure and regulation,” Naomi Fink, a Japan strategist at Jefferies Japan Ltd., said in a report on Aug. 25. on the bill.
The nuclear disaster at Tokyo Electric Power Co.’s Fukushima plant has turned public opinion against atomic energy, according to newspaper polls. The passage of the bill is one of the first steps by Japan to expand its renewable energy industry into a 10 trillion yen ($130 billion) market by 2020 from 1 trillion yen in 2009.
Under the law, the trade and industry minister will set preferential rates and periods each year for renewable energy purchases. The bill that passed doesn’t include what the rate will be when the law comes into force on July 1, 2012.
The rate for solar energy could be higher in light of a plan introduced in 2009 to buy excess power generated from sunlight. Currently, the tariff for surplus solar power generated by homes is 42 yen per kilowatt-hour, while electricity produced by businesses is 40 yen.
Even without price clarity, the industry expected to benefit is solar power.
“This law will help strengthen the competitiveness of the Japanese solar power industry and jump-start regional industries and job creation,” Sharp Corp. President Mikio Katayama said on Aug. 26 at a press conference by the Japan Photovoltaic Energy Association. He is also chairman of the association.
Analysts said one provision in the law allows regional power monopolies to skirt a requirement they buy electricity from renewable suppliers by citing concerns over smooth transmission.
The issue of access to power grids also needs to be addressed, Ali Izadi-Najafabadi, an analyst for Bloomberg New Energy Finance, said. The law doesn’t say who would bear the cost of building new transmission and distribution lines or increasing grid capacity, he said.
Passage of the legislation was a victory for Naoto Kan, Japan’s departing prime minister. He campaigned for less dependency on nuclear energy after the March 11 earthquake and tsunami crippled Tokyo Electric’s Fukushima Dai-Ichi nuclear power plant.
Japan gets about 9 percent of its electricity from low- carbon sources. Kan has called for that level to increase. Before the crisis, atomic plants supplied about 30 percent of the country’s electricity.
Sharp and another solar cell maker Kyocera Corp. (6971) are near- term beneficiaries of feed-in tariffs, said Pranab Kumar Sarmah, an analyst with Daiwa Capital Markets. Asian solar companies may start penetrating the Japanese market from 2013, he said in a report on Aug. 12.
“Unlike individual roof-top system buyers, who rely on brand awareness and after-sales service, solar-farm operators rely on performance at lowest cost,” Sarmah wrote, adding that China’s Suntech Power Holdings Co. may expand its business in Japan.
Analysts and industry officials are calling for deregulation to loosen the controls that the 10 regional power companies enjoy in each region they cover, including setting how much electricity from wind turbines is used.
“Japan’s utilities limit how much wind they allow onto the grid in order to maintain stability of power supply,” Yugo Nakamura, an analyst for New Energy Finance said. “By the time cumulative capacity of solar and wind reaches 10-13 gigawatts, the government will have to decide whether to change existing connection rules to accommodate additional clean power generation,” he said in a report Aug. 29.
Japan’s current capacity for solar and wind generation is 3.5 gigawatts and 2.4 gigawatts, respectively.
The volume of power exchange between regions is low, said Yoko Monoe, a research analyst for the Daiwa Institute of Research. She said power grids need to be upgraded so produced power can have multiple destinations.
Fink of Jefferies said Japan should ease factory site guidelines that concern solar power producers. Under the current law, 50 percent or less of factory sites may be used for production facilities and that could “push up the acquisition or lease-cost of the land,” she wrote.
As for geothermal, Japan limits the land use in national parks where about 80 percent of the nation’s geothermal resources are concentrated. The Geothermal Research Society of Japan said a thorough review of regulations is needed so that the country can develop projects of a size that is on par with other countries.
There are also concerns how much of the current push for renewable energy will last after Kan stepped down.
Yoshihiko Noda was elected head of Japan’s ruling party yesterday, paving the way for the 54-year-old finance minister to replace Kan. The DPJ used its majority in the lower house to appoint him as premier today.
“This direction won’t change” after Kan steps down, DPJ lawmaker Nobumori Otani said. “Japan has clearly shifted gears to promoting renewable energy.”
A total of 68 percent of respondents to an Asahi newspaper poll published Aug. 8 said they want Kan’s successor to continue his policy of phasing out atomic energy.
Softbank Corp. (9984) Chief Executive Officer Masayoshi Son plans to invest about 80 billion yen to build 10 solar farms. Son’s plans have conditions: he needs access to transmission networks and agreement from the 10 regional utilities to buy his electricity.
Japan’s power industry plans to develop and implement transmission management systems so utility companies can accommodate the volume of power generated from renewable sources, the Federation of Electric Power Companies of Japan said in a statement on Aug. 26 after the bill was approved.
The country is also pinning hopes on clean energy to help the recovery in the devastated areas in northern Japan after the quake and tsunami ravaged many farming and fishing towns.
It is important to combine reconstruction efforts with regional energy management, according to Kazuhiro Ueta, a professor of environmental economics at Kyoto University. “Renewable energy utilizes regional resources. The more you use it, the less you need to buy fossil fuel,” Ueta said.
The feed-in tariffs will need tuning along the way and Japan should learn lessons from other countries, Nakamura said. “The purpose of the law is not to fix tariffs at a high level and produce expensive power,” he said. “The goal is to bring down the total costs of clean energy.”
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