Japan May Set Higher Offshore Wind Subsidy, Reduce Solar Tariff

Japan plans to reduce incentives for solar power and introduce a higher tariff for offshore wind than onshore turbines to encourage installations.

The offshore wind tariff would be set at 36 yen (35 cents) a kilowatt-hour for 20 years, according to a report by a panel advising the trade ministry. Onshore wind would get a separate rate, of 22 yen, unchanged from fiscal 2013. The solar tariff would decline 11 percent to 32 yen.

Wind-turbine makers such as Mitsubishi Heavy Industries (7011) Ltd. and Vestas Wind Systems A/S (VWS) as well as construction companies such as Kajima Corp. may benefit from the new tariff in a country that lacks open land for onshore installations. Japan has just 40 megawatts of offshore capacity compared with 3,689 megawatts in the U.K. and 1,272 megawatts in Denmark, according to data compiled by Bloomberg New Energy Finance.

The suggested offshore wind tariff is “surprisingly low,” said Takehiro Kawahara, a BNEF analyst. “The rate is lower than the estimated levelized cost of electricity of 45 yen per kilowatt hour for offshore wind in Japan, hence unlikely to speed up project development.”

The recommended tariffs require approval by Trade Minister Toshimitsu Motegi and would affect applications from April 1. Sales tax, which will be raised from 5 percent to 8 percent from that date, will be added to all tariffs.

Small Hydropower

Since the country introduced the feed-in tariff subsidy in July 2012, most new capacity has been solar. It’s now possible to reduce incentives as the efficiency of solar panels improve, according to the report released today by the five-member panel led by Kazuhiro Ueta, a professor of environmental economics at Kyoto University.

As for small hydropower, the panel proposed setting rates of 14 yen to 34 yen per kilowatt-hour for 20 years depending on the size of the project and whether it will use existing waterways. The group also suggested keeping tariffs for geothermal and biomass power unchanged.

Japan, seeking to become a leader in floating offshore wind technology, is conducting pilot projects in Fukushima and Nagasaki. The Fukushima project, which began with a 2 megawatt turbine last year near the site of a nuclear disaster in 2011, plans to add two more with 7 megawatts of capacity each.

To contact the reporter on this story: Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net Alex Devine, Tony Barrett

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