Japan’s High-Cost Renewable Energy Curbs Subsidy Impact

Japan must cut the cost of installing solar panels and wind turbines to take full advantage of clean energy incentives three times as generous as those in Germany and Sweden, an official at the energy foundation set up by billionaire Masayoshi Son said.

High costs are one of the largest impediments to a wider uptake of clean energy in Japan following the March 2011 earthquake and nuclear meltdown, said Tomas Kaberger, the executive board chair of Son’s Japan Renewable Energy Foundation and a former director of the Swedish Energy Agency.

Japan’s costs threaten to detract from government policy offering financial incentives to sellers of clean energy. The program introduced a year ago next month has prompted many new entrants to Japan’s energy market, including Son’s Softbank Corp. and Orix Corp., a finance and leasing company.

“It is not economically very impressive that you now have feed-in tariffs that in solar and wind are about three times as generous as the most efficient European markets,” Kaberger said in an interview in Tokyo.

Aided by the incentives, known as feed-in tariffs, Japan is projected to become the largest solar market by annual installations this year, according to Bloomberg New Energy Finance. The tariffs require utilities to buy electricity from renewable sources at fixed prices.

Still, the approach comes with risks. Higher rates must be balanced with the need to foster competition and tap global experience, Kaberger said. Overly generous incentives “will not create enough pressure to develop those skills,” he said.

Comparative Tariffs

Under Japan’s feed-in tariff program, clean energy generators sell their power to local utilities at rates guaranteed for a set period. In the case of solar, producers in Japan get 37.8 yen (38 cents) per kilowatt hour for 20 years.

Japan’s tariff for solar was cut in April from 42 yen per kilowatt hour the previous year to account for the lower cost of solar panels and components. Germany began offering its industry-changing feed-in tariff for solar in 2004, building on previous smaller incentive programs. German solar tariffs are as low as 0.1063 euro per kilowatt hour for 20 years.

“We must succeed in bringing down the costs,” Kaberger said. “It’s difficult to explain why solar PV installation should cost three times as much in Japan as in Germany.”

Installed system prices in Japan were $6.5 per watt, compared with $2.5 per watt to $3.5 per watt in Germany in 2011, according to an International Energy Agency report on solar installations.