Japan Panel Proposes Solar Tariff Cut of as Much as 16% on Costs

Japan is considering reducing the incentives for developers of solar power projects by as much as 16 percent to reflect lower operating and maintenance costs.

The tariff for applications approved between April 1 and June 30 could be cut to 29 yen per kilowatt hour from the current rate of 32 yen under a proposal presented today by a panel in charge of reviewing the country’s renewable-energy incentives. The tariff would be cut again to 27 yen per kilowatt hour beginning in July, the panel recommended.

The lower tariff could cool investments in Japan’s booming solar market by making it less attractive for developers eager to lock in contracts at some of the highest rates in the world.

The tariff reductions are part of an annual review of the mechanism used by Japan to encourage investments in renewable energy. The incentive, known as a feed-in-tariff, offers long-term contracts to clean energy producers at above-market rates. Japan’s feed-in-tariff rates are for as many as 20 years.

The solar tariff cut would mark the end of a three-year premium period for solar. Japan introduced its incentive program for clean energy in July 2012, with tariffs set higher at the outset to encourage investment.

Data compiled by the ministry showed operating and management costs for solar projects have declined while the capacity factor, an indicator of how often a power generator runs for a specific time, has improved.

The recommended tariffs require approval by trade minister Yoichi Miyazawa.

Japan also plans to set a separate, higher tariff for small woody-biomass projects to encourage power generation that taps into unused, domestically available resources.

The panel proposed setting a new tariff for woody-biomass projects smaller than 2 megawatts at 40 yen per kilowatt hour for 20 years. The current rate of 32 yen will only apply to projects with a capacity of 2 megawatts or larger beginning April 1, according to a document by the panel.

Tariffs for other types of clean energy, including geothermal and wind, should remain unchanged next fiscal year, the committee recommended.

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