Japan: Solar tax breaks will be removed, PV accounts for 3.3% in Q3

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RTS Corporation has confirmed to pv magazine that Japan will be ending tax breaks for commercial solar installations on March 31, 2016. "This was not a surprise for us because tax incentives were supposed to be terminated before. METI [the Ministry of Economy, Trade and Industry] extended the incentives for these several years. But the tax break will not be extended from the next fiscal year," said Izumi Kaizuka.

According to local news reports, the Liberal Democratic and Komeito parties have agreed to remove the tax relief, due to solar’s wide adoption across Japan. Another reason appears to be Prime Minister Shinzo Abe’s intention to lower the corporate tax rate to under 30% in 2016. Other tax breaks for wind and hydro may remain, said the reports, adding that a tax reform plan is expected to be drawn up this month.

In 2014, KMPG International released a report on taxes and incentives for renewable energy. In it, it said that Japan’s Green Investment Tax is available to tax payers looking to install solar or wind, and who have obtained a FIT.

They can choose from three incentives: (i) 30% special depreciation in addition to ordinary depreciation. Systems must be installed by March 31, 2016; (ii) 100% depreciation. Systems must be installed by March 31, 2015; or (ii) tax credit (7% of acquisition costs, only available for small and medium sized enterprise). System must be installed by March 31, 2016.

Market liberalization

The end of the tax break will come into effect one day before Japan officially liberalizes the world’s third largest electricity market. Currently, it is dominated by 10 regional utilities. This will change on April 1, 2016, however, when the country opens its retail electricity market, valued at US$67 billion, according to Bloomberg. The increased competition could see retail electricity costs falling 15%, said Bloomberg New Energy Finance (BNEF).

Bloomberg added that over 750 applicants have already signed up to provide electricity, ranging from small rice farmers to billionaire banks. Solar companies are also looking to get in on the action, with both Hanwha Q Cells and Canadian Solar said to be displaying interest.

Solar share

New statistics released today by the Japan renewable Energy Foundation (JREF) indicate that solar is the second biggest renewable energy in the country, behind hydropower. In Q3, it accounted for 3.3% of Japan’s electricity production, behind hydropower, at 10.1%. In 2014, solar accounted for 2.4%.

Cumulative solar PV capacity, also in 2014, stood at 23.3 GW. A further 12.6 GW are expected to be added this year, before installations decrease in 2016 and 2017, according to BNEF. A total of 81.63 GW of solar PV have been authorized up until the end of last year 3.79 GW of which is residential), 18.11 GW of which were already installed before 2014 (3.1 GW of residential).

In 2009, the Japanese government set solar targets of 28 GW by 2020 and 53 GW by 2030, while 10% of total domestic primary energy demand should be met by PV by 2050. Then, in 2012, METI introduced a generous FIT program to boost the uptake of solar.

Izumi Kaizuka told pv magazine at the end of last month that the ministry has recently discussed changes to the country’s renewable energy incentive program, mulling the introduction of an auction mechanism for solar, a regressive FIT, and other measures designed to increase the attractiveness and installation levels of clean energy in the country.