Japan solar auctions approved by cabinet

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Following months of speculation, Japan’s cabinet has today confirmed that changes to the country’s clean energy incentive program will include the introduction of an auction mechanism for solar projects, set to be introduced in April 2017.

The current clean energy support program was introduced in 2012 in the immediate wake of the Fukushima disaster. Putting solar PV front and center, a generous feed-in tariff (FIT) has helped to propel the market to the number two spot in the world, with Japan’s 10 GW-plus of additions in 2015 beaten only by China.

However, Prime Minister Shinzo Abe and his cabinet had been under increasing pressure to amend the program, which many felt was beginning to prove burdensome for a growing number of bill payers. On April 1, Japan will liberalize its electricity market in a move that will open up the sector and loosen the dominance of 10 regional utilities, while also ending tax breaks for commercial solar installations.

The introduction of a solar auction mechanism will likely serve to limit the number of PV installations annually, with some reports suggesting that a ‘cap’ of around 2 GW could be placed on the sector as Japan seeks to cut power costs by introducing competitive reverse auctions.

Such schemes have already been introduced in the mature solar market of Germany and, with varying levels of success, the emergent Indian market. For Japan, which has a cumulative PV capacity of more than 30 GW (according to estimates by Bloomberg New Energy Finance), such a large-scale curtailment of its current installation pace for solar could have a drastic impact on the domestic PV market.

Japan’s 2030 goal is for renewables to account for 24% of the country’s energy mix by that date. Since 2012, solar PV has accounted for the vast majority of new clean energy additions, with the Ministry of Economy, Trade and Industry (METI) approving 79.76 GE of solar PV projects over the past four years.

However, only around 29% of those are operational, with a large portion of approved projects that were awarded the high FIT rate early on still not connected to the grid. The government has considered imposing a connection deadline for such projects in order to protect consumer bills further.

Speaking on today’s auction announcement, METI’s Motoo Hayashi said: "The overhaul was intended to introduce clean energy as much as possible while reducing the burden on power users and achieving our target for power generation."