Japan proposes 11% FIT cut as domestic solar demand falls

Japan’s solar market reshuffle played another few rounds this week as the Ministry of Economy, Trade and Industry (METI) proposed an 11% cut in the solar feed-in tariff (FIT) just 24 hours before the Japanese Photovoltaic Energy Association (JPEA) revealed that domestic shipments of solar panels fell 21% for the final quarter of 2015 year-on-year.

Following last week’s pronouncement by Bloomberg New Energy Finance (BNEF) that the Japanese solar market is likely to peak this year – adding a record 13.2 to 14.3 GW before falling away in 2017 – changes are already afoot that would appear to show the market readying itself for a post-boom maturation.

The METI held a Purchase Price Calculation Committee to decide the proposal for the FY 2016 purchase price based on the FIT, and has proposed an 11% cut to the tariff offered to systems larger than 10 kW. The new proposed tariff of JPY 24 per kilowatt hour ($0.21/kWh) is a reduction on the current JPY 27 ($0.24/kWh) and below BNEF’s forecast of JPY 26/kWh.

In reaching these reduced FIT proposals, the panel assessed Japan’s falling Capex costs and adjusted the incentive accordingly, BNEF’s Takehiro Kawahara told pv magazine. "The METI found that Capex of PV projects tends to be declining at the same rate as the FIT price reductions – the median Capex of above 10 kW PV projects that were approved with a FIT of JPY 27/kWh is 16% lower than those with JPY 40/kWh."

Kawaraha explained that, for the new formula, the panel applied this same cost reduction rate to the calculation of Capex for utility-scale projects larger than 1 MW. The result being a proposed Capex assumption of JPY 25.1/kW, and thus, a FIT of JPY 24/kWh for projects larger than 10 kW.

"The fall of the Capex has been slow compared to other markets such as Germany, and this issue was raised in the METI’s expert committee meetings several times," Kawahara said. "Previous FIT rates have been high based on the Capex reported by solar developers, which themselves were reflected by high FIT rates. Therefore, there has been limited cost reduction incentive."

The analyst added that the METI found that Capex tends to be lower for solar projects in Japan that have a lower FIT, and thus by bringing the FIT down further the panel hopes to accelerate cost reduction.

As a result, BNEF will not be revising its annual installation forecast downwards, Kawahara confirmed. "The forecast is based on the approved FIT applications as well as designated grid connection limits by utilities. There is still a gap between the designated grid capacities and cumulative solar installations in each utility territory," Kawahara said.

Domestic shipments fall

The challenges facing the Japanese solar sector this year and next are largely rooted in grid connection issues, land acquisition and securing finance, but data from the JPEA has found that domestic demand for solar panels has begun to wane.

In the last three months of 2015, shipments reached 1,765 MW, which was 21% below shipment levels for the same period in 2014. Of that total, 60% (1,058 MW) of solar panels were supplied by Japanese companies, which included 461 MW of panels made outside of Japan.

The JPEA harvested data from 42 companies, including Solar Frontier and Kyocera, and found that there was a larger drop – 32% – for solar panel shipments to PV projects larger than 500 kW. For residential and smaller projects, the fall was less severe, at 12% and 9% respectively.