Japan: Disappointing first auction; plans for 200 GW solar by 2050

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In its JPEA Outlook 2050, the Japan Photovoltaic Energy Association (JPEA) has said it is targeting 200 GW of solar PV installs in Japan by 2050. According to Japan’s RTS Corporation, as of October 31, 2017, over 40 GW across roughly 240,000 PV systems have been installed under the FIT, introduced in 2012.

Last year, around 7 GW were installed. In an interview for the February edition, RTS’ Izumi Kaizuka told pv magazine that utility scale installs represented around 3 GW, while residential comprised 1 GW and non-residential, 3 GW. Next year, a further 6 to 7.5 GW are expected. Bloomberg New Energy Finance (BNEF) forecasts this to reach 63 GW by 2019.

Disappointing auction results

Despite the high tariffs and impressive installation rates – particularly given Japan’s geographical limitations – the solar industry continues to suffer from high prices, being one of the most expensive countries to generate solar electricity. In an attempt to ease this, the Ministry of Economy, Trade & Industry (METI) announced in 2016, that it would switch to a reverse auction mechanism to stimulate growth.

Commenting on what the auction means for growth and prices, Martin Tengler, Japan solar analyst at BNEF told pv magazine, “The auction will slow down the 2MW+ solar market. It may lead to an increased interest in <2MW solar. But there are still a lot of projects in the pipeline with a FIT over 30 yen/kWh, so in the short term, the auction’s effect on prices will be limited. In addition, the first auction’s average volume-weighted price was almost 20 yen/kWh, which is still more than 2.5x the prices in Germany.”

The first auction was held in 2017, under which 500 MW were available for projects 2 MW in size and over. According to Canadian Solar, which was awarded a 17.7 MW project in the auction, average prices were JPY 19.6 per kWh. The lowest successful bid came in roughly 28% lower than the current FIT rate of JPY 24/kWh, while the highest bid was JPY 21.

Disappointingly, just 141 MW were awarded out of the possible 500, and the situation didn’t improve from there. Just four projects totaling 41 MW paid the secondary deposit, with the other five, representing 100 MW, withdrawing.

“The auction was under-subscribed because the government didn’t provide enough guarantees regarding land, grid connection and power off take to make it attractive to developers,” Tengler explained. “Most developers have projects in the pipeline and know that there will be two more auctions in 2018, so they chose to sit this one out.”

RTS’ Kaizuka added that the auction was not successful in terms of capacity, with most developers not ready to join. “Now METI is reviewing the results and may change some rules,” she said.

More auctions

A further two auctions are planned for this year, in May and September, with a total of 500 MW potentially available. However, depending on how the first auction is subscribed, the second will be adjusted to reflect this figure.

Until then, the government is working with industry to amend the requirements needed to participate in the auctions. In the December issue of its monthly PV Activity in Japan and Global PV Highlights newsletter, RTS said, “The ceiling price will be set, but it will not be announced and will be disclosed after bid opening. As for the forfeiture of the secondary deposit, the scheme will be reviewed based on the result of hearings to industrial organizations, in order to reduce the risks … [for] project developers.”

Revised FIT

In addition to an auction system, METI also introduced a new FIT Act in April 2017, which saw tariffs fall to between JPY21 and 30/kWh, depending on system size. According to RTS, approvals for 456,000 projects totaling 27.7 GW were cancelled following its enactment.

“Under the new FIT scheme, some demand and trading slowed, caused by delay in examination for approval of PV projects (approval of project business plan) and regulation for overpanelling [sic] of PV modules after approval,” said RTS. It added, “Yet construction of large projects with capacity over 10 MW which was approved under the former FIT scheme is steadily progressing.”

The main threat in the market currently, said BNEF’s Tengler, is for developers to obtain grid connection for their projects, and to get it at a price that still justifies developing the project. “From April 2017 onward, all ground-mounted solar must first get a grid connection approved before applying for a FIT,” he said.

Bringing it home

While there is still scope, albeit it declining, for Japan’s Mega Solar Projects, with many plans in the pipeline, the country’s industrial and residential rooftop markets are the ones to watch, particularly in the run up to 2019, and onwards.

As RTS’ Kaizuka said, many companies are starting to prepare 2019 storage opportunities; FITS are almost lower than electricity prices; and the first batch of residential FIT recipients from 2009 will see their purchase period under the FIT end in 2019. This is interesting, as going forward, they will either have to sell surplus power at a reduced price, or for free, as there is no more legal obligation to purchase the generated electricity; or move into self-consumption.

In its newsletter, RTS wrote, “… self-consumption with combination of electric vehicle (EV) or storage battery and sales of surplus electricity to electricity retailers or aggregators through bilateral or free contract will be the options. For owners of residential PV systems, it is a good chance to transfer to a self-consumption model and also a new business opportunity for business entities.”

Zero energy houses (ZEHs) are also still very much on the government’s radar. In its latest budget plans for FY 2018, Japan’s Ministry of the Environment has proposed JPY 8.5 billion for projects to promote the low-carbonization of houses by establishing net ZEHs.

Rooftop potential

In the residential market, BNEF’s Tengler said that 2.2 million households now have rooftop solar. “Residential installations have gradually fallen over the past few years, but due to good economics we expect the number of installations to rise in the coming years,” he said, adding “The opportunities we see are in self-consumption. Because the price of electricity for residential and commercial customers is high in Japan, we expect more and more consumers to install rooftop solar panels.”

According to RTS, Nagano Prefecture has requested JPY 53.89 million for “Project to disseminate rooftop PV in Shinshu (Nagano Prefecture)”, which displays on a map the suitability of roofs for PV systems.

Regarding prices, it says the average price per kW was JPY 270,000/kW for residential applications.

Company activity

Kyocera is particularly active in the solar rooftop field. The Japan-based company is working towards fulfilling the requirements of the government’s ZEH standards. To this end, it worked together with house maker, Daito Building Management Co., Ltd to complete the country’s first multi-unit housing project, which meets ZEH standards in Izu City, Shizuoka Prefecture.

Ichiro Ikeda, general manager of Kyocera’s Solar Energy Marketing Division, tells pv magazine, “For the residential market, we are enhancing our battery storage units to meet ZEH standards, and expanding our business by using AI control systems. Furthermore, we aim to enable solar energy use which is cheaper than utility electric power by realizing cost reductions through the development of lithium-ion storage batteries.”

China-based Canadian Solar also recognizes the potential of the residential market. Since 2015, the company said business has roughly doubled in this sector, with over 100 MW installed last year. Going ahead, it will remain a key focus. “The market shares of CSJ is nearly 10%, and should be largest among foreign PV manufacturers in Japan. Even including Japanese PV manufacturers, CSJ should be very close to #1,” said a spokesperson.

Prices

Overall, Japan remains above the global average when it comes to pricing. According to RTS, the average price per kW was JPY 270,000/kW ($2,400 /kW) for residential applications and JPY 180,000/kW ($1,600 /kW) for MW-scale PV power plants, as of the end of December 2017.

This represents a 5 to 6 % decrease from the beginning of the year. “The market trend of long-term price reduction is expected to continue in 2018 as well,” said RTS.

Long-term planning

The government is looking to solidify the long term prospects for renewables, and is currently rethinking its energy mix to 2050. This includes the creation of a “next generation” electricity network, and addressing issues in the current grid system. The 2030 PV target may also be adjusted.

In its FY 2018 budget proposal, METI has proposed JPY 5.4 billion for a technology development project to reduce the levelized cost of energy (LCOE) of PV power generation; and JPY 5.78 billion for R&D projects to develop technology to address the output fluctuations of the country’s electric grids.

It has also established a committee to discuss the introduction of large volumes of renewable energy and a new generation electricity network to support it; and has started a revision of its Fourth Strategic Energy Plan. Renewable energy is positioned as a “major power source,“ said RTS.

Finally, the government’s basic energy plan to define the fundamental policy for the next three to five years is due an update, with the last one released in 2014. BNEF said it expects to see this in the coming summer.

Read more on the Japanese solar market in the February edition of pv magazine.