The future grows darker for solar energy growth in Japan – but innovation may light the way.
On the second anniversary of a scheme aimed at boosting Japan’s renewable energy after the Fukushima crisis, its powerful industry ministry is taking steps critics say will choke off solar investment and pave the way for a return to nuclear power.
Japan’s ambitious plans for solar in the past two years – if they were to come on stream – could allow the country to surpass Germany as the world’s biggest consumer of solar power.
But the Ministry of Economy, Trade and Industry (METI) has cut tariffs for solar power by a fifth in the two years and has imposed time limits on installations, arguing solar costs have fallen and projects are running late, with only 13 percent of approved projects actually installed and operating.
Solar industry participants say METI’s actions mean it does not make commercial sense to invest in the renewables sector.
“I really can’t understand what METI is up to. It certainly appears they are trying to kill or at least severely curtail solar development,” said Seth Sulkin, President & CEO of Pacifica Capital K.K., a Tokyo-based solar power and commercial real estate developer.
Prime Minister Shinzo Abe has abandoned the previous ruling party’s nuclear free policy and is now at the forefront of calls to restart the country’s 48 nuclear power plants shut after the 2011 Fukushima nuclear crisis.
METI officials say the solar sector needs reforming, and industry participants accept mistakes have been made since 2012.
“The new measures were not implemented to discourage solar, rather they were implemented to make the system fairer,” said a METI official.
“There have been declines in costs of building solar projects since the FIT system started, and the cost declines have been reflected in the price, while the internal rate of return has not been changed,” the official added. Feed in tariffs are guaranteed prices paid for the electricity supplied by solar to attract investment.
Japan has registered almost 66 gigawatts of planned solar power under the renewable energy program, nominally equal to about 66 nuclear reactors. But only 8.7 gigawatts of solar power has been connected to the grid, according to the latest figures to March 31 provided by METI.
If Japan succeeds in bringing on stream its total approved solar capacity it would be almost double that of Germany, the world’s biggest user of solar power with installed capacity of 35.7 gigawatts at the end of 2013.
“Japanese policymakers didn’t expect this kind of explosive introduction of PVs (photovoltaics or solar panels) and that combined with a lack of knowledge of cost, structures and how PVs work, led to mistakes being made,” said Mika Ohbayashi, a director at the Japan Renewable Energy Foundation.
Solar projects have been hampered by a lack of qualified technicians, delays in approvals, land titles issues and some operators have sat on approved projects waiting for equipment costs to fall and sell off projects, say industry participants.
“The prices for solar were set too high, then since there was no breakdown by size, nearly everything has been mega solar,” said Hisahi Kajiyama, of the Fujitsu Research Institute, who advised former prime minister Naoto Kan on renewable energy.
“The initial set up of the system was naive.”
When Japan introduced its new renewable energy policy in July 2012, under which utilities must buy electricity generated from renewable sources such as wind, solar or geothermal, its feed-in-tariff rates were among the highest in the world.
METI has since cut its feed-in price to 32 yen per kilowatt-hour (kwh) in the fiscal year starting April for projects 10 kwh or more, down from 36 yen in the year ending in March and lower from the 40 yen in the first year of the incentive program.
And a panel of outside experts appointed by METI to evaluate the system are planning to recommend capping the amount of payouts for electricity bought, local media have reported.
“I don’t know of any developers that can make the numbers work at 32 yen,” said Sulkin, arguing that installation costs were not falling, as stated by METI, with solar panel prices actually rising due to a weaker yen.
If the total amount of approved renewable energy capacity, 68.6 gigawatts, was all brought online it would lead to an annual increase in costs of 1.9 trillion yen ($18.66 billion), says the Central Research Institute of the Electric Power Industry, which is run by Japan’s regional power monopolies.
Some in the solar sector dismiss the cost estimate, saying Japan will never build all 68.6 gigawatts of renewable energy.
“METI is working to regain the power and credibility it lost after March 11 with polices like these that marginalize renewables in order to emphasize industry-friendly energy sources, like nuclear,” said Tetsunari Iida, executive director of Japan’s Institute for Sustainable Energy Policies.
More approvals pulled?
In August this year, Japan’s government began investigating whether solar power projects approved in fiscal 2013 were moving ahead as planned, signaling some of them may be cancelled.
In a previous investigation of projects approved in fiscal 2012, at least 165 were canceleld or abandoned with some of them failing to secure land and equipment, Nobuhiro Watanabe, an official in charge of promoting clean energy at the Ministry of Economy, Trade and Industry, said.
As of the end of March this year, Japan had approved 65,726 megawatts of solar projects since July 2012. Of that, only 13 percent, or 8,715 megawatts, is operating, ministry data show.
The ministry plans hearings for 22 projects and about another 330 have until the end of August to report on their status, he said, in reference to fiscal 2012 approvals.
The ministry put in place a six-month deadline for solar projects to secure land and equipment for approvals beginning next month.
Brighter horizons
Meanwhile, Deutsche Bank AG plans to lend about $1 billion for Japan solar projects, joining Goldman Sachs Group Inc. in funding cleaner energy as the government struggles to restart nuclear power plants after the Fukushima disaster.
The bank is ready to provide financing for three to six projects in the next 12 to 18 months, said Hans Van Der Sande, director of Deutsche Bank’s structured products group at its Tokyo branch in July. The Frankfurt-based lender agreed last month to provide a 11.1 billion yen ($109 million) loan for a solar power project on a former golf course north of Tokyo to be operated by a unit of Spain’s Gestamp Renewables Corp.
Japan may yet add the most solar power capacity in the world this year, according to Bloomberg New Energy Finance, as a two-year-old incentive program attracted investors including Goldman Sachs. Even so, renewable energy accounts for less than 11 percent of its total production, compared with 31 percent in Germany, leaving the nation reliant on fuel imports after the closure of all of its atomic reactors and contributing to 23 straight months of trade deficits.
“Every time a country implements these very, very attractive standards you have a gold rush and that gold rush started two years ago,” Van Der Sande said in an interview. “Now the water is kind of pulling back, smaller people are leaving and the real players are staying.”
Lending rates
Deutsche Bank declined to disclose the interest rates for the solar loans. The average new lending rate in Japan was a record-low 0.779 percent in May, according to central bank data. Average interest margins on dollar lending in the Asia-Pacific region outside of Japan were 2.35 percentage points so far in 2014, according to data compiled by Bloomberg.
“We got reverse inquiries from some of our clients offshore saying ‘we are interested in Japan solar and developing projects there but having difficulty getting finance from Japanese banks,'” said Van Der Sande. Local banks tend to require that project sponsors use Japanese solar panels that international operators don’t want to use because they are more expensive, he said.
Unprecedented BOJ stimulus to overcome deflation has lowered interest rates in Japan. The benchmark 10-year yield has dropped 24 1/2 basis points, or 0.245 percentage point, to 0.55 percent since December 2012 when Prime Minister Shinzo Abe came to power calling for an expansion of monetary easing.
The yen has weakened 15 percent during the period to 101.85 per dollar as of 3:58 p.m. in Tokyo, making it more expensive for Japan to buy fuel from abroad.
At least three of 12 solar power plants that Goldman Sachs helped organise through investor funding are producing power, according to Toru Inoue, a vice president at the U.S. bank’s Infrastructure & Structured Financing Group in Japan.
Insurance companies have invested in bonds arranged by Goldman Sachs and sold by special purpose companies established for the purpose of funding solar deals, Inoue said. Two projects in Japan’s northern Miyagi prefecture raised about 1 billion yen in funding through the sale of notes that carried either an A-or A rating from Japan Credit Ratings Agency Ltd., according to documents from Goldman Sachs.
The bonds carried a premium over similarly rated straight corporate debt because of the relative newness of the product and lower liquidity, he said. Investors want bigger deals and more liquidity, according to Inoue.
Megabank Deals
Mizuho Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. provided about 164 billion yen in funding for disclosed solar projects in Japan, or 89 percent of the total, as of May 23, according to Takehiro Kawahara, an analyst at Bloomberg New Energy Finance. He expects the nation to add 10,300 megawatts of solar capacity this year.
“While international investors have also been very keen to enter the Japan solar market, very few have been successful thus far,” said Kawahara. “While there is no legal barrier to entry, the large number of entrenched Japanese financial institutions make it difficult for international players without local partners to enter the market.”
The Japanese government’s subsidy program originally paid about triple the amount Germany extended for its solar industries.
Japan approved a cut in tariffs for solar power as a building boom meant the technology made up 97 percent of new renewable capacity since it offered incentives.
The upside of tariff cuts
As mentioned earlier, the tariff was reduced in April 2013 to 37.8 yen per kilowatt hour from 42 yen. Japan’s method of subsidy for the industry is similar to the program Germany, Spain and the U.K. implemented, offering an above-market rate for solar power.
Japan gave final approval in March for the 11 percent cut to 32 yen a kilowatt-hour for the 20 years from the fiscal year starting April and offered 36 yen for offshore wind, the Ministry of Economy, Trade and Industry said in a statement. Japan’s sales tax rose 3 percentage points to 8 percent in April and should be added to each rate from then, while the previous tariffs included the lower 5 percent rate.
Orix Corp. began building a 51-megawatt solar power plant on a former golf course in the western prefecture of Mie. The plant will start running in May 2016, the company said in a statement on 4th June.
The Tokyo-based finance and leasing company has been building large-scale solar power stations across Japan. The company said in April that 17 plants have started running with a combined capacity of 41.3 megawatts.
Mizuho Bank Ltd. and partners will provide loans for a 111-megawatt solar power station being built on the northern island of Hokkaido by SoftBank Corp.’s clean energy unit and Mitsui & Co., according to a statement on March 7. Development Bank of Japan Inc., Sumitomo Mitsui Banking Corp. and nine other institutions will also finance the project.
“Many of clients we talk to are talking to Japanese banks, but I think many of them are finding it difficult to believe that they will ever get financing there,” said Deutsche Bank’s Van Der Sande. “The Japanese banks are very busy making solar loans to their good Japanese clients.”
Masters of innovation
In another twist to the story, it has been recently revealed that Japan plans to to build an orbital solar farm. It’s been the subject of many previous studies and the stuff of sci-fi for decades, but space-based solar power could at last become a reality – and within 25 years, according to a proposal from researchers at the Japan Aerospace Exploration Agency (JAXA).
The agency, which leads the world in research on space-based solar power systems, now has a technology road map that suggests a series of ground and orbital demonstrations leading to the development in the 2030s of a 1-gigawatt commercial system-about the same output as a typical nuclear power plant.
It’s an ambitious plan, to be sure. But a combination of technical and social factors is giving it currency, especially in Japan. On the technical front, recent advances in wireless power transmission allow moving antennas to coordinate in order to send a precise beam across vast distances. At the same time, heightened public concerns about the climatic effects of greenhouse gases produced by the burning of fossil fuels are prompting a look at alternatives.
Renewable energy technologies to harvest the sun and the wind are constantly improving, but large-scale solar and wind farms occupy huge swaths of land, and they provide only intermittent power. Space-based solar collectors in geosynchronous orbit, on the other hand, could generate power nearly 24 hours a day.
Soon after we humans invented silicon-based photovoltaic cells to convert sunlight directly into electricity, more than 60 years ago, we realized that space would be the best place to perform that conversion. The concept was first proposed formally in 1968 by the American aerospace engineer Peter Glaser. In a seminal paper, he acknowledged the challenges of constructing, launching, and operating these satellites but argued that improved photovoltaics and easier access to space would soon make them achievable.
In the 1970s, NASA and the U.S. Department of Energy carried out serious studies on space-based solar power, and over the decades since, various types of solar power satellites (SPSs) have been proposed. No such satellites have been orbited yet because of concerns regarding costs and technical feasibility. The relevant technologies have made great strides in recent years, however. It’s time to take another look at space-based solar power.
A commercial SPS capable of producing 1 GW would be a magnificent structure weighing more than 10 000 metric tons and measuring several kilometers across. To complete and operate an electricity system based on such satellites, we would have to demonstrate mastery of six different disciplines: wireless power transmission, space transportation, construction of large structures in orbit, satellite attitude and orbit control, power generation, and power management. Of those six challenges, it’s the wireless power transmission that remains the most daunting. So that’s where JAXA has focused its research.
Whether that research becomes reality remains to be seen. Japan: it’s your move.
