FIT has lit up Japan's solar landscape

Japan is an excellent advertisement for the advantages of feed-in tariffs (FITs). In the first 16 months of its 20-year FIT, the country added 5.86GW of renewables.

Solar has been the main beneficiary, accounting for 5.67GW, or 97% of the new renewables generation added between the introduction of the scheme in July 2012 and October 2013. The sector doubled virtually overnight, led by the explosion in non-residential PV, which leapt from a pre-FIT 900MW to 4.72GW.*

Historically, residential PV has comprised 80-90% of our national solar capacity. The sea of 3-5kW rooftop installations made Japan the odd man out in the international market, in which commercial-scale arrays dominate. The FIT changed all that. No longer was solar the preserve of individuals with a social and environmental conscience. Big business had got in on the act.

The tariffs announced in 2012 were set at a level that compared favourably with other countries. The government guaranteed ¥42 ($0.42) per kWh for non-residential PV and ¥23/kWh for a single onshore wind turbine larger than 20kW. Last year, the PV tariff was reduced to ¥37.8. The industry is braced for a further drop to ¥32 from April, but I expect expansion to continue this year, thanks to cuts in the cost of installation and modules.

That’s not forgetting the more than 24GW of certified facilities that had not started operation by the end of October 2013.

However, some experts say only 25-33% of those will go ahead. One reason is that some developers have, in effect, bitten off more than they can chew. Other companies try to keep the “good tariff” of the previous year, while delaying construction in the hope that the cost of installation will fall. The government is investigating cases of projects awarded at ¥40/kWh and then sold on to other developers. It may be years before construction starts, but as things stand now, the company that can eventually develop the project keeps the ¥40.

However, the biggest barrier is grid connection. Many viable projects are abandoned because developers cannot get their power to market, because of the limited capacity of the grid, or because they cannot afford to build the necessary infrastructure to connect to the local grid. The issue, which has hampered the progress of the wind industry, is now having a serious effect on solar.

Japan’s electricity utilities are still vertically integrated and form regional monopolies. They maintain an iron grip on information about and access to the grid. In addition, “long-term fixed power”, including nuclear, has priority dispatch. Even now, when all nuclear power stations are shut, nuclear is still included in transmission capacity, preventing green energy filling the gap.

This is absurd — not only for deployment of renewables, but also for the creation of a transparent, competitive market and efficient use of the grid. The government should remove the dead hand of the utilities and create an independent system under neutral management.

Even taking into account the grid issues, wind has had a difficult decade. National capacity is less than 2.6GW (4% as big as China) and in the first 16 months of the FIT, wind added barely 70MW.

One reason for this poor performance was the huge gap left by the scrapping of government subsidies in 2010, in anticipation of the introduction of the FIT in 2012. What that decision didn’t take into consideration was the two to three years needed to get a big wind farm up and running. Another reason is the introduction of more severe environmental impact assessments for wind farms of more than 7.5MW, which can cost up to ¥100m and add a further four years to the lead time. As a result, developers are thinking small, concentrating on projects of less than 7.5MW.

As you can see, a good FIT level is not a silver bullet that magically enables the deployment of renewables; we also need healthy, transparent political, business and social environments.

Power-market reform is fundamental, not only for renewables but also for other distributed energy systems (community power has become a vital issue since the 2011 tsunami). Liberalisation of the retail market is needed to give consumers the option to buy renewables. Transparent grid access will accelerate the entry of new producers.

Renewables development in Japan is just taking off in a big way. We mustn’t let a sclerotic system choke the industry in its infancy.

* The government classifies all PV facilities of more than 10kW as non-residential. All electricity produced from these facilities is bought by power companies; only surplus electricity from ­residential installations can be sold to the utilities and qualifies for the FIT.

Mika Ohbayashi is director of the Japan Renewable Energy Foundation

This piece was published as part of the Thought Leaders series. Recharge’s Thought Leaders Club brings together leading thinkers and participants from the renewable-energy sector to examine the key challenges facing our industry