IN DEPTH: The lure of Japan

Japan’s PV market has always been something of a walled garden to foreign companies — exotic and alluring, but mostly off limits.

This was true in the 1990s, when Japanese electronics behemoths such as Sharp, Kyocera and Sanyo transformed into world-class PV manufacturers on the strength of their home market; and it was equally true just a few years ago, by which time the Japanese market had become a backwater compared to Europe.

Yet over the past year the picture has changed dramatically.

In what feels like the blink of an eye, Japan has re-emerged as a PV market of worldwide significance. And today nearly every globally active module maker is selling into Japan.

The landscape within Japan’s PV circus is changing week by week, and it will take another year or two for the dust to settle. But it is already clear that this unprecedented internationalisation of the Japanese solar market will have deep and lasting consequences — both for Japan’s own cosseted clique of solar manufacturers and for the global PV industry as a whole.

Most of the same barriers that kept foreign companies at bay — the zoo of local certification standards, byzantine sales channels, an aversion to foreign brands (especially Chinese) — remain in place even today.

What has changed is the magnitude of the incentive for foreign companies to break those barriers down, whatever the cost.

Much of the newfound lust among foreign module suppliers for the Japanese market has been rightly ascribed to the generous feed-in tariff (FIT) Japan implemented in July 2012, in response to the Fukushima nuclear disaster. Average selling prices for modules — and therefore margins — are higher in Japan than anywhere in the world.

Less widely appreciated, but equally important, was the timing of Japan’s adoption of the FIT, coming as it did in the midst of an historic crash in the global PV industry’s profitability.

With the European PV sector in meltdown in 2012, and emerging markets elsewhere not yet ready to take up the slack, the sudden introduction of Japan’s FIT meant that the very real headaches associated with breaking into Japan suddenly seemed far more palatable to many foreign PV companies. For some it has probably meant the difference between life and death.

The fortunes of many global PV companies have rebounded sharply over the past six months, and the relevance of the Japanese story to the industry turnaround can scarcely be overstated.

Take Hanwha SolarOne, a China-based module supplier, which derived 0.2% of its revenues from Japan in 2011, and 6.7% in 2012. By the most recent quarter, that figure had leapt to an astonishing 46%, making Japan by far the company’s most important market.

ReneSola, another China-based supplier, has announced a string of major wins in Japan since opening a subsidiary there a year ago — culminating last month in a 420MW order from a local developer of utility-scale projects. To put the magnitude of that order into context, the single largest deal ReneSola announced last year was a 70MW sale in the UK.

The desire to gain market share in margin-rich Japan has led many foreign companies to pivot dramatically from their normal mode of business.

Many Chinese suppliers — including internationally recognised brands — have broken into Japan by selling modules to respected local PV companies, which in turn re-label the panels for sale in the brand-obsessed Japanese market.

But Western companies, too, are willing to go to unusual lengths to succeed in the Land of the Rising Sun.

SunPower, based in California, began negotiating a module-supply deal with Toshiba in 2004, the year after it began commercial production. That deal was finally struck in 2010.

“It took quite a while,” Howard Wenger, SunPower’s president for regions, tells Recharge. “It was a process of getting to know each other, to trust each other — for them to trust our technology.”

SunPower’s patience, however, has been richly rewarded. In its most recent quarter, roughly one quarter of SunPower’s modules went to Japan, where it now commands nearly 15% of the lucrative residential market.

Under the deal with Toshiba — which was recently extended to 2018 — SunPower panels in Japan are branded as “Maxeon”, with many customers assuming that they are made by Toshiba.

The arrangement is “unusual for our company”, Wenger acknowledges. But it makes sense because while Japan may play by its own rules, it represents a “strategically important market” for SunPower.

First Solar is another Western company bending itself into unfamiliar positions to crack the Japanese market. Late last year, the US company unveiled plans to invest $100m in developing ground-mounted PV plants in Japan — seemingly very much in line with its standard modus operandi.

Shortly afterwards, however, First Solar revealed that its first project will tip the scales at just 1.4MW, a mere pebble on the beach compared to some of the monsters it is building in its home country, such as the 290MW Agua Caliente and the 550MW Topaz.

Most of Japan is populated, mountainous or in agricultural use. That means its utility-scale market will require a very different approach, notes Karl Brutsaert, left, a business development director for First Solar who was transferred less than a year ago from India to open the company’s first Japan office.

“You’re just not going to be able to build a 550MW plant the way you can in the US,” Brutsaert tells Recharge.

Unusually for First Solar, it will contract out EPC work for its projects to local construction companies — a reflection of the challenges of operating in Japan’s downstream theatre.

Most striking of all is First Solar’s 2013 acquisition of TetraSun, a start-up focused on high-efficiency crystalline-silicon (c-Si) cells, from Japan’s JX Nippon Oil & Energy. The deal — First Solar’s first departure from its core cadmium-telluride thin-film technology — represents one of the biggest strategic changes the company has ever made.

Slated to enter commercial production during the second half of 2014, TetraSun’s c-Si modules will allow First Solar to compete far more effectively in the rooftop market, where conversion efficiency is critical.

Eventually the company intends to target other countries with its TetraSun modules, too. But “initially [they’re] ideally suited for the Japanese market and will be focused here”, says Brutsaert.

One consequence of Japan’s PV renaissance for the global sector has been the kick-starting of a new round of factory expansions after several years of bankruptcies and painful retrenchment.

SunPower, for one, could easily sell more modules into Japan at present. But with its factories already running at full throttle, doing so would mean starving other important and growing segments of the business.

That tightness of supply — driven in large part by Japanese demand — was behind SunPower’s recent announcement that it will expand its cell production, probably in the Philippines.

Another example is Trina Solar, which cited Japanese demand as one of the chief drivers behind its recent decision to acquire a module factory from a smaller rival in China, which it will ramp up to 500MW this year.

If this PV party has been kind to many international players, it has been even more memorable for Japan’s own stable of solar manufacturers — all of which are profiting richly. Yet it is the latter group that will suffer the worst hangover when Japan’s FIT rates tumble back to earth, as they inevitably will.

A few years back, Japan’s PV manufacturers appeared worryingly uncompetitive compared to their Chinese rivals — much like many now-disappeared Western companies. They were perhaps spared only because of the sclerotic decision-making processes endemic to the vast conglomerates of which they are a part.

Few in the PV industry would have been surprised, for instance, if several years ago Sharp had simply pulled the plug on its solar business — as it recently did on its long-standing module plant in the UK.
 Japan’s fiery demand for modules is at present sufficient to soak up everything the local players can produce, and then some. To their credit, several Japanese PV giants have deftly embraced the business model of them largely re-labelling foreign modules.

But with high-quality foreign players such as Yingli, REC Solar and Hanwha Q Cells rapidly growing their sales in Japan under their own brand names, it is inevitable that many Japanese manufacturers will begin to struggle again, even in their home market.

“If you took the Japanese end market out of the global picture, then you’d be really hard pressed to see how a lot of the Japanese guys could make it,” says Finlay Colville, vice-president for market researcher NPD Solarbuzz.

Even at home, the party “absolutely can’t” continue in the way it has for Japan’s PV manufacturers, Colville says.

“The Chinese want that market,” he says, and the advantage that Japanese companies currently enjoy in their domestic market is waning “on a month-by-month basis”.

What Japan’s PV renaissance has bought the country’s module makers is a bit of precious time.

For a clever few, the short-term breathing space created by Japan’s FIT offers a chance to regroup, recapitalise and rethink their strategy for the medium and long term — a strategy that must include foreign markets, in addition to fresh angles at home.

For others, the current boom may prove a last hurrah.

Kyocera is seen as the Japanese player with the lowest-cost c-Si modules. Coupled with a globally recognised brand, Kyocera would appear to stand a strong chance of thriving well beyond Japan’s current gold rush.

Panasonic — if it is able to drive costs down far enough at its Malaysia factory — also looks like a solid bet, given its unique technology.

Despite being the relative new kid on the block, Solar Frontier may have the most promising — if slippery to grasp — future of all Japanese players. Solar Frontier’s copper-indium-selenide thin-film technology has a long runway for further refinement and is largely uncontested in China — advantages many of its Japanese rivals can only dream of.

Meanwhile, Saudi Aramco’s partial ownership means Solar Frontier should never want for capital, and its connections in the untapped Middle East market — or at least Saudi Arabia — are unrivalled anywhere in the world.

So the notion that Japan’s venerable PV manufacturing sector will disappear entirely is almost certainly overblown.

When the grand history of the solar industry is written one day, the PV boom currently under way in Japan will probably warrant a thick chapter or two — as much for the companies it helped to save as for those whose lack of competitiveness it revealed in such brutal terms.