On April 25, chairperson of the Purchase Price Calculation Committee, Professor Kazhiro Ueda, announced proposals for the new FiT program expected to start in July. Jefferies, global securities and investment banking group, has released a report in support of the government’s proposals to develop solar PV on a grander scale. However, the report also highlights that many manufacturers, too much involved with Europe, may lose out on investment opportunities in the emerging market in Asia.

Jefferies confidence in the Japanese FiT is as a result of the following:

1. Investors do not appreciate that Japanese solar IRRs have the potential to be the largest globally at <20% which should allow a fast growing market

2. On the heels of the new FIT, a new master energy plan is being revised in Japan and it may target up to 100GW of cumulative PV capacity by 2030, from 4.7GW installed at the end of 2011

3. Japanese installation and panel prices are the highest globally

The report states, “We estimate Japan will grow to over 10% of the global market from 5% of the total today. In the past year, we have seen new subsidy programs develop in China, Japan and soon to be Saudi Arabia, which gives us further optimism for 2013+ market outlook."

Even with the new policies approaching implementation, there remain a few changes in the market the government will need to make and promote in order to attract the all-important investors. The focus on the residential market increases costs, which are already high and discouraging rapid growth. Competition needs to be encouraged, especially in such a closed environment like the Japanese market, in order to keep prices low. Japan may also need to introduce easily accessible financing, similar to that offered by kfw in Germany.

The pre-Fukishima plan for Japan’s energy mix by 2020 was 45.4% nuclear, 20% renewables, 22.8% thermal and 12.1% co-gen. Japan’s favoured power generation method, nuclear, is hoped to be reduced to a maximum of 35% and a minimum of 0%. Renewables will capture some of this share with proposals ranging from 20-35% of the total energy mix, with PV proposed to encompass 57.2B kWh to 120B kWh which would be an installed base of 52GW-110GW (assuming solar irradiance of 1100 kWh/m^2-year). In either scenario, this is a significant market opportunity. The Japanese Ministry of Economy, Trade and Industry expects the country to spend US$37 billion to substitute gas and oil to make up for the short fall of nuclear power generation. METI has estimated that electricity prices will rise by 20%.

The government’s FiT rates will introduce >10kW (non-residential) at 40 yen/kWh (US$0.50/kWh) for 20 years, with a separate consumption tax as discussions in favour of a tax remain ongoing. <10kW (residential) will be 42 yen/kWh (US$0.52/kWh) for 10 years, including a tax and an FiT for any excess power production. However, if a leasing model system is applied, it will receive the entire FiT and no self-consumption tax.

Japan has also announced the extension of the current solar FiT for the period of April to June. Currently the FiT is US$0.55/kWh (<10kW) and US$0.52/kWh (>10kW) with a system cap of 500kW (expected to be removed with the implementation of the new legislation) and a self-consumption residential model. Specific details on financing and eligible PV plants have yet to be introduced. The report states that it is uncertain at this time if local content rules will be implemented.

The FiT will be effective from July 1, 2012 to March 31, 2013. The committee will review the tariff from April 2013.