Land of the rising solar

Thailand-based Banpu Power Plc is making a big push into renewable energy in Japan with projects such as the Ozenosato solar plant. Banpu Plc

Japan has been drawing a lot of attention and investment from foreign electricity generating companies, especially in solar power, where favourable regulations and substantial demand for green energy are driving activity.

The catastrophic Tohoku earthquake and subsequent Fukushima nuclear disaster in 2011 gave added urgency to an energy-reform programme that was already moving in a greener direction, albeit slowly.

Prior to 2011, around 30% of Japan's power came from nuclear energy but now the figure is less than 3%. That has created room for other energy sources to meet an insatiable appetite. The country of 127 million consumes almost as much electricity as India, home to 1.3 billion people.

With nuclear capacity greatly reduced, fossil fuels still make up 90% of Japan's total energy consumption. The country is the world's largest liquefied natural gas (LNG) and the third-largest oil importer. But under the 2015 Paris climate accord, it has committed to a 26% reduction in its greenhouse gas (GHG) emissions by 2030.

Experts say Japan's commitment to be greener has spurred more foreign direct investment (FDI) in renewable energy in recent years. It also helps that the government has curbed monopolies and removed many regulatory and technical barriers to investment.

"Renewable generation benefits from strong support by the Japanese government, and started with a generous feed-in-tariff mechanism for a wide range of technologies, creating a new market for investors in infrastructure in the aftermath of the Great Tohoku earthquake," Didier Holleaux, executive vice-president of the French utility Engie, told Asia Focus.

"It is now switching to a competitive renewable energy scheme starting with solar PV (photovoltaic), and potentially for other technologies to bring renewable energy generation more in line with the reality of the local market."

Before deregulation and liberalisation began in 2000, only 26% of the Japanese energy market was open to competition, and only for suppliers to large factories. The market has been fully liberalised since April 2016 for suppliers to all sizes of factories, commercial buildings, shops and households. However, regulated tariffs will remain an option for consumers until 2020.

The introduction in 2003 of Renewable Portfolio Standards (RPS), which obliged electricity sellers to use a certain amount of new energy sources, helped double the amount of power from renewable energy by 2009. The RPS was replaced by a feed-in tariff (FIT) programme in 2012 which in turn increased installed capacity of renewable energy by another 2.5 times, with solar taking the lead. Last year, Japan became the second largest solar power market in the world.

"The potential for renewable is still very important despite the fact that the market is maturing, especially in solar PV, biomass, and onshore and offshore wind," said Mr Holleaux.

Under the FIT programme, utilities are obliged to purchase electricity generated from renewable sources under fixed-term contracts at fixed prices. Consumers pay the purchasing costs in the form of an equal surcharge applied nationwide.

According to the UN Economic and Social Commission for Asia and the Pacific (Escap), the FIT scheme has been one of the most widely adopted subsidy-like policies to spur the uptake of renewable energy over the past two decades. China and India, along with five Asean countries, have used FIT to help promote the rapid development of solar and wind energy.

Japan revised its system last year to lower the price of solar power, which has experienced the biggest growth, while prices for geothermal, hydropower, biomass and other sources remained the same. Public pressure has also led to liberalisation of power generation and retail supply.

In the past, only 10 state-sanctioned entities were allowed to build power plants in Japan, but now anyone with a permit, including foreign companies, can enter the market.

According to the Japan External Trade Organization (Jetro), many foreign companies have already entered the upstream and downstream sectors of Japan's solar energy market. They include US-based First Solar, Hanwha Q-Cells of South Korea, Suntech Power of China, Wacker-Chemie of Germany, PV Crystalox Solar of the UK, Renesola from France, and Canadian Solar. About 43% of Japan's solar market is now in the hands of foreign players.

Banpu Power Plc (BPP), the listed electricity arm of Thailand-based Banpu, a major coal producer in Asia and Australia, is also in the solar picture and is now doing a feasibility study on power trading and biomass power in Japan. Banpu CEO Somruedee Chaimongkol says simply that the current regulations there are "good for investors".

"They are very clear and easy to deal with. There is also government support but some areas may take long time to deal with … such as land registration and grid connection, which is normal in Japan," she told Asia Focus.

BPP, which currently operates a combined 2,068 Megawatts in China, Japan, Laos and Thailand, expects to double the capacity of its Yamagata solar farms in Japan to 200MW by 2023. Overall, the company wants to increase its renewable capacity from the current 165MW to 1,000MW against an expected total capacity of 4,300MW by 2025.

Apart from Banpu, Global Power Synergy Plc (GPSC), the utilities arm of PTT Plc, and the state majority-owned refiner Bangchak Corporation Plc, are also developing solar projects in Japan.

"The investment cost is higher due to technology and local cost components but the returns will be as good as in other countries as tariffs in Japan are high enough to offset higher investment costs," Ms Somruedee said. "Government support and bank support are also better than in other countries; therefore the return is not inferior compared to others."

OTHER POTENTIAL

Engie is also bullish on Asia, said Mr Holleaux. The French company is developing wind farms in Australia and Mongolia, a geothermal plant in Indonesia, and investing in its microgrids, decentralised cooling and heating networks.

"There is a huge untapped potential of renewable energy such a geothermal, solar and wind in Asia. And, new, disruptive technologies will increase the uptake of renewable energy solutions, as prices drop below those of traditional energy sources," he said.

Myanmar is another promising destination. Green Earth Power (GEP) of Thailand is now building the world's third-largest solar installation there. The company is working with a Thai partner, Vintage Engineering (VTE), and Basic Energy Corp of the Philippines on a 220MW solar plant worth US$275 million on a 750-acre site in Minbu district of Magway Region. Construction is under way and is expected to be completed in 18 months.

The need is acute in Myanmar, where generating capacity is only 5,215MW to serve a population of 52 million -- 70% of whom lack reliable access to electricity -- compared with 30,000MW in Thailand with 68 million people.

The Myanmar government's Energy Master Plan published earlier this year estimates it will cost between $30 billion and $40 billion to meet a goal of 30,000MW of capacity by 2030. Solar, which accounts for only 16MW now, will be part of that mix, said Aung Than Oo, deputy electric power minister.

Hydropower accounts for 70% of electricity generation in Myanmar but capacity drops during the dry season.

Asia is currently drawing "the most attention in terms of potential clean energy investment", according to Joseph Jacobelli, a senior analyst at Bloomberg Intelligence. China, India, South Korea, Taiwan and Thailand are leading the field.

Other markets that people are watching closely are Australia, Indonesia and the Philippines which pose "some uncertainties in terms of policy execution", meaning that "they have not yet seen significant investment in clean energy" so far, he wrote in an email to Asia Focus.

Mr Holleaux said Asia today was still "only at the tip of the iceberg in the energy transition". Other potential growth areas include decentralised solutions to support the thousands of islands in Indonesia, and in Papua New Guinea.

Demand for electricity in Indonesia is expected to double over the next two decades. The government has committed to a renewable share of 23% by 2025, with total capacity rising to 80GW from 45GW today.

The Asian Renewable Energy Hub consortium (AREH), led by US-based InterContinental Energy, CWP Energy Asia and the Denmark-based global wind leader Vestas, is developing a 6GW hybrid wind and solar power plant worth $10 billion in Australia, aiming to export the electricity via subsea cables to Indonesia where it could power 7 million homes. It is scheduled to be completed in 2029.

Still, Mr Jacobelli points out that power is an expensive and risky business. Investors and financial institutions, he says, "want some visibility that a project's approval and construction can be smooth and that there are direct or indirect guarantees that [investors] will be paid for the life of the project.

"China and Thailand could be viewed as success stories in my view in terms of the amount of investment the two were able to attract, especially Thailand as the developers have less backing."

The Philippines is also doing well as 13% of its electricity comes from renewable sources excluding hydroelectricity, and investment in renewables in other areas has also increased.

In 2015, annual investment in the renewable energy sector in Asia Pacific was $179 billion -- nearly 10 times higher than in 2004. Investments in China alone rose from $3 billion in 2004 to $102.9 billion in 2015.

The Renewable Energy Country Attractiveness Index, which covers 40 countries, shows that China and India have overtaken the US as the top destinations for renewable energy investments, thanks to government policies.

China announced in January that it would spend $363 billion developing renewable capacity by 2020 to boost renewables to half of all new generating capacity and create 13 million jobs. It has also committed to cut greenhouse gas emissions by 18% per unit of economic growth by 2020 under the Paris agreement.

In India, the government plans to build 175GW of renewable generation by 2022 and to have renewables accounting for 40% of capacity by 2040. It has added 10 GW of solar capacity in the last three years.

"The general motivation for those countries with high carbon footprints, such as China and India, is decarbonisation," said Mr Jacobelli. "For some other countries having a more diversified fuel mix, less reliance on one single fuel -- such as gas in Malaysia, Indonesia or Thailand -- is the motivation."