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“PV with Lot” Sales: A New Form of Personal Investment in Japan

In the United States, community solar is a growing phenomenon. Those who live in an apartment or don’t have suitable roofs or land are able to invest in, and benefit from, a larger project. In Japan, investing in a “PV with Lot” is becoming popular among individuals who don’t own land and wish to generate extra income from the nation’s feed-in tariff (FIT).

PV with Lot projects are popping up everywhere and individual investors can pick any site, independent from the location of their primary residency. This is similar to solar securitization and solar crowdfunding as an individual investment tool for solar, but it is different because individuals have actual ownership over solar projects.

Photo of 324-kW ground-mount system by Nippon Ecosystem

Project developers market PV with Lot investment to individuals such as retirees seeking supplement income and large saving account-holders looking for a high-yield investment.  Expected return on investment (ROI) from a PV with Lot ranges from 8 percent to 10 percent, and homeowners can receive a better ROI on a PV with Lot than PV on their own roofs. 

When homeowners install solar systems on their rooftops, they receive a FIT rate of ¥38/kWh only on excess generated electricity for 10 years. Those who invest in a PV with Lot, however, can receive the same rate on “all” electricity generated for 20 years.

Hitting the Sweet Spot

PV with Lot investments are ideal for systems sized below 50 kW.  Under the current national regulations, PV systems sized under 50 kW are connected to low-voltage distribution lines while systems sized between 50 kW and 2 MW are connected to high-voltage distribution lines. A fast-track, or simplified, interconnection process is available for systems no larger than 50 kW, providing minimum time required for an interconnection to be reviewed and approved.  

“The short project development time is very beneficial for both developers and customers (investors),” said Hiromi Ishihara of Asglad Communications, a solar project and real estate developer.

Besides the processing time, interconnecting systems below 50 kW cost significantly less than larger systems. According to one large project developer, it only costs ¥600,000-¥700,000 ($5,800-$6,800) to interconnect solar systems to low-voltage distribution lines, compared to ¥2.4 million ($23,350) for high-voltage distribution lines.

Due to the fast and low-cost interconnection procedure, many developers or system integrators have found systems sized below 50 kW as sweet spots.

In fact, these developers not only develop systems just below 50 kW, but also much larger systems, ranging from 100 kW or 400 kW, but they divide a large system into multiple, smaller systems (less than 50 kW). For example, a 150-kW system is created, but instead of interconnecting the 150-kW system to high voltage lines, three 50-kW systems are connected individually to low voltage lines and each system sold with land to personal investors. With this business model, developers can take advantage of the economic scale of procuring and building larger systems, without being restricted by the interconnection regulations for larger systems. 

More than PV and Lot Sales

To develop PV with Lots, project developers must first find land. They solicit and ask landowners whether they wish to sell their under-utilized or idle lands. Developers look for inexpensive, reasonably flat lands with good solar irradiance and easy access to the grids to minimize the initial development cost. Once a location is identified, developers negotiate and purchase lands, submit interconnection requests to appropriate utilities, install a PV system, and complete a grid connection.

Some developers offer a plain-vanilla product, which is a piece of land with an interconnected and operational PV system.  Eco-Style, a PV installer, has s approximately 50 PV with Lot projects all over Japan.  One of the projects, a 54-kW-DC project installed at Takasaki-city, Gunma Prefecture, was sold at ¥11.9 million (US $174,500) or ¥332/W (US $3.23/W) for a PV system and land.

Other developers, similar to third-party ownership service providers in the U.S., offer operation & maintenance (O&M) services such as scheduled maintenance and inspection, remote monitoring, repairs, and also insurance against natural disasters and thefts.  Most of these services are included as part of the initial PV with Lot sales.  Nippon Ecosystem, one of the largest solar system turnkey providers, builds perimeter fencing that enclose solar systems to protect them from vandalism as an additional security measure. The company also offers a lawn mowing service so that the grass on the ground won’t shade ground-mount PV systems. The company charges about 5 percent of customers’ FIT annual revenues as O&M fees.

For example, Nippon Ecosystem developed a 408-kW (DC) PV project in Kumamoto Prefecture, where it is known to have a high solar irradiance.  The company created 8 individually-interconnected, small systems out of the project. One system sized 49.5-kW (AC) is expected to generate about 55,000 kWh of electricity annually and its system owner will earn ¥2.3 million ($22,400) by selling electricity to a local utility. Based on the agreement, the company assesses an annual fee of ¥120,000 ($1,170) to keep the customer worry-free. VitalForce, a project developer, charges ¥150,000 ($1,460) a year on inverter replacement, module washing, and lawn mowing for its PV with Lot product.

Earth-Com, a solar system turnkey provider, offers the industry’s first performance guarantee for the PV systems it sells. If its customer’s system doesn’t produce the expected amount of electricity due to system failures, the company will compensate customers for their lost revenues for up to six months.

Tax Treatments for Personal Investment in Non-residential Systems

There are a few different tax treatments on owning a solar system located somewhere other than a roof.  While rooftop PV owners do not have to pay property taxes on their systems, PV and Lot system investors are taxed, which is an average rate of 1.4 percent.

Certain individuals, however, can take advantage of the federal “Green Tax Credit” on the purchase of a non-residential PV system. This tax credit provides a special first-year bonus depreciation equivalent to 30 percent of the acquisition price, provided that investors acquire solar systems between June 30, 2011 and March 31, 2014 and the system commences business operation within one year of the acquisition date.

Since owning a lot produces a property tax burden, to reduce tax payments, Earth-Com and other developers offer an option to purchase a PV system with “leased Lots.” Normally land leases last for 20 years — equivalent to the terms of the FIT. L&S Co, for example, is selling a 49.6-kW PV system in Nagasaki prefecture with a 20-year land lease at ¥21 million ($204,600), with an O&M service (including the 1st year maintenance, remote monitoring and 10-year insurance against natural disasters).

Many project developers are busy securing suitable lands, because the FIT rate is expected to go down by about 10 percent to ¥32-34/kW in April 2014. Investors are also rushing to secure the current rate. PV with Lot sales are changing the market dynamic for solar — from electricity generation for on-site consumption to off-site revenue generation. 

Photo of 390-kW Ground-mount system by L&S Co.

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