Developers, manufacturers, investors and other renewable energy industry stakeholders need to know where the next big market is going to be so that they can adjust their business decisions accordingly.

Since 2003, global consultancy Ernst & Young has released its Country Attractiveness Indices, which gives a numerical ranking to 30 global renewable energy markets by scoring renewable energy investment strategies and resource availability. The indices are updated on a quarterly basis and the most recent report can be found here.

Here is the firm’s assessment of Japan.

Policy

Japan currently utilizes a Renewables Portfolio Standard (RPS) to encourage renewable energy development. The RPS was introduced in April 2003 with the aim of generating 12.2TWh per annum from renewable sources by 2010, equivalent to 1.35% of national electricity sales. In 2007, this was increased to 16TWh (1.63%) by 2014. Electricity suppliers can meet their RPS obligations via self-generation, purchasing renewable electricity from other suppliers, or purchasing a tradable REC.

In late October, the Japan Bank for International Cooperation announced it has set aside US$4b (€2.8b) to invest in renewable energy and carbon projects in the two years through to March 2013 to help Japan offset its emissions.

Historical power tariff trends

In July this year, the Agency for Natural Resources and Energy (ANRE) updated its annual survey on power tariffs for renewable energy under the RPS Law:

Trend in weighted average power tariffs (units: JPN(€¢)/kWh)

Solar

In November 2009, the Ministry of Economy, Trade and Industry (METI) introduced a new regime for the off-take of solar electricity. Power utilities are required to purchase excess solar electricity for 10 years at a fixed tariff of JPY25 (€0.22)/kWh for non-residential and residential installations above 10kW. Residential installations below 10kW attract JPY48 (€0.42)/kWh. These tariffs are expected to be reduced gradually by installment year.

According to Fuji Keizai, a Japanese market research firm, these solar subsidies will help Japan’s solar cell market to nearly quadruple its 2009 level to JPY487.1b (€4.3b) by 2020.

Current installed capacity

In early October 2010, ANRE published its survey on installed renewable energy capacity accredited under the RPS Law as of 31 July 2010 as follows:

New regime guidelines

In August, METI published new guidelines which aim to add 32GW-35GW of RE capacity and create a renewable energy market worth JPY10t (€8.7b) by 2020. These guidelines are part of METI’s broader aim to investigate a new RE incentive scheme for Japan, including a review of the scope of offtake for electricity generated from renewable sources. The guidelines include a proposed tariff of JPY15-JPY20 (€0.13- €0.17)/kWh for 15-20 years, except solar and mini-wind which are for 10 years. It is also proposed that tariffs are set higher in the earlier years, and will be reduced gradually by installment year.

In June, the Japan Wind Power Association (JWPA) published its own views on the new incentive regime to METI. The JWPA noted that the current RPS roughly equates to a 17-year off-take at JPY16 (€0.14)/kWh, however, it recommends a 20-year off-take with a JPY20-JPY24 (€0.17-€0.21)/kWh incentive in order to satisfy a minimum pre-tax project internal rate of return (IRR) requirement of 7.5%. The JPWA also recommends the establishment of a mid-term wind target capacity of 11GW by 2020.

For more information on renewable energy development in Japan, contact the report’s author Takashige Saito.