The lessons of Europe show that those that get in early reap the most benefit before tariffs rates are cut. Of all the renewable energy types available in Japan today the quickest to set up on a utility scale is solar, said Dean Enjo, an analyst with CLSA Asia-Pacific Markets in Tokyo.
Sumitomo, a trading house with 5,810 MW of capacity worldwide, decided against investing in some advanced stage solar projects because of rising costs, Summit’s Kitamura said. Summit Energy operates two wind farms and three thermal generators in Japan, one of which can burn biomass.
Hamamatsu, a city west of Tokyo, last month said it received 23 bids for a project to build two solar plants with a total capacity of 3 MW.
The tender winners, which included Chubu Electric Power Co., agreed to pay “several times” the minimum land price set by Hamamatsu for the bid, Kuniatsu Suzuki, an official at the city’s new energy promotion headquarters said Sept. 25 by phone.
Though the effect is not yet felt nationwide, the amount of space solar plants need will push up land prices because suitable space is limited, said Takashi Ishizawa, the head of real estate research at Mizuho Securities Co.
With land prices falling in Japan for the last 21 years, according to the Ministry of Land, Infrastructure, Transport and Tourism, renewable energy investment may help the country in its fight against deflation that has dragged on the economy for decades.
“There are many players entering this business fighting for land and the competition will be pretty fierce from now on,” Kazunobu Watanabe, Chief Planning Officer of Japan Asia Group, said in a briefing in Tokyo. The company’s aerial land surveying unit provides it with leads from its network with local governments, he said.
The number of job openings in renewables almost tripled this year and most of that is due to “aggressive” demand from solar projects, said Kazuyoshi Ofuchi, owner of Tokyo-based Pathfinders Executive Search Co., which specializes in recruitment for the power industry.
Engineers and business development staff are being offered 20 percent more to join solar projects compared with similar industry positions as there’s a shortage of experienced talent, Ofumi said.
Billionaire Son’s mobile phone operator Softbank Corp. may already be hedging its solar bet. After unveiling in August an 230 MW renewable program that was almost 90 percent solar, Softbank said Sept. 14 it may add a 1,000 MW wind farm in Hokkaido, which would be the biggest in Japan.
The push into wind does not mean Softbank believes solar is in a bubble, company spokesman Naoki Nakayama said Sept. 25 by phone, adding that the details of the Hokkaido project are not yet decided.
“Some people may call it a bubble, but it’s not that simple,” Nakayama said.
While the relative ease of entering the solar business has invited a rush of different investors, wind power is mostly being developed by specialists in the field, Travis Woodward, an analyst with BNEF in Tokyo, said by phone.
Japan’s wind farm market is led by Sumitomo’s rival Toyota Tsusho Corp., a trading house that is diversifying away from car sales, according to a CLSA February report. Other players include Electric Power Development Co., also known as J-Power, Japan Wind Development, and Green Power Investment, which sold a 44 percent stake to Softbank last year.
The wind market allows developers to build larger projects and according to the Ministry of Environment offers greater potential capacity. The country could accommodate 280 GW of wind capacity onshore and a further 1,600 GW off the coast, compared to 150 GW of commercial solar power, the ministry said last year.
In the long-term, wind farms stationed off the coast may be a particularly strong area for Japan, CLSA’s Enjo said.
At present, windy areas in Hokkaido and northern Tohoku lack the transmission capability to reach high-demand areas such as Tokyo. In using more renewable energy, Japan will need to spend 5.2 trillion yen on building and upgrading transmission and distribution grids, according to government estimates.
“Unlocking the potential to make money means securing grid capacity for wind and that’s limited by the utilities,” BNEF’s Woodward said. “An upgrade and more unification of the Japan grid will open more opportunities.”
The cost of wind power generation is estimated between 9.9 yen and 17.3 yen and offshore wind parks between 9.4 yen and 23.1 yen, government estimates show. Solar plants are the most expensive electricity source in Japan, costing between 30.1 yen and 45.8 yen per kilowatt hour.
The higher cost gives solar almost twice the 23.1 yen per kilowatt-hour guaranteed for wind. And yet, the wind tariff is based on an 8 percent internal rate of return, while solar is based on 6 percent, government data show.
As in solar, Japan’s tariff for wind is the most generous in the world and 43 percent higher than that of next-best Italy. The U.K. offers less than half and China about a third, according to BNEF’s Aug. 14 wind market outlook report.
Three Year Window
By the end of 2016, Japan may have 7.6 GW of wind capacity, CLSA estimates. The estimate for solar is 17.3 GW by the end of 2014, including residential panels.
Despite greater regulation in the wind industry, the three year window Japan set for projects to receive feed-in tariff approval is stimulating investment, Summit’s Kitamura said.
Summit Energy is planning a wind farm in Ibaraki north of Tokyo that will be an 18 MW add-on at its 20 MW site in the town of Kashima, according to the company’s environmental impact report submitted to the local government.
The Sumitomo utility will also develop a 29-MW wind farm in Oga, Akita prefecture, that’s due to start operating in December 2014, the company said in a Sept. 28 statement.
“There will be a flood of applications trying to lock in the good rates before they expire,” CLSA’s Enjo said. “If there is to be a big bubble it would be in the year before everybody knew that these rates would drop heavily.”
Copyright 2012 Bloomberg.
Lead image: The Itsukushima "Floating" Torii Gate off the coast of the island of Miyajima, Japan via Shutterstock