Japan's proposal to cut the price paid for solar power by 10 percent leaves in place incentives for a boom in installations this year, the industry's lobby group said.

A committee of experts advising the Ministry of Economy, Trade and Industry last night recommended the price for solar power should be cut beginning April 1, and the payment for wind should remain unchanged. The government must endorse the proposal before it comes into force.

Investments on non-residential solar projects totaled 222 billion yen ($2.3 billion) in Japan last year, adding 580 megawatts of capacity, according to an estimate by Bloomberg. Spending this year is expected to rise to 438 billion yen for 1,460 megawatts, Bloomberg New Energy Finance forecasts.

“The solar market is expanding, and we don’t think the proposed tariff would change the trend much,” Hisao Kayaoka, secretary general of the Japan Photovoltaic Energy Association, said by phone. “The proposed tariff will allow for continued growth in the market.”

The association’s member companies include units of Suntech Power Holdings Co. Ltd, Kyocera Corp., Solar Frontier K.K. and Sharp Corp., which all make solar panels. The utility Kansai Electric Power Co. also is a member.

Japan’s introduction of incentives in July enticed panel makers such as Kyocera Corp. to begin building solar stations and encouraged new entrants such as Softbank Corp., a mobile- phone provider, to develop solar plants.

Plunging Prices

The cost of solar equipment has fallen so much that officials say incentives can be cut without squeezing development plans amid a push to diversify sources of energy after the nuclear meltdown in Fukushima.

Prices for silicon-based solar panels sank about 20 percent in the past 12 months, according to data compiled by Bloomberg. Solar capacity, including both residential and non-residential, rose 29 percent in Japan from April to November as developers added 1,398 megawatts of installations to a base of 4,800 megawatts, according to trade ministry data.

The average system cost for non-residential solar has fallen 14 percent to 280,000 yen per kilowatt since October compared with the amount used by the committee to set the solar tariff for the year ending March 31, according to the ministry.

Recommended Rates

“Japan is emerging as a strong new leader driven by growth of commercial project installations,” said Shawn Qu, chief executive officer at Canadian Solar Inc., an Ontario-based solar-panel company with manufacturing operations in China.

Even at the reduced rates, Japan’s support for solar is about three times the incentives offered in Germany and China, two countries that are among the biggest markets for the technology. Japan is likely to be one of the top three markets this year, according to BNEF.

The committee said the feed-in tariff guaranteeing above- market prices for solar energy should be cut to 37.8 yen per kilowatt hour for 20 years for applications from April 1. The current rate is 42 yen. The new rate is in step with an estimate from Bloomberg New Energy Finance that the rate of as low as 37 yen would still provide an incentive for developers to build new plants.

New rates for projects bigger than 10 kilowatts “remain attractive enough” since they will provide a 6 percent rate of return for developers, said Yugo Nakamura, an industry analyst at Bloomberg New Energy Finance in Tokyo. “We would, though, see slower applications in the second quarter 2013.”

Wind Impact

The panel is led by Kazuhiro Ueta, professor of environmental economics at Kyoto University. Toshimitsu Motegi, Japan’s minister of economy, trade and industry, must approve the recommendation for it to take effect.

Feed-in tariffs will be passed on to consumers as surcharges. The trade ministry estimates that it will total 120 yen a month after new tariffs are introduced compared with the current fee of 87 yen for an average household.

The panel also recommended the tariff for wind projects remain at 23.1 yen per kilowatt hour for 20 years. The Japan Wind Power Association said it welcomed the proposal.

“The current tariff is the minimum level necessary to develop wind projects in Japan,” Tetsuro Nagata, president of the wind association, said in an e-mailed statement. “If the tariff is to be kept at the same level, we welcome the decision. There remain major issues such as grid connection and deregulation, but we want to further expand wind power taking advantage of the tariff, to be held at the same level, for the second year.”

Pricing Review

The wind association’s members include Eurus Energy Holdings Corp., a project developer; Mitsubishi Heavy Industries Ltd., which makes turbines; Kajima Corp., a contractor; and Siemens Japan K.K., a unit of the German wind turbine and electrical equipment maker Siemens AG.

The government panel recommended keeping tariffs at current levels for the four other types of renewable sources covered by the program, saying it lacked enough examples of new projects to review pricing.

For geothermal, the panel suggested 27.3 yen per kilowatt hour for plants with capacity of 15,000 kilowatts or larger, and 42 yen for smaller plants, both for 15 years.

The government panel also recommended keeping the tariff for small hydro at 25.2 yen to 35.7 yen per kilowatt hour for 20 years depending on plant size. For biomass, tariffs of 13.65 yen to 40.95 yen per kilowatt hour for 20 years were proposed, depending on type of fuel used.

Copyright 2013 Bloomberg

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