Japan: Where solar is the new black

On the one year anniversary of the Fukushima disaster last year I took a look at how the world’s third largest economy was going to have to transition to a new energy economy.  To put that in perspective consider a few facts about Japan’s energy use:

1) In 2010 it got 82 percent of its energy from oil, coal and natural gas.

2) Japan is the largest importer of liquefied natural gas (LNG) in the world, holding 33 percent of the global market. Imports have risen quickly post-Fukushima due to shutdown nuclear plants.

3) Pre-Fukushima the country was the third largest producer of nuclear power, getting 13 percent of its energy from nuclear. Nuclear had so much support in Japan because the country has so little of its own fossil fuel reserves.

While there have been arguments back and forth about whether nuclear would creep back into Japan’s energy mix, the situation got more controversial last week when the government effectively took over the management of the Fukushima nuclear plant from Tokyo Electric Power after it emerged that a tank contaminated with irradiated water was leaking.

The negative headlines will push at another question: Could clean energy, and solar in particular, be a meaningful long term solution for Japan? Japan has instituted an ambitious feed-in-tariff for renewable energy and a recent National Geographic in-depth story speculates that the incentive program could push Japan past China and Germany as the number one solar market. The feed-in-tariff is itself an amazing indicator of just how expensive energy is in Japan, guaranteeing 43 cents per kilowatt-hour for solar power. Most Americans pay between 5 and 10 cents per kilowatt-hour for residential power.

But where’s all that solar going to be installed in land strapped Japan? Japan already has a very high population density equal to 351 people per square kilometer per 2011 figures. Compare that to the United States (35 people/square km) or China (144 people/sq km).

Hokkaido has emerged as one hot spot, with a quarter of projects approved being slated for the area. But Hokkaido accounts for just 3 percent of electricity demand in Japan. In order to make the projects work, it’s likely we’ll see further long distance energy transmission, possibly high voltage direct current (HVDC), a technology that could further unlock the renewable energy economy. National Geographic also reports the world’s largest battery is being planned in Japan.

Domestic photovoltaic module shipments in Japan are up 271.3 percent versus 2012.  IHS has come out and predicted that Japan will surpass Germany and become the largest solar PV market by revenue this year. The first quarter saw 1.5 gigawatts installed versus 0.4 gigawatts during the same period last year. All of this is happening during a time when IHS sees only 4 percent growth for the global solar PV market.

This picture starts to explain why a company like First Solar, which recently acquired thin-film startup TetraSun in order to take a stab at the residential solar market, sees Japan as the first location to market the new technology. When competing against Japanese retail electricity rates around 20 cents per kilowatt-hour, rooftop solar looks pretty attractive.

There are, no doubt, hurdles here related to availability of land and grid infrastructure. Japan may end up proving to be an important case study in long distance energy transmission. Some dreamers like Masayoshi Son, billionaire founder of Softbank, have even called for a pan-Asian smart grid connected by underground cable. Deregulation should also be considered at some point for Japan as many have argued that regional monopolies are one of the reasons power is so expensive there.

Finally, Japan will also likely face the same subsidy instability that has impacted every market where solar developers venture. The tariff has already been lowered by 10 percent and is subject to annual review. But with prices for solar power continuing to fall, electricity rates sky high, and generous subsidies, Japan’s energy mix could look very different in a decade. All it took was one nuclear disaster.









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Adam Lesser

Analyst Gigaom Research

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