The prospects for solar power just got a lot brighter in Japan.
That’s because earlier this week, Japan’s industry minister, Yukio Edano, unveiled an energy program that could unleash billions of dollars of clean energy investments and make the country the world’s second-largest market for solar power.
Edano said that on July 1, Japan will implement so-called feed-in tariffs that will require utilities to buy electricity from renewable sources at preset premiums for up to 20 years. Costs will then be passed on to consumers through higher bills.
That would normally be a problem, but in the wake of the Fukushima disaster, Japanese citizens are willing to pay a premium to put nuclear energy behind them for good. Additionally, policymakers see renewable energy as the only way to meet the country’s emissions reduction goals and duck the costs of oil and gas, which they believe will soar in the years ahead.
You see, prior to the Fukushima disaster, nuclear energy accounted for 30% of Japan’s power supply. But now, virtually all of the country’s nuclear plants have been shuttered, creating an energy vacuum.
For the time being, that void has been filled by fossil fuels, such as oil, gas and coal. In fact, the proportion of electricity Japan generates from fossil fuels has risen from 60% before the disaster to 90% now. Meanwhile, the proportion of electricity demand met by nuclear power could shrink from 30% before Fukushima, to as little as 0% to 15%.
But that’s simply not sustainable – especially since Japan has pledged to reduce its carbon dioxide emissions by about one-third by 2030.
The decision to employ feed-in tariffs was deemed the best way to address the burgeoning energy crisis.
Land of the New Rising Sun
Per the plan, utilities will pay 42 yen, or $0.53, per kilowatt-hour for solar-generated electricity. That’s double the tariff offered in Germany, which saw its solar industry triple output in less than a decade, and more than three-times the tariff paid in China. Residents who install solar panels on their homes will receive subsidies, as well.
The government estimates capacity from renewable energy will surge from 19,500 megawatts now to 22,000 megawatts in just nine months, as a result of the new tariffs.
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Furthermore, Japan’s Yano Research Institute says investment in the country’s solar power industry could more than double, rising to roughly $19 billion in fiscal 2015 from a little over $8 billion now.
Japan ranked sixth in the world in new solar installations last year, when it added 1.3 gigawatts to an installed base of 5 gigawatts. Next year, the country will triple that, erecting another 3.2 to 4.7 gigawatts, according to Bloomberg New Energy Finance.
That has created a huge opportunity for solar companies, which have struggled of late.
Some of the companies looking to get in on Japan’s solar boom include Kyocera and Panasonic, as well as Yingli Green Energy Holdings (NYSE: YGE), West Holdings Corp. (PINK: WSTHF) and Sekisui Chemical Co. (TYO: 4204).
Yingli, which is based in Baoding, China, has already set up a unit in Japan. And the Kyoto-based Kyocera plans to start construction on what will be Japan’s largest solar power station – a 70-megawatt plant in Kagoshima Bay – next month. The plant will provide enough electricity to power roughly 22,000 households annually and, by replacing power generated from fossil fuels, would offset around 25,000 tons of carbon dioxide.
Meanwhile, Panasonic aims to boost supply to its home market by shipping solar panels from a new plant in Malaysia as soon as December. Panasonic will sell its solar modules as an individual product, as well as part of a system combined with storage batteries.
Other companies will look to cash in by installing solar panels on residential rooftops.
For instance, Sekisui expects to have a block of 431 houses in the Japanese suburb of Sendai fitted with solar panels within two and a half years. And West Holdings, which six years ago got its start installing solar panels on rooftops, now plans to start manufacturing modules with Taiwan’s Eversol Corp.
Overall, the market for renewable energy in Japan is expected to reach $30 billion by 2016, according to brokerage group, CLSA.
So keep an eye on Japan, because July 1 marks the dawn of a new clean energy era in the Land of the Rising Sun.