Rooftop solar booms in Japan as market moves beyond rich nations

[TOKYO] Japan's home rooftops are emerging as the next hot spot in what for years has been one of the biggest solar markets in the world, marking a move beyond the utility-scale projects in rich industrial nations that have fueled most of the industry's growth.

Because of the change, Japan may not remain the No 2 solar market behind China beyond next year, according to Bloomberg New Energy Finance forecasts.

Developing nations such as China, Brazil, Egypt and India will pick up the slack as photovoltaics move beyond a toy of rich industrial nations into a competitive power source for places where it's costly to import fossil fuels.

The government in Tokyo is encouraging more energy-efficient buildings that combine solar panels with some form of storage and other devices like fuel cells.

That change also underscores what happens when authorities curtail incentives that have spawned sprawling projects, each covering acres of countryside.

"The market will be shifting from mega-solar to rooftops" because of the lack of large, open spaces, said Izumi Kaizuka, head of the research division at RTS Corp, a solar research company in Tokyo.

"As the tariff gets further reduced, the market will focus more on how to use solar power on site." Shocked by the atomic meltdown in Fukushima after the earthquake in 2011, Japan lavished some of the most generous incentives on cleaner alternatives.

Solar capacity surged sevenfold to 37 gigawatts in the four years ending in 2015, according to BNEF, a London-based industry researcher.

Buoyed by the incentives, growth is set to peak with 14 gigawatts of new installations forecast this year before beginning to taper off as enticements are cut back, BNEF says.

By comparison, China's growth in photovoltaics is expected to remain steady, leaving it the biggest solar market, with 19 gigawatts of additions this year, 21 gigawatts in 2017 and 23.5 gigawatts the following year, BNEF says. By 2018, Japan may not even rank among the top five markets worldwide, according to the forecaster, which says its estimates may be too pessimistic.

Beginning next month, solar farms in Japan will become much less attractive to develop.

Tariffs paid for power from the projects will drop to as much as 40 per cent below where they were four years ago after a government decision designed to pass the impact of lower system costs through to energy consumers.

Solar installations may fall 19 per cent in 2017 compared with the previous year, then another 85 per cent in 2018 to just 1.7 gigawatts during a year when no utility-scale projects are expected to come online, according to BNEF data.

Mr Kaizuka of RTS said Japan's market probably peaked last year with 11 gigawatts of added capacity and RTS is projecting a more gradual decline.

Still, industry executives say they're hopeful an abrupt drop-off can be avoided. For the utility-scale projects that spearheaded the recent expansion, the peak may come in the three years through March 2017, according to Yuichiro Kawabe, who heads the new energy promotion department of Shinsei Bank Ltd, which has been providing project finance loans for solar.

The driver will be a rule change that is expected to prompt developers to complete their projects as quickly as possible, he said. Developers who've already won project approval but haven't secured grid access before April 2017 will need to get a second approval from the trade ministry.

Japan has authorized many more solar projects than developers have been able to complete to date. Of the 80 gigawatts approved since July 2012, only 24 gigawatts have begun generating power.

The government intends to get 7 per cent of Japan's electricity from photovoltaics by 2030, which will require 64 gigawatts of capacity, according to trade ministry figures released in July 2015 when the government set out its long-term ambitions for fuel use.

"The market will gradually become stable" at about 4.5 gigawatts a year around 2020, said Mr Kaizuka of RTS. Residential panels will account for about a half of that.

The system where feed-in tariffs are offered to any developer whose projects qualify has led to quick booms in installations from Germany to Spain along with other markets where it's been tried.

Panel makers in Japan such as Kyocera Corp and Sharp Corp saw a dramatic pickup in their solar sales after the system started there.

"A few years ago we were able to sell more and more panels," said Ichiro Ikeda, who is in charge of solar energy marketing at Kyocera Corp, a Kyoto-based maker of panels and electronic equipment.

"There were even times we didn't have enough supply." But times are changing. Major panel makers are branching out, developing and offering such products as fuel cells and storage batteries.

Sharp, for example, is now focusing its energy business on "energy solutions" and has withdrawn from solar panel production outside Japan.

The market related to smart house and zero-energy homes is projected to grow to nearly 1.2 trillion yen (S$14.58 billion) by fiscal 2020 from 865 billion yen in fiscal 2013, according to a 2014 report by Yano Research Institute Ltd.

The segment includes seven types of equipment, including solar panels, fuel cells, and smart meters.

"The fundamental challenge for these players is to offer products and services consumers want at prices consumers are willing to pay," Ali Izadi-Najafabadi, a Tokyo-based analyst for BNEF, said by e-mail.

BLOOMBERG