Japan Passes FIT Peak: Now What for 87 GW RE Queue, 2030 Energy Mix?

Between July 2013 and July 2015, the Japanese feed-in tariff (FIT) program has supported the installation of over 22 GW worth of renewable energy nationwide, according to the latest data released by the Ministry of Economy, Industry and Trade (METI). That means, in only three years, the nation doubled its renewable energy capacity. Those renewable energy projects have cumulatively generated 66,854 GWh of renewable electricity, roughly equivalent to the annual electricity consumption of the state of Minnesota, ranked 19th in the U.S. for clean power generation.


The FIT program heavily skewed toward solar

Although the program supports five renewable technologies: solar photovoltaic (PV), wind, hydro (below 30 MW), geothermal and biomass, PV accounts for 96 percent of the 22 GW of installed capacity in the last 37 months.


The FIT program aided Japan in its ascent towards becoming one of the world’s biggest PV markets in 2013 and 2014. According to METI’s data, Japan installed 8.51 GW of PV under the FIT program. In the first seven months of this year, Japan has already installed a little over 6 GW. If Japan manages to install 1 GW of PV every month from August to December of this year, Japan will hit, as many PV industry analysts have predicted, 10 GW and solidify its position at the top of the list again this year.


With the abundant amount of projects the nation has taken on this year, does Japan have enough projects for the next year? The cumulative installed capacity of 22 GW is nothing compared to what has been reserved. As of July 2015, the country has 82 GW worth of FIT approved PV projects in queue. Systems sized over 2 MW account for the largest share of 37 percent, followed by systems between 10 kW and 50 kW in size (31 percent) and 1 MW to 2MW (16 percent). It can lead to a prediction of much of the growth coming from large-scale, non-residential PV projects.


This July, METI released the nation’s energy plan for 2030. In the energy plan, Japan’s electricity generation mix in 2030 comprises 22 percent to 24 percent of renewable. That amount can be translated to between 92 GW and 94 GW cumulative installed capacity of renewable. Out of that capacity, PV is assigned for a beyond-generous share of 64 GW. The reserved capacity exceeds the planned capacity for 2030. With the installed capacity, PV alone can easily meeet the 2030 renewable goal.


The Program is costing too much without adequate grid capacity

But when, if ever, will these projects actually be completed? And can Japan continue to support the massive volume of renewable projects it’s taken on? The FIT program is funded by electric ratepayers via monthly surcharges. For the last 37 months, it incurred the cumulative payment of 2.3 trillion yen (US$18,700 million). That amount is equivalent to three times as much as Minnesota’s annual electricity sales. METI projects that, this year, it will cost a total of 1.84 trillion yen or 474 yen (US$3.85) monthly per average residential customer, up from the cost of 66 yen in 2012. Furthermore, the total cost is projected to soar to about 4 trillion yen by 2030.


Reducing the FIT surcharges imposed on ratepayers is critical, considering the nation in April is moving toward the fully deregulated electric market, in which the government promises more choices and lower prices for electric consumers.

Although the FIT has helped the nation double its renewable electricity content in three years, the progress, which was moving much faster than the government anticipated, has come at a cost. An overwhelming volume of PV projects developed and under development are exceeding the grid capacity limit, leading some utilities to hold or even refuse interconnection applications and curtail production output, without compensation.

“Ever since the tariff rate [for PV systems larger than 10 kW] got reduce to 27 yen/kWh this July, the market has been very slow,” a manager of a major domestic solar project developer said. “Not many new projects are coming in. With a possibility of unlimited output curtailment, we cannot determine project viability. There are many developers cancelling projects. Probably the future market will be driven by reserved projects, which secured the tariff rate of either 36 or 32 yen/kWh. And those have access to the grid, which is not affected by production curtailment.”

In September, METI created a new subcommittee to bring reforms to the current FIT program structure. Pending tasks that the committee intends to focus on are: modifying the application approved process and rate structure; implementing cost-effective renewable to reduce ratepayers’ burden; alleviating grid constraints; strengthening R&D to reduce the cost of renewable technology; and expediting permit process through legislative/regulatory reform.

METI is currently looking into the German FIT model to set pricing. Since the program’s inception in Japan, the tariff rates for a single year have been determined annually, which has caused boom and bust cycles and left project investors or developers uncertain about prospects of the future market.

Instead of setting prices administratively and annually, METI is considering implementing a market-based price setting, which covers multiple years to provide the necessary certainty for market participants to create a stable market. Rate reductions can occur every year or at a certain interval with a fixed reduction rate or with a volume trigger. METI is also considering the possibility of an auction mechanism for new PV projects to minimize ratepayers’ burden.

METI may introduce a new pricing mechanism from next April.

Balancing maximizing deployment of renewable and reducing ratepayers’ burden is a current task that the nation must tackle. Failure to do so will consequently lead Japan down the same path other countries, such as Spain and Italy, traveled when the FIT program busted within a short period of time, without creating a sustainable market.

** All the charts in this article were compiled and created from FIT monthly program data released by METI during the period between November 2012 and November 2015 (for 37 months).

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