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Plan for 10% solar price cut retains incentives for boom

Bloomberg

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 recommended Monday that the price for solar power be cut beginning April 1, and the payment for wind should remain unchanged. The government must endorse the proposal before it comes into force.

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 data compiled by Bloomberg.

“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 Photovolatic Energy Association, said. “The proposed tariff will allow for continued growth in the market.”

The association’s member companies include units of Suntech Power Holdings Co., 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.

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 reactor meltdowns 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 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 nonresidential solar has fallen 14 percent to ¥280,000 per kw 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.

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

New rates for projects bigger than 10 kw “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.”

The panel is led by Kazuhiro Ueta, professor of environmental economics at Kyoto University. Toshimitsu Motegi, the 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 a month after new tariffs are introduced compared with the current fee of ¥87 for an average household.

The panel also recommended the tariff for wind projects remain at ¥23.1 per kwh 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 association, said. “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.”

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 per kwh for plants with capacity of 15,000 kw or larger, and ¥42 for smaller plants, both for 15 years.