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Renewables Update

Feed-in Tariff Scheme: Market Forces and the Appropriate Operation of the Scheme in Japanese

11 July 2014 Keiji Kimura, Senior Researcher, Japan Renewable Energy Foundation

By the end of June 2014, it would have been two years since the feed-in tariff scheme was introduced in Japan. Though it has been only two years, an enormous momentum has actually been felt. The scheme became operational in July 2012 and facilities with a total capacity of 68.69 GW were approved and 8.95 GW of renewable energy sources became operational in only 21 months (by end-March 2014). The speed and scale of this deployment is clear, as the total installed capacity of renewable energy, excluding hydropower, which had been constructed by fiscal 2011, was approximately 10.7 GW.

The impacts of this renewable energy deployment have begun to rapidly appear in the power supply. The share of renewable energy, excluding hydropower, stayed around 1% for a long period of time until the feed-in tariff scheme was introduced. Deployment had been sluggish. However, with the start of the feed-in tariff scheme, the share jumped to 2.3% in fiscal 2013. The momentum is still continuing in fiscal 2014. By April 2014, the share had reached 3.6%. The rapid increase can be seen by comparing this with the share of the same month in the previous year, which was 2.3%. If this growth rate is maintained, there is a possibility that the share of renewable energy, excluding hydropower, may reach around 10% by fiscal 2020.

It can be said that the strong impacts which the feed-in tariff scheme exerts in promoting renewable energy have been demonstrated. However, careful design as well as swift and flexible operation of the scheme are required in order to develop the market properly, in view of the magnitude of the effect this scheme has. Deployment of solar PVs has been particularly easy and fast. The ways to control the solar PV market to enable its sustainable growth are among the aspects that will determine the success of the scheme.

The issue raised regarding solar PVs in particular was the concern that the commencement of the project operation may have been delayed in some cases despite the fact that the operators had obtained approval for their facilities from the Ministry of Economy, Trade and Industry (hereinafter referred to as METI). Of course there are many cases in which projects are lagging behind due to delays in procuring equipment and materials, and delays in the grid connection procedures of utilities or in the construction work. However, since the cost of installing solar PV is falling rapidly, high profits can be gained without any particular effort if the facility is approved and has secured a high purchase price, and then it is constructed and starts operation after the costs have fallen sufficiently. The continued existence of projects that have not proceeded to implementation quickly despite having secured a high purchase price has had a negative impact on cost-competition in the market as a whole. The result may be a situation in which the cost of solar PV does not fall so easily in Japan.

In response to these points, METI investigated facilities of a capacity of 400 kW or greater that were approved in fiscal 2012 and that had not proceeded to the commencement of their operation. The results revealed that as many as 22% (2.88 GW) of all the projects surveyed (13.32 GW) had not secured any land or facilities for no particular reason. Accordingly, METI had discussions in the Working Group for Operating the Feed-in Tariff Scheme, and made the application of the approval process for facilities stricter beginning in fiscal 2014. In other words, it has become an obligation for projects that have obtained approval for their facilities to submit, within six months after obtaining the approval, documentation verifying that the land and facilities have been secured. Without such documentation, the approval of the facility will be invalidated.

With this new provision, the securing of land and facilities by the operators is likely to speed up to a certain degree. However, the point of concern is that there are still no requirements set concerning the time limit for the facilities to commence operation. There is also a possibility that this point may become an additional issue.

To promote the wide deployment of renewable energy in a cost-effective manner, the market for it must be developed and the industry must be fostered over the long term. While market forces are extremely powerful, they have to be controlled properly.

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