Japan to go the German way

Japan is one of the major demand drivers for the solar market globally installing around 10 GW of solar capacity for the last couple of years and accounting for nearly 20% of the global demand. Like China Japan suddenly started ramping up solar capacity in 2012-13, as Europe stopped being the main engine of demand growth. The main reason for this spurt in Japanese demand was the Fukushima nuclear disaster, which resulted in shutting down of most nuclear power plants. Japan had to import large amounts of fossil fuel in order to plug the gap in power demand. The Japanese government also started to refocus on growing its solar energy capacity, which had started becoming competitive with fossil fuel power prices.

Japan did not have much RE capacity before the Fukushima disaster, depending mainly on nuclear power for its power generation besides coal and gas. The government suddenly realized that it was far behind in terms of green energy capacity from wind and solar, as compared to other nations. The subsidy given by the government proved to be very lucrative leading to a massive exponential growth in solar demand in the country. Many of the moribund solar panel manufacturers in Japan, such as Sharp and Panasonic which had got edged out of the world markets due to the low cost Chinese players suddenly found a large market where they had a distinct advantage.

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Why Japanese solar market will lose steam

Japan is already installing solar at a rapid rate and its current approved pipeline of almost 80 GW of solar energy capacity, exceeds its 2030 target of 64 GW. This means that if all the approved solar projects are installed, then the country will meet its 2030 target by 2020 itself. Japan is also most probably going to reduce its FIT, in order to reduce new applications. It is also going to weed out the non-serious applicants, who had bid for solar capacity in order to paper trade them for profits. Germany too had drastically reduced its FIT after a massive surge in solar installations between 2010 and 2012. Germany is now a marginal player in the world market and most of its solar capacity is coming up through the non-subsidized route.

Japan is an ageing society and it is one of the few countries where the population is expected to decline. Besides a declining population, energy efficiency is continuously improving, which is further reducing the overall energy demand. The Japanese government is also slowly bringing most of its nuclear reactors online.

The most predictable path for Japan is the German path, where the solar installation decline to around 2 GW a year driven by self-consumption. It does not make sense for the Japanese government to give subsidies for solar energy, given that it has become competitive with fossil fuels in most parts of the world. Giving FIT is basically putting free money in the pockets of investors and developers, which does not make sense. The government should reduce the subsidy to zero in the next 2 years and introduce competitive bidding instead of going for FITs. They should create an enabling network for the growth of residential solar energy (along with storage). This will reduce the resistance from powerful Japanese utilities.