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Interview with BloombergNEF on the Japan Solar Market after FiT

Interview with BloombergNEF on the Japan Solar Market after FiT: Isshu Kikuma, Japan Energy Analyst, BNEF

Recorded on Jun 28, 2022

Presenter:

Mr. Isshu Kikuma

Japan Energy Analyst

BloombergNEF

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Moderator:

Molly Huang

Content Lead

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With ambitious carbon reduction targets, the solar power sector in Japan is set to accelerate at a growth rate of 6GW installation per year over the next decade. But with new opportunities come new challenges.

In this episode, we sit down with Isshu Kikuma (BloombergNEF) to discuss the changing power market, the risks and the rewards.

Key Messages

The promotion of FiP will lead to a declined annual new installation before 2025 but is expected to show an upward trend after 2025
Looking at the Japanese PV market from 2013 to 2021, the annual new installations in Japan are very sensitive when it comes to policy changes. The reasons for the low market expectations in the short term due to FiP are fluctuating subsidies, the complexity of finding project off-takers difficult imbalance between actual and forecast.

Optimism for the medium to long-term market comes from the cost advantage of Japanese PV and the high willingness of private sectors to buy clean energy.
The cost of new PV plants after 2025 is likely to be lower than that of new coal and gas plants. Meanwhile, the volume of corporate PPAs sold in 2022 is high, 163.8MW. Cost advantages and high demand will drive the market.

The main market factors currently affecting the development of PV projects in Japan are land costs and supply chain issues.
Japan suffers from a severe scarcity of available land area, and development in mountainous areas makes PV construction costs soar, while the lack of large flat places makes economic scale difficult. In addition, the cost of various types of metal raw materials like polysilicon for photovoltaics or equipment such as modules are rising due to the global supply chain shortage.

Q&A

Q: How has the current energy crisis impacted the roles of renewbales?

Isshu: The current energy crisis highlighted the vulnerability of Japan's energy system, because Japan relies on fossil fuel imports heavily. The marginal cost of generation from fossil fuel has gone up quite a lot which impacted the power prices. So, I think the lesson learnt here is that the Japanese government should acknowledge the benefit of scaling up renewables because once renewables are built, they don't require fossil fuel for operation. Having said that, one concern nowadays is the rising use of hydrogen co-firing, ammonia co-firing, and CCUS in the fossil fuel plants. This is another way of tackling the current crisis, but following the pathway means that Japan needs to keep import fossil fuels from other countries, which does not help in Japan's energy security in the long run.

Q: Will Japan's multi-GW growth appetite impact the supply chain?

Isshu: I don't think Japan's new solar built would impact the supply chain drastically. Unlike countries such as India or the US that are intend to scale up their domestic manufacturing supply chain for solar equipments, Japan has not shown interest in expanding the solar manufacturing space within the country. The government is more interested in improving local content for energy storage and offshore wind, but not for solar.

Q: When will module prices come down and why?

Isshu: We don't expect the module price to come down drastically this year due to the recent cost increase, especially considering the polysilicon supply market is still tight. But at the same time, we expect a higher output of the polysilicon supply will be available in the second half of the year. In this sense, I think the cell price could decline around the third quarter of this year.

Q: Is solar cheaper than coal in Japan now?

Isshu: In our forecast, we expect that solar to be cheaper than new coal or new gas from the mid 2020s. But for the operating existing coal, actually it'll remain cheaper than new solar throughout to 2050. If you just think about economics of each project, yes that could be a big challenge to Japan's decarbonization.

Q: Any recommendation that the government could consider, to reduce coal and increase the uptake of solar?

Isshu: I would suggest the Japanese government to implement higher carbon price just like what Singapore did recently in terms of the carbon tax. From the policy perspective, I think Japan should consider developing more strong coal phase out policies rather than the current one which is a bit weak.

Q: For offsite corporate PPAs, what kind of companies are buying clean energy and what trends do you see?

Isshu: Currently the RE100 companies are showing big appetites in procuring clean energy electricity. The two most notable CPPA deals are 1) AWS's 22MW solar deal with the support from Mitsubishi Corporation through its retail arm MC Retail Energy; 2) NTT Communication Group's 70MW PPA. The trend we see is that both deals are comprised by hundreds of small-scale projects, eg., the AWS deal scatters around 450 sites.

Q: Any recommendation for solar developers?

Isshu: I think the huge business opportunity or success factor around Japan's solar sector is lining in corporation procurement of clean energy. Apart from the RE100 initiative, there is also one domestic group in Japan called RE-Action, which is basically smaller corporations which couldn't sign up for RE100 and are pledging to offset the electricity is 100% renewables. There are a lot of companies are taking actions.

Q: Can you summarize your perspective for the current Japan solar market, in one or two words?

Isshu: In two words, "Challenging" but "Exciting"!