Solar Power Poised for Expanded Role in Japan's Energy Supply

August 2011 -- Although the nuclear crisis at Fukushima has renewed focus on alternative energy resources, Japan has long been a pioneer in renewable power generation. Solar energy is a notable example. It's true that what is often considered the launch of modern solar power -- the development of the silicon photovoltaic (PV) cell at Bell Labs in 1954 -- took place in America. Early on, however, Japan showed leadership in solar energy development, creating applications for spacecraft, telecommunication stations in isolated places, and off-grid lighthouses.

The oil shortages of the 1970s resulted in a shift of energy consciousness in Japan. Fossil fuels had been deemed steady, reliable, and cheap. By decade's end, however, because of the vulnerability of nonrenewable resources to geopolitical forces, rising cost, and eventual exhaustion, the Japanese realized that developing more sustainable energy supplies would be crucial for the long-term.

Accordingly, the Japanese government launched the first Sunshine Program in 1974, which aimed at developing substantial alternative energy resources through the year 2000. At the beginning, solar thermal power was given top priority, but after several years the focus shifted to PV solar energy. The Second Oil Shock in 1979 provided further stimulus -- including funds -- to the solar industry. In 1980 the Alternative Energy Act became law; it inaugurated the New Energy Development Organization (NEDO), a quasi-governmental entity that provided support for demonstration projects where PV producers could gain experience and improve production technologies, thus increasing conversion efficiencies.

In the early 1990s, simplified procedures boosted solar cell installations in residences. Besides government outlays for PV development, which had remained significant throughout the 1980s, the commitment to introducing PV as an alternative energy source prodded Japanese corporations to commit funds as well. A subsidy program for residential PV systems was inaugurated in the early 1990s; although the supports fell continually during the program's period from 1994 to 2005, the number of installations steadily increased over that time-span. Many of the installations derived from consumers' desire to protect the global environment.

Thus emerging Japanese leadership in solar power in the 21st century stemmed from a confluence of forces, including:

• a lack of traditional energy resources in Japan;
   
• severe energy shortfalls in imports because of geopolitical conflict;
   
• a consensus -- strengthened by media reports, the Kyoto climate change conference, and long-standing Japanese attitudes to the environment -- that global warming is a dangerous threat that can be mitigated through human action; and
   
• government policy favorable to alternative energy development, including solar power.

In the new millennium, solar power was buoyed by Japan's inauguration in 2003 of a renewable portfolio standard (RPS) that requires an increasing amount of the country's electricity be provided by alternative energy sources. That year, Japan's renewable generating capacity was 7.32 terawatt hours (TWh); the RPS required renewables of 12.2TWh, or 1.35%, of the total electricity supply in 2010. RPS targets are reviewed every four years, and a new target of 16.0 TWh (1.63%) by 2014 was set in 2007.

The emphasis on renewable energy has helped Japan gain a position of global leadership in solar energy. From 1998 to 2004 Japan was first in cumulative solar panel installations and, by the end of that time-span, the country's manufacturers accounted for 50% of global market share. Historically, overseas shipments have been greater than Japanese demand, but as seen in the chart below, in the 2009 to 2010 period the domestic solar market has shown solid growth.

Residential usage still represents the vast majority of shipments. As the chart below demonstrates, however, distributed (i.e., commercial and public building) demand has recently started to emerge. As yet, there are still no utility-scale solar plants in Japan.

The post-Fukushima environment has changed the dynamics of the energy debate, and with it has come new movement toward solar energy. Notably, Softbank President Masayoshi Son has made a major proposal for the building of solar farms with the cooperation of many of Japan's prefectures. Moreover, a proposed energy bill introduced in the Diet in July could give a substantial boost to solar power implementation. The current program for solar PV in Japan, begun in 2009, provides subsidies to small-lot suppliers (mainly households) based on "net metering," i.e., payments only for excess generation of solar energy that is fed back into the grid. The program had boosted solar module installations to a cumulative total of 3.7 gigawatts in March, up from 2.6 GW a year earlier.

The new bill would provide for a "gross feed-in tariff" that would pay households for all the clean electricity they produce. Monthly electricity bills would eventually rise ~?150 to ~?200 per household to cover its costs. On the positive side, there would be significant cuts to Japan's level of CO2 emissions. If passed, the legislation could be a major boost to Japan's solar sector. According to industry calculations, Japan's solar PV market, including solar panel installations, would increase 6.3 times, to ~?950 billion, by 2020, while employment in the field would grow eight times.

The implementation and impact of proposed policy changes and plans are still uncertain, and a clear picture of Japan's energy future is not yet in view. It does seem, however, that the role of solar power in Japan's energy equation will be elevated from a minor element to an important factor in the decades ahead.


Note: This article was written by Cando Advisors -- a consulting firm supporting clients on international business development, strategic alliance, and investment, focusing on the Japanese market -- and co-author Bob Schneider.