Photovoltaic solar power will be the biggest beneficiary of Japan’s new clean energy policy

The development of wind energy and photovoltaic solar energy projects in Japan will generate highly attractive returns under the feed-in-tariffs recently proposed by the Japanese government.

Since the Fukushima nuclear disaster a year ago Japan has been grappling with the need to diversify its energy mix. One of the policy measures adopted by the government, a renewable feed-in tariff (FiT) program, starts July 2012 and has the potential to accelerate renewable electricity generation across the country. If the Japanese government implements the rates it is now proposing, they will rank among the world’s most attractive support mechanisms for renewables.

BNF: Solar power and wind farm projects could achieve equity returns as high as 44% and 51%, respectively

Bloomberg New Energy Finance estimates that under the proposed tariffs solar power and wind turbines projects could achieve equity returns as high as 44% and 51%, respectively. This will lead to a surge in project proposals, particularly for the solar PV industry.

Depending on how projects are treated by Japan’s traditionally conservative planning regime, Japan could see a cumulative 20GW of wind and solar capacity by 2014. This would require total investments of up to USD 37.5 billion over the next three years, assuming that costs stay near current levels.

In the longer term, renewable costs will decline, enabling accelerating renewable deployment across the country despite aggressive reductions in the very generous initial tariffs on offer.

Yugo Nakamura, head of Japan research at Bloomberg New Energy Finance, said: “The government faces the challenge of picking the best rate for stimulating renewable energy investment while not over-paying for clean power. With the very high rates which have been proposed there is a very real risk that Japan will experience the same boom-bust cycles we’ve seen in other countries.”

The latest research note from the Bloomberg New Energy Finance Tokyo team examines the real costs of generation from clean technologies in Japan and compares them with those for fossil generation – key analysis as Japan contemplates its post-Fukushima energy future. Bloomberg New Energy Finance also finds that clean energy costs today in Japan today are substantially higher than elsewhere in the world due to a relative lack of competition, but will likely fall as competition heats up.

Because of the attractive returns offered to investors from the new FiT, Bloomberg New Energy Finance foresees strong growth for Japan’s renewable market, specifically for solar photovoltaic. The firm projects over 10 GW of new solar power and 0.7 GW of new wind energy installed by 2014, requiring investments of USD 12.5bn/yr over the next three years.

New solar power project development will take off immediately while new wind turbines capacity will ramp up from 2015 onwards due to longer lead times in developing those projects. Japan could become the third largest solar energy market in the world by 2014.

Milo Sjardin, head of Asia at Bloomberg New Energy Finance, commented: “The feed-in-tariff scheme has the potential to significantly alter Japan’s energy future. The country may build enough distributed solar capacity over the next three years to equal the electricity output from almost three nuclear power stations, and do so in a fraction of the development time. To enable further renewable deployment beyond that, the country will likely have to liberalise its power sector.”