So far growth of the Japanese solar market was driven by attractive FITs, and large-scale solar power capacity will still be an important source of installations as the backlog of FIT projects will come online till 2020. After the end of the FIT era, auctions will become the main driver of large-scale solar and distributed generation will become increasingly important. (Source: Fitch Solutions Macro Research)
- Rise in electricity prices in Japan is likely to change consumer preference going forward to opting for distributed solar power generation both for residential and C&I segments, according to Fitch Solutions Macro Research
- It expects distributed solar to report annual average capacity additions averaging 4 GW between 2024 and 2028
- Backlog of large-scale FIT projects will still lead the market over the next 2 years, but growth is likely to slow down from 2021 onwards as Fitch sees annual capacity additions to average 3.3 GW between 2021 and 2024
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As large-scale solar power capacity deals with the regulatory changes moving away from the feed-in tariff (FIT) based system towards auctions, the Japanese solar market will depend on distributed solar for a large part of its future growth. In its industry trend analysis for the Japanese solar market, Fitch Solutions Macro Research sees deployment of solar capacity at the residential, commercial and industrial (C&I) levels to become more attractive driven by consumer choice pushed by increasing retail electricity prices in the near future.
System installations for less than 10 kW system sizes will stimulate near-term growth for the residential segment driven by continued FIT. However, both residential and C&I segments will opt to shift from pure grid-feed in towards self-consumption over the coming decade. Distributed power generation is also advisable for a nation like Japan that’s constantly battling natural disasters to increase energy security and grid access where it is temporarily unavailable, Fitch says.
Large-scale solar continues lead
Backlog of large-scale FIT projects will still lead the market over the next 2 years, but growth is likely to slow down from 2021 onwards as Fitch sees annual capacity additions to average 3.3 GW between 2021 and 2024, which is slower than the 5.5 GW it expects the country to add annually over 2019 and 2020.
Problems with auction mechanism
Limited grid capacity, high labor costs, significant security deposit requirements and difficulty in acquiring suitable land are some of the reasons identified as problem areas for higher bids achieved in the 3 auctions conducted by the government since November 2017. The average lowest winning bids were all above JPY 14,200 ($130) per MWh and the capacity awarded was much less than what was on offer.
As the auction mechanism matures, Fitch Solutions sees distributed solar to report annual average capacity additions averaging 4 GW between 2024 and 2028. “Small-scale projects under 500kW also have continued access to Japan’s feed-in-tariff scheme, with residential feed-in-tariffs having been insulated from the feed-in-tariff cuts that were implemented on projects between 10 kW and 500 kW in March 2019. The residential FiT will thus stay at JPY24-26/kWh (depending on region) while projects bigger than 10 kW faced a 22% cut, with the new FiT amounting to JPY14/kWh as of April 1 (the start of Japan’s fiscal year),” reads the analysis.
In March 2019, the country’s Ministry of Economy, Trade and Industry (METI) officially reduced the solar FIT for the C&I segment by 22% down to JPY14 per kWh while leaving FIT rates unchanged for residential systems smaller than 10 kW. The FIT for businesses with 500 kW or more capacity is to be determined through bidding (see Japan Slashes FIT For Small Scale Solar).