Japan’s 13th Solar PV Auction Undersubscribed

• Japan's 13^th solar auction results show this round received lukewarm response from developers as only 26.2 MW capacity was awarded against 225 MW on offer
• Under FIP round 1 MW and larger, 10 bids with 14.322 MW were awarded for lowest winning bid of JPY 9.70 per kWh
• Under FIT round, for systems of 250 MW to 1 MW, 18 bids won 11.86 MW capacity with lowest winning bid being JPY 9.50 per kWh

The 13^th solar PV auction of Japan was hugely undersubscribed with only 26.2 MW capacity awarded in the round that had 225 MW on offer for both feed-in-premium (FIP) and feed-in-tariff (FIT) segments.

A total of 175 MW was available for bidding under FIP round for projects having 1 MW or more capacity, capped at JPY 9.88 per kWh. The Organization for Cross-regional Coordination of Transmission Operators (OCCTO) finally selected 10 bids with 14.322 MW combined capacity.

Lowest bid price for FIP winners was JPY 9.70 per kWh and highest JPY 9.87 per kWh with the weighted average bid price being JPY 9.81 per kWh.

As for the FIT round for projects in the range of 250 kW and under 1 MW capacity, against 50 MW on offer only 11.86 MW was selected in the form of 18 bids. Lowest and highest bids under this round were determined as JPY 9.50 per kWh and JPY 9.88 per kWh, respectively. Weighted average bid price was JPY 9.79 per kWh.

Reflecting on the subdued response to the auction, Dan Shulman of Shulman Advisory that focuses on the Japanese energy market stated 3 following reasons in a LinkedIn post:

1. Lack of available land and increasing opposition from locals for the development of solar PV farms in the country is one of the major factors.
2. FIT cut-off level is considered relatively low and combined with rising EPC costs, it makes projects less commercially attractive as developers see a levelized cost of electricity (LCOE) under JPY 10.0 per kWh as difficult to achieve.
3. A lack of familiarity with power market access, balancing operations and costs, combined with the volatility of the FIP premium, appears to be hindering participation in FIP auctions. Developers would rather sell power generated under corporate power purchase agreements (PPA) than under the FIP.

Shulman says some of the corporate buyers, including utilities are offering all-in-one package to solar developers promising to offtake at a fixed price and take on balancing operations and risks.

"The results mean Japan's large-scale solar pipeline is drying up, and this trend is likely to continue," said Dan Shulman. "Instead, we expect the future of solar PV in Japan to revolve around small, distributed projects. These will be consolidated in portfolios, with power sold under PPAs, and aggregate buyers offering balancing and sleeving services."

Shulman believes future FIP auctions may only see projects with a secured off-taker participant.

The results follow the 12^th solar auction concluded in June 2022 which was also undersubscribed. A total of 153.7 MW was awarded under FIP and FIT support as against 225 MW on offer (see Japan's 12^th Solar Auction Results Published).

OCCTO will also be offering 225 MW for the 14^th solar auction to be held this year, with 175 MW under FIP category and 50 MW under FIT segment.