Feed-in Tariff Program in Japan: 2nd Year Evaluation

Japan launched the feed-in tariff program in July 2012 to accelerate renewable energy development. The previous post discusses its scheme and initial impact, arguing that the program had limited impact in the first year and exhibited various problems such as the added costs and grid instability caused by skewed investment on photovoltaics (PV). Now that the second fiscal year had ended (Japan’s fiscal year ends in March), let’s take a look at the latest statistics.

Cumulative Renewable Energy Installation
(Source: Agency for Natural Resources and Energy)

According to the Agency for Natural Resources and Energy (ANRE), the cumulative renewable energy in operation jumped from 22GW in March 2013 to 29GW in March 2014. Considering 2GW of renewable energy was added to the electric grid in the first year, the second year seems to have shown much better performance. This is largely because many developers obtained the permit (certification) in the first year were simply unable to complete their projects by year-end.

Photovoltaics were again responsible for most of the growth, suggesting limited electricity production due to its low capacity factor, and adverse impact on electric bills caused by its high installation costs. Looking at the projects in the pipeline (projects certified by ANRE), it is good to see renewable energy is likely to triple on a capacity basis in the coming years, but the skew toward photovoltaics will remain, or even get worse.

Cumulative Renewable Energy Installation and Projects in the Pipeline
(Source: Agency for Natural Resources and Energy)

The expert panel at ANRE has reviewed the tariff structure and cut the tariff rate (guaranteed purchase price) for utility-scale photovoltaics by 24% in two years, which may slow down the photovotaics boom for now. The certified projects in the pipeline however are guaranteed to obtain power purchase agreement with utilities at a rate when the project was certified, so these will be likely to be built quickly to cash in on the favorable conditions.

Tariff Rates for Renewable Energy
(Source: Agency for Natural Resources and Energy)

The program has entered the third year, and the Abe administration is discussing the possibility of scaling back the program amid its rigorous attempt to reboot nuclear reactors. The program itself is likely to continue in less attractive ways for renewable energy developers, which is arguably good given the inherent drawbacks of the scheme. In order to seek more balanced growth in renewable energy at least costs on the economy, the government needs to explore better supporting schemes for more reliable, cost effective renewables such as offshore wind, small hydropower, biomass, geothermal, and possible marine energy.

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