World's Third Largest Economy Adopts FITs
August 27, 2011
By Paul Gipe
In a major breakthrough for the feed-in tariff movement worldwide, Japan's upper chamber has approved a new law implementing a feed-in tariff policy for renewable energy.
The law, which goes into effect next July, sets a target of 30,000 MW of new renewable development within the next decade, nearly five times the 6,500 MW of wind, solar, and geothermal power currently operating in the country.
The move has global implications, as the world's third largest economy follows that of the world's second-largest economy, China, and the world's fourth-largest economy, Germany, in implementing feed-in tariffs in order to rapidly develop renewable energy.
The new law is also a clear sign that Japan plans to reduce its reliance on nuclear power, after the disaster at Tokyo Electric Power's Fukishima 1 plant.
Japan's action, after weeks of bitter debate between renewable energy advocates and Japan's old-guard nuclear industry, follows that of nearby Asian giant China, which this summer announced feed-in tariffs for large solar photovoltaic (solar PV) power plants.
China had previously implemented feed-in tariffs for wind energy that powered the country to world leadership in 2010, when it installed nearly 19,000 MW of new wind turbines--3.4 times the amount installed in the USA.
Germany, Japan's global competitor in heavy machinery, autos, and steel, has used Advanced Renewable Tariffs, a modern system of feed-in tariffs, since the year 2000. Germany's system of renewable tariffs has made the country the overall world leader in renewable energy development, producing rapid growth of wind energy, solar PV, and biogas.
Japan's bold step away from nuclear power could provide impetus to feed-in tariffs in North America, where the policy has been slow to gain traction outside of Ontario, Canada, and the state of Vermont.
Adoption of feed-in tariffs by Japan--a country with an industrial economy built around competitive exports--is a seeming endorsement at the highest international level that rapid development of renewable energy is desirable, if not essential, and that feed-in tariffs are the policy best suited for the task.
Observers say a key feature of the new law is the creation of a special parliamentary committee to determine the details of the program, including specific tariffs. In the past, this function would normally have been assigned to the powerful Ministry of Economy, Trade and Industry (METI).
However, the political fallout from the nuclear disaster at Fukishima has led to a dramatic loss of trust in METI, which has opposed both the rapid expansion of renewables, and also the use of feed-in tariffs to do so. Taking program design and pricing away from METI is a major victory for renewable energy advocates in Japan.
While details remain sketchy, the program contains the following features.
- Contract term: 20 years
- Technologies: wind, solar, biomass, geothermal, small hydro
- Tariffs: cost-based
- Target: 30,000 MW within 10 years
- Cost recovery: utility ratepayers with reduction for heavy industrial users
- Program review: every 3 years
As in Germany, heavy industry can apply for a reduction in the surcharge on electricity to support the program. Similarly, those affected by the Great East Japan Earthquake will not have to pay the surcharge for the program through the end of March 2013, according to the Japan Electric Association.
Reuters reports that a ruling party lawmaker said he expects the tariff for solar PV to start at 40 Yen per kilowatt-hour ($0.50 USD/kWh), and the tariff for wind energy to start at 20 Yen per kilowatt-hour ($0.25 USD/kWh).
If implemented as suggested, the wind energy tariff would be among the highest in the world.
Mitsubishi Heavy Industries--a Japanese company and one of the world's leading manufacturers of wind turbines--has installed few wind turbines in its home market. This could change quickly.
The widely expected passage of the new law has unleashed a burst of entrepreneurial activity not seen in Japan for some time.
Japanese firms are already lining up projects to take advantage of the new policy, says Rikkyo University's Andrew Dewitt. He cites as an example Mitsui and Toshiba's plans to build a 50 MW solar PV power plant in Aichi Prefecture by 2013.
It remains to be seen if Japan will open its domestic market to foreign manufacturers of renewable technologies, especially solar PV.
Long the world's leader in solar PV technology, Japanese industry has watched its dominant position quickly eroded by upstarts in Germany and, subsequently, China. Japanese companies are now furiously trying to catch up. The new law will create a dynamic solar market on their home turf, possibly giving Japanese solar companies a new volume edge on the global scene.
Nevertheless, any practices that appear to discriminate against imports in favor of domestic manufacturers will be closely watched, especially by firms in Ontario, Canada. Japan has filed a trade complaint against Ontario's feed-in tariff program for its domestic content provisions.
Until the new feed-in tariff policy is implemented, Japan will remain a laggard in renewable energy development in comparison to leaders such as Germany.
Japan installed about 1,000 MW of solar PV in 2010. Germany installed more than seven times as much, and Italy--the so-called poor man of Europe--installed more than twice as much. And Japan's population is 1.6 times greater than that of Germany and more than twice as large as that of Italy.
In wind energy, Japan's performance has been equally as poor. Based on its population, Japan has installed only 9% of the wind energy capacity installed in Germany.
Nevertheless, with the new feed-in tariff policy out of METI's hands, and with careful implementation of the new policy, Japan could quickly become a leader in domestic renewable energy development and could join Germany in the rapid phase-out of nuclear power.
What's New on Feed-in Tariffs
- Japan Feed-in Tariff Policy Becomes Law--Japan Plans 30,000 MW of New Renewables in 10 Years . . . World's Third Largest Economy Adopts FITs . . . In a major breakthrough for the feed-in tariff movement worldwide, Japan's upper chamber has approved a new law implementing a feed-in tariff policy for renewable energy. . .
- Denki Shimbun: Japanese Feed-in tariff law for renewable energy enacted--The feed-in tariff bill for renewable energy was passed by the Upper House of the Diet and enacted. The law will come into force from July 1 next year. . . The feed-in tariff system seeks to promote the growth of renewable energy by requiring utilities to purchase electricity generated by commercially available renewable energy sources (solar photovoltaic, wind, small- and medium-scale hydro, geothermal, biomass) for a set price and period. Electric utilities will be allowed to levy a surcharge to cover the purchase costs. . . The revised bill specifies that the surcharge will not be applied to the regions affected by the Great East Japan Earthquake through the end of March 2013. . .
- UPI: Japan to increase renewable energy?--Passage of Japan's renewable energy legislation could drive up investment in the sector, experts say. . . Such schemes "have proven to be one of the most effective instruments to stimulate development of renewable energy around the world, increasing expected returns on renewable energy investment," he said. . .
- Energy Matters: Japan's Feed In Tariffs Could Accelerate Global Solar Grid Parity--A bill has passed Japan's lower house of Parliament that proposes feed in tariffs to support growing the country's renewable sector to 10 trillion yen (AUD$124 billion) by the end of this decade, supplying 20% of Japan's electricity needs. . .
- Reuters: Japan pins hopes on green power laws--The new laws will require utilities to buy any amount of electricity generated from solar, wind, biomass, geothermal and small-sized hydro power plant at preset rates for up to 20 years. The government has said it wants the feed-in tariff scheme to boost capacity of the five renewable energy types by more than 30,000 megawatts (MW) over a decade. . . Ruling party lawmaker Yosuke Kondo told Reuters he expects the price for solar to start at 40 yen per kilowatt hour and 20 yen for wind. The price for solar could start with 37-38 yen if the prices of solar panels fall significantly by the time the system is launched, he added. A parliament-appointed panel will determine the pricing. . .
- Japan Times: Three firms planning massive solar power complex in Aichi--The companies have decided to go ahead with the project because the Diet is set to approve a bill obliging utilities to buy renewable energy, including solar power, from third parties. . .
- Bloomberg Business Week: Energy Law To Cut Japan Nuclear Reliance--“The scheme will create a large market in a short time,” said Tetsunari Iida, executive director of the Institute for Sustainable Energy Policies in Tokyo. “It will prompt immediate growth of related industries,” such as manufacturing and construction. . . The legislation is expected to become law as soon as Aug. 26 and effective on July 1, 2012. . .
- Japan Times: Ray of light amid the nuclear gloom--The REN 21 report also points out that at least 95 nations have enacted policies to support renewable power generation, with feed-in tariffs being the most common type. . . Roughly the size of California with about 127 million people crammed into just 20 percent of its seismically active land, Japan cannot afford another major nuclear disaster. It must develop alternatives to nuclear power. . .
- Addis Fortune: Ethopian Feed-in Tariffs Moves to Council of Ministers in October--The draft law sets the tariff rates for Independent Power Producers (IPP) who can generate electricity from different sources including, hydropower plants, biomass and wind power. . .
- Jerusalem Post: Cooperative Wind Plants in the Golan Heights to use Feed-in Tariffs--One of the main problem in the past was that there was no feed-in tariff,” Yavetz said. “Now the policy is there and we hope the regulations will be published.”. . “We gave the settlements the option to hold up to 39 percent of the equity of all the ventures eventually,” he said. . .
- Issam Fares Institute for Public Policy and International Affairs (IFI): Possibilities and Limitations for Feed-in Tariff Policy in Lebanon Electricity Sector--This study finds that according to the social, economic and political context, among them the finance capacity and the low social costs, “Premium FIT”—a fixed remuneration paid on top of the electricity market price—is the most realistic type of FIT mechanism to accelerate the implementation of renewable energy sources in Lebanon. . .
- Bloomberg: Pakistan Offers Renewable-Energy Incentives (FITs) to Tackle Shortages--Pakistan will announce its first tariff policy for clean-energy producers next month, offering premium payment rates as it seeks to attract investors to help overcome power shortfalls. . . The country has given approval to 30 companies to install wind plants with an estimated capacity of 1,500 megawatts, said Arif Alauddin, chief executive of the state-run Alternative Energy Development Board. . . “There will be a feed-in tariff based on a cost-plus approach,” he said in an Aug. 23 interview at his office in Islamabad. . .
- Ernst & Young Find Fixed Feed-in Tariffs Attractive--The British arm of giant financial consultant Ernst & Young's 2011 issue of its "Renewable energy country attractiveness indices" concludes that fixed feed-in tariffs (FITs) are preferable to premium-based FITs as well as bidding systems. . .
- Deutsche Bank Examines German PV FITs--One of the world's largest banks has issued a report examining how to design feed-in tariffs for solar photovoltaics (solar PV) that ensure rapid development while minimizing cost to ratepayers. . .
This feed-in tariff news update is partially supported by An Environmental Trust and David Blittersdorf in cooperation with the Institute for Local Self-Reliance. The views expressed are those of Paul Gipe and are not necessarily those of the sponsors.