Japan’s Proposal to Rollback Solar Subsidy Angers Investors and Operators

Estimates suggest that subsidy cut could affect 23.5 GW of solar capacity


Japan’s Ministry of Economy, Trade and Industry (METI) has proposed that companies granted permits for solar projects between the fiscal years of 2012 to 2014 under Feed-In-Tariffs (FiT) should submit applications by March 2019 to connect to the grid.

According to Reuters, the Japanese government has said that those companies who miss the deadline will see their price guarantees cut from 32-40 yen ($0.28 – $0.36)/kWh to 21 yen (~$0.19)/kWh.

This decision comes considering the fact that approximately 23 percent of the total capacity approved in fiscal year 2012, 49 percent approved in 2013, and 59 percent approved in 2014 are not operational currently. The country is reeling under a huge public burden of FiT subsidies and government wants to reduce it.

Japan had introduced the FiT in the wake of Fukushima disaster to spur solar developments. Its FiT levels are among the highest in the world.

METI estimates that subsidy cut could affect 23.5 GW of solar capacity, which is 44 percent of the amount the government approved in the three-year period after the FiT scheme was created in 2012. Japan’s total installed power capacity is around 250 GW, with 44 GW coming from solar.

“Litigation will inevitably ensue from Japan and abroad, and it will be difficult to convince the public that there is no risk of the government losing when the proposed changes so blatantly disregard the foundations of the FiT scheme,” said a note from law firm Orrick.

Stakeholders of the solar industry are miffed with the proposal and threatening legal actions against the government for breaching the earlier contracts.

A group of business lobbying groups in Japan from the United States, Europe, Australia, New Zealand and Canada released a statement saying, “The suddenness of the proposal, its almost immediate implementation, and ambiguity around implementation could put future and existing investments at risk.”

Other countries are also facing subsidy related issues. Recently, Mercom reported that many solar power projects in Ningxia, in the northwestern region of China, are finding it difficult to stay afloat and may face bankruptcy due to the delay in subsidy payment.

Earlier this year, China had specified that a cap of 10 GW would be imposed on distributed generation (DG) projects for the year 2018. This was done to reduce the subsidy burden and propel the sector towards being more efficient. China also intends to bring down renewable energy costs to a level where it can compete with coal power in a subsidy-free regime.

Subsidy-related issues are not exclusive to China and Japan. Mercom has reported previously that subsidy disbursement delays are hampering the growth of residential rooftop solar in India and many of the rooftop solar developers in the Indian market do not want to take on subsidy projects.

Image credit: Greenko

Nitin is a staff reporter at Mercomindia.com and writes on renewable energy and related sectors. Prior to Mercom, Nitin has worked for CNN IBN, India News, Agricultural Spectrum and Bureaucracy Today. He received his bachelor’s degree in Journalism & Communication from Manipal Institute of Communication at Manipal University and Master’s degree in International Relations from Jindal School of International Affairs. More articles from Nitin Kabeer