Japan's 30 Billion Yen Bet On Energy Storage

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 |  Includes: KYO, NIPNF, PCRFY, SSNLF, TSLA
by: Livio Filice

Summary

Overview of Japan's need for new energy sources coupled with battery based systems is driving a new economy.

Japan's Minister of Economy, Trade & Industry has renewed the incentives for stationary energy storage signaling their ongoing commitment to the market.

Opportunities for investors to play the Japanese domestic energy storage market with exposure to other markets.

With 24,000 people claimed as missing or dead in the wake of Japan's natural and nuclear disaster of 2011, the country was forced to reconsider its future energy road map, shifting toward a distributed production and storage module in place of its previous centralized, nuclear-based model. Under this new vision, the primary goal is to address the instability of electricity supply, which requires implementing energy demand peak-time cuts and peak-time shifting tactics through on-site energy generation and storage, as well as the increasingly popular concept of local energy self-sufficiency.

The Japanese government quickly agreed on a maximum three-year subsidy program, worth over of ¥20 billion (approximately US $200 million), for the use of stationary lithium-ion battery energy storage systems starting in 2012. In July 2012, the Japanese Minister of Economy, Trade and Industry opened the incentive program that would secure its position as an international leader in the battery manufacturing space and strengthen the country's commitment to a long-term energy plan following the disaster. Two-thirds of the new stationary lithium-ion energy storage projects would be covered under the program. Furthermore, the Japanese government had just shifted its Solar PV Feed-in Tariff (FIT) program into high gear by offering attractive rates to encourage property owners to establish solar PV projects to produce their own electricity. The end result was a gold rush that saw more than twice as much solar installed in Japan in 2013 during 2013 than in all of 2012; from 1.7GW installed during all of 2012, the Japanese market grew well to over 6GW of new capacity in 2013 with a total installed capacity of over 11Gw by the end of 2013. Japan is on track to meet its new energy model, in fact, Hokkaido Electric Power Co. (OTC:HKEPF) had to decline a significant number of utility-scale projects that were 2MW or larger due to grid constraints.

The stationary energy program, which was scheduled to close on December 31, 2013, reached its allocated subsidy funding well before the closing date. The popular program recently went under review and was reopened in March 2014, during which time Japan's Ministry of Economy, Trade, and Industry announced a budget of ¥10 billion (approximately US $100 million), which would once again offer to pay two-thirds of the purchase price for new stationary energy storage systems.

When the program initially made its way into the market, a number of leading Japanese battery and technology companies responded by announcing various products, partnerships, and programs that would position them at the forefront of the stationary energy storage market. KYOCERA (KYO) announced that they had partnered with Nichicon to start exclusive sales in Japan of new residential energy management systems combined with solar PV; Nichicon's energy management system includes Samsung SDI's, a division of Samsung Electronics (OTC:SSNLF), lithium-ion batteries. KYOCERA has set its sights high with the expectation of sales to reach 10,000 units sold on an annual basis.

Through their Energy Systems division, Panasonic Corp. (OTCPK:PCRFY) supplies high volume automotive-grade lithium-ion batteries to Tesla Motors (TSLA) (Seeking Alpha: Companies To Watch As Tesla Drives Down Lithium Battery Cost). Panasonic released its Smart Energy Storage Systems for stationary energy storage applications such as residential, commercial, industrial, and utility-scale projects ranging from 4kW to the megawatt scale.

NEC Corporation (OTC:NIPNF) has established a Joint Venture (JV) between NEC, Orix (OTC:ORXCF), and Epco Corp. Collectively, they are offering Japanese home owners a residential energy storage system with the opportunity to lease it from the JV rather than having the homeowner hit with a large upfront payment. It has been reported that the JV is targeting 100,000 units per year. NEC has also made other headlines in the stationary energy storage market: it is now exporting its technology and know-how to develop international projects, including a recent project in which a 2MWh lithium-ion battery energy storage system was supplied to the Italian distribution system operation Enel Distribuzione. The goal of the project is to ease the integration of renewable energy into the grid by regulating the gaps between the demand profile and actual energy flow caused by variable input of various renewable energy sources.

Although companies such as KYOCERO and Panasonic will benefit from the emerging stationary energy storage markets in countries such as Japan, these opportunities will only account for a portion of their overall revenue mix. One company that offers investors larger exposure is NEC. As stated above, not only is NEC active in the Japanese and global energy storage markets, they have also recently announced the acquisition of battery maker A123 Energy Solutions (OTC:AONEQ) for approximately US $100 million from China's Wanxiang Group after the Group when bankrupt. The acquisition of A123 gives NEC a potential leadership position within the global utility-scale energy storage market and has deployed in excess of 110MW of its lithium-ion storage systems. Recent notable system installations include a 3MWh grid storage system in Spain, a 2MW grid storage system in China, and a 1MW grid stabilization project on the Hawaiian island of Maui. For investors who are looking for some level of direct exposure to the Japanese market along with other emerging global markets, NEC can fulfill investors' appetites.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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