Japan Cuts Feed-In-Tariffs But Impact Should Be Minimal

Includes: SPWR, TSL, YGE
by: Trefis

Japan’s government has approved a 10% cut to the country’s feed-in-tariffs (NYSE:FIT) for solar power, effective April 1. The cut would see the tariffs reduced to 37.8 yen ($0.40) per kWh from 42 yen ($0.45) per kWh [PV Magazine]. Incentive cuts typically result in lower demand for solar power products as was the case in many European countries last year. However, the Japanese FIT reductions are unlikely to have a material impact on modules sales since the FITs will continue to be among the highest in the world. Even following the cuts, Japanese FITs are nearly three times those available in Germany and China [Bloomberg]. According to Bloomberg, it would be attractive for solar project developers in Japan to build new power plants even at rates as low as 37 yen.

Incentives For Solar Power In Japan

The Japanese government first introduced FITs in 2009, allowing residential solar power users to sell the excess electricity that they generated to utility firms at above the market rates. In July 2012, the government extended its FIT program, requiring utilities to pay about 42 yen per kilowatt hour ($0.45) to solar power developers who operate plants of sizes above 10 KW. These tariffs are for 20 years, but the government made it clear that they would be progressively reduced as installations increase and costs of solar power systems reduced. (See Also: A Look At The Japanese Solar Market)

World’s Third Largest Solar Market

Japan is one of the fastest growing solar markets in the world with non-residential installations growing by around 580 MW last year, and new installations are expected to be around 1.46 GW in 2013. The country is expected to become the world’s third largest market for solar panels this year. While Japan has some large solar panel manufacturers such as Sharp, imports have been steadily gaining ground over domestic manufacturers.

In Q3 2012, imported panels accounted for around a third of the country’s installations, up from around 21% in 2011. Among the solar companies that we cover, we believe that SunPower (NASDAQ: SPWR), Yingli Green Energy (NYSE:YGE) and Trina Solar (NYSE:TSL) stand to benefit from Japanese demand since their product portfolios include high efficiency modules, which are well suited for the space constrained Japanese market.

Disclosure: No positions