Japan Cuts Solar, Raises Wind Tariff

Japan slashed the rate that solar power earns on the grid by 11%, down to 32 Yen (31 cents) per kilowatt-hour. Beginning in the new fiscal year in April, projects that come online will receive that lower rate for 20 years.

Japan instituted the most generous feed-in-tariff in the world after the Fukushima meltdown, in an effort to rapidly scale up renewable energy to replace lost nuclear power. Japan installed 6.9 gigawatts of solar power in 2013, second to only china in total installed capacity. Despite the lower rate for solar, it remains quite high relative to conventional sources of energy, giving the industry a strong incentive to continue ramping up installations. “We expect the solar boom to continue for at least the next two years” said Takehiro Kawahara, an analyst at Bloomberg New Energy Finance.

At the same time, Japan raised the tariff to 36 Yen that wind projects would receive in an effort to kickstart offshore wind development. Despite the huge potential in Japan for wind, project developers have overwhelmingly favored solar power to wind. Since November, for example, 94% of new renewable energy projects installed came from solar and only 3% from wind.

Feed-in-tariffs have been successful in attracting investment for renewable energy around the world. Most notably, Germany instituted a generous feed-in-tariff years ago, allowing it to vault into the lead with the world’s largest installed capacity of solar. The downside is that the higher prices that are so attractive to project developers are usually directly passed on to electricity ratepayers. Higher electricity prices can sap support for such a policy. Germany has steadily cut its feed-in-tariff rates to lower the cost for consumers.

Electricity rates are jumping in Japan as well, but opposition to nuclear power is strong, and many people have thus far tolerated the higher cost of renewable energy.

This piece is cross-posted from OilPrice.com with permission.