Is Japan’s 2030 photovoltaic target feasible?

In particular, solar power has played a key role in Japan’s renewable energy landscape, achieving a target 14.16% photovoltaic share by 2030. To achieve this goal, Japan has undergone significant photovoltaic development since 2012, offering power in: a subsidy system tariffs (FiT), which provides a fixed fee for each kilowatt-hour produced over periods of up to 20 years for approved renewable generators.

However, the FiT system placed an increasing burden on end users and generators became disconnected from electricity demand. From 2022, Japan introduced a guaranteed energy subsidy (FiP) system aimed at encouraging companies to generate more power during peak hours and less during off-peak periods. Currently, both FiT and FiP systems are offered, but there is a gradual shift towards adopting only FiP. The FIP system ties generators to market prices, and this approach provides greater incentives to increase supply during peak hours, which can be facilitated by the use of battery storage.

However, the transition from FiT to FiP introduces elements of competition and instability due to price volatility and the risk of imbalance. The change may make the subsidy system less attractive to some companies. In addition, challenges related to the shortage of land for PV installations contribute to a more muted increase in new solar installations.

Photovoltaics market in Japan in 2023

With 1.1 GW of new PV installations in 2023, the total installed PV capacity reached 122 GW, accounting for 12% of Japan’s total power mix. While installations are expected to increase slightly in 2024, the trend is towards smaller projects of less than 50 MW.

In 2023, installed solar capacity remained below 200 MW, with 45% of projects falling below the 50 MW threshold. Significantly, installations were concentrated mainly in Hyogo, Miyagi and Mie prefectures. Last year, foreign companies, including Singapore’s Vena Energy and Spain’s Sonnedix, accounted for 47% of developers and secured positions among the top five solar developers in Japan.

When performing an economic analysis (with a discount rate of 5%) of photovoltaic projects implemented in 2023, categorized by project size (less than 50 MW, between 50 and 100 MW and more than 100 but less than 200 MW), the net present value (NPV), which represents project profitability, was particularly the highest for Pacifico Energy’s 120 MW Sanda Mega Solar project in Hyogo Prefecture and the lowest for the 34 MW Samegawa Aosono Megasolar project in Fukushima Prefecture. The levelized cost of electricity (LCOE), representing the lifetime cost of generating electricity, was highest for projects under 50 MW. Interestingly, unlike NPV or LCOE, the payback year did not show a direct correlation with project strength, but ranged from eight to 11 years.

In general, larger capacity projects with higher NPV and lower LCOE appear to offer higher profits. However, it is recognised that such projects may require larger land areas and involve higher initial costs, which likely contributes to the observed trend of limited installations in larger capacity projects.

Despite these changes, achieving the ambitious target of generating 36-38% of electricity from renewable sources by 2030, especially for the photovoltaic sector, appears difficult given the current slowing pace of installations. Exploring alternative routes to accelerate solar PV adoption is becoming imperative to bridge the gap and achieve set goals.

Rooftop photovoltaics in Japan

Japan has seen an increase in rooftop solar installations in recent years, with 1 GW of rooftop solar capacity added in 2023, bringing total installed capacity to 59.6 GW. This positive trend is expected to continue in the coming years, driven by both the retrofit of aging rooftop solar projects and the implementation of mandatory rooftop solar initiatives.

The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) has outlined comprehensive actions for housing and buildings, aimed at achieving carbon neutrality by 2050. According to this plan, by 2030, 60% of newly built single-family homes will be equipped with in solar energy generating devices. Looking into the future, by 2050, rational homes and buildings will be widely equipped with solar energy generation devices.

In a significant move, from 2025, companies constructing buildings exceeding 20,000 square meters per year will be required to install rooftop solar PV systems. Kyoto is leading this mandatory push for rooftop solar PV systems. Since April 2020, Kyoto has required buildings with a total area of ​​at least 2,000 square meters to be equipped with renewable energy devices, such as solar power. In April 2021, this was further expanded to include buildings with a total area of ​​at least 300 square meters. As such, the development of rooftop solar PV systems is expected to gain further momentum once the regulations come into force.

Rooftop PV accounted for almost half of Japan’s total installed PV capacity of 107.31 GW at the end of 2023. Compared to other Asian countries, Japan has one of the highest rooftop PV capacity to PV capacity ratios. This trend is promising for renewable energy in Japan, especially for solar installations in areas with land constraints and decreasing subsidies.

Of Japan’s currently installed rooftop solar capacity, 47.7 GW, or about 80%, is for commercial and industrial (C&I) use, with the remainder for residential use. However, the government has set higher FiT prices for rooftop solar to encourage further growth. The current FiT price for rooftop solar is ¥16 ($0.1088) per kilowatt hour (kWh), while for C&I it is ¥10 per kWh. However, the FiT rate for rooftop solar has been gradually decreasing, initially set at ¥39 per kWh. Therefore, it is recommended to install solar panels on the roofs of homes sooner rather than later to maximize the profit margin for residents.

Limitations of solar energy

Despite the positive growth trend in rooftop and utility-scale PV installations in recent years, 2023 was a record year for renewable energy curtailments in Japan, with PV curtailments increasing five-fold. A total of 1.63 terawatt-hours (TWh) of solar power generation was curtailed in the 11 months ending November 30, 2023, compared with 0.29 TWh in the same period in 2022. This resulted in revenue losses of between $110 million and $150 million for solar assets. The losses are significant for developers in Kyushu and Chugoku, as can be seen in the chart below.

As a countermeasure to the broader renewable energy market, Japan has changed the order in which solar and wind projects send power to the grid. The move is aimed at reducing revenue losses caused by restriction issues. The new “redistribution method (specific order)” rule, unveiled on December 28, 2023, replaces the “first-come, first-served” method, which gave existing thermal power plants priority over renewable energy sources during periods of network congestion.

This change is expected to save the renewable energy industry between $120 million and $150 million in revenue losses due to curtailments. From January to November 2023, Kyushu Province had a solar curtailment rate of 12.36%, and Chugoku Province had a solar curtailment rate of 5.1% during the same period.

Under the new reshipment method, METI will prioritize renewable energy sources with low emissions and low marginal costs. This move also expands the scope of exit control for both permanent and non-corporate connections, as shown in the chart above. Changes to mail order rules are positive for the renewable energy industry, where the growth of new capacity is growing faster than the growth of transmission line capacity. However, it remains to be seen what impact the new shipping rule will have on energy prices in Japan, although we expect it will lead to greater volatility in spot energy prices in the long term.

Battery energy storage systems

With the introduction of FiP and the growing problem of congestion, battery energy storage systems (BESS) have emerged as a promising solution for utilities. Seven battery projects with a total capacity of 358 MW have been launched in the past year. These were mainly intended for wind projects that have finished their FiT subsidy period or offshore wind farms that want to store energy and sell it on the market via FiP to gain additional profit during peak hours.

FiP is gaining momentum, and BESS is becoming increasingly popular for generating revenue through the energy arbitrage market. By charging during the cheapest time of day (24-hour period) and discharging during the most expensive time of day, companies can generate revenue while also helping to reduce energy losses. The graph below shows the average one-hour spread during the day in Hokkaido and Kyushu, two prefectures that export a significant amount of electricity and have high PV penetration.

The combination of high solar penetration leading to low prices during the day and high gas prices driving high prices in the evening means that Japan is a highly prospective battery market. By storing batteries, companies can optimize energy consumption while promoting sustainability and helping to reduce energy waste.

Final thoughts

Japan appears to be making significant progress towards achieving its 2030 target of 36-38% renewable energy in its energy mix, including a 14-16% target for solar photovoltaics. This is largely due to strategic planning and significant government support. As a result, Japan’s energy security and self-sufficiency are improving. The implementation of subsidy strategies such as FiT and FiP have contributed to the growth of solar photovoltaics, although this growth has recently stagnated.

However, rooftop solar panels show promise, and the government’s plan to make them mandatory for new buildings is expected to go a long way to helping the country meet its renewable energy target. Despite the challenges of being limited by high solar penetration, the FiP program opens up a good market for BESS business in Japan. According to our analysis, BESS has the potential to generate significant revenues through the energy arbitrage market.

Japan’s energy future appears promising thanks to significant government efforts. While there may be some challenges along the way, continued support for innovative solutions such as BESS and rooftop solar panels is crucial. These measures will not only help overcome challenges but also create new business opportunities in the market.

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Uranulzii Batbayar works at Rystad Energy as an energy and renewable energy analyst. He specializes in the analysis of renewable energy and capacity markets in East Asia. Aniket Autade has been working at Rystad Energy for over a year, serving the renewable energy and energy market in East Asia, excluding China.