Japan began liberalizing its electricity market in 2000, starting with the largest wholesale customers. Now, having initiated a feed-in tariff for renewable energy, primarily solar power, in 2012, and opened the rest of its market to competition in April 2016, that fully liberalized electricity market is reportedly worth US$140 billion in annual sales, and is a potentially interesting place for Canadian companies in the power sector to seek partners.
As a unified marketplace, Japan is also the world's largest single electricity market after China. Notably, it’s a market accessible to anyone in the world, as a seminar in April emphasized, meaning it presents appreciable opportunities to Canadian companies – if they approach it appropriately.
At the same time as market liberalization the country is experiencing a growing commitment to renewable sources of energy. Since the introduction of Japan’s feed-in tariff in 2012, renewables have grown at an average annual rate of 32% reaching about 39 GW in 2014. According to Bloomberg New Energy Finance, the current generation capacity for solar is 36.5 GW and about 3% of the entire generation mix. The government has set a goal for 2030 of having 22 to 24% of its energy in all forms from renewables, with solar at 7%.
In fact, as Daiki Nakajima from the Japan External Trade Organization (JETRO) office in New York, put it, a sizable gap has emerged between the official target for solar and what’s actually been commissioned. The government has identified some 85 GW worth of capacity from solar power it wants to see by 2030, in order to reach the target in the generation mix, but to date only those 36.5 GW have been commissioned. Of the remaining 48.5 GW in the pipeline, those projects that do not meet the new requirements of securing land, permit, finance, etc. by a specific date, the developer would be required to re-submit a Feed-in Tariff application. That gap could represent an opportunity for investors abroad, Mr. Nakajima suggested. An auction system has been proposed to be introduced by FY2017.
That said, however, the FIT rate for large solar farms has a built-in downward price ratchet that has already made new developments less lucrative, and is intended to end in 2019. At this point, the most promising opportunity lies in one particular application, rooftop solar, bundled with storage.
A common practice, Mr. Nakajima explained in a phone conversation, is that new housing tends to take the form of home purchasers taking over existing individual housing and rebuilding from the ground up – rather than the emerging North American pattern of adding solar to entire new subdivisions. Driven by a new governmental encouragement for net-zero residential construction (a roughly tenfold increase from previous construction of that nature prior to the new policy), real estate vendors and construction companies have been bundling rooftop solar with battery storage, and homeowners have been enthusiastically enlarging that market. Obviously this creates opportunities for both solar and storage suppliers. The market for storage is expected to triple from its 2014 level by sometime between 2020 and 2025, Mr. Nakajima said.
Another opportunity for companies outside the country lies in smart meters. By national mandate, smart meters are to be installed in all customers, including all households, by FY 2020 in Tokyo and 2024 nationwide. The program will result in Japan becoming one of the best places to introduce smart grid technology, with all that that entails, in data gathering and analytics to optimize grid operation.
Japanese companies tend to favour local manufacturers when partnering in products, but there are still opportunities for foreign entrants. It's a matter of approaching companies properly, including getting over the hurdle of language. Some foreign companies are already engaged with Japanese partners. For a Canadian example, Toronto-based Solar Power Network has been designing, building and operating solar rooftop systems, in partnership with various Japanese companies, and expects to install some 60 MW worth on rooftops.
See also: “Japan opens its market during period of unprecedented change,” IPPSO FACTO, November 2015.