Japan Renewables Report Q4 2012

Includes 3 FREE quarterly updates

BMI View: Renewable energy in Japan is expected to boom in the coming years, owing to the passing of the new feed-in tariffs (FiTs) as well as to the widespread anti-nuclear sentiment in the country. Most notably, we anticipate a plethora of solar energy projects to be undertaken by independent power providers (IPPs) over the next few years, but expect a slowdown in new projects past 2015. This slowdown could be avoided if the costs of generating renewable energy reached grid parity, which we believe is a possibility given current trends. We are forecasting non-hydro renewable generation in Japan to reach 36 terawatt hours (TWh) in 2012, representing growth of 10.4% from our 2011 estimate of 32.5TWh. Our forecast is relatively conservative given the new FiT scheme, but we believe that the passing of the tariff comes fairly late in the year. Currently, the large majority of renewables projects are still in early stages of development, and we expect to see these come online from 2013 onwards. For the longer term, we expect growth in the sector to average 10.6% from 2012 to 2016, and 7.42% from 2017 to 2021. We are revising up our forecast for solar generation to average 35% per annum between 2012 and 2016, and to slow down to 12% per annum from 2017 to 2021.Similarly, we project wind generation to grow at an average rate of 15% per annum between 2012 and 2016, slowing down to 11% over the rest of our forecast period. We are projecting slower growth past 2015 due to increased global natural gas exports and possible changes in the highly generous FiTs.

Here are the key trends and regulatory changes in the industry:

• Japan’s government passed the country’s FiT scheme on June 18 2012. The scheme will come into effect on July 01 2012, and will require utilities in the country to purchase all renewable electricity generated by IPPs at fixed rates for up to 20 years.
• Approval was given to restart two of the country’s 54 nuclear reactors. This is in line with our prediction, and we expect more restarts to occur over the course of the year. While positive for the economy, we view further restarts as a threat to renewables.
• Several large conglomerates and financial firms announced solar energy projects over the last quarter. Telecommunications company Softbank and electronics manufacturer Toshiba are among firms that are developing solar power capacity, and we believe this will be a trend going forward.
• Wind energy in the country is set to grow. Trading house Marubeni made several large offshore wind energy acquisitions, and we believe the company will capitalise upon attractive wind FiTs using its newly acquired expertise.