Japan Energy Policy: Government launches generous FIT scheme to boost renewables in energy mix

The Japanese government’s decision to provide generous subsidies to renewable energy production is the first concrete step towards developing a new energy policy following the Fukushima disaster last year.

Oil, coal and gas now account for almost 90% of Japan’s energy resources while renewable resources, apart from hydro-electric dams, currently account for only 1% of the nation’s power supply.

However, on Monday Japan approved incentives for renewable energy that could produce billions of dollars in clean-energy investment. The Noda government wants to cut use of nuclear energy as well as oil and liquefied natural gas.

Under the feed-in tariffs (FIT) Yukio Edano, Industry Minister, Japanese utilities will be required to buy electricity from renewable sources at pre-set premiums for up to two decades. Solar-generated electricity prices will be 42 yen (53 U.S. cents) per kilowatt hour, while wind power prices will be at least 23.1 yen. Incidentally, the price set for solar power in Japan is twice than that in Germany.

Tokyo hopes that these generous incentives will encourage private sector investment in renewables so that Japan can slowly but surely move away from the current energy mix. Japanese consumers will, however, have to pay through increased energy prices.

Brokerage CLSA says revenue from renewable generation could expand to more than $30 billion by 2016. However, investors can’t make any long-term choices until officials have determined a much broader plan for energy policy. Current proposals call for a sixteen-fold increase in solar and wind capacity by 2030.

CLSA predicts that solar capacity will jump to about 19 gigawatts by 2016 while wind capacity may reach 7.6 GW.

Shares of Japan’s solar panel makers such as Panasonic and Sharp jumped, on hopes that the volume boost will make up for a big fall in solar product prices. However, foreign makers - including Suntech Power Holdings, Trina Solar and Canadian Solar - are also targeting Japan's market.

The government estimates the new subsidised tariff regime will produce 2.5GW of renewable energy capacity by next March, with the bulk coming from new solar projects.

The approval of the new tariffs comes days after the government authorised the restarting of two nuclear reactors. This could potentially lead to more of