Japan to Lower PV System Prices with Solar Tenders and FIT Reduction

Japan’s Ministry of Economy, Trade and Industry (METI) held the fifth committee on December 5, 2016 to review the Feed-in-Tariffs (FIT) schemes for fiscal year 2017. Besides presenting details for solar tender programs for 2017 and 2018, the committee also made a plan to reduce FIT rates year by year and hence to lower solar’s costs.

Three Solar Tenders, Totaling 1.5GW

In October 2016, METI suggested to launch three tenders for PV projects in the second half of 2017 and the first and second half of 2018. The auction program involves PV systems with a scale of more than 2MW. According to the fifth committee on December 5, the capacity for each tender will be 500MW, so the total capacity of the three rounds will reach 1.5GW.

Previously, METI said the 2MW threshold was based on the requirement that a solar project over this scale must be connected to extra-high voltage cables of 7000V or above. Furthermore, as the installation costs of 2MW and higher-output PV plants have remained almost unchanged in the past few years, METI emphasized at the fifth committee that they hoped the auction program could help reduce the installation cost.

According to METI, the total installations of solar projects with 2MW and above capacity in Japan was 12.007GW in fiscal 2013, 6.318GW in fiscal 2014, 1.361GW in fiscal 2015, and 0.544GW in fiscal 2016 (as of the first quarter). In addition, the capacity for the whole 2016 was estimated to be at 1GW. Based on the statistics, METI has set the capacity for the first tender at 500MW.

According to Nikkei BP, the tender capacities for the second and third rounds will be set according to the results of the first round.

The first tender is scheduled for October 2017 with details to be announced in September 2017. Bidders with the lowest price will win the bid. If multiple bidders offer the same lowest price, the winner will be decided by lottery. In addition, the winner must submit a deposit which will be confiscated if the winner fails to complete construction and start operation on time.

Continued Reduction in FIT to Reach Grid Parity after 2020

The start price for the abovementioned auction program must be based on the FIT rates of the year of the bidding, an issue that was also discussed in the fifth committee. All in all, the FIT rates for solar projects will be reduced year by year in the future.

This committee also set the price reduction schedule for residential and non-residential PV systems. MEIT aims to reduce the cost of non-residential PV power to 14 Yen/kWh in 2020 and further down to 7 Yen/kWh in 2030. As for residential PV systems, the FIT rate is expected to fall to the same level as the electricity prices for households in 2019. MEIT will strive to reach grid parity after 2020.

• Non-residential PV systems with capacity of 10kW and above

According to MEIT, the installation price for non-residential PV systems is expected to drop to 244,000 Yen per kW from 251,000 Yen per kW in 2016, with utilization rate rising to 15.1% from 14%. The utilization rate of PV systems with capacity of 2MW and above (which are required to connect to high-voltage power cables) will reach 16.3%, indicating more room for price reduction.

Non-residential PV systems sized over 10kW currently enjoy a FIT rate of 24 yen/kWh. The price will be reduced in 2017, though the exact figure remains unknown. The FIT rates for 2017 will affect the base price of the first solar tender in October 2017.

• Residential PV systems with capacity below 10kW

According to MEIT, the average installation price for residential PV systems with capacity of 10kW and below in 2016 is 352,500 Yen/kWh. In light with the goal of reducing the FIT to the electricity rate for households in 2019, MEIT plans to lower the price to 336,000 Yen/kWh, 322,100 Yen/kWh, and 308,400 Yen/kWh in 2017, 2018, and 2019, respectively.