Japan Renewable Energy Feed-In Ready for Signature

Yesterday, a government panel recommended rates for Japan’s highly anticipated renewable energy feed-in tarriff (FiT), which is widely expected to make the country an important solar and geothermal market.

Japan’s goal is to boost renewable generation by more than 30 gigawatts (GW) over the next decade – the equivalent of 12% of Japan’s total generation capacity before the nuclear meltdown.

The FiT covers solar, wind, geothermal, biomass and hydroelectric.

The generous rates for providing solar to utilities are $0.52 (42 yen) per kilowatt-hour (kWh), triple the amount charged to industrial and commercial customers. The guaranteed period for receiving that rate is 20 years.

Rates for wind-generated electricity are also for 20 years and are based on size: 57.75 yen per kWh for turbines under 20 kW and 23.10 yen per kWh above that.

The rates are in line with recommendations from Japan’s Photovoltaic Energy Association and slightly under the 25 yen the Japan Wind Power Association suggested for larger producers.

They are based on the costs of building and operating renewable energy plants.

Solar projects could produce equity returns of as much as 44%, and wind 51%, if the proposed rates are finalized, says Bloomberg New Energy Finance. The Fit could result in 10 GW of solar and 0.7 GW of wind capacity by 2014, representing an investment of $37.5 billion. That would make Japan the third largest solar market in the world.

Geothermal electricity would get 42 yen per kWh for plants smaller than 15,000 kW and 27.30 yen per kWh for larger plants, but only for 15 years.

The rates are a bit higher than recommended by Japan’s Geothermal Developers’ Council.

For hydro, the panel is recommending 25.20-35.70 yen, based on size, for 20 years, and for Biomass, 13.65-40.95 yen, depending on the kind of fuel, for 20 years.

The panel’s recommendation must be approved by Industry Minister Yukio Edano to go into effect this July.

The FiT will replace Japan’s Renewable Energy Standard, which requires utilties to source a set percentage of electricity from renewables.

In August, Japan’s parliament passed legislation for the FiT to fill the gap left from the closed nuclear plants, which provided 30% of its electricity.

Although the FiT guarantees prices for 15-20 years, tariffs will be reviewed annually by the government and could be lowered over time. That means, those that get plants in the ground in the early years will be guaranteed the highest profits.

Japan currently gets about 9% of its electricity from renewables.

Japan is closing all 50 nuclear plants for maintenance – the first time in 40 years the country will not use nuclear energy.

Many proposed projects in solar, wind and geothermal are on hold, pending pricing decisions, but several have been announced, including floating wind turbines, Kyocera’s 70 megawatt (MW) Mega-Solar Power Plant and Softbank’s much larger 340 MW solar plant.