Japan’s relatively new feed-in tariff for solar power has been spurring good solar power growth. Furthermore, it has set the environment needed for the market to mature. With the market maturing, the countries biggest banks are seeing it as an important market in which to get involved.
Japan’s biggest banks are following Goldman Sachs Group Inc. into domestic solar-power projects, anticipating an eightfold increase for investments in the industry.
Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. expect the market to be worth as much as 1.8 trillion yen ($19 billion) over the next three years. That’s more than eight times the roughly 223 billion yen of investment into Japanese solar installations in 2012, according to data compiled by Bloomberg.
Japan’s solar feed-in tariff program was implemented in July 2012. Bloomberg New Energy Finance projects that it will be the world’s third-largest solar market this year — behind Germany and either the U.S. or Italy. (I know, if it’s an “either/or” projection, it seems that it could also be a case of “and,” with Japan coming in fourth — but what do I know?)
Germany implemented feed-in tariffs for solar many years ago. As a result, solar growth boomed, the market matured, and German solar prices are much lower than in most other places. While the market matured, the government cut the rate of its solar feed-in tariffs. Japan’s new feed-in tariffs are about 3 times higher than Germany’s current tariffs.
With a very good guess as to what these new feed-in tariffs will stimulate, banks are backing very ambitious solar project developers.
“A lending pipeline of this size is rare,” said Koji Shiroishi, senior vice president at the structured finance division of the corporate lending unit at Mizuho, Japan’s second-biggest lender by assets. It’s evaluating solar projects worth 600 billion yen.
Solar developers typically borrow to finance at least 70 percent of project costs, suggesting loans to the industry may top 1.2 trillion yen over three years, according to calculations made with data from New Energy Finance. The London-based research group counted $2.8 billion in solar projects in Japan in 2012, the first year subsidies were offered. Few projects were completed the two previous years.
With such a large market just blossoming, the largest banks are jockeying for as much of the market as possible. According to Bloomberg, Sumitomo Mitsui itself is aiming for over 1/3 of the market. Just prior to the implementation of the solar feed-in tariff, “Sumitomo Mitsui, Japan’s third-largest lender, boosted its staff working on solar to about 110 from only a few in previous years in anticipation of greater lending volumes.”
Notably, the political leadership of Japan has just changed, switching to a party that may be less supportive of the solar support.
Those opportunities in solar may not last. Energy policies set by the Democratic Party of Japan may be overturned or diluted under Shinzo Abe’s Liberal Democratic Party, which reclaimed power in the December national election….
Toshimitsu Motegi, who became trade minister on Dec. 26, said on Jan. 22 that subsidies known as feed-in tariffs will continue to “boost new investment.” Still, he added the incentive for solar energy for the year starting April 1 may be reduced to 35 yen to 39 yen a kilowatt-hour, from the current rate of 42 yen per kilowatt-hour for 20 years.
We’ll see. Even a drop down to 35 or 39 yen wouldn’t make for a significant shift in the market trend. There’s extremely strong support for solar in Japan (as in many countries), and I think anyone in leadership there would be remiss to significantly change the solar feed-in tariff in the coming few years.