Japanese Firms To Develop Large Solar Farms As Incentives Take Effect

Solar developers across Japan are ramping up plans to develop solar farms as the country’s policy to encourage renewables takes effect. Japan is introducing compelling feed in tariff rates to boost solar and wind installations as it looks away from nuclear power. Utility companies in the country will have to pay up to $0.53 per Kilowatt hour (KWh) for solar power, ^[1] almost double the rates offered in Germany – the world’s largest market for solar energy. The high rates are pushing developers to announce new projects, which should result in a major increase in demand for solar equipment. Demand from the country should come as a major relief for panel manufacturers like Suntech Power (NYSE:STP).

We have a $2.67 price estimate for Suntech Power, which is at a 40% premium to its current market price.

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New opportunity

Investments in renewable energy are set to double in 2012, as companies unveil plans to develop projects to take advantage of the new subsidies. Softbank, a mobile phone company, is set to build the country’s largest plant in Tomakomai, Hokkaido by 2014. ^[2] The facility will have a capacity of 111 MW. Other companies, including major players like Toshiba, are also planning to develop solar farms to take advantage of the generous tariffs. The rush to develop solar farms is expected to result in significant demand for panels and other solar equipment and could help Suntech and other players offset falling demand from Europe. Work on most of these projects is set to begin in the second half of the year.

Despite the boost that panel manufacturers will receive from the Japanese push, the generous subsidies could result in a repeat of the boom-bust cycle seen in European markets. Dropping equipment costs resulted in a jump in solar installations in countries such as Italy, Spain, Czech Republic and Germany. Hit by high subsidy costs, governments were forced to cut back sharply on support, resulting in a collapse in demand. Analysts expect a similar scenario could play out in Japan. ^[1] The current subsidy levels will be revised in March 2013 and are set for revision every six months. Japan and other eastern markets will be the major drivers for panel demand over the next few years.

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1. Japan Clean Energy Funding to Double as Incentives Start, Bloomberg [↩] [↩]
2. Softbank to Build Japan’s Biggest Solar Plant on Incentives, Bloomberg [↩]