Japan Set To Become A Major Market With New Subsidy Program

The Japanese government announced an ambitious plan to develop the country’s clean energy industry by offering generous subsidies to the developers. The country is facing tough choices as it plans to move away from its dependence on nuclear energy, and will introduce feed in tariffs (FiT) as an incentive for new solar installations. ^[1] The program is set to propel Japan to become the world’s second largest market for solar panels. Booming demand for solar panels from Japan could come as a major relief for manufacturers such as Yingli Solar (NYSE:YGE) and LDK Solar (NYSE:LDK). Chinese players are counting on demand from markets such as China and Japan to offset declining demand from Europe.

We have a $3.60 price estimate for Yingli Green Energy, which is at a 25% premium to its current market price.

Click here for our full analysis of Yingli Green Energy.

Rapid growth

The new measures by the Japanese government will force utilities companies to pay solar companies around 42 yen or 53 cents for each Kilo Watt hour (KWh) of electricity purchased from solar installations. ^[2] The tariff is twice the FiT rate in Germany, the world’s largest market for solar power.

The higher costs will be passed on to customers through an increase in retail cost of electricity. The high FiT rates could result in a rapid increase in investments in solar power systems. Japan’s new policy comes a time when governments across the world are cutting down on subsidies for solar because of falling costs and rapid growth in installations. Japan, on the other hand, is looking to direct major investments into solar and other renewable resources as it looks to move away from nuclear energy and also find alternatives to coal and gas plants.

Apart from hydro electricity, other renewable energy sources meet less than 1% of Japan’s energy needs. ^[2] With the new program, the government is looking to change the country’s energy landscape and hopes to add 2,000 MW of solar power generation capacity over the next three quarters. The new measures will build on the already existing trend among the country’s various parts to achieve more energy self sufficiency. The subsidy program will also cover residential panel installations.

We expect the generous subsidies to result in a rapid ramp-up of panel sales in the country. Chinese panel manufacturers such as Yingli and LDK should be able to capture a significant part of this new market because of their cost advantage. Demand from Japan and emerging markets such as China and India is expected to help solar panel manufacturers offset falling sales in Germany and other European markets.

Understand how a company’s products impact its stock price on Trefis.

Related articles

• LDK’s China Contract Win Help Recovery Prospects (trefis.com)

1. Solar Boom Heads to Japan Creating $9.6 Billion Market: Energy, Bloomberg [↩]
2. UPDATE 1-Japan approves renewable subsidies in shift from nuclear power, Reuters [↩] [↩]