A Look At The Japanese Solar Market

Japan’s solar industry has been in the spotlight recently as the government introduced highly attractive subsidies to encourage installations. According to Bloomberg New Energy Finance, the country could grow into the world’s third largest solar market this year, behind China and Germany. Now, some of the country’s largest banks are stepping up their funding plans to increase their lending to domestic solar projects.

Here is a brief overview of the Japanese solar market and the opportunities it offers for some of the solar firms that we cover.

Subsidies Among The Highest Worldwide

The Japanese government introduced feed-in-tariffs (FIT) in 2009, allowing residential solar power users to sell the excess electricity that they generated to utility firms at above market rates. To encourage investment in large scale solar projects, in July 2012, the government extended its FIT program requiring utilities to pay about 42 yen per kilowatt hour ($0.52) to solar power developers, who operate plants of sizes above 10 KW. These tariffs will be effective for 20 years, but their amount would be progressively reduced as installations ramp up. The current FIT’s in Japan are extremely attractive to developers since they are nearly three times those available in Germany.  The impact of the subsidies in Japan has been strong. According to the Japan Photovoltaic Energy Association, installations grew by around 80%  y-o-y during Q3 2012.

Banks Boosting Funding For Solar Projects

The strong growth prospects in the Japanese market have already lured firms including Goldman Sachs and IBM, who have invested in solar projects in the country. Now, the solar boom has also captured the attention of three of Japan’s largest banks – Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc, who estimate that the solar market in the country is likely to be around $19 billion over the next three years. All three banks intend to boost funding for solar projects. For instance, Mizuho, Japan’s second biggest lender is currently evaluating solar projects worth 600 billion yen ($6.4 billion). ^[1]

Uncertainty Relating To The Nuclear Phaseout

Following the Fukushima nuclear disaster of 2011, the government had pledged to phase out the country’s nuclear reactors by 2030. Given that nuclear power accounted for about 30% of Japan’s electricity generation prior to the disaster replacing it would have provided significant growth opportunity for renewable resources such as solar power. However, after the Liberal Democratic Party (LDP) returned to power last year, the government announced plans to review the nuclear phaseout and stated that it could restart reactors if they pass safety tests. ((The Guardian)) Irrespective of the governments plans, we believe solar power is likely to play an increasing role in Japan’s power generation mix since it provides a clean and environmental friendly way for the country to boost its energy independence and cut down on expensive fossil fuel imports.

SunPower, Yingli And Trina Solar Can Benefit

While Japan has some large solar panel manufacturers such as Sharp, imports have been steadily gaining ground over domestic manufacturers. In the Q3 2012, imported panels accounted for around one-third of the country’s installations, up from around 21% in 2011.  ((ref 1)) Among the solar stock that we cover, we believe that SunPower (NASDAQ: SPWR), Yingli Green Energy (NYSE:YGE) and Trina Solar (NYSE:TSL) stand to benefit from Japanese demand, thanks to their product portfolios which include  high efficiency modules, which are well suited for the space constrained Japanese market.

SunPower, the U.S. based manufacturer of high technology monocrystalline solar panels is likely to benefit, since it has been present in the Japanese market for several years and has a panel supply agreement with Toshiba. The firm is particularly well poised in the rooftop space, since its panels offer the highest energy density, meaning that they occupy less space per watt and are better at capturing sunlight.

Yingli Green Energy, the world’s largest panel manufacturer set up a Japanese subsidiary last year. The firm manufactures the ‘Panda’ line of monocrystalline modules that offer conversion efficiencies approaching 20%.

Trina Solar also manufactures high efficiency multicrystalline cells under its ‘Honey’ brand. Last year, the firm expanded manufacturing capacity for this product by around 500 MW. The firm is also looking to develop intelligent solar tracking systems, which help to improve the output of solar panels, by positioning them to track the sun. Tracking technology is ideally suited for large scale solar power plants since it boosts the output of solar power systems.

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

1. Bloomberg [↩]