Following the aftermath of the Fukushima disasters in March 2011 Japan announced that going forward it would reduce its dependence of nuclear energy. This past Sunday, July 1, it took a significant step toward that promise by unleashing its new, rich feed-in tariffs (FiT) for renewable energy, including wind, solar, and geothermal bio-based energy generation. The FiT could foster a $9.6 billion solar market, making Japan the second largest solar market in the world. 

Small wind systems, smaller than 20 kilowatts receive the richest incentive at 74 cents per kilowatt hour, but solar photovoltaic systems aren’t far behind. Regardless of size solar PV systems will get 53 cents per kilowatt hour. Small systems, those under 10 kilowatts will be under a 10 year agreement while larger systems will be under a 20 year agreement. 

Still, the FiT isn’t perfect. “There are some restrictions on the market that need to be fixed,” said Jefferies Group Inc. Equity Analyst Jesse Pichel. Chief among them are some of the onerous permitting regulations in Japan, which include having a full-time master electrician onsite. 

Another issue that the FiT will be adjusted in a year, according to Pichel. The short term for the current FiT doesn’t give project planners a lot of insight into how much their projects will be worth while planning them now. “If you don’t know what you’re Investment Returns are going to be in a year, that’s clearly going to hamper new projects,” he said. 

A final, but big issue is that at this point they don’t allow solar on agricultural lands and Japan isn’t a country known for it’s land resources. “Where are you going to install these panels?,” Pichel said. He called the issues similar to those that impacted the Italian FiT when it launched. 

While the FiT doesn’t have any local content requirements, Pichel doesn’t think this will be a booming market for Chinese manufacturers. “It’s a closed market the way they’re sold in vertically integrated supply chains,” he said. He added Chinese modules may not pass muster with the Japanese over quality issues.