Japan's solar surge finds a new gear

As its nuclear sector takes another blow, Japan's solar commitment could see it become the world's biggest solar market this year.

Japan had some optimistic economic news last week showing that the country's GDP expanded by 0.9 per cent last quarter – its quickest pace in a year.

The data suggest that Prime Minister Shinzo Abe's aggressive stimulus measures may be working. They certainly seem to be working to improve this reputation: investors are more confident in a Japanese leader than any time since September 2010, according to a poll of investors, analysts and traders who are Bloomberg subscribers. Optimism about Abe's policies exceed that for counterparts in the US, Europe and China. Abe took office last December after winning an election on a platform of reflation.

But what does this mean for clean energy? The country's generous solar feed-in tariff continues to bolster demand: Japan Asia Group's plans are moving ahead to develop 500MW of solar projects over the next three years, Tetsuo Yamashita, chairman of the company, said at a meeting with analysts on May 16. It has 24 solar plants already developed in Europe, but may trim its business in that region, Yamashita said. Japan Asia received a 1.6 billion yen loan ($A15.9 million) for five solar projects in its home country from Shinsei Bank and Mitsubishi UFJ Lease & Finance Company, it said in a statement in March.

The preceding day, Eurus Energy Holdings announced plans to build a 115MW solar power station in northern Japan. The aim is to start construction of the 49 billion yen project this July and to begin running the station in November 2015. Eurus is a venture between Toyota Tsusho Corporation and Tokyo Electric Power Company (Tepco).

And on May 14, Nippon Paper Industries said that its joint venture with Mitsubishi will begin construction on a 21MW solar power station in western Japan this autumn. The plant is expected to start selling electricity to Shikoku Electric Power in the second half of 2014.

Demand for solar power is increasing for non-residential projects, according to data released by the Ministry of Economy, Trade and Industry on May 17. Approved applications for non-residential solar projects jumped to 11GW by the end of February from just under 6GW at the end of January.

The start of the feed-in tariff last year helped Sharp to reduce losses at its solar unit in the Asian country: global solar sales climbed 16 per cent to 260 billion yen ($A2.59 billion) last fiscal year, mainly driven by an increase in residential demand in Japan, the company said. Sharp's operating losses fell to 4.4 billion yen for the 12 months ended March 31 compared with 21.9 billion yen the previous year.

The continued strong demand in Japan and the depreciation of the yen mean that Sharp could have a good 2013. It may want to differentiate its products from competitors – whether on price or quality – as most other major Japanese manufacturers have begun doing.

In any case, Japan is forecast to install 6-9.4GW of solar capacity this year under its feed-in tariff, according to Bloomberg New Energy Finance. This could make it the second-largest – or even the top – solar market in 2013.

Meanwhile Japan's new nuclear regulator looks set to shut down at least one plant and maybe more, after a report published May 16 found that an earthquake fault under the country's oldest reactor at Japan Atomic's Tsuruga plant was active. National law bans building reactors on active faults.

"Japan Atomic's survival is now in doubt," Takashi Aoki at Mizuho Asset Management told Bloomberg News. This also raises the risk for the five other power stations under investigation for active faults. Japan Atomic has repeatedly said that the fault is not active, according to a company statement.

The new Nuclear Regulation Authority (NRA) also said last week it would issue an order to keep a separate unit, the Monju experimental fast breeder reactor, closed until its operator overhauled safety measures.

The verdict might be a blow for Abe's efforts to get the nuclear capacity back online but it could be reassuring news for the Japanese public that the new watchdog does not seem to shy away from making unwelcome decisions to prioritise safety. The NRA's predecessor reportedly ignored warnings before March 2011 when the earthquake and tsunami caused the meltdown of three reactors in Fukushima.

Only two of Japan's 50 commercial reactors are online. As a result, power companies face losses as they have had to resort to expensive fossil-fuel imports. These have pushed up carbon emissions and energy costs, which manufacturers have said will hurt business. In 2012, the country posted a record high trade deficit of 6.93 trillion yen, the lion's share of which came from the increased cost of imported fuels.

Members of Abe's party gathered on May 14 to demand restart of the nuclear reactors for the sake of the economic recovery. However, their demands may not be in line with public sentiment: in March, thousands of protesters marched through Tokyo, calling on the government to reject nuclear power.

The NRA is not expected to compile new safety standards until after July 2013, meaning that any decision on resuming operations could likely only be made after the upper house elections this summer. Earlier this week, Tepco said it has not yet decided if it will ask to restart its idled reactors in July, even as its shares surged 11 per cent on a report that it will make an application. It is assessing whether its Kashiwazaki-Kariwa plant meets new nuclear safety rules, according to a statement to the Tokyo Stock Exchange on May 20.

Two other utilities – Shikoku Electric Power Company and Kyushu Electric Power Company – confirmed that they will apply. An article in the Yomiuri newspaper reported on May 19 that five power companies, including Tepco, would submit restart requests.

EU carbon

European carbon permits rose last week on increased demand and optimistic comments from a high-level official on a possible fix to the oversupplied market. European Union allowances (EUAs) for December 2013 gained 4.7 per cent to close the week at €3.54/tonne, compared with €3.38/t at the end of the previous week.

Prices jumped above €3.60/t on Wednesday after Jos Delbeke, director general for climate at the European Commission, said EU policymakers could give their final approval in the second half of this year on the backloading proposal to delay sales of some emission allowances. EUAs hit an intraday high of €3.78/t on Thursday afternoon. There may have been increased demand in anticipation of less auction supply this week, as some European countries had a public holiday on Monday.

UN Certified Emission Reduction credits (CERs) for December 2013 gained 7.1 per cent to finish the week at €0.39/t.

This article was originally published by Bloomberg New Energy Finance.

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