The Japan solar market is set to grow by 120% in 2013 and install more than 5GW of new capacity, according to IMS Research. Benefiting from the world's most attractive solar incentive policy, Japan's solar market is currently booming, with installations expected to exceed 1GW in the first quarter alone, causing it to become the second largest market in 2013.
Overly generous incentives spur a booming market
Japan solar market currently benefits from a feed-in tariff (FIT) paying up to JPY42/kWh (US$0.43/kWh), even though this is likely to be reduced by approximately 10% beginning April 1.
"While a 10% reduction in tariffs is widely expected by industry players, this will have little effect on both internal rates of return and market demand. Furthermore, many systems that have already applied for the higher FIT are able to benefit from this rate of JPY42 even if they are installed after April 1," explained Ash Sharma, senior director of solar research at the research institute.
The market research institute reveals that installations are estimated at over 1GW in the first quarter of 2013 - the final quarter of Japan's fiscal year - and forecast to exceed 5GW for the whole of 2013. This would see Japan leapfrog ahead of Germany, Italy, and the US to become the world's second largest solar market.
A lifeline for Japan-based manufacturers
IMS Research found that domestic solar installations are proving to be a lifeline for struggling Japan-based companies that are able to sell both modules and inverters at high margins, despite their competitiveness at an international level falling behind their overseas peers. Providers of residential system kits, EPCs and project developers are also seemingly enjoying the high margins that come with a generous FIT and its resulting high system prices.
"Residential system prices in Japan are roughly double than those installed in Germany. The ability to sell modules and inverters at significant premium compared to the rest of the world, coupled with high demand and growth, provides a much-needed profit stream for Japan-based suppliers," commented Frank Xie, senior analyst for PV and solar research.
Although Japan has been reportedly attempting to attract foreign solar companies to its shores in order to help accelerate supply - and hence, installations - the research institute found that it remains a tough market for non-Japan-based companies in which to compete.
"While many China- and even US-based module suppliers are now serving the Japan market, they remain the minority and have largely needed to resort to OEM agreements and partnerships with Japan-based manufacturers, despite being highly regarded brands in the rest of the world. Simply put, Japan customers want to buy Japan-based modules. Non-Japan inverter companies have found it even harder to serve this market as tough regulations from the certification board, JET, and even more stringent requirements from utilities have meant that substantial product redesigns are required before they are able to target this market effectively. As a result, the market is currently suffering from a bottleneck in inverter supply," observed Sharma.
Projects more than 2MW in size (also known as mega-solar projects) in Japan are a major driving force behind the country's triple-digit growth rate, but this is expected to be short-lived, according to IMS Research, and the projects will face a decline after 2013.
"These so-called mega-solar projects are being deployed at a rapid rate, and IMS Research expects they will account for approximately 25% of total demand in 2013," Xie noted. "Government policy is in clear support of these projects while the country grapples with severe energy shortages following its shunning of nuclear power. However, this is likely to be short-lived and decline after 2014 once the current pipeline of approved projects is completed, largely because of a shortage of land in the country."
