The Prospects of Japan's Solar Energy Market
Trying to understand the landscape of solar power in Japan? The market is complex, coming with specific regulations and established key players, but also promising opportunities. This article is here to help you understand these.
We will break down the latest trends in solar energy in Japan, key government incentives along with tax benefits that will make a huge difference for your business.
Whether you are actually considering an expansion into Japan or just reviewing potential options, this guide provides clear insights and practical advice. With all the necessary background information in hand, you can make informed business decisions for entry into the photovoltaic market in Japan.
Current State of Solar Power Industry in Japan
The Japanese solar energy market is one of the most advanced and fastest-growing demand markets currently in the world. By the end of 2024, Japan will have one of the biggest installed capacities for solar PV systems in the world.
This is in line with the growth trend witnessed over the last ten years, attributed to favorable government policies as well as advancing technology in the sector.
According to recent reports, Japan's solar power capacity surpassed 70 gigawatts (GW) by early 2024, making it a leading player in the global solar energy landscape.
The solar energy sector of Japan is valued at an estimated range between $20 to $30 billion. In fiscal year 2023, the purchased value of electricity generated from solar energy in Japan was approximately $20 billion, while this market is expected to grow with a CAGR of over 9.2% from 2024 to 2029.
For comparison:
China: China leads with over 450 GW of solar contribution, and the market size is estimated at over $150 billion USD.
United States: The country has an installed capacity of about 160 GW in solar, and the market size is approximately $70 billion USD.
Germany: With a solar installed capacity of approximately 60 GW, the value of the market in Germany can be estimated to be around $20 billion USD.
Several factors, including the government's commitment to renewable energy and partly the need to get free from dependence on fossil fuels, constitute the contributing factors that have driven growth. Accordingly, the Japanese government set ambitious targets for doubling renewable energy in its effort to reach carbon neutrality by 2050. There has been a huge surge in investment in solar energy, both technological and infrastructural.
It is expected that the market will continue to grow, with forecasts predicting an increase by another 10-15 GW in the coming five years.
Key Players and Institutions
A range of key stakeholders facilitates innovation and deployment to drive the growth of Japan's solar power market.
Some of the major companies that operate in the sector include:
Kyocera Corporation: This is one of the largest manufacturers of solar modules and also one of the major players in Japan's solar market. Kyocera has been executing several large solar projects across the country.
Sharp Corporation: Another major manufacturer of high-efficiency solar panels. It has been vital in the development of solar technology in Japan.
Panasonic Corporation: The company is one of the biggest manufacturers involved in solar activities, including high-performance photovoltaic panels, and an integrated energy storage system.
Sungrow Power Supply Co., Ltd.: As one of the leading companies in solar inverter and power conversion technology in the world, Sungrow has participated in several big projects in Japan.
Some of the key institutions that support the solar power industry are:
New Energy and Industrial Technology Development Organization (NEDO): This governmental institution supports the development of state-of-the-art energy technologies, including solar power. NEDO provides research funding, subsidies, and other forms of support for solar energy projects.
Japan Photovoltaic Energy Association (JPEA): It is an industrial association whose purpose is to represent the interests of the industry linked to solar energy. JPEA encourages the reception of photovoltaic technology and takes an active role in industry development.
Ministry of the Environment (MOE): Ensures policy and regulation formulations pertinent to environmental protection and renewable energy, including solar power.
Enabled by these key players and facilities, there is a driving force for innovation and successful implementation of solar projects in Japan.
Opportunities for Entering the Market
Several circumstances present opportunities for overseas businesses to enter Japan's solar energy market. Some of these circumstances include:
Government Initiatives and Policies
Japan works for carbon neutrality; hence, it is setting ambitious goals under its GX policy of Green Transformation. It is embedding solar power in all public buildings and properties, promoting the installation of solar panels in many sectors.
This gets further fortified by cooperation with neighbors through methods like the Asia Zero Emission Community.
Feed-in Tariff (FiT) System and Feed-in Premium (FiP) System
The FiT system provides a fixed price for solar electricity, between a minimum of JPY 9.5 and a maximum of JPY 16/kWh until 2024, which incentivizes both residential and commercial installations.
The FiP system provides, in addition, a premium above the market price, which contributes to increasing the attractiveness of solar investments. Larger projects will have auctions to ensure competitive pricing.
Renewable Energy Certificates (RECs)
RECs, including for example the Non-Fossil Certificate (NFC), confirm that electricity comes from renewable sources and can be traded. This adds an extra revenue stream and helps integrate Japan's solar energy into the world market. Particularly, NFC will be able to testify that the generated energy is obtained from renewable sources.
Investment Subsidies and Grants
Japan offers investment subsidies and grants to reduce initial costs for solar projects. These are part of the plans the government has to triple its renewable energy capacity by the year 2030, enabling projects such as net Zero Energy Houses and ZEH, and accelerating the adoption of solar technologies.
Local Government Initiatives
Japanese local governments are actively promoting solar energy. They have numerous initiatives to ensure additional solar power in their respective areas.
One such initiative involves the creation and development of solar promotion zones. These are specific areas backed up with all sorts of incentives, from tax breaks to fast-tracking permits, to purposely attract solar projects.
Some city governments go so far as to issue ordinances for the installation of solar power systems in new buildings, making sure that solar energy is included right from the beginning of any new development.
Apart from that, municipal governments are partnering with private companies through PPAs. These agreements ensure long-term price stability, hence keeping the solar projects viable. Needless to say, at below-10-JPY-per-kWh solar power costs, this agreement will be even more attractive.
Ambitious local governments have set goals of installing solar on 50% of government buildings with the goal of about 6 GW of capacity, and also count on adding solar to corporate buildings, parking garages, and public land to reach a total of about 14 GW.
These local initiatives are further facilitated by the provision of subsidies and grants that help offshoot the high upfront costs of solar projects. This local support complements the national goal of tripling renewable energy capacity by 2030 and fosters the building of a strong, growing solar energy market in Japan.
Tax Incentives
A number of tax incentives are also available in Japan, which presents an even more attractive opportunity for solar energy investment. How these benefits work:
Depreciation Benefits
Japan extends a bonus depreciation rate of 60% for solar equipment in 2024. That means businesses can immediately write off the majority of their costs from solar equipment on their taxable income.
This accelerated depreciation brings about tax savings that are very important early in the life of an investment. In effect, it makes it easier and less expensive for businesses to invest in solar technologies.
Investment Tax Credits
Investment tax credits reduce the amount of tax a company owes by a percentage of what it spent on its solar energy system. In Japan, this investment in a solar venture could be entitled to a 5 to 10% tax credit on the project's cost.
Alternatively, a business might be allowed a 50% special depreciation, provided it meets any of the set qualifications for such a claim. This incentive lets businesses deduct 50% of the investment cost from their taxable income in the first year, rather than spreading the deduction over several years. This can greatly reduce a company’s tax bill, making it financially easier to invest in green technology.
To get this certification, companies need to prepare a business plan that meets specific conditions set by the Industrial Competitiveness Enhancement Act and have it approved by the relevant ministry.
Such accelerated depreciation is helpful as it provides immediate tax relief, improving cash flow. It helps companies to embark on large investments in green technology and supports Japan in moving toward a sustainable energy future.
So, these credits translate into significant economic savings, therefore encouraging companies to spend money on solar technology.
Japan's Unique Terrain
Japan's landscape with its mountains and very limited flat presents serious challenges to large-scale solar power projects. Here's how Japan is handling those challenges:
Projects on top of buildings, artificial structures, and floating solar systems on water are used in planning solar projects in areas with minimal flatlands. It's difficult to build in mountain areas, but the height helps the solar panels generate higher efficiency due to increased sunlight and cooler temperatures. The high costs deter installation in these areas.
The Japanese government helps by offering incentives for solar projects on abandoned agricultural land and industrial sites. This has resulted in unexpected areas of land turning into solar farms. Japan has also developed a lightweight and thin solar panel system that can be mounted on various surfaces without requiring heavy structural support.
Community solar projects are becoming increasingly common. Community based projects improve energy security and involve local people. This helps to continue energy production even when natural disasters affect parts of the grid.
Japan's methods for adapting solar technology to its terrain can also be adopted by other countries with similar challenges. With the right policies, technology, and community support, Japan proves that difficult terrains can be converted into opportunities for renewable energy.
Important Factors for Market Entry
The following are a few of the key factors to be informed of when entering Japan's solar energy market, which will affect your potential for success:
Regulations and Compliance
Entering the field of solar energy in Japan means navigating a multitude of various regulations and compliance.
Permits and Licenses: Several permits and licenses are needed before the commencement of a solar project. These are land use and construction approvals, as well as grid connection permits. Understanding and compliance with local regulations are important so that you can avoid delays or fines.
Grid Connection: For solar projects, connection to the grid needs to be implemented in coordination with the concerned local grid operators. The process is rather complicated, so allotting due time with these operators is required to establish seamless connections.
Local Regulations: Specific regions of Japan may have their own set of requirements that need to be fulfilled related to solar projects. These local regulations would form part of the necessary study and compliance requirements for successful entry into the market.
Key Events and Industry Associations
Attending events in the solar industry and joining relevant industry associations may help your businesses' effective entry into the Japanese solar market.
Industry Events: Industry events, trade fairs, seminars, and workshops regarding solar energy will facilitate networking and updates on the newest trends and technology. Among the important events are the PV Expo and Renewable Energy World Japan, where you can meet potential people in the industry and partners.
Industry Associations: Various industry associations exist to support the businesses, like the Japan Photovoltaic Energy Association-ratified JPEA. Many organizations have given top priority to these associations since they are helpful in terms of providing updates on regulations, market trends, and potential collaboration opportunities.
Understanding these regulations and abiding by them, in addition to engaging directly with industry events and associations, will facilitate dealings in the Japanese solar market more effectively.
Conclusion
The Japanese solar energy market comprises excellent opportunities for companies willing to invest in renewable energy. The main points of attention would be supportive government policy, financial incentives like feed-in tariffs and investment subsidies, the challenging unique landscape of Japan, local government efforts, and tax benefits.
If you want to start a solar business in Japan , we at GlobalDeal are here to help. We can provide holistic assistance, ranging from explaining relevant Japanese regulations to connecting you to local business partners. We support you in overcoming the market barriers, so that you can seize the imminent opportunities in Japan's solar energy sector. Reach out to us for a free consultation!