"Overly generous" incentives driving solar in Japan

Japan is projected to install more than 5 GW of new solar capacity in 2013, according to research from IHS. As a result, Japan would outpace Germany, Italy, and the U.S., becoming the second largest PV market worldwide. Installations are expected to exceed 1 GW in the first quarter of 2013 alone.

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Japan benefits from generous incentives which drive the solar market. For example, a feed-in tariff (FIT) pays up to 42 yen per kilowatt hour (.44 cents on the U.S. dollar).

"At ¥42, Japan's FIT is by far the most attractive globally -- overly generous perhaps, which could lead to overheating of the market," said Ash Sharma, senior director of solar research, IHS. "And while a 10 percent 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 ¥42 even if they are installed after April 1."

In 2013, solar projects larger than 2 MW are driving a triple-digit growth rate in Japan; however these projects may not endure.

"These so-called 'mega-solar' projects are being deployed at a rapid rate, and we expect they will account for approximately 25 percent of total demand in 2013," said Frank Xie, IHS senior analyst for PV and solar research, and co-author of the report. "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."

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