SOLAR POWER IN JAPAN

UNCLAS SECTION 01 OF 03 TOKYO 001948

SENSITIVE
SIPDIS

DEPT FOR OES, EEB, AND EAP/J HEATHER DRESSER
USTR FOR M.BEAMAN
DOE FOR EERE A/S KARSNER

E.O. 12958: N/A
TAGS: ENRG SENV TRGY SOCI JA
SUBJECT: SOLAR POWER IN JAPAN

REF: TOKYO 1690

TOKYO 00001948 001.2 OF 003


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1. (SBU) Summary. Solar photovoltaic (PV) power is poised
to become a centerpiece of Japanese Government renewable
energy initiatives aimed at cutting greenhouse gases and
meeting energy needs. Increased PV use figures prominently
both in the vision PM Fukuda publicly announced June 9 (ref)
and in METI's "Cool Earth Innovative Technology Program."
Japan's geographic situation, commercial interests, and
national pride have led government and industry officials to
call for renewed investment in PV power. A June 24 proposal
to METI singles out solar as Japan's most promising renewable
energy source and calls for new subsidies, tax incentives,
and R&D investment to revitalize the domestic PV market.
Germany recently overtook Japan as the country with the
largest installed PV base, due in part to the end of Japanese
subsidies for home installation of PV systems. Japanese
firms remain among the world leaders in PV sales and
technology development, but face increasing global
competition. Japan's solar industry is looking to the GOJ to
make long term commitments to support PV development and
market penetration. End Summary.

Solar's Role in PM Fukuda's Vision
--------------

2. (SBU) Prime Minister Fukuda's vision for dealing with
climate change and Japan's energy needs includes a goal to
reduce domestic greenhouse gas emissions 14 percent by 2020
and 60-80 percent by 2050 (ref). To help achieve these cuts
and regain world leadership in PV power, the Fukuda Vision
announced June 9 spells out domestic goals for a ten-fold
increase in solar power generation by 2020 and a forty-fold
increase by 2030. To reach these goals, the PM's statement
calls for constructing large-scale solar power generation
plants and employing solar power in 70 percent of newly built
housing. However, the challenges involved in meeting these
goals are extensive, according to officials at METI's Agency
for Natural Resources and Energy. The high cost of PV cells
and installation -- around 2.3 million yen (roughly 22,000
USD) for an average 3.5 kilowatt (kW) residential system --
discourages many homeowners, particularly since residential
subsidies ended in 2005.

METI's Strategy
--------------

3. (SBU) METI's March 2008 Cool Earth-Innovative Energy
Technology Program includes "supply-side innovative
photovoltaic (PV) power generation" among 21 priority
technologies that are expected to deliver substantial
reductions in global greenhouse gas emissions by 2050. METI
estimates successful diffusion of the 21 technologies could
provide 60 percent of the emissions reductions necessary to
meet Japan's "Cool Earth 50" goal of halving total global
greenhouse gas emissions by 2050. Seven percent would be met
by supply-side PV power generation, according to METI.


4. (SBU) Responding to PM Fukuda's ambitious goal for
increased residential PV use, an advisory group to METI
Minister Amari made "urgent recommendations" on June 24 to
increase renewable energy's share of overall energy supply
from 5.9 percent in 2005, to 8.2 percent in 2020, and then up
to 11.1 percent in 2030. The proposal calls for the
realization of a "solar power society" with PV power
providing most of the targeted increase in renewable energy.

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Commenting on the proposal, METI officials said Japan already
exploits most of its best wind, biomass, waste, and
hydroelectric power resources, while its PV potential has
barely been tapped. The proposal calls for halving the price
of current PV systems in 3-5 years through subsidies and tax
incentives to households and businesses, including PV cells
in new home design, and promoting large-scale PV plants among
electric utilities.

Subsidies, Then...
--------------

5. (SBU) The GOJ began a solar power subsidy program to
local governments and private businesses in 1992, followed by
a "roof top" subsidy scheme for homeowners in 1994. The
residential subsidies initially ranged from 33 to 50 percent
of total purchase and installation costs, but were gradually
reduced to less than four percent (on average about 70,000
yen for a 2,000,000 yen system that generates 3.5kW). The
program ended in 2005 under the assumption that the market
was "mature enough," according to a METI representative. The
subsidies were a good selling point for installation
companies, but ultimately did not make PV cheap enough to
sustain the market, according to METI officials. METI
officials state Germany's program of feed-in tariffs enabled
that country to surpass Japan as the country with the most
installed PV capacity, a position Japan had held from 1997 to

2005. (Note: METI documents show the U.S. ranks third. End
note.) Eighty percent of Japan's installed PV capacity is in
home systems. However PV power accounted for less than 0.25
percent of Japan's total electricity output in 2005,
according to METI sources. Although production costs have
declined somewhat, PV power generation costs remain around 46
yen per kWh in Japan, several times that of conventional and
other renewable power sources. METI expects advances in
technology and manufacturing volume to drive down the cost to
7 yen per kWh by 2030.

...And in the Future?
--------------

6. (SBU) METI officials acknowledge the GOJ is considering
various types of support for PV power for FY2009. However,
GOJ officials appear to lean toward subsidies over other
types of support for priority clean energy technologies.
(Note: The GOJ is also considering subsidy schemes for
residential fuel cells and plug-in hybrid vehicles, according
to METI officials. End Note). METI officials said Germany's
feed-in tariff model would not be appropriate for Japan, as
German electricity costs are nearly 30 percent higher than
Japan's. According to a Ministry of Environment (MOE)
official, many Diet members in the Environmental Committee
argue for resuming subsidies.


7. (SBU) Since residential system subsides ended in 2005,
government support has focused on R&D investment projects,
mainly through METI's New Energy and Industrial Technology
Development Organization (NEDO). Subsidies worth 33-50
percent of installation costs have also been provided to
local and prefectural governments to support PV systems on
commercial and public property. Electric utilities are also
eyeing PV projects. Under the Renewable Portfolio Standard
(RPS),they need to obtain at least 0.5 percent of their
supply from renewable sources, excluding large hydropower.
This quota is set to double to one percent by 2010 and double
again to two percent by 2014, according to METI officials.

Industry's Perspective
--------------

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8. (SBU) Speaking to Embassy officers at a gathering of the
Japan Photovoltaic Energy Association (JPEA),industry
officials said Japan is now at a crossroads on its solar
policy. As domestic demand for PV waned, exports, primarily
to Europe, have come to total 70 percent of Japan's total PV
production, according to industry reps. They see expanded
GOJ assistance as critical, not only for PV R&D, but also for
expanding the market. Industry officials said it is unclear
whether a new subsidy regime will resemble the earlier "roof
top" program or a Germany-style feed-in tariff scheme.
However, an official at PV cell maker Kyocera noted feed-in
tariffs may not be best suited to Japan. JPEA reps stressed
residential PV power is still the most promising application
for PV in Japan, adding they would wait and see how the
large-scale Sharp-KEPCO project in Osaka unfolds. In
separate meetings, Sharp officials lamented that
Germany-based Q-Cells AG recently overtook the company to
become the world's largest PV producer. Sharp and Kansai
Electric Power Company (KEPCO) recently announced plans to
spend five billion yen to build Japan's largest solar power
generating plant in Osaka Prefecture beginning in 2009.
Counting on long-term government support for the PV market,
Sharp representatives said the company expects PV energy to
account for 25 percent of all global power generation by 2040.
Cekuta