UNCLAS SECTION 01 OF 03 OSAKA KOBE 000102

SENSITIVE

SIPDIS

COMMERCE FOR ITA BRICKMAN AND SANTILLO

DOE FOR PI BISCONTI AND EE CHALK AND KIMBIS

E.O. 12958: N/A
TAGS: BEXP EINV ENRG ECON JA
SUBJECT: Kyocera Solar - Kyoto's Tech Edge

REF: TOKYO 596


1. (SBU) Summary: Kyocera, manufacturer of solar panels
with among the highest efficiency for converting sunlight
into electricity, believes that new incentives for solar
power by the Japanese government will boost the company's
domestic sales. Until recently, Kyocera has focused on
installing its solar products in commercial settings,
factories and buildings, but the company recently entered
an agreement with Japanese retailing giant Aeon
(including Aeon's consumer financing capacity) as a means
to increase sales of its panels to individual Japanese
households. Still reliant on the European market for
most of its solar sales overseas, the expected increase
in Japanese domestic sales and the ever-present hope for
growth of markets in China may keep Kyocera's attention
focused on sales closer to home. With high expectations
for the New Green Deal in America and with European solar
growth slowing, however, Kyocera is also considering
ramping up production and jobs in North America, with its
operations in San Diego, Scottsdale and solar panel
manufacturing in Tijuana playing major roles.

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Background: Kyocera Solar Division
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2. (U) Founded in Kyoto in 1959 by Kazuo Inamori and
seven colleagues as a start-up venture to produce
cutting-edge ceramics, today Kyocera Corporation
manufactures and sells innovative, high-quality products
based on advanced materials. In 1969, the company
established its first North American sales office, a two-
person operation serving Silicon Valley's semiconductor
industry. Kyocera now has more than 5,000 employees in
United States, Canada and Mexico engaged in the
manufacture and sale of its high-technology products.


3. (U) Kyocera first began working on solar cells in 1975
as part of Japan Solar Energy Corporation (JSEC), a joint
venture among Matsushita Electric (now Panasonic), Sharp
Corporation, Mobile Oil Corporation and Tyco Laboratories.
Kyocera's head of International Sales, Hiroshi Yagi told
us that in those early years, the solar industry proved
to be unprofitable and only Kyocera and Sh

arp continued
research on solar cell technology. Kyocera began
investing heavily in solar technology only after 1993
when the Japanese government promised continuous
subsidies for ten years under the New Sunshine Project to
encourage the adoption of solar cell technology in
commercial and residential settings. Yagi told us that
the GOJ's promise of continuous subsidies for ten years
provided Kyocera with enough business certainty to renew
investments.

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New Green Deal: Expansion from Europe to the U.S.
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4. (SBU) In recent years as Japan (Reftel) and other
countries have adopted Germany's feed-in-tariff model and
similar enhanced enticements for the adoption of solar
technologies, Kyocera's thirty plus years of experience
in solar has begun to pay off, said Yagi. Kyocera has
big expectations for America's New Green Deal, he added,
and the company believes its strong technology, high
quality and complete vertical integrated solar production
from casting silicon ingot to engineering and solar
module installation differentiates Kyocera from most of
its competitors, and the company's comparatively stronger
financial position differentiates it from equally
experienced competitors like Sharp.


5. (SBU) Kyocera's main overseas solar market is still
Europe where it sells fifty percent of its solar panels,
said Yagi. The company's solar headquarters in North
America is located in Scottsdale, Arizona. U.S. sales

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account for only 25 percent of Kyocera's global solar
sales, with most, 75 percent, coming from operations in
California. As with its 1993 decision to renew investing
heavily in solar only after the introduction of Japanese
government subsidies, Kyocera has focused on the
California market, said Yagi, because of the California
Solar Initiative subsidy. Under California's solar
initiative subsidy, it takes purchasers only 10 to 12
years to recoup investment costs of solar electricity
systems, and Kyocera has been active in California's
commercial Power Purchase Agreement (PPA) market in which
solar panels are placed on the roof of commercial
business and the business, in turn, pays a fixed rate for
the electricity generated for a set period of time.


6. (SBU) Anticipating a rapid rise in demand under the
new domestic solar power incentives from the Japanese
government and the New Green Deal in the United States,
Kyocera is accelerating investments to increase capacity.
In conjunction with the phased increase of annual solar
cell production to 1 gigawatt (GW) by 2012 from the
current 400 megawatts (MW) by expanding its
polycrystalline silicone solar cell production to 500 MW
annually at each of its Yokaichi and Yasu, Shiga
Prefecture production sites, Kyocera is also building
additional panel assembly capacity to increase annual
capacity to 250 MW at each of its panel assembly plants
in Mie Prefecture, the Czech Republic, Tijuana, Mexico
and Tianjin, China.

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Prius Solar Panel Moonroof - Gimmick but Quality
-------------- ---

7. (SBU) Kyocera manufactures the polycrystalline silicon
solar cells used for the USD 2000 solar panel sunroof
option for the new Prius, which Toyota Motor Corp
announced in May 2009. The electricity generated by the
solar cells directly drives the vehicle's ventilation fan,
even when the vehicle is parked. Originally, the solar
panel system was designed to recharge the vehicle's
batteries, but Toyota gave up on the idea because
repeated charging and discharging caused deterioration of
the batteries.


8. (SBU) Even though the Toyota solar panel moonroof is
something of a gimmick, admitted Yagi, Toyota's
specifications were quite demanding and the selection of
Kyocera indicates the high quality of Kyocera's solar
products. For example, when Toyota tested the new Prius
on uneven roads, which vibrated the car, the solar cells
did not crack, detach or otherwise lose functionality.

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Product Differentiation, Future U.S. Plans
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9. (SBU) As the Prius solar moonroof project suggests,
Kyocera believes its competitive advantage in solar is in
high-end quality, not quantity, in part as a result of
its ability to finance research and development to create
cutting edge products. Our solar products will last for
20 plus years, Yagi told us. Kyocera, he added, uses its
highly developed computer-aided engineering (CAE) tools
and analysis to shorten the engineering process, and
Kyocera's completely integrated production and strength
in pure casting of silicon ingots keeps its solar cells
among the highest conversion efficiency rated cells in
production.


10. (SBU) When Japan temporarily ended solar subsidies
support three to five years ago, it took ten years to
recoup the cost of a Kyocera solar panel system, said
Yagi. By way of comparison, in Germany under the feed-
in-tariff, overall costs are recovered after only six
years. In Arizona, at least one utility company offers a
30-40 percent subsidy which allows recovery of costs in

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5-6 years. Kyocera's goal is to achieve a cost level in
Japan which reduces to ten years, from the current
fourteen, the period of time it takes for purchasers of
its products to recover the costs without any subsidies.


11. (SBU) While Kyocera is interested in participating in
R&D projects to create a Smart Grid in the United States,
to invest more broadly throughout the United States
beyond California and the Southwest, the company wants
greater business certainty, said Yagi. Kyocera is
waiting to see a nationwide feed-in-tariff or long-term
commitment to a renewable energy portfolio standard.

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China Market Not a Focus - Needs FIT
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12. (SBU) Despite many years of discussions, China has
not yet implemented a feed-in-tariff, but Kyocera would
like to see a FIT implemented in China, said Yagi. The
Chinese government seems to prefer a direct subsidy to
Chinese companies, but this will not likely work because
China has too many solar companies, so it will be very
difficult to both fairly and beneficially distribute
limited subsidies. Without a FIT, most Chinese consumers
will not be able afford Kyocera's solar technology.
Kyocera believes that for the foreseeable future, China
will remain focused on coal for power production, Yagi
told us.

DONG