Kaneka Seeks FIT to be Tied to Green New Deal

UNCLAS SECTION 01 OF 02 OSAKA KOBE 000034

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DOE FOR PI BISCONTI AND EE CHALK AND KIMBIS

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TAGS: BEXP EINV ENRG JA
SUBJECT: Kaneka Seeks FIT to be Tied to Green New Deal

REF: 09OSAKA KOBE00024

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1. (SBU) Summary: Kaneka Corporation, a leading innovator
in thin-film solar cell production remains focused on the
European market and has no immediate plans to make green
energy investments in the United States. While its much
larger Japanese solar rivals such as Sharp and
Panasonic/Sanyo are accelerating U.S. bound solar
investments (reftel),Kaneka is waiting to see whether the
United States will introduce a feed-in-tariff (FIT) or
similar incentives that the company believes are necessary
to assure long-term viability for a large solar cell
production facility investment.


2. (SBU) In exploring Japanese companiesQ willingness to
invest in green energy sectors in the United States, we met
with Mikio Hatta, Managing Executive Officer, Solar Energy
Division at Kaneka Corporation. Hatta says that Kaneka is
closely watching the rollout of alternative energy policies
under the Obama Administration, but for now, his company is
focused on the EU photo-voltaic (PV) market where it is
nearing a final decision on whether to build a new USD200
million thin-film solar cell production facility at its
existing complex in Belgium. Kaneka does plan to boost its
PV production capacity from 70MW to 1000MW a year by 2015
to meet anticipated demand, and the company plans to invest
an estimated USD1 billion to meet this goal. The yenQs
recent appreciation against the dollar makes establishing
PV production in the United States more costly for a
Japanese company like Kaneka, but assuming domestic demand
increases under the Obama Administrations New Green Deal,
Hatta says the US possesses the supply chain management
(SCM) and access to raw materials Kaneka needs for the PV
production.

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U.S. and Japan Need Feed-in-Tariffs (FIT)
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3. (SBU) The PV industry is very competitive, and only
companies capable of lowering production costs to USD1/watt
will be successful, says Hatta. To date, only Kaneka and
US-based First Solar have achieved this level, both by
using thin-film solar cells which use less silicon to cut
production costs, but at lower electricity conversion rates.
Hatta believes that the establishment of a feed-in-tariff
(FIT) system is likely a pre-requisite to assure
development of the PV industry in the United States and
Japan. The GOJQs recent decision to reinitiate a tax
subsidy for installing PV panels on residences will likely
boost domestic consumption from the current 20 to 30
percent to closer to 50 percent of the 1000MW (2007 figure)
of domestically produced PV capacity, says Hatta. The USG,
too, he says, needs to come up with similar policies to
expand domestic demand for solar cells if it hopes to meet
the goals for alternative energy production outlined in the
Obama AdministrationQs campaign proposals. The best way to
do this, says Hatta, is to follow EuropeQs FIT model.


4. (SBU) In Japan, electric products manufacturers such as
Sharp, Sanyo, and Kyocera have led the establishment of the
PV industry. By contrast, in Europe, the FIT incentive
structure has encouraged oil and energy companies such as
British Petroleum and Shell to lead the way, says Hatta.
In the United States, the PV business was launched by small
venture capital financed companies, but recently large
companies, such as the major oil companies and General
Electric have become active as well, and the timing is good
for a shift in the US incentive structure to establish a
sustainable PV industry. While the GOJ has not adopted a
European-style FIT system, it does require domestic
electricity producers to meet Renewable Portfolio Standards
(RPS),which effectively mandate that at least 1.65 percent

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of total energy comes from solar cells, says Hatta. To
date, the RPS requirements have applied only to electric
power companies, but he believes the GOJ should apply the
requirement to other energy related companies such as gas
and oil companies to assure stable development of the PV
industry.


5. (SBU) Hatta views the GOJ target of increasing PV
production in Japan to 10GW by 2010 as overly ambitious
given current PV production levels and conversion
efficiencies. Kaneka has launched a GOJ backed joint
project with a group of academics to enhance thin-film PVs
with hybrid gas technologies to achieve its goal of
improving the conversion efficiency of its thin-film cells
from the current 14 percent to 18 percent. In December
2008, Kaneka announced plans to build a new 150 MW, Y10
billion (USD111 million) facility for thin-film PV
incorporating this hybrid technology.

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China, Korea and Taiwan Export Only Focus
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6. (SBU) Hatta says that although the Chinese Government
has budgeted RMB4 trillion (USD586 billion) for
infrastructure projects including solar projects over the
next two years, the domestic demand for solar power in
China is still low and ChinaQs PV industry is primarily
export focused. The quality of ChinaQs PV products is
improving, says Hatta, but Japanese, German and U.S. PV
companies will maintain price, quality and efficiency
advantages for the foreseeable future. Even SunTech Power,
ChinaQs top PV producer and ranked among the top five PV
producers worldwide is not competitive on price, he
believes. Similarly, many companies in Korea and Taiwan
have expressed interest in KanekaQs PV technology, but
Hatta says Kaneka is reluctant to do business in these
markets because it believes the PV industry will not
develop in these countries due to a lack of domestic demand.
Even in Japan, Hatta notes, the GOJ still prefers
developing nuclear energy to solar energy due to cost
concerns.

DONG