JAPAN MOVES TOWARD SURPLUS POWER BUYBACK SCHEME TO

UNCLAS SECTION 01 OF 03 TOKYO 000596

SIPDIS
SENSITIVE

STATE FOR S/SECC, IO, EEB, EAP/J
STATE ALSO FOR OES/EGC - TTALLEY, NBARTH, CSIERAWSKI
NSC FOR CCONNORS, JLOI
EPA FOR SFULTON
USDOE FOR S-3, RMARLAY, SRUEN

E.O. 12958: N/A
TAGS: ENRG SENV JA
SUBJECT: JAPAN MOVES TOWARD SURPLUS POWER BUYBACK SCHEME TO
FOSTER SOLAR ENERGY

REF: A. 08 TOKYO 1848

B. TOKYO 219

C. TOKYO 476

D. OSAKA KOBE 34

TOKYO 00000596 001.2 OF 003



1. (SBU) SUMMARY: METI officials hope the Diet will approve a
bill during the current legislative session introducing a
feed-in-tariff (FIT)-like scheme to compel electric power
companies to buy surplus solar photovoltaic (PV) power from
residential generators. If approved, the surplus power
repurchasing scheme will add to several GOJ incentives now
promoting solar energy. The GOJ has considered a FIT program
to promote residential installation of PV technology since
mid-2008. However, the Cabinet's current legislative
proposal caught many in industry and energy policy circles
off guard. A METI official told emboffs the hard push to
implement a FIT buyback scheme results from intense political
pressure from various quarters for more vigorous policies to
promote alternative energy and to encourage Japanese
technological innovation. END SUMMARY.

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OVERVIEW OF JAPAN'S PROPOSED BUYBACK SCHEME
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2. (U) Japan's Cabinet approved a proposal March 10 to amend
Japan's Basic Energy Law to compel electric power companies
to purchase surplus electricity generated by residential
solar power generation. The bill is now before the Diet.
According to METI New and Renewable Energy Office Director
Shoji Watanabe, the buyback scheme proposes to fix the price
for solar energy at around 49 yen/kWH, roughly double the
amount companies currently pay under a voluntary purchase
scheme introduced in 1992. Watanabe explained the repurchase
scheme legislation guarantees a fixed price for ten years as
an incentive for PV installation. Thus, an individual
consumer who installs a PV power generator during the first
year of the program would receive 49 yen/kWH for their
surplus solar power for up to ten years. The 10-year
repurchase price has a sliding scale, with rates dependent on
when the household installs the PV panels. METI devised the
program to provide incentives for early investment in PV
technology in order to bring down installation and generation
costs.


3. (U) Watanabe explained the average Japanese household
consumes 1,200 kWH/year of electricity. If this household
installs a typical 2.1 million yen 3kW PV unit, the household
could sell back 1,800 kW/year in surplus electricity to the
power company. Based on these projections, the household
could expect to earn 900,000 yen from the FIT in the first
ten years following installation. The household would also
receive a 210,000 yen installation subsidy from METI in
addition to whatever regional government benefit package may
be available. He noted the Tokyo Metropolitan Government
offers 300,000 yen for PV installation, which would make the
net ten-year cost of installing a PV system to a Tokyo
household 690,000 yen. However, the homeowner would also
avoid paying an average of 288,000 in energy bills over the
ten years, thereby further reducing the cost of the PV system
to 402,000 yen. Assuming the household continues to sell
power back to the electric company at the current price of 24
yen/kWH after the 10-year elevated buyback price expires, a
household that invests in PV technology would see the
investment pay for itself in just over 15 years.

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METI LOOKS ABROAD FOR EXAMPLES OF FEED-IN-TARIFFS
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4. (U) In mid-2008 METI began studying a feed-in-tariff along
the lines of those in effect in Germany as part of a suite of
measures to boost demand for photovoltaic energy. (NOTE: as
reported in ref A, Japan has targeted a ten-fold increase in
solar power generation by 2020. END NOTE.) Watanabe said

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METI's initial analysis concluded a German-style FIT would
likely result in a 360 yen/month hike in what an average
household pays for electricity because utilities would pass
the additional expense of buying surplus energy along to
consumers. METI's analysis also determined the buyback
period under the German FIT, which fixed the price of PV
electricity for 20 years, is excessive. As a result, Japan's
proposed buyback scheme includes several departures from the
German model, specifically: (1) it will only apply to PV
electricity, not to wind, biomass, or other sources; (2) it
only applies to surplus electricity generation from
residential consumers, not to straight-to-grid generation;
and (3) the buyback scheme is being implemented to
complement--not replace--other tax incentives and subsidies
designed to promote PV power generation (ref B).

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ANNOUNCEMENT CATCHES INDUSTRY AND POLICYMAKERS OFF-GUARD
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5. (SBU) On Feb. 24 METI Minister Toshihiro Nikai first
announced the GOJ had resolved to implement a solar power
repurchase scheme along the lines described above (after
notifying Federation of Electric Power Companies head Shosuke
Mori). The announcement caught many in Japan's energy policy
community off-guard, including members of METI's Advisory
Panel on Energy, which is a consortium of industry and
academic experts commissioned by METI's Agency for Natural
Resources and Energy (ANRE) to examine ways to promote
alternative energy in Japan. The Committee had issued an
"urgent proposal" in September 2008 warning a German-style
FIT would be too costly. It urged policy makers instead to
continue to expand PV electricity demand through research and
development spending and installation subsidies, continued
voluntary buyback, and expansion of Japan's Renewable
Portfolio Standard (RPS) to require electricity companies to
meet targets for renewable energy generation from a variety
of alternative energy sources. At a hastily-convened meeting
on Feb. 25, METI DG for Energy Conservation and Renewable
Energy Hideo Hatou apologized to the Advisory Panel members
for not informing them of the decision prior to Minister
Nikai's announcement. Hatou explained the measure was a
"necessary industrial policy" to support solar power
development and Japanese manufacturers of PV technology.


6. (SBU) Predictably, manufacturers of solar technology
welcomed the GOJ's proposal. Toshishige Hamano, Sharp
Corporation's representative director, told the advisory
panel the buyback scheme is essential to promote widespread
commercialization, to lower production costs, and to achieve
the GOJ's ambitious targets for solar power generation.
(NOTE: representatives of Sharp and other firms previously
expressed hope Japan would implement a FIT scheme during
discussions with Consulate Osaka/Kobe (ref C). The American
Chamber of Commerce in Japan has also called for expanded
incentives for households to install solar energy panels in
its recent IT stimulus recommendations (ref D). END NOTE).


7. (U) Several experts, however, questioned the fairness and
effectiveness of picking a winner in solar power. These
experts queried Hatou on the impact on other policy reforms
under consideration that intended to expand the use of
alternative energy. Tsutomo Takei, CEO of Ennet Corporation,
a small-scale private power supplier, was concerned the FIT
scheme might unduly favor large-scale power companies who can
pass the additional costs to consumers more easily.
Shigehito Nakamura, managing director of the energy holding
company and wind power developer Eureus Energy Holdings,
questioned the GOJ's rationale for singling out PV
electricity, arguing that enhancement of the Renewable
Portfolio Standard law would enable more flexible expansion
of alternative energy.


8. (U) Other advisory committee experts raised the potential
burden on consumers. In addition, University of Tokyo

TOKYO 00000596 003.2 OF 003


engineering professor Kenji Yamaji raised a fairness issue,
saying the policy would pass the additional cost of the
buyback to all consumers while favoring only those affluent
enough to install PV technology. METI's Watanabe told
emboffs the impetus to move forward on the solar power
buyback proposal without first securing broad consensus, and
in spite of the advisory committee's recommendations, came
directly from Minister Nikai following an almost daily Diet
debate on the subject in late December. Watanabe said he
hopes the bill will pass in the current Diet session, giving
METI time to prepare the necessary administrative ordinances
so that the buyback scheme can start in the Spring of 2010.


9. (SBU) COMMENT: METI's decision to move ahead on the
proposal without first securing broader consensus is unusual.
The manner METI made its proposal public reflects political
pressure to move quickly to build Japan's solar power
capacity. At the same time, a review of Diet discussions
leading to Nikai's announcement reveals both ruling party and
opposition party parliamentary calls for either adoption of
the German-style system or a scheme more rigorous than METI's
proposal. For instance, LDP Diet member Yasuhisa Shiozaki
and other eco-oriented members of the Diet advocated a
broader FIT along the German model, as did the New Komeito's
Eda Yasuyuki. Meanwhile, the opposition Democratic Party of
Japan's (DPJ) election platform includes a FIT scheme that
calls for repurchase of wind and biomass power in addition to
PV. DPJ parliamentarians Tetsuro Fukushima and Kenzo Fujisue
have been particularly vocal in calling for broader measures
to promote alternative energy. END COMMENT.
ZUMWALT