An international research team has linked higher feed-in tariffs (FITs) in Japan to higher levels of capital expenditure (Capex) in solar projects.
The research paper, “How high feed-in tariffs impacted the Capital Cost of Solar PV in Japan,” available in the journal Renewable Energy, used survey data from Japanese solar projects and econometric modeling to investigate the impact of FITs on a project's capital expenditure.
Japan’s FIT scheme launched in 2012 with the highest tariff levels in the world. It set the tariff for a project at the time a qualification was obtained, with many early projects given no deadline for starting operations.
Tomas Kåberger, professor of Industrial Energy Policy at Sweden’s Chalmers University of Technology and one of the report's authors, told pv magazine this unique FIT system allowed projects with different tariffs to be built at the same time. “That made it possible to see if generous tariffs resulted in higher costs than low tariffs,” Kåberger added.
The researchers say that evaluating and comparing support systems is always difficult because there are so many differences at the same time. The Japanese situation, however, provided a rare opportunity with tariff level being the main difference between projects. ”We hope we have contributed another aspect for those who design industrial policy instruments in the future”, they added.
The researchers found higher FIT levels correlated with increased Capex, with a JPY 1 ($0.0070)/kWh increase in the FIT level linked to a JPY 3.31/W rise in Capex. Keiji Kimura, associate professor at Osaka Sangyo University and one of the researchers, added that cost tended to be higher for projects that enjoyed a higher FIT compared to those with lower FIT, even when built in the same year.
In the research paper, the team says the difference may be down to developers with guaranteed high tariffs having weaker incentives to reduce costs or strategic pricing by suppliers. They add that strategic behavior among suppliers, including setting higher prices for those with higher tariffs, may also contribute to the higher Capex.
Japan is known to have one of the highest costs of utility-solar in the world, standing at almost twice as high as the global average in 2021. While this is often attributed to factors including high labor and construction costs and competition for suitable land, the researchers suggest high FIT levels may have also led to elevated costs.
In the paper’s conclusion, they add that Japan’s example highlights that overly generous and poorly designed subsidies can lead to inefficiencies, and warns such risk could extend into other renewable technologies. “If subsidies are too high or poorly designed, developers may lack incentives to innovate or reduce costs, potentially inflating capital expenditures and hindering long-term market competitiveness,” they conclude.
Liv Lundberg, a researcher at the Gothenburg-based RISE research institute and another of the paper's authors, told pv magazine the study illustrates the importance of including incentives in policies to cut costs and speed up deployment.
The research paper adds that setting tariffs at the start of operation or enforcing strict deadlines for project completion, as seen in schemes in some other countries, can prevent some of the issues encountered in the Japanese system.
“If the tariff is not fixed until the start of operation, projects cannot exploit high tariffs set earlier while commencing operations later, when module prices have decreased,” the research paper says. “While the remuneration value not being set until the point of operation is a risk for the generator, it provides a strong incentive for actors to begin construction works to obtain the highest possible tariff.”
Japan’s FITs for last year ranged from JPY 9.5/kWh to JPY 16, depending on system size.
This content is protected by copyright and may not be reused. If you want to cooperate with us and would like to reuse some of our content, please contact: editors@pv-magazine.com.
By submitting this form you agree to pv magazine using your data for the purposes of publishing your comment.
Your personal data will only be disclosed or otherwise transmitted to third parties for the purposes of spam filtering or if this is necessary for technical maintenance of the website. Any other transfer to third parties will not take place unless this is justified on the basis of applicable data protection regulations or if pv magazine is legally obliged to do so.
You may revoke this consent at any time with effect for the future, in which case your personal data will be deleted immediately. Otherwise, your data will be deleted if pv magazine has processed your request or the purpose of data storage is fulfilled.
Further information on data privacy can be found in our Data Protection Policy.