Japan threatens to cut solar power subsidies, angering
investors
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[November 21, 2018]
By Aaron Sheldrick and Osamu Tsukimori
TOKYO (Reuters) - The Japanese government
is threatening to cut existing solar power project subsidies angering
the power producers and investors that say the cuts will undermine their
profitability and violate earlier agreements.
The Ministry of Economy, Trade and Industry (METI) last month proposed
that companies granted permits for solar projects between the fiscal
years of 2012 to 2014 under so-called Feed-In-Tariffs that guarantee
minimum power prices submit applications by March 2019 to connect to the
grid.
Companies that miss the deadline will see their price guarantees under
the tariffs of 32 to 40 yen ($0.28 to $0.36) per kilowatt hour (kWh) cut
to 21 yen per kWh. Public comments for the proposal are due by
Wednesday.
Japan introduced the FIT to spur solar developments to fill the power
gap after the country closed its nuclear power plants following the 2011
Fukushima disaster. Japan's FIT levels are among the highest in the
world, compared to $0.19 per kWh in Germany and at least as much as
those in Spain.
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METI has said the cuts are necessary to reduce the public burden of the
FIT subsidies, which are added to consumers bills. At the same time,
METI is likely unhappy with the amount of unfilled permits. Data from
the ministry shows 23 percent of the total capacity approved in fiscal
year 2012 is not operating, with 49 percent approved in 2013 and 59
percent approved in 2014 also not operating.
Investors and operators in solar projects are angry with the proposals,
threatening lawsuits against the government for breaching the earlier
contracts. A similar decision by Spain in 2013 led to compensation
payments to investors.
"Litigation will inevitably ensue from Japan and abroad, and it will be
difficult to convince the public that there is no risk of the government
losing when the proposed changes so blatantly disregard the foundations
of the FIT scheme," according to a note to clients from law firm Orrick
reviewed by Reuters. Orrick confirmed the authenticity of the document.
METI estimates show the subsidy cut could affect 23.5 gigawatts (GW) of
solar capacity, or nearly 44 percent of the amount the government
approved in the three-year period after the FIT scheme was created in
2012.
Japan's total installed power capacity is around 250 GW, with 44 GW
coming from solar.
"The suddenness of the proposal, its almost immediate implementation,
and ambiguity around implementation could put future and existing
investments at risk," said a group of business lobbying groups in Japan
from the United States, Europe, Australia, New Zealand and Canada in a
statement on Friday.
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![](../images/112118pics/busine55.jpg)
Solar panels are seen at a solar power facility as snow covered
Mount Fuji is background in Nakai town, Kanagawa prefecture, Japan,
March 1, 2016. REUTERS/Issei Kato/File Photo
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The changes could also "undermine market participants' confidence in the
security, stability, and predictability of Japanese market rules," the groups
said.
Beyond Japanese investors, BlackRock and Goldman Sachs group's <GS.N> Japan
Renewable Energy are among the biggest investors in the solar sector in Japan.
BlackRock declined to comment, and Japan Renewable Energy could not immediately
comment.
GRAPHIC - Japan's energy mix - http://reut.rs/2f6XOIT
An official who declined to be identified from a Japanese renewable power
producer that submitted comments to METI said that some operators with bad
intent have deliberately delayed projects. However, she argued that large-scale
solar projects do take a significant amount of time to push forward because of
environmental mitigation measures and discussions with nearby landowners.
The company told METI a unilateral schedule for automatic cuts is hard to deal
with.
Several investors and lawyers involved said the changes will likely see many
projects canceled.
Banks that have built up project finance teams to handle the billions of dollars
of investment that has flowed into renewables in Japan have stopped or cut
funding for projects, one investor said.
The investor spoke on the condition of anonymity because of the sensitivity of
the issue.
The Japanese Bankers Association requested that projects which already have
signed loan contracts be exempted from the new rule, saying that a significant
reduction in FIT price would threaten default on payments, it said in its
comments to METI.
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($1 = 112.8800 yen)
(Reporting by Aaron Sheldrick and Osamu Tsukimori; Additional reporting by Taiga
Uranaka; Editing by Henning Gloystein)
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