Authorization
Japan, which has unfavorable climate and territorial conditions for wind and solar PV power generation, is an OECD member that generates less than 1% of its energy from renewable sources. Despite the catastrophic earthquake in Japan last year, the country's investment in renewable energy has remained stagnant. As such, the Japanese government made a bold announcement on April 27 that will purchase all renewable energy power generation for the next two decades by launching the world's largest renewable energy subsidy program (feed-in-tariff).
The government disclosed the details of the program on June 18 implemented the program from July. As such, Japan is expected to see a renewable energy investment boom.
For wind power generation, the Japanese government's unit purchase price is 2.5 times larger than of the German FIT policy, and the unit price is based on an internal rate of return (IRR) of 8% on Japanese wind power generation projects (production/installation/operation of wind turbines) (vs. an IRR of around 5% for Germany). Given the current yen appreciation, Japanese makers will likely generate additional profits in the event of overseas production or procurement.
Renewable energy fund to be launched: The Tokyo metropolitan government and the Sparx Group agreed to launch a renewable infrastructure investment fund on June27. This agreement appears to come in line with the Japanese government's effort to increase the proportion of renewable energy use. The Sparx Group stated that the government's FIT policy was the key determinant to its investment decision.
The infrastructure investment fund targets investments of JPY20B (~$0.25B), of which the Tokyo metropolitan government will contribute JPY1.5bn (~$18.7M). The fund will attract investors both in Japan and overseas and be launched in six month. The Sparx Group plans to invest a majority of the fund in solar PV and power generation and 15% in smart grid projects.
Wind power generation to replace nuclear power generation in Japan: The massive earthquake and tsunami in 2011 are expected to eventually shut down nuclear power plants in Japan. In forecasting the Japanese wind power generation market, we assumed that renewable power generation will mostly replace nuclear power generation.
As we assumed that wind power will replace 30% of nuclear power generation, 86 TWh should generated at wind power plants.
Source: Daewoo Securities, Jul 05
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