Japan Sets FIT Tariff for Less-than-500kW Solar Plants for FY 2019

2019/01/10 15:17
Kenji Kaneko, Nikkei BP Intelligence Group, CleanTech Labo

Largest decrease since start of FIT policy

A meeting of the Calculation Committee for Procurement Price, Etc, which is for discussing the procurement (purchasing) prices of the feed-in tariff policy, took place Jan 9, 2019, and the committee chairman's plan was announced for fiscal 2019.

According to the plan, the FIT tariff for 10kW-500kW commercial solar power plants will be ¥14/kWh, which has been finalized in effect.

As for 10kW and higher-output commercial solar power plants, 500kW and higher-output projects are already planned to be the targets of the bidding system. Because the FIT tariff for projects that are not the targets of the bidding system became ¥14/kWh, the upper price limit of the bidding, which is set in advance and is not disclosed, will certainly be ¥14/kWh or lower.

The FIT tariff for commercial solar power plants that are not the targets of the bidding system (output: lower than 2MW in fiscal 2018) was ¥18/kWh in fiscal 2018. So, it will be lowered by ¥4, the largest decrease since the start of the FIT policy.

At the meeting of the Calculation Committee for Procurement Price, Etc, long-term cost targets were also reviewed. The new goal is to realize "an average power generation cost of ¥7/kWh for projects that will start operation in 2025." This is, based on the current FIT calculation criteria and the mechanism of the three-year limit after start of operation, equivalent to setting a purchasing price of ¥8.5/kWh in 2022.

On the premise of this, the price decrease rate from fiscal 2018 to fiscal 2022 will be ¥2.4 per year. The latest decrease (of ¥4) is much larger than the rate.

In regard to the drastic price decrease of ¥4 from fiscal 2018, the bureau (the Ministry of Economy, Trade and Industry (METI)) said that it mechanically calculated the price based on the fact that (1) expected system cost was lowered from ¥221,000 to 182,000 (2) facility utilization rate was increased from 17.1% to 17.2% and (3) pre-tax IRR (internal rate of return) was lowered from 5% to 4%.

What will happen to upper price limit of bidding system?

However, the committee increased expected system cost from ¥221,000 to 182,000 by employing the standard of top 18% companies in fiscal 2019 instead of the standard of top 25% companies in fiscal 2018. This is probably because, from the beginning, "¥14/kWh" was the target for projects that are not the targets of the bidding system, considering the balance with the projects that are the targets of the bidding system.

Because the lowest successful bid price has already been lowered to ¥14.25/kWh in fiscal 2018. So, it is possible that the upper price limit for fiscal 2018 (¥15.50/kWh) will be further lowered to ¥14-15/kWh in fiscal 2019. In that case, if the FIT tariff for projects that are not the targets of the bidding system is ¥15/kWh, those projects will seem to be economically advantageous, potentially increasing the number of projects that avoid a bidding.

In past meetings of the Calculation Committee for Procurement Price, Etc, it repeatedly said, "It is important that, at the time of setting a procurement price for commercial solar power plants that are not the targets of the bidding system, they do not become more economically advantageous than projects that are the targets.

In view of such a trend, the upper price limit for the bidding system for fiscal 2019 is unlikely to become drastically lower than "¥14/kWh."

However, it is possible that, when the amount of bids will be drastically larger than the capacity to be bid and the principle of competition of the bidding system functions, only bids drastically lower than ¥14/kWh will be successful. In that case, the FIT tariff for projects that are not the targets of the bidding system will be greatly lowered in consideration of that.

On the other hand, unless biddings in fiscal 2019 will be sluggish and successful bids will be much lower than ¥14/kWh, the decrease of FIT tariff in and after fiscal 2020 can be about ¥2 per year, targeting at ¥8.5/kWh in 2022. In that case, the latest decrease of ¥4 is a decrease rate higher than the long-term target of decrease rate, meaning that the decrease will become slower in the future.

In other words, this year is a crucial test for the Japanese solar power generation industry, which is required to catch up with the price decrease of ¥4 in fiscal 2019 (See related article: Japan to Expand Target Range of Bidding System for Solar Projects).