Japan Plans to Make Solar Energy Cheap

By Devon Swezey, originally posted at the Breakthrough Institute

Motivated in part by its loss of dominance in the solar energy industry, Japan has recently announced a new national project for the widespread deployment of solar PV technologies in order to drive the price of solar energy toward that of conventional energy sources. In short, Japan plans to make solar energy cheap.

In a speech laying out the his strategy for Japan to lead the world in a "low carbon revolution", Japanese Prime Minister Taro Aso announced his vision for Japan to be "the number one solar power in the world." He also recognized that the principle barrier to widespread adoption of
solar energy was its high price:

How do we become number one in the world in terms of solar power generation? In order to achieve this, we must put an end to the following vicious cycle: costs are high because of lack of demand, and demand remains stagnant due to high costs. Above all else, I think a strong political will to create 'demand through policies,' is necessary.

In order to cut this vicious cycle, Japan has proposed to make solar energy cheap through a combination of energy innovation and government policies to spur demand-a straightforward and effective approach to drive both economies of scale and potentially transformative innovation. Prime Minister Aso has set a goal of increasing installed solar capacity by 20 times its current level by 2020, and 40 times by 2030.

The government is investing $30 billion over 5 years in energy research and development in order to develop new, innovative technologies and to improve existing technologies over the short-term. This includes using new materials and structures that may significantly improve solar cell efficiencies, with a goal of improving generating efficiency by over 40 percent and achieving a generating cost of only ¥7/kWh (7 cents/kWh) by 2030, close to the cost of conventional energy sources.

On the demand side, Japan will enact three particular policies that could substantially reduce the costs of solar energy by driving demand, which in turn gives private firms the confidence to capture economies of scale and invest their own funds in additional R&D and innovation. First, the government has reinstated a solar PV installation subsidy that it suspended in 2005, causing it to lose solar market dominance to Germany and Spain. The new subsidy of 70,000 ¥/kW ($749/kW) of equipment is expected to enlist 84,000 new applications for PV systems over the next year. Second, the government is providing a $980 million subsidy to deploy solar photovoltaic systems on the roofs of all 32,000 public elementary, junior high, and high schools nationwide by 2020. Lastly, the government has proposed a new feed-in tariff for solar electricity production that, if enacted, is expected to dramatically increase solar energy adoption. The "new purchasing system", announced by Prime Minister Aso, would require electric companies to purchase solar power at about twice the current (voluntary) price, or close to ¥50/kWh (50 cents/kWh). The feed-in tariff will likely be designed to gradually decrease as the cost of PV systems falls, in order to provide pressure for continued private sector innovation and cost reductions.

As the U.S. Congress debates cap and trade legislation to slightly increase the price of fossil fuel energy, the government of Japan has focused its efforts, as energy experts have argued is necessary, on making solar energy cheaper, in real, absolute terms.

Japan's ambitious plans for solar energy are yet another indication that without a more vigorous commitment to innovation and direct investment in clean energy deployment, the U.S. may lose the clean energy race to its East Asian competitors, as the Breakthrough Institute and others have recently warned.