An international research team has identified a connection between higher feed-in tariffs (FITs) in Japan and increased capital expenditure (Capex) in solar projects. The study analyzed survey data from Japanese solar projects using econometric modeling to assess the impact of FITs on project costs.

Japan introduced its FIT program in 2012, offering some of the highest tariff rates globally. The system set tariffs when projects received qualification, often without deadlines for starting operations. This structure allowed projects with varying tariff levels to be constructed simultaneously, providing a unique opportunity for comparison. Tomas Kaberger, a professor at Chalmers University of Technology in Sweden and co-author of the study, stated: “That made it possible to see if generous tariffs resulted in higher costs than low tariffs.”

The research revealed that higher FITs were associated with elevated Capex. Specifically, a JPY 1 ($0.0070)/kWh increase in FITs corresponded to a JPY 3.31/W rise in Capex. Keiji Kimura, an associate professor at Osaka Sangyo University and researcher on the project, noted: “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.” The team suggested that developers with guaranteed high tariffs may have had less motivation to minimize costs, and suppliers might have adjusted pricing strategically for projects with higher tariffs.

Japan’s utility-scale solar projects are among the most expensive worldwide, with costs in 2021 nearly double the global average. While factors like high labor, construction expenses, and land competition contribute, the study indicates that elevated FITs also played a role. The researchers emphasized the importance of well-designed support systems. Liv Lundberg, a researcher at RISE in Gothenburg and co-author, said: “The study illustrates the importance of including incentives in policies to cut costs and speed up deployment.”

The study highlighted that setting tariffs at the start of operations or imposing strict project completion deadlines, as practiced in other countries, could address some challenges seen in Japan’s system. The research paper noted: “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.” Such measures encourage timely construction and cost efficiency.

In 2024, Japan’s FIT rates ranged from JPY 9.5/kWh to JPY 16/kWh, depending on system size. The findings underscore the need for balanced subsidy designs to promote cost-effective renewable energy development while maintaining market competitiveness.

by pv magazine