Renewable energy investments in Japan may double as companies from mobile phone provider Softbank Corp. (9984) to battery maker GS Yuasa Corp. (6674) take advantage of government payment incentives beginning July 1.
The government initiative will require utilities to buy power from renewable energy providers at premium prices under so-called feed-in tariffs. As a result, investment in solar, wind and other forms of clean energy may jump to $17.1 billion from $8.6 billion in 2011, Bloomberg New Energy Finance estimates.
"The level of interest in clean energy is at its highest ever," Yugo Nakamura, an analyst at New Energy Finance said. "The national government has shown strong commitment to renewables by setting generous feed-in tariff rates."
The tariffs are part of efforts to cut Japan's dependence on nuclear power following the Fukushima disaster last year, which forced the closure of all reactors in the country for safety checks. They also aim to curb a surge in imports of fossil fuels to switch on non-nuclear plants that cost utilities an additional 2.3 trillion yen ($29 billion) in the year ended March 2012 and pushed the country into a trade deficit for the first time since 1980.
Industry researchers and business lobby groups say the generosity of the subsidy, which is paid for by consumers in higher electricity bills, will require frequent reviews to prevent a boom and bust scenario that played out in Europe.
Germany, Italy, Spain, France and the U.K. are scaling back feed-in tariffs for solar energy after a bigger than expected boom in installations made the subsidies unsustainable.
Japan should consider cutting solar tariffs every month or two, setting a cap on installations and matching tariffs with international levels, said Kenji Asano, a researcher who studies renewable energy at the Central Research Institute of Electric Power Industry in Tokyo.
"It is important not to introduce too much solar power," Asano said. Geothermal power is the most ideal source of clean energy for Japan, he said.
The earthquake and tsunami that crippled the station at Fukushima last year caused radiation leaks, mass evacuations and power shortages, splitting politicians and industry leaders about the future of atomic energy.
Noda on June 16 approved restarting two reactors. No timetable has been set for restarting any of the country's 48 other reactors offline.
The government in Tokyo is debating long-term policies on where it will derive power, with a final decision due in August.
"The new energy blue print will paint an ambitious plan to increase power supply from renewables from 10 percent in 2010 to 25-35 percent by 2030," BNEF said in a report.
For solar, the subsidized rate utilities pay is 42 yen (53 cents) a kilowatt-hour for 20 years, about triple the rate industry users pay for conventionally-generated power. Wind gets 23.1 yen per kilowatt-hour for 20 years. The incentives also cover biomass, geothermal and small hydroelectric plants.
"There should be a regular review of the program including the possibility of scrapping the program," Keidanren, Japan's most powerful business lobby, said on June 1 in reference to the feed-in tariffs.
Softbank, Japan's third largest mobile phone company, will begin operations at a 2.1 megawatt-facility in Kyoto prefecture and a 2.4-megawatt station in Gunma July 1. It plans to build several plants with more than 200 megawatts of solar capacity, according to the company's renewable energy unit SB Energy Corp.
"We are getting more and more inquiries," said Yasushi Yamamoto, a spokesman for GS Yuasa, which makes power conditioners that convert direct current from solar panels into alternating current suitable for the power grid. "We are preparing to produce about twice as much as last year."
Solar projects could be delayed by shortages of workers and power conditioners, Takashi Watanabe, who led research on feed- in tariffs for Goldman Sachs Group Inc. in Tokyo, said in a June 18 report. There are a limited number of manufacturers of power conditioners used in large-scale projects and delivery is three to six months, the note said.
The majority of solar projects will begin in the second half of the fiscal year, between October and March, the Goldman report said.
"There could be a shortage of workers" because work on other projects that depend on government funding hits peak between January and March, the Goldman Sachs analysts said.
The current tariffs will be good until March 31, 2013.
The industry minister will set the terms and rates paid each year, or every six months if necessary. Costs will be passed on to consumers in the form of surcharges, which the government estimates will total 87 yen ($1.10) a month for average households.
"Feed-in tariff is the first step," said BNEF's Nakamura. "But that is not enough," he said, adding that the cost of clean energy must decline, deregulation is needed and grid infrastructure needs to be upgraded.
"Geothermal has the potential if Japan pushes through deregulation," Asano said. "It is good for Japan because it is not intermittent" like power from solar and wind.