If we take a closer look at the Japanese market for solar electricity, we can clearly see that it is not as competitive as it should be. The direct consequence of this, of course, is the high price of electricity bills that the citizens and businesses have to pay.
The current state of things is really simple. Japanese utilities are forced to buy solar electricity. This electricity is consumed by numerous households and businesses and the practice is enforced by law. The end result – Japanese utilities are forced to use the electricity which appears to be one of the most expensive in the entire world.
Currently, it stands at 16 cents for a kilowatt per hour for the electricity consumed by industrial facilities and 23 cents for a kilowatt per hour for household consumption.
The Government Came Up With a Solution
To lower the prices and make the Japanese market for solar electricity more competitive, the Japanese government came up with a clever solution. As it appears, they plan to introduce the auction element to the system.
The key lies in the monopoly of the Japanese Government to give out for constructions of big solar power stations in the country. To make the market competitive, businesses now have to place the lowest possible bid to get all the necessary licenses and move on with the paperwork.
Bear in mind that this only applies to entities that want to build solar power stations with outputs of over 2,000 kilowatts per hour. Furthermore, the government wants to extend these actions and make them applicable to even smaller projects. Which will, in the end, bring down prices of electricity.
The ultimate goal is to basically cut down current prices in half. For instance, if a business that provides solar electricity charges 16 cents for a kilowatt per hour, after the auction system is in place, the price should be 8 cents for a kilowatt per hour. The same expectations apply to the electricity provided by households. The entire project is planned to take 4 years.
The officials say that they expect to see the earliest results by 2022. By the end of 2025, they expect their system to completely finish reshaping the market and to see the prices going down by 50%.
The first electricity price auction is already running and the results will be known to the general public on November 21st.
The Auction System came from Europe
After struggling for years with high electricity prices, Japan, one of the worlds largest producers of solar power, had to seek the solution outside its borders. Fortunately for Japan, there are many countries in the world that rely on the power of the Sun.
Both France and Germany produce megawatts upon megawatts of solar energy. And they also had a problem with electricity prices. They solved this problem by introducing the auction system. The electricity bills were cut in half and the entire market became significantly more competitive. Basing their program on the programs in place in Germany and France, Japanese officials also expect to see a drop in electricity prices.
The Auction System Is Carefully Designed
Since this auction system is controlled by the Japanese government, everything is predetermined and rigorously controlled. The bids are going to be capped at 21 yen per kilowatt-hour. This forces developers to go all in, to win the underbidding war.
The total capacity that is going to be purchased at the first auction is also predetermined and it stands at 500 megawatts. After all the bids are placed, the winners are going to be picked. When the capacity of 500 megawatts is reached the auction process stops.
The first auction is already running and the results will be known to the general public on November 21st. The Green Investment Promotion Organization is the one with the role to oversee the entire process, and the results of the auction will get published on their official website. There are two more auctions scheduled for the March 2019. Only these two are planned for a capacity of 1,000 megawatts.
The Solar Sector in Japan is Huge
China is definitely the leader when it comes to transforming the power of the Sun into electricity. But Japan comes in at the close second place.
At the moment, Japan generates approximately 5% of its entire electricity from solar plants and households. Some projections show that Japan’s solar capacity can easily go well beyond 60 gigawatts by 2019. At the same time, the U.S. produces around 40 gigawatts of solar power yearly.
Japan’s Unique Environment Affects Solar Power Prices
To understand why the Japanese people have to pay for their electricity at such high prices, we have to explore the problem closer. Japan doesn’t really have much land to give to solar facilities. And the land it does have needs to be prepared. Preparation has the costs attached to it, which ultimately affects the price of kilowatt per hour.
For the sake of argument, we have to mention that Japan’s Trade Ministry reports that Japan has to invest 3 times more capital per kilowatt than other countries. This is because the land is inaccessible, the labor cost is high, and there are fewer days of strong sunlight which requires more panels to be placed.
On top of that, there are many natural disasters, such as typhoons, that cause damage to power facilities. The damages have to be repaired and this also affects the pricing policy.
With one auction coming to an end, and two more planned for the first quarter of 2019, Japan is going to build a new foundation for the solar power production industry. Over the coming years, as developers begin entering the market, the prices are slowly going to drop until, finally, by 2025 we reach the expected point of prices dropping to 50% of their starting value.