The World's Next Hot Solar Power Market May Be Japan

With its nuclear power plants virtually shuttered since the Fukushima disaster in March 2011, Japan is starting to turn to clean energy in a big way.

On July 1, one of the world's most aggressive examples of a feed-in tariff (FIT) -- a key government incentive for renewable energy -- took effect in Japan. A FIT essentially requires utilities to buy kilowatt-hours of electricity from clean, renewable sources like solar, wind, and geothermal at a rate prescribed by the government. Such policies have been behind the rapid growth of solar energy in countries like Spain, Italy, and Germany. No one thinks of Germany for its sunshine, but it's actually the largest solar energy market in the world, with 25 gigawatts of solar capacity installed (output comparable to about 20 large nuclear reactors) at the end of 2011.

Japan has set the FIT at an extremely generous -- some would say inflated -- 40 yen (about 50 cents) per kilowatt-hour, or about triple the nation's average electricity price. With the costs of solar cells at historically low levels, that has developers drooling at the business prospects. And the gold rush is on. Solar manufacturers and developers from China to Canada to Arizona are jumping into this new potential boom market. And so are Japan's own top solar players like Sharp, Panasonic, Kyocera, and Mitsubishi, who in the past decade have focused most of their efforts on exports. Investment in all clean-energy sectors (solar, wind, and geothermal) in Japan is expected to double this year to $17.1 billion, according to Bloomberg New Energy Finance.

It's a challenging and fascinating time in Japan, which I got to witness firsthand in early June. As part of a U.S. Embassy program that brings Americans to speak to Japanese audiences on a variety of topics, I spoke in four Japanese cities on clean-tech success stories and cautionary tales from the U.S. On my last day in the country, June 8, Prime Minister Yoshihiko Noda announced the first reopening of a nuclear plant since Fukushima, the Oi reactor in Kansai prefecture. That has sparked wave after wave of public protests, including a rally of nearly 100,000 people on a sweltering Sunday afternoon in Tokyo on July 15. More nukes may reopen to great controversy in coming years, but one thing is certain: Japan will never again come close to its pre-Fukushima days when 30 percent of its power came from nuclear.

So Japan's future will be one of imported oil and natural gas, energy-efficiency measures, and an increasingly large share of clean energy. Already a world leader in grid performance and energy efficiency, Japan has aggressively ramped up those efforts since the Fukushima disaster. Many buildings are going without air conditioning in the hot and humid summer, launching a new business attire called Cool Biz (no jackets and ties) in Japan's traditional buttoned-down business culture. One of my talks, at a prefectural building in Nagoya, was an official Cool Biz event, although not Super Cool Biz -- that's Hawaiian shirts and sandals.

Although solar on residential rooftops will benefit from the generous FIT rates, the biggest boom will be in multi-megawatt, utility-scale installations that have lagged in Japan in recent pre-Fukushima years. They currently account for only 20 percent of all solar energy in Japan, by far the lowest percentage of any major solar market in the world; the rest is residential. But those numbers will soon shift with large projects underway such SB Energy's 111 MW Tomakomai plant on the northern island of Hokkaido and, in a fitting symbol of Japan's energy transition, several Toshiba installations totaling 100 MW right in Fukushima.

FITs tend to be tricky and controversial, and Japanese officials will monitor their new tariff closely to prevent a boom-and-bust situation. Analysts such as Izumi Kaizuka, manager of the research division at solar PV consultancy RTS Corp. in Tokyo, predicts it will be reduced next spring. But whatever the subsidy level, Japan is a sure bet for significant near-term growth for solar -- and a closely-watched model for any nation seeking a cleaner energy future.