* Solar power firms to get boost from feed-in tariff
* Foreign players looking to grab slice of Japan’s solar market
* Companies say FIT will encourage economies of scale
* Public faith in nuclear power still in tatters after Fukushima
By Shinichi Saoshiro
TOKYO, June 5 (Reuters) - Solar power firms are betting that the nuclear crisis in Japan will become a game-changer for renewable energy in the world’s third largest economy, with new foreign entrants such as Canadian Solar looking to go toe-to-toe there with some of the biggest utilities in Asia.
They will be given a big helping hand next month when the government introduces a generous subsidy for renewable energy via a so-called feed-in tariff (FIT), in a bid to encourage alternative energy sources, which currently only generate about 1 percent of power in Japan.
The FIT, which excludes large hydro-electric schemes, will require utilities to buy electricity generated by renewable sources such as solar, wind and geothermal heat at a premium for 20 years. Costs will be passed on to consumers through higher power bills.
After dallying for years, lawmakers in Japan hastily turned FIT into law last summer, with the Fukushima nuclear disaster in March 2011 severely shaking the public’s faith in atomic energy.
With the introduction of FIT, Japan’s Yano Research Institute expects investment in the country’s solar power sector to grow to 1.4797 trillion yen ($18.9 billion) in fiscal 2015 from 655.3 billion yen in the 2010 financial year.
Critics have already warned that a generous FIT could lead to a bubble that will burst when the government eventually lowers purchase prices.
But businesses say FIT is necessary to prompt the economies of scale that would come from an increase in the number of entrants into the market, lowering equipment costs and eventually allowing the industry to stand on its own without subsidies.
“FIT is going to create a bubble without a doubt. That always happens with these kinds of schemes, but it will really kick off solar (in Japan),” said Yu Kaname, vice president of Canadian Solar Japan, which began business in the country in 2009 and was the first foreign company to take part in building a large-scale solar plant there.
The purchase price of solar-generated electricity is expected to be set at 42 yen per kilowatt hour (kwh), significantly higher than the roughly 15 yen per kwh charged to industrial consumers and the 25 yen kwh residential users have to pay for power.
But Kaname said the cost of producing solar-generated electricity would come down with the introduction of FIT, enabling it to reach “grid parity”, when the cost of generating electricity from renewable sources is equal to or lower than that sold on the common power grid.
“We are almost at grid parity here. Think of what would happen if Japan allows things to run their natural course and solar reaches grid parity. We will be playing with the big boys,” Kaname said, referring to the Japanese utilities that have long dominated the industry. These include Tokyo Electric Power, the operator of the Fukushima Daiichi nuclear facility and one of Asia’s largest energy companies.
Faced with losses in once-booming solar markets in Germany, Spain and elsewhere, foreign entrants are rushing to grab a piece of the new solar power pie, driving down prices and squeezing domestic players.
“The market is finally moving now that the FIT has been set, and we are being bombarded by enquiries,” said Yutaka Yamamoto, president of Suntech Power’s Japan unit.
“Foreign firms will now be able to fight on an equal footing in the non-residential solar panel market, which is the area that will see the fastest growth,” said Yamamoto.
The recent rush by home owners to cover their roofs with panels and companies to build “mega solar” farms have made solar cells a hot commodity.
Sales of solar cells rose 30 percent in 2011 from the previous year to just under 1.3 gigawatts, topping 1 gigawatt for the first time. They could rise above 2.5 gigawatts in the year through March 2013 with FIT, Sharp Corp Chairman Mikio Katayama said in May.
That all of Japan’s 50 nuclear reactors lie dormant amid public concern in the wake of Fukushima is an added boost for solar power.
Swimming against the tide of public opinion the government is trying to convince sceptical local authorities to restart some nuclear reactors in a bid avert a power crunch before the summer.
But considering the fierce opposition the government is facing, few expect nuclear energy - which provided a third of Japan’s electricity before Fukushima - to play a key role again anytime soon.
A number of solar makers may fall by the wayside if the FIT bubble bursts in a few years, but foreign companies are confident that their cost effective global production network will help them stay abreast of the competition, especially domestic players.
“Japanese makers can survive in the residential segment. But the price competition in the commercial segment will be far more brutal,” said Yamamoto at Suntech.
“Domestic manufacturers have nobody to blame but themselves. They knew about the price differential, but were unable to take action - it was just a matter of building factories abroad. Even now, only Panasonic has said it will build a plant overseas, which is unthinkable.”
Panasonic Corp said last year that it would invest $580 million to build a solar cell plant in Malaysia, as a strong yen makes domestic production more expensive. ($1 = 78.2800 Japanese yen) (Additional reporting by Mayumi Negishi; Editing by Joseph Radford)