Japan Renewables Market Report With COVID-19 Analysis (2020-2025)

Market Overview

Total electric generation capacity in Japan has increased since 2000, the growth in the capacity is mainly due to increasing electricity generated from renewables. The growth in Japan’s renewable sector is mainly due to its renewable policies such as differentiated feed-in tariff (FiT) scheme which impacted hugely for the development of the renewable sector. Besides supported policies, the government has also offered tax incentives for the development of the renewable energy sector. Japan offers tariffs for biomass, biogas, solar, geothermal, hydropower and wind (offshore and onshore), with contract up to 20 years.

The major challenge for the country's aim towards its goal of 80% renewable energy by 2050 is the necessary grid expansion for supporting that capacity generation. Integration of renewable technology into the grid in an efficient manner is the key challenge and infrastructure development continues to face significant delays in the coming years. The primary issue with the conventional grid is its inability to handle more complex energy dynamics and integrate intermittent renewable technologies into the network.

Higher carbon emissions are the main contention in Japan energy policy that has determined the government. The Japan government agreed in November 2016 where emissions are to be reduced by 80% to 95% by 2050. However, such targets are to be reviewed about its industry impacts.

Covid-19 has impacted global nations and businesses greatly including the renewable energy market. As the pandemic has impacted various industries which lead to the reduced consumption of electricity in both commercial and industrial segments. Japan has reduced level of infection and death rates compared to other counties. Like most countries in the region, strict lockdowns had led to the closure of borders and led to a shutdown of all transportation, construction, retail and manufacturing activities. These factors led to the considerable weakening of the economy and forecasts for economic growth in Japan for 2020 demonstrate a steep recession.

Unlike the thermal and nuclear power sector, we expect generation in the non-hydro power renewable segment to grow at a steady rate. Strong winds and above-average sun hours coupled with reduced demand led to a surge in renewable power generation in the country. However, consumption is expected to remain low over 2020 with gradual recovery towards the end of the year. Reduced demand is expected to affect the power export market in Japan.

Market Dynamics

The renewables market has shown strong growth in recent years and is expected to have continued growth over the coming years. Renewable energy is going to be the key driver of the German power generation mix diversification efforts due to the ongoing phasing plans of existing traditional power generation systems. For instance, nuclear capacity set to be phased out by 2022 and coal set to decline over the coming decade, under the announced 2038 phase-out target. The household electricity prices are high in the country that is mainly due to subsidies offered to renewable energy developers. The growth in renewables segment, both on a utility and distributed level, has severely battered revenues of utilities that are traditionally reliant on thermal-power generation.

Japan Renewables Energy Market Scenario

The solar sector is performing greatly in the short term of 2020 despite Covid-19 hurdles in the country. Combined growth in the solar and wind sectors would enable Japan to meet its energy target of 65% non-hydro power renewables by 2030. Capacity additions will be affected due to the inactivity across all power sectors leading to a general delay in project delivery of three-to-six months, which has led to reduced capacity growth.

Short-term delays are expected in solar projects due to solar supply chain constraints curtailing from the impact of the Covid-19 outbreak. Solar markets across the globe are highly dependent on imports of solar panels and photovoltaic cells from China, and delivery of this equipment is expected to face delays due to preliminary destructive containment measures, which have affected manufacturing and production due to labour and logistical mobility issues. Battery storage systems will play a crucial role in Japan as it tries to leverage its substantial capacity of distributed solar generation over the next decade.

Japan Investment Scenario

Japan coal exit plan will require substantial new investment in renewable energy and grid transmission capacity to ensure energy security. Changes in laws amending capacity expansion in the country will further drive the investment activities over the coming years. The continued investments in the Japan transmission system will be required to facilitate the energy transition over the next decade. Hence, further investment activities are expected to grow in the transmission network projects over the coming years.

Investment opportunities in the country are becoming less prevalent in recent years and are expected to have similar trends in the near short term. The current weak economic conditions will negatively impact power sector investment over the short to medium term period. The slower growth in baseload capacity may put pressure on governments to improve regulations to boost private sector investment in renewables to support the market growth against upside risk to medium- to long-term renewables growth in the country.

Global Renewable Energy Market Analysis

The slowdown in the global economy the power consumption is expected to slow down across all markets due to Covid-19 for the short term period. This effect is most evident in the markets with higher levels of manufacturing, mining and construction activity, which are very energy-intensive. International supply chains are impacted greatly due to high dependency on imports from China, as strict measures by the Chinese government to prevent the spread of the virus will lead to shortages of components and impacting domestic production in other markets. The electricity demand is expected to reduce which will lead to the lower the amount of electricity generation required across many markets in the near-to-medium term. The weakened economy will also lead to the termination of new capacity additions in many countries. Overall demand renewable energy is expected to grow due to their use, though end-use electricity demand falling significantly due to lockdown measures, low operating costs and priority access to the grid. In many markets renewables operate at near full capacity, enabling a renewable generation to grow.

However, the COVID-19 impact is high, but it is expected to be prevalent in the short term and not impacting global growth in renewable power capacity. The new renewable power projects across the world are expected to decline this year which is a noteworthy decline in the past 2 decades. But with supportive government policies, the growth is expected to restart next year as most of the delayed projects come online. In 2020, additions of new renewable electricity capacity are decreasing by 13% compared with 2019 this is mainly due to delaying construction activities and supply chain disruptions across the world besides financial challenges.

Solar and wind projects are accounted for 86% of global renewable capacity additions in 2020, but their annual expansion is expected to decline by 17% and 12% respectively compared to 2019. The utility-scale solar and wind projects are expected to rebound as most of projects in the pipeline are already financed and under construction. The impact of Covid-19 on renewable electricity technologies with long project duration such as hydropower, offshore wind, CSP and geothermal, remains partial. Hydropower capacity additions are expected to grow in 2020 and 2021. The industrial and commercial sectors are expected to consume less renewable heat and power as lower commercial, industrial and construction activities are taking place during lockdown led to a demand shock for most heat-intensive industries. The current low oil and gas prices are further expected to have cost-competitiveness in renewable heat fuels and generation technologies.