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Flaws in system may lead to high-cost solar mounting structure


The study found that the development method (differences in contract type) and differences in the fiscal year of FiT certification impacted costs. Despite hardware costs falling significantly compared to when the FiT system was introduced, as described above, a large number of older certified plants remain in operation, with their initial electricity purchase price unchanged. These plants tended to have higher solar mounting structure component procurement costs, as well as inflated costs across a range of areas. The same applied to components of operation and maintenance costs such as land lease fees and operation management costs.
Flaws in system may lead to high-cost solar mounting structure

The electricity purchase price for older power plants certified between fiscal 2012 and fiscal 2014 is 32-40 yen/kWh, two to three times the purchase price for plants certified between fiscal 2017 and fiscal 2019 (14-21yen/kWh). The purchase price for these older certified plants means that they can anticipate latent high profitability. It is possible that in addition to the business operator, this latent profitability is being distributed to a range of associated players, such as component suppliers, EPC contractors, landowners, and those holding FiT certification rights. Through the tariff, Japanese electricity consumers are paying for these additional costs in the form of higher prices, leading to a solar mounting structure under which “renewable energy is high cost".

This structure is a result of a failure in the initial system design, namely negating to set a time limit for commencing operation. In June 2013, the Renewable Energy Institute issued a press release entitled "Japan's Feed-in Tariff System Achievements and Issues One Year On," in which it identified the problems outlined below. However, it was not until after August 2016 that an effective time limit for ommencement of operation was put in place.

"In the current operation of plant certification under the FiT system, changes in solar panel manufacturer, changes in component model, changes in business operator, and changes in location are all regarded as small changes. In addition, there are no standards that indicate when the business operator must commence operation. This operating system enables operators to obtain plant certification at a high purchase price, wait for the price of solar PV systems to fall before installing equipment cheaply, then reap a high profit margin. Urgent action is required to ensure that this system is not abused."

If any lessons are to be learned from these experiences, it should be to ensure efforts are made to prevent similar problems occurring with other renewable energy sources. The key is to reduce the potential for costs to remain high, despite the fact the cost reduction efforts can reduce expenses due to purchase price providing a significant latent profit potential, which does not incentivize the operator to optimize cost competitiveness, with profit instead allocated to various associated parties. As other types of renewable energy differ from solar PV in that the electricity purchase price is largely unchanged, the extent of this problem cannot be studied empirically in the same way as solar PV. However, the problem can be resolved to a certain extent by incorporating the following systematic measures: setting an “appropriate” time limit for commencing operation, promoting cost reductions by setting long-term cost reduction targets which are lowered incrementally, or operating a corridor system. Although a time limit for commencing operation has already been introduced, each of the above measures can be applied to the current FiT system. Making improvements to address these systematic problems will help promote the permeation of cost- efficient renewable energy.

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