Both the California Solar Initiative (CSI) and Japan's solar feed-in-tariff (FIT) program have been widely praised as successful models for incentivizing solar installations. Comparing and contrasting the two markets that have resulted can provide useful information for solar professionals both inside and outside of California and Japan.
Overall, the Japanese residential program is larger in scale, but the CSI is growing faster with less incentive.
Many research companies are projecting that the Japanese PV market will be the next big market this year, fueled by the national FIT program launched less than one year ago. According to the Ministry of Economy, Trade and Industry, between July 2012 and January 2013, over 6.7 GW worth of PV projects – mostly large non-residential systems – were approved under the FIT program and 47% of the 6.7 GW represents systems larger than 1 MW.
As the non-residential segment has grown, the residential segment share shrunk to 66% in 2012 from 85%, according to the data released by the Japan Photovoltaic Energy Association. The Japanese market has been built on the residential segment, however, and this segment can remain the backbone of the nation's PV industry growth if the right structure is in place.
To see different results from different program structures, let's compare the Japanese national residential rebate program with the CSI program (residential only). Although the Japanese program is larger in scale with a longer history, the CSI has been growing more rapidly with less incentives for the last few years.
In 2012, the Japanese program provided rebates for over 1.2 GW of residential PV systems, which was more than seven times as much as the CSI residential program provided in 2012.
Both programs have been steadily growing: Between the first quarter of 2010 and the fourth quarter of 2012, the CSI quarterly installation grew at a compounded quarterly growth rate (CQGR) of 7.1%, while the rate was just 4.8% for Japan.
With the higher growth rate, the installed system cost has been shrinking more rapidly in California. During the same period, the CSI quarterly average installed-system cost fell by a CQGR of 3.5%, compared to 2.8% for Japan.
The biggest difference was the pace of reduction associated with incentives. Both programs have been offering upfront capacity-based incentives for residential PV systems.
The incentive for the CSI was reduced at a CQGR of 14%, while it was reduced only 6% for Japan between the first quarter of 2010 and the fourth quarter of 2012. At this point, the average completed residential system received an average rebate of $0.23/W for the CSI and 35 yen/W for Japan.
In other words, during the fourth quarter of 2012, the CSI subsidized 4% of the completed system costs, while the Japanese program still provided 8% of the system costs, on top of locally available incentives.
Currently, two of the three CSI program territories (Pacific Gas & Electric and San Diego Gas & Electric) have already exhausted their program funds or funded enough projects to meet the program goal. This means some of residential systems are now sold and purchased without incentives.
As Japan welcomed a new fiscal year in April, the new rebate rates for the national residential program were announced. Although the rebate amount was reduced by 43% from the previous fiscal year, this rate can still cover up to 5% of the installed cost for the next four quarters.
The reason this large program is moving rather slowly toward the incentive-free zone is the lack of adjustability and long-term certainty; the Japanese program is centrally budgeted and funded annually.
The incentive rate is fixed for a whole year, regardless of whether the market demand goes up or down, or the market faces supply surpluses or shortages. A new annual incentive rate is normally unknown until one month before the new fiscal year begins, which creates an application rush in the last month of the every fiscal year.
In Japan, what is needed is clear indication and advance notification of when the program ends. The CSI program had a goal to establish a self-sufficient solar market by the end of the program (within 10 years). The goal and the end of the program were clear and known among the industry participants.
Japan may be afraid of reliving the bitter experience of 2005 – when the national government discontinued the 12-year residential program, and the nation's PV market stopped growing – but this time, it would be a good course of action to let the industry know in advance that the end of the program will happen and when it will occur.
Junko Movellan is a chief analyst at KIB Consulting. She has more than 10 years of PV industry experience. She previously was a senior analyst at NPD Solarbuzz, where she covered PV downstream markets in the U.S. and Japan, and also worked at Kyocera as a market development analyst, developing business strategies. Movellan can be contacted at firstname.lastname@example.org.