How high feed-in tariffs impacted the capital cost of solar PV in Japan

This study investigates the impact of feed-in tariffs (FITs) on the capital expenditures (CAPEX) of solar photovoltaics (PV) projects in Japan. In 2012, Japan introduced a FIT scheme with the highest tariff levels in the world. Tariffs for a project were set at the time when the project obtained a qualification, but early projects had no deadline for starting operations, and many where not built until many years later. The installed capacity of solar PV in Japan surged under the scheme. However, Japan has suffered from high costs of solar PV compared to the global level. Using survey data from Japanese solar PV projects, and econometric modelling we leverage the fact that projects qualified at different points in time, with different FIT levels, have subsequently been built simultaneously. We find that higher FIT levels are correlated with increased CAPEX, where a 1 JPY/kWh increase in the FIT level is linked to a 3.31 JPY/W rise in CAPEX. This may be due to that developers with guaranteed high tariffs have weaker incentives to reduce costs and/or to strategic pricing by suppliers. Our findings indicate that poorly designed support schemes can counteract the policy goal of reducing renewable energy costs.