Japan Goes Solar
A $286 Billion Play on Japan's Nuclear Fallout
It was in 2006, while on a train from Frankfurt to Hanover, that I got my first look at something spectacular.
Although the train was traveling at around 150 mph, it wasn't hard to catch a glimpse of the rows upon rows of rooftop-mounted solar panels that were sucking in the sun's rays and spitting out electrons...
Certainly solar panels were not new to me. But to see this many — in an environment that boasted a solar resource about as strong as what you might find in Portland or Seattle — well, that was definitely not something I expected.
Of course, in 2006, Germany was well into its sixth year of its solar feed-in tariff, a mechanism designed to rapidly integrate solar into the country's energy mix. And boy, did it work...
From 2000 to 2010, Germany's installed solar photovoltaic capacity experienced a staggering CAGR of 66 percent.
The robust demand for solar was so significant, many believe Germany's aggressive solar agenda is responsible for the global solar bull market we experienced from 2004 to 2008.
There's no doubt nearly every solar manufacturer today exists in its current form as a result of Germany's aggressive solar initiatives.
Of course these days, Germany is in the process of strategically cutting its feed-in tariff. After all, this thing was never intended to run forever. And as a result, solar growth in Germany will slow a bit — although the most recent data indicates it won't be nearly as bad as some would have you believe.
In any event, there's no argument that Germany's solar feed-in tariff allowed for incredible growth... and course dozens of opportunities for investors.
Now, if you weren't playing solar back when the profits were pouring in, don't worry; you may have another chance.
And this time around, the windfall could be even greater.
A $286 Billion Dollar Solar Pay Day
The anti-nuclear movement got a real boost following the Fukushima crisis. There's no doubt about that. And as a result, renewable energy was once again paraded around as one of the many forms of clean energy that could be used to displace any nuclear power that would be phased out in Japan...
A few months ago, Prime Minister Naoto Kan announced a plan that would put solar panels on about 10 million roofs by 2030. Of course, he gave little details on how such a plan would be funded. But since the announcement, a number of high-level government officials have called for a solar feed-in tariff similar to that of Germany's.
University of Tokyo professor Ryoichi Komiyama recently offered his analysis of the effects of such a tariff, and noted that in a scenario where the country would seek 30 gigawatts of solar, a $261 billion market for solar panel production and installation would be created.
In the case of utility-scale solar, Komiyama added that developers would potentially have to spend an additional $25 billion for about 8 gigawatts of batteries.
As you know, we've long been bullish on utility-scale batteries, particularly in the case of solar. I would even argue that if Japan were to go full force on a solar feed-in tariff, it would be the utility-scale battery players providing the biggest pay day for investors.
You see, of the top five solar panel producers in Japan, only one is a pure play. And that's Suntech Power (NYSE: STP), which is actually the world's largest solar panel producer. If Japan were to implement this feed-in tariff, Suntech would get a huge boost.
Also benefiting from the tariff will be Sharp (PINK SHEETS: SHCAY), Kyocera (NYSE: KYO), Panasonic Corp (NYSE: PC), and Mitsubishi Electric Corp (PINK SHEETS: MIELY).
A Solar Market on Steroids
If Japan were to implement this feed-in tariff, we'll also see an even quicker drop in production costs. As my colleague Nick Hodge pointed out last week, for every doubling of solar manufacturing capacity, production costs fall about 20 percent.
With a Japanese feed-in tariff implemented, you can be sure that solar manufacturing would kick into overdrive with a serious shot of steroids. And consider Japan's energy demands as the world's third largest economy. They're talking about 30 gigawatts of installed solar, or 75 percent of what the entire world installed from 2000 to 2010.
This is a very big deal.
To take it one step further, Japan's environment ministry indicated the potential for commercial solar projects could theoretically reach 150 gigawatts. That's about ten times the capacity of Germany, currently the world's largest solar market.
Of course, it all comes down to how aggressive the Japanese want to be. While there have been dozens of polls showing Japanese consumers want to transition to cleaner forms of power generation, the question is, Will they be willing to pay for it?
I can't imagine Japan's total installed solar reaching 150 gigawatts anytime within the next 20 to 30 years. I just don't think there would be enough political support for it. And I'm pretty sure no matter how much the Japanese despise nuclear right now, they're probably not going to be too willing to pony up any significant increases in their utility bills in order to pay for the integration of 150 gigawatts of solar...
That being said, a temporary feed-in tariff used to get 30 gigawatts installed over the course of 20 years is not out of the question.
And if there's any indication that this tariff will actually get approved, you would be wise to load up on a few solar and utility-scale battery stocks.
We saw what Germany's aggressive feed-in tariff did for solar investors. It essentially launched a solar bull market.
The impact of a similar feed-in tariff in Japan would do the same — but on a much bigger level.
To a new way of life, and a new generation of wealth...
Editor, Energy and Capital
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