BMI View : We are maintaining our 2013 estimates and 2014 forecasts for non-hydropower renewable energy in Japan this quarter. This is because data released by the government in recent months continue to support our 2013 figures and our short-term assumptions for the sector remain unchanged. However, we have slightly moderated our long-term forecasts for non-hydropower renewable energy in light of a clearer outlook for Japan thermal and nuclear energy sectors.
We are maintaining our 2013 estimates and 2014 forecasts for non-hydropower renewable energy in Japan this quarter. This is because data released by the government in recent months continue to support our 2013 figures and our short-term assumptions for the sector remain unchanged. At present, we are forecasting non-hydropower renewable generation to grow by 15.4% and non-hydropower renewable capacity to grow by 35.2% in 2014.
We have maintained our 2013 estimates for renewable energy generation and capacity in Japan as data released by the government are in line with our estimates. The country ended the month of August with an installed solar photovoltaic capacity of 10.5GW, which translates to over 3GW of capacity installed over the first eight months of the year. Our estimate of 12.9GW seems within reach, given the relatively large pipeline of projects to be developed.
|Data Supports Our Estimates|
|Japan - Solar PV Module Installations By Sector, MW (LHS); Cumulative PV Capacity, GW (RHS)|
Our short-term assumptions for the renewable energy sector in Japan also remain unchanged, leading us to maintain our 2014 forecasts for the sector. We continue to see growth driven primarily by solar energy and this is due to the high feed-in tariff (FiT) for the renewable source. We have however factored in the possibility for a reduction in the FiT as the government is seeking to bring returns for the technology in line with other renewable technologies ( see 'Renewables Forecasts Up On Positive Data', July 17 2013). We also see the shortage of grid infrastructure extending into 2014 - particularly in the Hokkaido prefecture - which could act as a limiting factor upon new capacity investment.
|Solar Still The Main Driver Of Growth|
|Japan - Non-Hydropower Renewable Energy Generation By Type, TWh|
We also believe that our revised outlook for nuclear energy could pose an upside risk to our forecasts. We had previously expected restarts to begin as early as end-2013, but had highlighted that growing downside risks were likely to lead to delays in the restarts. This view has played out - news of radioactive water leaking into the sea at Tokyo Electric Power (TEPCO)'s Fukushima reactor have led to greater public scrutiny, and regulators are striving to show their commitment to nuclear safety to a sceptical public ( see 'Reactor Restarts To Take Longer Than Expected', September 16 2013). This has led us to revise down our nuclear energy forecasts for 2013 to 2016, and increases the possibility for a shortfall in electricity supply over this forecast period. While we believe that thermal energy - and particularly coal - will be used to fill the shortfall, we note that electricity shortages and higher electricity prices could lead to a sharp increase in residential solar generation.
Thermal And Nuclear Affect Renewables Outlook
We have slightly moderated our long-term forecasts for non-hydropower renewable energy in light of a clearer outlook for thermal and nuclear energy. We are now forecasting non-hydropower renewable generation to grow at an average rate of 8.4% per annum between 2014 and 2022, down from 8.6% previously.
|Japan - Non-Hydropower Renewable Energy Generation By Type, TWh (LHS); Non-Hydropower Renewables Generation, % y-o-y (RHS)|
As highlighted above, we have amended our expectations for nuclear restarts based on developments in the sector. Meanwhile, the commissioning and rehabilitation of several coal-fired power plants - such as TEPCO's No. 2 unit at the Hitachinaka plant (1GW) and the No. 6 unit at the Hirono (600MW) - has also led us to amend our coal generation forecasts. While we had previously incorporated all of these factors into our forecasts for renewable energy, changes in the timings of these developments will affect our forecasts marginally, as witnessed by our relatively small downward revision.
|Nuclear Outlook Amended|
|Japan - Nuclear Power Capacity, GW|
We have also witnessed three developments in the Japanese power sector that could affect our forecasts over the medium- to long-term:
An incursion by Chubu Electric Power into TEPCO's turf: Chubu will be acquiring a majority stake in Tokyo-based electricity supplier Diamond Power by the end of 2013, marking an incursion into TEPCO's turf. This is largely because of efforts by the government to deregulate the sector, and we could see greater competition and more private participation in the power sector ( See 'Chubu Electric: Tokyo Expansion Indicative Of Increasing Competition', August 16 2013). This is positive for the renewables sector as the barriers for entry into the sector are relatively low relative to conventional power projects (in terms of scale and financing requirements).
Toshiba's acquisition of a wind energy developer: Japanese engineering and electronics company Toshiba acquired wind energy developer Sigma Power Janex in September 2013, marking the company's entry into the energy operation business ( see ' Toshiba: Wind Energy Generation To Complement Existing Business', September 27 2013). As a major equipment and service provider for the power sector, Toshiba's entry presents an upside risk for our wind energy forecasts.
Mitsubishi Heavy Industries formed a joint venture (JV) with Denmark's Vestas Wind Systems: The JV was formed with a focus on offshore wind turbines, and could achieve significant technological and production synergies ( see 'Strong Synergies For New Vestas-Mitsubishi Offshore Venture', September 30 2013). This poses an upside risk to our long-term offshore wind energy forecasts.