Renewables Inbound Investment into Japan

Japan has the lowest level of inbound foreign direct investment of any major economy.  It is a very attractive market, but also a difficult one, given language and cultural barriers, high costs and long lead times to get established.  And in many industries, Japan's slow economic growth, aging (and, as of now, shrinking) population, have made domestic markets challenging even for Japanese companies, let alone foreign new entrants.

So it was heartening to read the lead story in Saturday's Nikkei Shimbun touting 700 billion yen ($7 billion) in planned foreign investment in renewable energy, triggered by the Japanese feed-in-tariff that has been in place from July of 2012.  The story highlighted a number of different plans from different origins:

1. Australia - Macquarie plan to invest 100 billion yen in solar and wind projects (primarily lease-type financing, I believe).
2. China - GCL Poly Energy targeting 100 billion yen in solar -- both equipment supply and ownership.
3. USA - Goldman Sachs plan to invest 300 billion yen in solar and wind renewables projects over 5 years (primarily third party debt, I believe, with the equity investment much lower).
4. Germany - Photovolt Development Partners (PVDP) of Berlin plan for 90 billion yen of solar projects.  (PVDP is a little known developer in Germany that has announced a number of huge projects in Japan, none of which has yet to enter construction).
5. Spain - Gestamp Solar plan for 90 billion yen of solar projects over 3 years.
6. Korea - Hanwha Q-Cells plan to invest 30 billion yen in 2013.

The articles notes that as growth slows for renewables in Europe, Japan has become seen as a very attractive market.  Indeed, the feed-in-tariff presents a rare opportunity for foreign investment into Japan, and is one of those rare opportunities for a business to establish a position in the Japanese market in an industry that should be very interesting over the coming decade or more.

The article ends on a mixed note, however, suggesting worries about a solar PV "bubble" in Japan, with comments on the high purchase price under the feed-in-tariff (FIT) for solar PV, even though it was reduced by 10% from the first to second year of the FIT; the fact that consumers will pay a surcharge on their electric bill for renewables; and noting the perceived problems with excess renewable supplies in Germany (after 10 years of a FIT that has resulted in many, many times the installation of solar PV and wind that is likely in Japan over the next few years).

Of course, without the initial generous FIT, Japan would never have "jump started" its renewables businesses in 2012, and never would have attracted such ambitious foreign investment plans.  Foreign investment in renewables is essential to modernize the Japanese project development business.

Japanese construction companies look at the FIT as a way to make a killing -- taking a fat margin when their other businesses are suffering.  Foreign developers, on the other hand, want to implement projects at as low a cost as possible.  This is a matter of self interest, of course, to maximize profit.  But it is also a process of transferring know-how, and of generating the cost data that will show, indeed, it is possible to do renewables projects in Japan at a price somewhere in between the "domestic" price level and the "international" price level.  Without foreign entrants, Japan's renewables business would have remained stranded in a world full of uncompetitive and anticompetitive practices, dominated by the incumbent utilities and the major construction companies and domestic equipment suppliers.