Firms angling for slice of green energy pie

Companies are increasingly expanding into the renewable energy sector due to a new incentive program that is expected to spur demand for environmentally friendly power.

To promote power generation using renewable energy sources, such as solar, wind, geothermal and biomass power, the government will introduce a so-called feed-in-tariff scheme in July.

Under the system, utilities will be obligated to purchase electricity from households and companies with their own green power generation systems at a fixed price for a set period of time.

With all but one of Japan's nuclear reactors shut down since the Fukushima disaster, leading to fears of an electricity shortfall this summer and beyond, businesses for the first time are starting to invest in renewable energy, eyeing the sector's potentially huge profitability.

Major cellphone operator Softbank Corp. has drawn up plans to build massive solar power plants at more than 10 sites nationwide, in collaboration with local municipalities.

"We must launch renewable energy operations as soon as possible," Softbank President and CEO Masayoshi Son said last month in a speech to a global symposium on natural energy.

Softbank's green energy plans extend far beyond Japan's shores. Son is proposing a so-called Asia Supergrid that would link Japan's power grid with those of other nations, including China, South Korea, India, Singapore and the Philippines.

Softbank will soon create a company to study the feasibility of large-scale solar and wind power generation projects in Asia.

In a joint news conference in March, Son and Mongolian Prime Minister Sukhbaataryn Batbold unveiled plans to start a wind power project in the Gobi Desert, an area that would be covered by the envisioned supergrid.

Major trading houses are also accelerating their push into the green energy business.

Mitsui & Co. is planning to begin large-scale renewable energy projects in around 10 locations across the nation, including the city of Yonago, Tottori Prefecture, where it will collaborate with Softbank. Mitsui is also considering erecting massive green energy plants in the three prefectures hardest hit by the March 2011 natural disasters. The company plans to set up a joint energy business fund with Tokio Marine Asset Management Co. to finance these projects.

Another trading giant, Mitsubishi Corp., is eyeing several locations, including in Kumamoto Prefecture, to build renewable energy facilities.

Trading house Marubeni Corp., meanwhile, has created a new department to study the feasibility of geothermal power generation, while oil importer Idemitsu Kosan Co. plans to build a geothermal power plant in the Bandai-Asahi National Park in Fukushima Prefecture, which bore the full brunt of last year's nuclear disaster. The facility's envisioned capacity of around 270,000 kw would make it one of the nation's largest geothermal plants.

But whether Softbank and the many other businesses seeking to tap the green energy sector go through with their plans will be determined by a single issue: the price they can charge utilities for electricity.

The government is scheduled to announce the price in May, based on the proposal of a panel it set up to examine the matter. The Ministry of Economy, Trade and Industry is rumored to be considering a level between ¥35 and ¥40 per kwh for solar power, but Softbank's Son wants it considerably higher.

If utilities are allowed to purchase green power for even ¥40, operations would prove unfeasible for almost all of the roughly 200 candidate sites put forward by municipalities.

A senior official at a major trading house said that at a rate of ¥40 per kwh, it would take companies at least 10 years to recover their initial massive investment and start turning a profit.

Another official in charge of a renewable energy project indicated his company would pull the plug if the government fails to set the price for green energy at a commercially viable level.

But some members of the price-setting panel are insisting that a low price should be set to take into account the interests of consumers, especially small companies, because utilities will reflect the price of renewable power in their overall rates.

The price of renewable energy could negatively affect smaller firms more than the government's proposed — and highly contentious — consumption tax hike, an official at the Japan Chamber of Commerce and Industry said.