Japan could end tax breaks for solar as businesses prepare for deregulated electricity retail market

The ruling Liberal Democratic Party of Japan is reportedly set to end tax breaks for commercial solar installations, in a move that could be timed to coincide with the liberalisation of the country's electricity retail sector.

A report in Japanese financial newspaper Nikkei said the possible ending of tax relief, discussed by the LDP as part of a panel on various tax measures, was a way to remove the incentive portion of a ¥70 billion (US$569 million) renewable energy programme.

Tossing out these tax breaks is seen as a way for the Japanese government to consolidate funds and assist Prime Minister Shinzo Abe in his pursuit of reducing the corporate tax rate to under 30% by 2016, Nikkei said. According to the report, the LDP tax panel is weighing a motion that could remove the solar tax benefit by 31 March 2016.

Japan has promoted the use of renewable energy through feed-in tariffs (FiT) since 2012, which ensure a set price for power producers at both commercial and domestic level. Through July 2015, Japan had approved 82GW worth of solar projects – a quarter of which have commenced operations.

However, the timing of the move could be significant as next year a long-awaited legislatory change is set to come into effect, with private businesses allowed to enter the retail electricity market. Until now, Japan's 10 regional utilities have operated as monopolies in the various prefectures of the country, with the utilities also responsible for operating the regional electrical grids to which solar installations have to be interconnected.

Japan's Ministry of Economy, Trade and Industry (METI) has been posting the names and details of companies set to enter the market from 1 April 2016, with familiar names in solar including Softbank and Itochu among those expected to join. Industry observers and participants including the Japan Renewable Energy Foundation (JREF) and Canadian Solar have said for some time that they think this process of liberalisation can both benefit consumers and reinvigorate the solar industry.