Sharp Discusses Solar Business Feasibility With Low Fit

Sharp Discusses Solar Business Feasibility With Low FIT Sharp Corp accepted an investment from Hon Hai Precision Industry Co Ltd, a major electronics manufacturing service (EMS) company based in Taiwan, and became a subsidiary of the company in August 2016. In the process of going under the umbrella of Hon Hai, speculative articles were released several times regarding the separation of the solar power generation business, etc, and Sharp rejected the validity of such articles every time they appeared.

We interviewed Shuji Inada, vice president of the Energy Solutions Business Unit, which is in charge of the mega (large-scale) solar business of Sharp, and asked about the future business strategies of the company.

The mega solar business expanded after going under the umbrella of Hon Hai

Q: Have there been any changes in the continuity of the energy solutions business after going under the umbrella of Hon Hai, in terms of the development, construction, operation and maintenance of solar power stations?

Inada: The business is being accelerated, rather than being unchanged. In the energy solutions business, funds for prior investment are required for operations including mega solar facility development and EPC (engineering, procurement and construction) services. The top management at Hon Hai understands this need, and we have no obstacles in the expansion of the business.

Q: Price reduction of solar panels has been accelerated because of excessive competition, and manufacturers in developed countries are struggling to ensure feasibility. An increasing number of panel manufacturers are beginning to look after a series of operations, ranging from the development of mega solar facilities to EPC services, targeting the expansion of sales. What is the future direction set by Sharp?

Inada: Sharp has pursued mega solar facility development, EPC services and independent power production (IPP) both inside and outside Japan since the start of the business, aiming to increase the sales of solar panels. We will continue the collaboration between the solar panel production/sale business and the mega solar plant construction/operation business.

The risk is not high for the solar panel production/sale business, but it is true that profitability has been declining in the business that handles the sale of devices alone. In terms of the solutions business, which is responsible for mega solar project development, EPC services, etc, on the other hand, there is risk for individual projects, but the income will increase if the risk management is carried out properly. If we are engaged in the two businesses and generate synergy between them, the total income from the solar power businesses will stabilize, which is the advantage.

Targeting 1GW in 2019

Q: What are the achievements and goals set for the future of your EPC business?

Inada: As of September 2016, we have 103 solar power plants that have been completed, and the total output of the plants is approximately 400MW. The output will be about 500MW by March 2017. We aim to increase the output to 1GW by 2019.

Among the various power producers that provide EPC services, Sharp is characterized by many large projects connected to special high-voltage transmission lines. As of September 2016, construction had been completed for 12 projects connected to special high-voltage transmission lines. The largest among them is a 45.6MW project in Tomato, Hokkaido, which was completed in December of last year.

Q: Do you offer EPC services only to plants that use Sharp solar panels?

Inada: At the start of the feed-in tariff (FIT) scheme, we undertook EPC services only when customers that intended to use panels manufactured by Sharp asked for the services. However, we changed this policy in 2015 and now also proactively offer EPC services to projects that incorporate panels manufactured by other companies.

The share of Sharp panels in Japan is 15% to 20%. Because of the equipment certification system under the FIT scheme, the tariff is not maintained at the current tariff if the panels are changed. Therefore, it is virtually impossible to change the panels. If we limit the targets of our EPC services to Sharp panels only, we will miss out on 80% of the market.

Because of this situation, we offer EPC services to projects that use panels of other manufacturers including Chinese manufacturers and other domestic manufacturers, using the panels for which the equipment certification was issued. The ratio of the sales of EPC services to projects that use panels of other manufacturers in the entire sales of our EPC business increased to about 40% in and after the second half of fiscal 2016.

Fukushima revitalization projects are connected to TEPCO transmission lines

Q: Following the revision of the FIT scheme, the certifications will become invalid unless a connection contract is signed with a power company by March 2017. Brokers are more active to promote the sale of projects for which construction has yet to be started (the right to sell electricity under the FIT scheme), targeting major companies that are engaged in solar power generation.

Inada: In the development of solar power plants, we focused on projects that use less risky sites such as projects related to local governments. Responding to the scheduled execution of the revised FIT scheme, sales promotion has become more active for the rights granted at the start of the FIT scheme, and we began to purchase such rights in 2016.

Such projects always have risks. However, we will be able to make a profit if we construct plants by performing proper risk management including appropriate land evaluation and sell the plants.

Q: The Ministry of Economy, Trade and Industry (METI) announced that applications for connection contracts should be submitted by June 30 of this year because it will take nine months for the procedures from application for a connection contract to the payment of the contribution in aid of construction and the signing of a contract. Will it be possible to sign a connection contract by March 2017 when you buy the right at this stage?

Inada: The FIT rights have several forms. It is uncertain whether a connection contract can be signed by March 2017 for projects in which application for a connection contract and the calculation of the contribution in aid of construction have yet to be carried out.

There are also cases where the contribution in aid of construction has already been decided and is ready for payment or the contribution in aid of construction has been paid and a contract has been signed but the right holder does not intend to construct a facility and wants to sell the right. In such cases, the projects can be shifted to the revised FIT without changing the tariff.

Q: You are actively engaged in revitalization projects in Fukushima Prefecture including projects in areas where habitation is restricted due to contamination by radioactive substances.

Inada: In terms of the Fukushima Revitalization Projects related to the nuclear accident, we have constructed plants with a total output of 32.7MW, including the plants that have been completed and those still under construction (Fig. 2). There are many spaces that remain unused because of contamination around the Fukushima Daiichi Nuclear Power Plant, which is unfortunate.
There are substations of Tokyo Electric Power Co Inc (TEPCO) near the Fukushima Daiichi Nuclear Power Plant, and the power is transmitted to areas covered by TEPCO. The national government announced a plan to construct a power transmission network in Fukushima Prefecture, connect the network to the substations and transmit the power generated by mega solar power plants to the Kanto Region. We will continue to actively develop revitalization projects in conjunction with national plans like this.