In 2013 Japan solidified its position as one of the biggest solar markets in the world, but foreign manufacturers face a number of challenges. Financiers and consumers tend to favor Japanese brands. In 2013 Canadian Solar (NASDAQ:CSIQ) was the largest foreign solar brand with only 7% of the Japan PV module market. Now that foreign financial institutions like Deutsche Bank are making bigger inroads in Japan, it should be somewhat easier for foreign manufacturers to fight for the Japanese market.
The backdoor to Japan
Instead of trying to challenge Japanese consumer preferences and Japanese banks, SunPower (NASDAQ:SPWR) decided to partner with Toshiba. By selling panels, inverters, and other parts to third parties, SunPower can gain a piece of the market without fighting the end consumer. SunPower's solar systems products segment is very important for the company, bringing in 36.6% of its 2013 global revenue.
SunPower's actions in Japan have been successful. Its 64% increase in 2013 APAC revenue was primarily due to increasing Japanese sales. With more foreign capital flowing into Japan, SunPower can consider moving further up the value chain. Japanese solar system costs are above comparable U.S. system costs, giving SunPower the opportunity to grow and give customers lower prices.
First Solar (NASDAQ:FSLR) has been watching SunPower's Japanese strategy very closely. In order to gain a piece of the action First Solar acquired TetraSun. First Solar has an agreement to use JX Nippon's distribution and technological capabilities to help bring TetraSun's products to the Japanese market.
For the time being, First Solar is still mainly a utility-based company. First Solar does not expect TetraSun to start production until the end of 2014. Japan still plays a limited role in First Solar's potential booking opportunities. In Q1 2014 the company noted that its potential bookings in the entire APAC region were comparable to Southern Africa or Europe. North America and Latin America remain the best option for First Solar's developed utility sales operation.
It is not surprising that Japan is a significant portion of Canadian Solar's pipeline. In Q1 2014 its Japanese pipeline was 343 MW while its U.S. pipeline was only 151 MW. With Asia and other regions accounting for 50.4% of Q1 2014 revenue, Canadian Solar is one of the more focused Asian plays.
The growth of foreign capital in Japan is great news for Canadian Solar. It already has a presence in the market, and foreign capital will help Canadian Solar to sway consumers.
The macro situation
Japan is still paying nosebleed prices for LNG. In March of this year, the Japanese government did cut its solar feed-in-tariff by 11%, but solar's fundamental economics have not changed. The simple reality is that solar energy lets Japan reduce its exposure to the global energy markets and Machiavellian geopolitics. With Asian geopolitics increasingly unstable, the Japanese government is unlikely to withdraw its support for solar anytime soon.
Success is in the wind
It is widely expected that Japanese feed-in-tariffs will fall over the coming years, but consolidation in the construction process can help reduce end user system costs. Canadian Solar and SunPower can partner with foreign financiers to help grow the land of the rising sun. First Solar's rooftop aspirations are tied up until its TetraSun operations get off the ground, but Japan remains a strong motivator for the company to reach its goals.