Japanese Infrastructure Market Updates

Current Status and Issuesof Investment in Renewable Energy
Ver.01

June 23, 2015

Sumitomo Mitsui Trust Research InstituteContents

I

Background ........................................................................................... 1
1 Renewable energy dealt with in this report ...................................... 1
2 Outlook for long-term energy supply and demand in Japan(energy mix) ..................................................................................... 2
3 Systems supporting renewable energy in Japan ............................. 4
3-1
Feed-in tariff (FIT) .................................................................... 4
3-2
Green Investment Tax Break ................................................... 6

II Renewable energy investment market .................................................. 7
1 Current status .................................................................................. 7
2 Size of the investment market (focus on photovoltaic power) .......... 8
3 Funds............................................................................................. 11
3-1
Tokio Marine Asset Management, Mitsui & Co. ..................... 11
3-2
SPARX Asset Management (SPARX Group) ........................ 12
3-3
Takara Asset Management (Takara Leben) .......................... 14
3-4
Other renewable energy funds .............................................. 15
4 Renewable energy companies....................................................... 17
4-1
Marubeni................................................................................ 17
4-2
NTT Facilities ......................................................................... 18
4-3
Kokusai Kogyo, JAG Energy (Japan Asia Group) ................. 19
4-4Tokyo Century Leasing, Kyocera ........................................... 20
III Outlook and issues for the renewable energy investment market ....... 22

I Background
1 Renewable energy dealt with in this report
The Intergovernmental Panel on Climate Change (IPCC), which was established by theUnited Nations Environment Programme and another organization, defines renewableenergy as any form of energy from solar, geophysical or biological sources that is
replenished at a rate that equals or exceeds its rate of use. There are a number of kindsof renewable energy, including photovoltaic power, wind power, hydropower, wave
power, and tidal force.
In Japan, the use of renewable energy had been discussed for some time and has
recently begun to attract attention, particularly after the Great East Japan Earthquake,with the energy mix, which will be discussed later. In 2009, the Surplus Electricity
Purchasing Scheme for photovoltaic power started, and in 2012, the Feed-in Tariff
Scheme for photovoltaic power, wind power, hydropower, geothermal power, andbiomass energy was introduced. After those events, renewable energy, especiallyphotovoltaic power, has been promoted, and funds for power facilities have been
established.
This report deals with photovoltaic power, wind power, hydropower, geothermal power,
and biomass energy, which are covered by the Feed-in Tariff Scheme of Japan, as
renewable energy.
Fig. 1.1 Trends in the capacity of renewable energy facilities
The capacity of facilities for FY2013(10,000 kW)

Up

year on year:

Photovoltaic power
Wind power

Average annual growth rate:

Small and medium-sizedhydropower

Average annual growth rate:

Geothermal power
Biomass energy(Fiscal year)
Sur p lus E lec tr i ci ty Purchasing
Scheme (from November 2009)
RPS system (from June 2002)

Feed-in tariff(from July 2012)

Source: “Energy in Japan 2014” of the Agency for Natural Resources and Energy

12 Outlook for long-term energy supply and demand inJapan (energy mix)
Based on the Basic Energy Plan, which was approved at a Cabinet meeting in April
2014, discussions are underway about the outlook for the long-term supply anddemand of energy (energy mix) in Japan, including renewable energy, to achieve adesirable energy supply-demand structure in FY2030. Following discussions at theLong-Term Energy Supply and Demand Outlook Subcommittee (of the Advisory
Committee for Natural Resources and Energy of the Agency for Natural Resources andEnergy) from January 2015, the subcommittee presented its draft outlook on Japan’s
energy supply and demand at its tenth meeting on June 1. Public opinions on the draft
are being sought until July 1. The specific policy objectives stated in the draft in relation
to safety, energy security, economic efficiency, and environment (3E+S), which areconsidered to be basic issues in energy policy, include an improvement (to around25%) in the energy self-sufficiency rate (the rate of primary energy necessary for lifeand economic activities that can be secured within the country) and a reduction inelectricity costs. The draft also states its outlook for the power source mix in FY2030. It
assumes that in FY2030, coal, oil, and LNG (thermal power generation) will account foraround 26%, 3%, and 27% of total power generation, respectively. Nuclear energy andrenewable energy are assumed to account for 20% to 22% and 22% to 24%,
respectively (please refer to Fig. 1.2). The draft says that the outlook, including theoutlook for the power source mix, needs to be reviewed in accordance with the Basic
Energy Plan, which will be discussed every three years.
Fig. 1.2 Anticipated electricity demand and power source mix
Total power generation
Approx.1065bn kWh

EnergysavingRenewableenergy22% - 24%
Nuclear power
22% - 20%966.6bnkWh980.8bn
kWh

LNG
Approx. 27%

Photovoltaic
Approx. 7.0%
Wind: Approx.
1.7%
Hydroelectric
8.8% - 9.2%
Biomass
3.7% - 4.6%
Geothermal
1.0%v - 1.1%

CoalApprox. 26%
Oil: Approx. 3%

Electricity demand(Performance)

Electricity demand(Forecast for 2030)

Power source mix(Forecast for 2030)

Source: Prepared by SMTRI based mainly on data of the Agency for Natural Resources and Energy2Japan has limited energy resources, such as oil and gas, and its energy self-sufficiency
rate is relatively low compared with that of other advanced countries, even if nuclear
power is included. Moreover, after the Great East Japan Earthquake, conventionalenergy, such as thermal power and nuclear power, has been facing challenges andneeds to be reviewed. With all nuclear power facilities shut down, dependence on
thermal power generation has increased, and electricity costs have climbed inassociation with rising fuel prices. In addition, greenhouse gas emissions haveincreased. We cannot overlook the effects of those factors on electricity users and theglobal environment. Meanwhile, renewable energy, which will be discussed below, is an
ideal electric source, but it involves a number of challenges in terms of steady supply
and electricity costs. Thus, in the energy mix, the continued use of nuclear power has tobe assumed to some degree.
It is said that promoting the introduction of renewable energy requires that the “3E”
conditions be met, and the introduction of (replacement of existing energy sources with)renewable energy in consideration of the characteristics of each electric source.
According to this idea, for example, nuclear power as a base-load power source should
be replaced by geothermal power, hydropower, and biomass energy, which are noteasily influenced by natural conditions, and thermal power, which is needed as a powersource whose output can be adjusted, should be replaced by photovoltaic power andwind power, whose output changes depending on natural conditions.
Electricity cost is an important factor. The introduction of renewable energy is
anticipated to increase expense associated with the feed-in tariff scheme and requires
initiatives related to the energy mix, including the promotion of energy saving and theresumption of operation of nuclear power facilities, to cover the increase in expense.
Feed-in tariff expense, which currently accounts for around 5% of total electricity cost,is anticipated to increase to around 40% in FY2030. The continued introduction ofrenewable energy requires adjustments in consideration of the overall balance ofenergy sources. The chart below shows anticipated electricity costs (fuel cost,
renewable energy feed-in tariff expense, and system stabilization cost) in FY2030.

3

Fig. 1.3 Anticipated electricity costs
Reduction in total cost

¥9.2tnFuel cost(Thermal power,
nuclear power)¥5.3tn¥3.7tn - ¥4.0tn

2013 performance

Introduction of geothermal power,hydropower, and biomass energy to theextent possible
Introduction of power sources changing due
to natural conditions (photovoltaic and wind)within a total amountFIT expense(Renewable energy)¥0.5tnEnergy saving, resumption of nuclear power
facilities, and reduction in fuel cost by
introducing renewable energy

Approx. ¥0.1tn

System stabilization expense

2030 forecast

Source: Prepared by SMTRI based mainly on data of the Agency for Natural Resources and Energy

3 Systems supporting renewable energy in Japan
3-1 Feed-in tariff (FIT)The system that plays a central role in the promotion of renewable energy in Japan is
the Feed-in Tariff Scheme for Renewable Energy (Feed-in Tariff, FIT). The first step inthe direction of TIF is the enforcement of the Act on Special Measures Concerning New
Energy Use by Operators of Electric Utilities (Renewables Portfolio Standard [RPS]Act) in April 2003. The RPS Act requires the use of electricity generated fromrenewable energy to a certain degree. With the enforcement of the Act Concerning thePromotion of Use of Non-fossil Energy Sources and Effective Use of Fossil Energy
Materials by Energy Supply Business Operators (the Law Concerning SophisticatedMethods of Energy Supply Structures) in August 2009, the Surplus Electricity
Purchasing Scheme started. The scheme worked from November 2009 to July 2012and began promoting the use, albeit to a limited extent, of renewable energy.
FIT was introduced with the enforcement of the Act on Special Measures Concerning
Procurement of Electricity from Renewable Energy Sources by Electricity Utilities in
July 2012. Unlike the Surplus Electricity Purchasing Scheme, which focused on
photovoltaic power, FIT has expanded the scope of purchases to include wind power,hydropower, geothermal power, and biomass energy. In addition, FIT enables buyers to
opt to purchase the full amount if generation capacity exceeds a certain level. FIT thus
gives incentives to power producers (power sellers) and has become a major factor in
the rapid increase in photovoltaic power generation.

4

Fig. 1.4 Purchase price and purchase period of major power sources(from April 2015 to March 2016)

Source: Prepared by SMTRI based on data of the Agency for Natural Resources and Energy

FIT plays an important role in addressing global warming and increasing the energy
self-sufficiency rate, but faces a number of challenges. First, the cost of renewableenergy tends to be higher than that of conventional energy. Electricity users thus pay“renewable energy surcharges” in addition to power charges.
Second, connections to the power system networks (power grids) of electric powercompanies pose a problem. It has been pointed out that instability in the output ofphotovoltaic power generation, which is ahead of other renewable power sources,
creates concern over the stability of power grids (such as concern over power outages
due to excess supply). If supply exceeds the connection capacity, that concern is likely
to grow. Rules on power control (continuous stop) have therefore been introduced. In
principle, the rules stipulate power control up to 360 hours annually withoutcompensation. However, electric power companies are permitted to expand the360-hour upper limit if supply exceeds their connection capacity. This makes it moredifficult to assume operating revenues for business operators that have photovoltaic
power facilities or are considering installing facilities, as well as for investors andfinancial institutions that provide financing for or invest in photovoltaic power facilities,

5and increases investment risk.
The present FIT authorizes electric power facilities meeting certain requirements. Some
media reports say that the Ministry of Economy, Trade and Industry is considering
introducing as early as 2017 a registration system that will require business operators
to conclude a contract with an electric power company. The purpose seems to avoid
any bias in favor of photovoltaic power generation, but the system can be considered toeffectively set an upper limit. In addition, maintenance requirements are being
considered. Expenses to be incurred by business operators may increase, andattention needs to be paid to changes in the system.

3-2 Green Investment Tax BreakIn addition to FIT described above, a system intended to provide tax breaks directly forinvestment in electric power facilities has been introduced. First, a taxation system forpromoting investment in the reform of the energy supply and demand structure (Energy
Reform Tax System) was introduced. The system has evolved into a taxation systemfor promoting a reduction in energy’s environmental impacts (Green Investment Tax
Break).
Specifically, if business operators directly buy facilities to which the Green Investment
Tax Break applies (such as energy saving facilities) and use the facilities for theirbusiness within a year, they are allowed to claim a special depreciation of 30% (animmediate depreciation of certain facilities) or a tax credit of 7% (only small andmedium-sized enterprises) of the acquisition price. The facilities to which the tax breakapplies are general renewable energy facilities, that is, (i) photovoltaic power facilities,(ii) wind power facilities, (iii) facilities using new energy (small and medium-sizedhydroelectric facilities), as well as (iv) carbon dioxide emission control equipment(including electric vehicles) and (v) energy use control facilities (building energy control
systems).
An immediate depreciation of photovoltaic power facilities is permitted only for facilities
purchased by March 31, 2015, but an immediate depreciation of wind power facilities isstill allowed. If the taxation system for promoting capital expenditures for improving
productivity under the Industry Competitiveness Enhancement Act is applied, an
immediate depreciation of photovoltaic power facilities is presumed to be allowed until
March 31, 2016, depending on their specifications and the response of the relevant
government ministries and agencies.

6II Renewable energy investment market
1 Current status
The Japanese renewable energy investment market is in its infancy. From 2000,
community-based private placement bonds and citizen funds emerged to invest insome wind power generation facilities and hydropower generation facilities, but they did
not evolve into ordinary investment products. Following the introduction of FIT
described above, photovoltaic power increased, and for financing, the market for
private placement funds for institutional investors and corporate investors has been
gradually expanding.
On April 30, 2015, the Tokyo Stock Exchange established a listed infrastructure fundmarket. The market is expected to play an important role in attracting investors,
including individual investors. Because of legal constraints, among other factors, themain investment destinations are anticipated to be photovoltaic power facilities.
Pass-through status has significant meaning in the context of tax regulations. In thecase of investment companies similar to J-REITs, the requirements for pass-throughstatus set out in the Act on Special Measures concerning Taxation are met effectively
only by schemes where renewable energy power facilities are leased. Moreover, thelease period is limited to ten years or less. In the case of investment trusts, domestic
publicly offered investment trusts are assumed to be able to avoid double taxation.
However, closed-end investment trusts set out in the listing regulations face a numberof practical challenges, including a lack of financing sources. If investment trusts areused, coordination with the trustee, among other arrangements, will take some time. To
solve these problems, a cross listing scheme, including listing on the Tokyo Stock
Exchange, using business trusts in Singapore, among other possibilities, is consideredan option.
Fig. 2.1 TSE infrastructure fund market and J-REIT market
Infrastructure fund market

Outline of listed f und

REIT market■Core assets (assets equivalent to holdings of■Core assets (assets equivalent to holdings of real

infrastructures) account for 70% or more of the total
assets of the fund.
■Core assets, peripheral assets (assets reflecting
returns from infrastructures to some degree), cash
and deposits, etc. account for 95% or more.

estate) account for 70% or more of the total
assets of the fund.
■Core assets, peripheral assets (assets reflecting
returns from real estate to some degree), cash
and deposits, etc. account for 95% or more.

■Financial requirements (total assets of ¥5.0 billion or more, net assets of ¥1.0 billion or more)

Outline of listing
requirements■Distribution and liquidity requirements (number of investment units: 4,000 or more; number of unitholders(excluding major unitholders): 1,000 or more)■Sustainable distributions are expected.
■Formulation of policy for the selection of operators■Disclosure of information on the issuer (investment company etc.), asset manager, assets under

Disclosure

management, etc.
■Disclosure of information on operators

Source: Prepared by SMTRI based on literature of the Tokyo Stock Exchange

7Pass-through status is very important for investors’ tax efficiency, but it should be notedthat in terms of holding and managing assets, pass-through status could reduce
flexibility. Photovoltaic power facilities, which are authorized by FIT, are income-type
products. They are similar to J-REITs effectively specializing in rental real estatebusiness, and discussion about their meeting pass-through requirements is appropriate.
However, for assets whose operational performance is reflected in investment
performance, including renewable energy facilities that are outside the scope of FIT
and economic infrastructure, you could accept the listing of a taxable vehicle, while
using the dividend exemption system and tax credits for dividends like listed companies
rather than waiting for uncertain tax revisions.

2 Size of the investment market (focus on photovoltaic
power)
The first fund in the infrastructure fund market described above is expected to be listed
in late 2015 at the earliest, and it is difficult now to predict the future market size. It isalso difficult to determine the situation of private placement funds. We will thus estimate
the market size based on the current capacity of electric power facilities. We will focus
on photovoltaic power, which is ahead of other types of renewable energy due to therelative ease of introducing photovoltaic power facilities in FIT. The table below shows
the actual capacity and authorized capacity of facilities by type of power. The lack ofbalance among different types of power is a challenge to be addressed. The tableshows that photovoltaic power facilities are far ahead of other facilities.
Fig. 2.2 Capacity of facilities by type in FIT (January 2015)

Source: Prepared by SMTRI based mainly on data of the Agency for Natural Resources and Energy

Within the scope of FIT, the capacity of authorized photovoltaic power facilities(including facilities whose capacity is less than 10 kW) was 71.62 million kW as of8

January 2015. The capacity is more than the capacity of nuclear power facilities
nationwide, 40 million to 50 million kW, and the permitted output of Tokyo ElectricPower Company (TEPCO), approximately 65.05 million kW at the end of FY2013.
However, the capacity of facilities that are actually generating power is 16.26 million kW(22.7% of the authorized capacity) and there is a large gap between the authorizedcapacity and the actual capacity. There are a number of factors explaining the gap,
including the time needed for land development work and connections to power grids
and business operators looking for the opportunity to commence operation at lower
cost. In any case, we can say that there is a large amount of potential power-generating
capacity.
The total purchase price of photovoltaic power in FIT stood at 391.7 billion yen (output
was 9.1 billion kWh) in FY2013 (including purchases of power from facilities whose
output is less than 10 kW) and 660.3 billion yen (output was 15.7 billion kWh) in
FY2014 (up to January 2015). The Agency for Natural Resources and Energy
anticipates that in the energy mix, the FIT total purchase price of photovoltaic power willbe 2.30 trillion yen (output: 74.9 billion kWh; capacity: 64.00 million kW) in FY2030. In
January 2015, the total purchase price is around 29% of the anticipated total price inFY2030, and the output is around 21%. Although there are a number of variable factors,
including the rescission of authorization, a decline in start-up cost and operating cost,
an improvement in the capacity factor, and a reduction in the purchase price ofelectricity, if the current authorized capacity (71.62 million kW) is used to the full, theexpected purchase price may be achieved.
The average start-up cost—the system cost used by the Agency for Natural Resources
and Energy, including the cost of panels of photovoltaic power facilities, the cost of
power conditioners, and construction cost—of new facilities of less than 10 kW built in
the October-December quarter of 2014 was 364,000 yen/kW. It decreased 15% in two
years from 427,000 yen/kW in the October-December quarter of 2012. The average
start-up cost of facilities of 1,000 kW or more was 286,000 yen/kW (from October toDecember, 2014), down more than 5% from 303,000 yen/kW two years ago.
For the FIT calculation for FY2015, suppose the system cost for photovoltaic power
facilities is 294,000 yen/kW (for facilities of 1,000 kW or more; land development
expenses are taken into consideration) and the total capacity of facilities is 21.21 million
kW, which is the sum of 16.26 million kW (capacity in FIT) and 4.95 million kW (capacity
before FIT), then the amount of investment in photovoltaic power facilities (excluding
land prices; depreciation is not taken into consideration) in the existing market isapproximately 6 trillion yen. Estimating future investment is difficult given such factors
as the aging and replacement of existing facilities as well as changes in cost, as
mentioned above. If the capacity of facilities is the anticipated capacity in the energy
mix in FY2030, namely 64.00 million kW, the amount of investment will be around 19

9trillion yen assuming that the investment is made at present.
Fig. 2.3 Estimated amounts of investment in photovoltaic power facilities

19 trillion yen
64.00 million kW(expected capacity in 2030)

21.21 million kW(actual capacity)

6 trillion yen

Generating capacity

Amount of investment (estimate)
Source: SMTRI

10

3 Funds
The main renewable energy funds in Japan are private placement funds forphotovoltaic power facilities (hereinafter photovoltaic power funds) because a listed
infrastructure fund market was established only recently and photovoltaic power funds
sit well in FIT as described above. The following is an overview of major fundmanagement companies.

3-1 Tokio Marine Asset Management, Mitsui & Co.
BackgroundIn 2011, when the introduction of FIT was expected, Tokio Marine Asset Management
and Mitsui & Co. started to consider jointly setting up photovoltaic power funds. In
August 2012, they set up their first fund, the TM Nippon Solar Energy Fund 2012
Limited Partnership. They set up funds of the same type in 2013 and 2014. They are
believed to manage around 30.0 billion yen (based on capital commitments). The
management of the third fund has been transferred from Mitsui & Co. to Mitsui & Co.
Plant Systems, a wholly owned subsidiary of Mitsui & Co.
Instead of treating photovoltaic power facilities only as investment products, thecompanies indirectly return part of the additional electricity charges to electricity users
chiefly through investors in domestic pension funds and work to play a part inpromoting clean energy. They are expected to set up funds of the same type and takesteps in areas of renewable energy other than photovoltaic power.

Outline of the funds
The companies have set up three funds. All are limited partnerships that invest in large
photovoltaic power facilities (mega solar power plants of 1 MW (1,000 kW) or more) toearn stable revenue from sales of electric power using FIT. The funds mainly target
institutional investors and domestic pension funds and actually accept investmentsfrom a wide range of investors, including regional banks, life insurance companies, andShinkin banks.
Fig. 3.1 Outline of the funds of Tokio Marine Asset Management and Mitsui & Co.
TM Nippon Solar
Energy Fund 2012

TM Nippon Solar Energy
Fund 2013

TM Nippon Solar Energy
Fund 2014

Established

August 2012

August 2013

August 2014

Fund structure

Limited partnership

Limited partnership

Limited partnership

Size of fund

9.0 billion yen(Capital commitment)

13.5 billion yen(Capital commitment)

7.7 billion yen(Capital commitment)

Generation
capacity

28 MW(10 locations)

43 MW(10 locations)

24 MW(7 locations)Operator

Mitsui & Co. Group

Mitsui & Co. Group

Mitsui & Co. Group

Source: Prepared by SMTRI based on data of Tokio Marine Asset Management and Mitsui & Co.

11

The third fund is said to have cancelled the plan to invest in a project in Kumamoto
Prefecture because of a problem with the connection to the power grid, noted above.
Funds to be set up in the future may need to consider distributing investments toaddress the same problem.
Fig. 3.2 Locations and generation capacity of power plants of Tokio Marine AssetManagement and Mitsui & Co.’s funds
Plants planned by the 3rd fund (7 locations)
Plants under construction of the 2nd fund (4 locations)
1.5 MW Abashiri, Hokkaido

Plants in operation of the 2nd fund (6 locations)
1.5 MW Atsuma, Hokkaido

Plants in operation of the 1st fund (10 locations)

5.1 MW Kai, Yamanashi
1.8 MW Atsuma, Hokkaido
7.2 MW Hokuto, Yamanashi
5.4 MW Natori, Miyagi
1.5 MW Onomichi, Hiroshima

5.3 MW Nirasaki, Yamanashi
2.8 MW Koriyama, Fukushima

1.8 MW Imabari, Ehime
2.1 MW Tokushima, Tokushima
3.5 MW Yamaguchi,
Yamaguchi

1.8 MW Kamisu, Ibaraki

3.6 MW Yamaguchi,
Yamaguchi

3.0 MW Mobara, Chiba

1.1 MW Shimonoseki,
Yamaguchi
2.1 MW Numazu, Shizuoka
2.8 MW Kitakyushu, Fukuoka
2.6 MW Shizuoka, Shizuoka

2.3 MW Nagomi, Kumamoto

1.4 MW Kita-ku, Kumamoto

2.2 MW Nishiki, Kumamoto

5.8 MW Matsuyama, Ehime

3.0 MW Tabuse, Yamaguchi

1.8 MW Kushimoto, Wakayama

19.5 MW Handa, Aichi

1.8 MW Yokkaichi, Mie

Source: Tokio Marine Asset Management (August 29, 2014)

3-2 SPARX Asset Management (SPARX Group)
Background
Like other companies, the SPARX Group is investing mainly in photovoltaic power
facilities, but considers its photovoltaic power business to be part of its renewableenergy business, which it considers a part of its infrastructure business. In June 2012,
SPARX Asset Management was chosen to be the asset manager of a public-private
partnership infrastructure fund that the Tokyo government planned and would invest in(it was commissioned to manage a second fund in October 2014). The SPARX Groupseems to manage other private placement funds as well. The group established
SPARX Green Energy & Technology to manage and provide consultation forinvestments in August 2012 and discloses information on investments.
The group’s assets under management in the renewable energy business as of12

December 31, 2014 was 50.0 billion yen. The group has been expanding its business
into fields other than photovoltaic power generation. In May 2015, the group invested inwind power generating facilities (generation capacity: approximately 18 MW; total
project cost: 12.0 billion yen) in Aomori Prefecture through the second public-private
partnership fund of Tokyo. The group is expected to play a central role in the renewableenergy fund field, including the listed infrastructure fund market.

Outline of the funds
The group seems to have set up a number of funds. The major funds that have been
disclosed are SPARX Public-Private Partnership Green Energy Investment Limited
Partnership, the first public-private partnership fund of Tokyo, SPARX Public-Private
Partnership Renewable Energy Investment Limited Partnership (lump-sum paid-intype), the second public-private partnership fund of Tokyo, and Mirai Green Energy
Investment Limited Partnership in which Sumitomo Mitsui Banking Corporation, NEC
Capital Solutions, and Maeda Corporation invest. Except for the second public-private
fund, these funds mainly invest in photovoltaic power generation. The table below
shows an outline of the funds and their investments. The expected return on the firstpublic-private partnership fund is an IRR of 10% (from October 2012 to January 2018).
Fig. 3.3 Outline of funds of the SPARX GroupSPARX Public-Private PartnershipGreen Energy Fund*

Mirai Green Energy FundSPARX Public-Private Partnership
Renewable Energy Fund (lumpsum paid-in type)*

Established

October 2012

February 2015

February 2015

Fund structure

Limited partnership

Limited partnership

Limited partnership

Size of fund

7.6 billion yen(Total project cost: 27.0 billion yen)

5.0 billion yen maximum－

Generation
capacity

74.5 MW(Photovoltaic power; 10 locations)

－

18 MW
(Wind power; 1 location)

Operator

SPARX Green Energy & Technology

SPARX Green Energy & Technology

SPARX Green Energy & Technology* Information on SPARX Public-Private Partnership Green Energy Fund and SPARX Public-Private
Partnership Renewable Energy Fund (lump-sum paid-in type) is based on disclosed information as ofJune 30, 2014 and May 26, 2015, respectively.
Source: Prepared by SMTRI based mainly on data of the SPARX Group andthe Tokyo metropolitan government

13

Fig. 3.4 Locations and generation capacity of power plants of
the SPARX Group’s funds

May 2015(schedule)

KushiroMay 2015(scheduled)

21.7 MW

Tomakomai
2.6 MW
Dec. 2013

Akita
2.7 MW
Aug. 2016(scheduled)

Kurihara

Jan. 201415.1 MW

Tsumagoi
2.4 MWMay 2015(scheduled)Mar. 2015

Fukushima
MatsukawaToyamaOct. 2013

7.7 MW

2.7 MW

Saga
2.0 MW**

Aug. 2016(scheduled)

Nakai

Hitachiomiya

9.8 MW

21.2 MW

Apr. 2015
July 2016(scheduled)

Otachi-misaki
2.2 MW

Dec. 2013

Ashikita

Aug. 2017(scheduled)Feb. 2015

8.0 MW

Kisarazu

Ichihara

32.0 MW2.9 MW

Source: Analyst meeting presentation material of the SPARX Groupfor the fiscal year ended March 31, 2015

3-3 Takara Asset Management (Takara Leben)
BackgroundThe core business of Takara Leben is the development of condominiums, mainly in the
Kanto area. It has expanded into real estate management and has more recently
expanded into the photovoltaic power generation business. Takara Leben has beenstrong in the development of condominiums equipped with (rooftop) photovoltaic
facilities. As of March 31, 2015, it has supplied 34 condominiums (3,865 units) withphotovoltaic facilities. In 2014, it supplied the largest number of condominiums withphotovoltaic facilities in Japan for the fourth consecutive year. Based on its track recordin this field, it has expanded into the photovoltaic power business, albeit later than thecompetition. In August 2013, Takara Leben started to operate Leben Solar (LS) Shioya

14

(generation capacity: 3 MW) power plant and made a full-scale entry into the business.
As of March 31, 2015, the capacity of facilities in operation was 16 MW, and that offacilities that had yet to be operated was 63 MW. According to its medium-termbusiness plan, which was updated in May 2015, the company aims to expand its
capacity of photovoltaic facilities to 130 MW by the fiscal year ending March 31, 2019.
The plan also says that the company will promote infrastructure fund management
through Takara Asset Management, its subsidiary, aiming to be listed on the TSE
infrastructure fund market at an early stage.
Fig. 3.5 Main photovoltaic power projects of Takara Leben
Former golf coursein Tochigi
Prefecture

LS Shioya power
plant

LS Chiba Wakabaku power plant

LS Chikusei power
plant

LocationNasu-gun, Tochigi

Shioya-gun, Tochigi

Chiba, Chiba

Chikusei, Ibaraki

Scale

Site: approx. 40 ha

Site: approx. 3.7 ha

Site: approx. 0.6 ha

Site: approx. 1.9 ha

Generation
capacity

Approx. 15 MW

Approx. 3 MW

Approx. 0.5 MW

Approx. 1.1 MW

EPC

Hitachi Zosen

－

－

－

Source: Prepared by SMTRI based mainly on literature of Takara Leben

3-4 Other renewable energy funds
As described above, the market of funds for renewable energy, including photovoltaic
power, has just begun. Since the introduction of FIT, however, a number of funds havebeen set up by financial companies and real estate companies, and many of them havesuccessfully raised money. The table below lists some funds that have been set up in
the past six months or so (including individual projects that have brought in multiple
investors). Fund Creation, which also engages in asset (securities and real estate)
management, is involved in a large-scale business, including projects that werelaunched before 2014 and earlier in 2014. The total generating capacity of its facilities
in operation is approximately 7.3 MW, and that of facilities that have yet to be operated
is approximately 42.0 MW (as of April 28, 2015).

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Fig. 3.6 Other renewable energy funds
N-REIF1UDS Clean Energy
2014(1) CNPV Japan Nishiki(2) CNPV Japan Tsunagi(3) RS Ibusuki(1) Mie Geino Solar F(2) Tochigi Mashiko SolarF(3) Kumamoto Meitoku
Solar FAMP Capital Investors

Sumitomo Mitsui Trust
Investment, ITOCHU
ENEXSumitomo Mitsui AssetManagement－

Fund Creation

Mitsubishi UFJ Trust andBanking

Sumitomo Mitsui TrustBank

Sumitomo Mitsui Banking
Corporation, Development
Bank of JapanSBI Securities,
SBI Money Plaza－GII

FM, AM

SponsorEstablishedMarch 2015

May 2015

December 2014

February – March, 2015

February 2015

Investment
destination

Photovoltaic facilities, wind
power facilities, small andmedium-sized hydropower
facilities, etc.

Mainly photovoltaic
facilities as well as biomass
power facilities, wind power
facilities, etc.

Photovoltaic facilities etc.

Photovoltaic facilities

Photovoltaic facilities

Fund structure

GK (trust beneficiary rights)

Limited partnership

Limited partnership

SPC (silent partnership)

GK (silent partnership)
1.7 billion yen(total investments of threefunds)(1) Approx. 1.1 MW(2) Approx. 1.7 MW(3) Approx. 1.4 MW

Size of fund－

5.0 billion yen(initial capital commitment)

4.5 billion yen(target assets)

3.0 billion yen(total investments of threefunds)

Generation
capacity－－－(1) Approx. 2.2 MW(2) Approx. 1.5 MW(3) Approx. 3.4 MW* Information at the time of disclosure
Source: Prepared by SMTRI based mainly on literature disclosed by each company

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4 Renewable energy companies
Apart from renewable energy funds described above, a number of companies engage
in power generation. Those companies may potentially be involved in the fund businessand comprise an important category in the overall investment market.

4-1 Marubeni
Background and business summary
Of trading companies, Marubeni, in particular, has been actively involved in theelectricity business, including business overseas. As of March 2014, the total capacityof power facilities owned by Marubeni (including facilities overseas and facilities otherthan renewable energy facilities) was 34,000 MW (capacity in proportion to equity
contribution is 10,000 MW).
Marubeni entered the renewable energy business early. Since 2000, it has expanded
its renewable energy business combined with its wholesale power business. The
company has participated in different types of renewable energy projects in different
areas. In the field of wind power generation, it has participated in projects in Gangwon,
South Korea (generation capacity: approx. 98 MW), the Hallett 4 Project in Australia(approx. 132 MW), and the Raleigh Project in Canada (approx. 78 MW). It has also
been involved in a geothermal power project in Miravalles, Costa Rica (approx. 27 MW).
Marubeni’s involvement in offshore wind power projects in Europe in recent years iswell known. In the Gunfleet Sands project (approx. 172 MW) in the United Kingdom in
2011, Marubeni cooperated with DONG Energy (Denmark) and Siemens (Germany) toinstall 48 turbines of 107 meters in diameter 7 km off the coast. In 2014, the company
participated in the Westermost Rough project (approx. 210 MW) in the U.K. Marubeni
plans to develop its business in the field of offshore wind power, which is expected to
expand, especially in Europe, engaging not only in power generation but also in the
EPC supply chain.
Marubeni is actively involved in photovoltaic power generation in Japan. Its main
facilities in operation include Oita Solar Power, one of the largest solar power facilities
in Japan. Other major projects are shown in the table below. It is involved not only inphotovoltaic projects but also in a wind power project (Nishiuwa-gun, Ehime;
generation capacity: approx. 20 MW) and in small and medium-sized hydropower
projects (Nagano Prefecture etc.; total capacity: approx. 34 MW). In the Fukushima
Recovery/Floating Offshore Wind Farm Experimental Project (including two 7 MW
floating offshore wind power generation plants), the first experiment of its kind in theworld, Marubeni aims to establish a new business model as the leader of theconsortium.

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Fig. 3.7 Marubeni’s main photovoltaic projects in Japan

Source: Prepared by SMTRI based mainly on literature of Marubeni

4-2 NTT Facilities
Background and business summary
NTT Facilities was established as a company that would engage in the construction
business of the NTT Group. Using its communications technology, the company has
been expanding its business as a system integrator for the energy business, especiallyphotovoltaic power generation (providing planning, design, construction work, andmaintenance) in recent years. NTT Facilities has engaged in photovoltaic power
generation since NTT was the Nippon Telegraph and Telephone Public Corporation (in1962, the company introduced solar cells as standalone power facilities for a public
phone system on an isolated island on Genkainada in Fukuoka Prefecture). The
company’s track record in this business is at the highest level. One of its features is thatit has established a system to continually test and assess leading-edge technologies. It
has established F Solar Research Park in Yamanashi Prefecture as a verification testsite for evaluating solar cell modules and testing frames, design technology, and smart
business.
NTT Facilities has photovoltaic power generation systems for customers at 1,190
locations (approx. 309 MW), including systems in the planning stage (as of March2014) and photovoltaic power generation systems for business use at 60 locations(approx. 168 MW) (as of September 2014). It plans to invest 80 billion yen in
photovoltaic power facilities (350 MW) for business use up to FY2016. As anengineering company, the company is expected to expand the use of efficientphotovoltaic power generation. The table below shows its main photovoltaic facilities inoperation for its own use.

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Fig. 3.8 NTT Facilities’ main photovoltaic projects

Source: Prepared by SMTRI based mainly on literature of NTT Facilities

4-3 Kokusai Kogyo, JAG Energy (Japan Asia Group)
Background and business summary
Kokusai Kogyo is a pioneer in the field of aerial surveys in Japan and is providing
mainly geospatial information consulting (geospatial information technology service(including business support using GIS) and construction consulting, etc.). The
company’s technologies are used in urban development and national land conservation,
and as an extension of this, the company has expanded its green energy business,
including renewable energy. The company has begun to provide research andconsulting when renewable energy power generation facilities are introduced andparticipates in photovoltaic power generation and small and midsize hydropower
generation projects. The green energy business is run mainly by JAG Energy in Japan
Asia Group. Kokusai Land & Development in the same group is responsible for EPC
and O&M. In this way, Japan Asia Group aims to provide a one-stop service forphotovoltaic power generation.
Japan Asia Group has a good track record in the renewable energy business. The
group has been involved in the business since before the introduction of FIT, including
a photovoltaic power project (approximately 1.0 MW) at Miyazaki Solar Way, in which it
participated in 2009. In the same year, the group acquired Geosol, which operates a
photovoltaic power business in Europe. It is now promoting overseas operations and isalso involved in the fund business. In February 2015, it set up a public-private
partnership fund jointly with the Tokyo metropolitan government (T-JAG Green Energy
Fund).
Japan Asia Group has mega solar operations in four European countries: Germany,
Spain, Italy, and the Czech Republic. In Japan, the group is involved in power facilities(the capacity of facilities in operation or completed being approximately 58.8 MW as ofMarch 2015), mainly mega solar facilities. In addition, it is participating in projects
whose total capacity is approximately 66.8MW. It has large potential generation
capacity. The group has recently developed rooftop facilities, including a solar systemat the Fuji City Western Purification Center water treatment building (approximately 1.2

19MW) and Itabashi Rooftop Solar Way (approximately 37 kW). The needs for rooftop
facilities may increase, especially in the areas covered by Tokyo Electric Power
Company, where the power system network can accept more connections.
Fig. 3.9 Main photovoltaic projects of Kokusai Kogyo and JAG Energy

Source: Prepared by SMTRI based mainly on literature of JAG Energy

4-4 Tokyo Century Leasing, Kyocera
Background and business summary
In August 2012, Tokyo Century Leasing and Kyocera jointly entered the photovoltaic
power business. They established Kyocera TCL Solar LLC and in July 2013 started tooperate the Takamatsu Ikushima Mega Solar Plant in their first project. By March 2015,
Tokyo Century Leasing and Kyocera have invested in 20 plants (12.0 billion yen) in
operation, mainly using Kyocera TCL Solar LLC. In addition, more than 50 projects(120.0 billion yen) are in progress. They have considerable potential generation
capacity. In June 2015, the two companies announced a new joint project, in which
Koyo Electric will participate. Operations through KCT Koyo LLC are expected(construction of power plants of a total of 25 MW or more in the next three years).
In joint projects, companies with strength in leasing, investments and loans associatedwith leasing, the manufacture of panels using semiconductor and electronic device
technologies, EPC, O&M, and energy saving are expected to generate synergies. In
this way, Tokyo Century Leasing and Kyocera are developing unique operations. Their
operations involve ordinary mega solar power plants for installation on the ground andthose for installation on water. The Hyogo Kasai Sakasamaike Floating Mega Solar
Power Plant, completed in May 2015, is the world’s largest solar power plant installed
on water that has been completed. The companies are also developing large mega
solar power plants installed on the ground. The Kanoya Osaki Solar Hills Solar Power
Plant, the joint development of which with Gaia Power and Kyudenko was announced
in May, is expected to be one of Japan’s largest solar power plants.
Apart from joint initiatives with Tokyo Century Leasing, Kyocera is involved in a numberof other projects. Ukujima Mega Solar Park (tentative name; located on agricultural

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land; generation capacity: 430 MW) project, on which Kyocera and other companies
reached a basic agreement in June 2014, has attracted note as the world’s largest solar
power project on agricultural land.
Fig. 3. 10 Main photovoltaic projects of Tokyo Century Leasing and Kyocera

Source: Prepared by SMTRI based mainly on materials from Tokyo Century Leasing and Kyocera

21III Outlook and issues for the renewable energy
investment market
Diversification of types of power, and innovation in each power
The review of the energy mix and the distribution of investments in renewable energy
in Japan and the introduction of FIT have led to a rapid expansion in photovoltaic
power facilities, and as described above, at some electric power companies, supply
exceeds connection capacity. To address the issue and to alleviate the concentrationof investments in photovoltaic power, initiatives for renewable energy other thanphotovoltaic power, such as wind power, geothermal power, and biomass power,should be considered. There are expectations of growing investment in wind power
generation, which has a relatively good track record in Japan, through funds andother means, depending on purchase prices in FIT. In the areas covered by Tokyo
Electric Power Company, the connection capacity has comparatively sufficient scope,and although available land is limited, a range of possibilities, including rooftop
photovoltaic facilities and photovoltaic facilities for installation on water, should be
pursued.

Stabilizing and strengthening connections to power grids
For power whose supply changes with natural conditions (particularly photovoltaic
power and wind power), connections to power grids are a significant challenge.
Large-capacity storage batteries are likely to be able to help stabilize supply. In
association with storage batteries, a subsidy for the urgent need to suspend
connections of renewable energy (support for the introduction of electricity storage
systems for renewable energy power generation operators) has been introduced.
Some projects, including the Mifune Tokunoshima Solar Power Plant (Kagoshima
Prefecture; generation capacity: 1.99 MW), do not depend on any subsidies.
Large-capacity storage batteries, with hydrogen conversion and storage systems,
among other systems, should help expand the market in the future, depending on thecosts of the storage batteries.
Enhancing existing power grids and electric power transmission across wider areas
should also continue to be considered. For example, if electric power is transmitted
to Honshu efficiently from Kyushu, believed to have an advantage in photovoltaic
power generation, or from Hokkaido, which has high potential in wind power
generation, optimal use of electricity will become possible. Although some problems,
including costs, have been pointed out in association with the enhancement of power
grids, it should still be considered, as the separation of power production from powertransmission and technology progresses, from a long-term perspective.

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Bringing a better understanding to investors as electricity users
There have been a number of initiatives, including the establishment of the TSE
infrastructure fund market noted above, to attract investors in infrastructure, including
renewable energy infrastructure. Expanding the investment market is a positive step,
and we need to get investors to understand infrastructure as users. Since domestic
infrastructure markets were not liberalized, Japanese investors do not have much
experience in infrastructure investing. Building the necessary understanding of thecharacteristics of each infrastructure is a significant challenge. The mechanism ofinvestment in electricity is believed to be relatively easy to understand if clear
information is disclosed. We have expectations that participants, including FM, AM,
and operators, will play an important role in this as well as in expanding theinvestment market.

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Inquiries: Investment Research Department I
https://www.smtri.jp/en/contact/index.html

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Takanori Fukushima

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Kakyu Tanaka

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