Why Wind and Solar Energy Make Sense in Japan

The promise of renewable energy has always been alluring. Now that the technology has caught up to the promise, record amounts of wind and solar are coming onto the grid both in Japan and throughout the world.

But so far startups, especially Japanese startups, have been playing a very limited role in this transformation.

But that's starting to change.

Today we sit down with Ken Isono, founder and CEO of Shizen Energy, and we talk about what it takes to succeed as an energy startup in Japan, and since Shizen Energy is rapidly expanding globally, what it takes to succeed as a startup in the global energy markets.

We talk about which renewables are working in Japan and which are not, what the real bottlenecks are, and more important, how we can fix them.

It's a great conversation, and I think you'll enjoy it.

Show Notes

Why startups struggle in the energy market How solar plants get built in Japan How to find wind projects worth building The importance of going local in a global market Why the Japanese value land rights so highly A deep dive into solar, wind, hydro, and geothermal energy in Japan How Japanese communities are funding local renewable energy Why so many of Japan's startups come from Fukuoka How Japan can transform into a free-energy economy

Links from the Founder

Everything you wanted to know about Shizen Energy Shizen Energy on Facebook Shizen Energy retail green energy Friend Ken on Facebook

Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

It’s surprising at first, for all of the potential disruption in the energy industry, for all of the potential profits that can be made by doing things better and more efficiently in the energy industry, we don’t see that many energy startups, and as it turns out, there are good reasons for this. Generating and storing electricity at scale require skills that can’t be supplanted by new technology and innovation. Furthermore, most energy projects are long-term, low-risk medium return projects that are just not attractive to venture capital.

These projects require a different kind of financing. One notable exception, however, is Japan’s Shizen Energy who is bringing a lot of renewable energy onto the grid in Japan and around the world as well, and they’re doing it as a startup.

In just a minute, we’ll sit down with Ken Isono, Shizen Energy’s founder and CEO. He’ll explain how his little startup has worked with local governments and fought the incumbents to bring enough renewable energy onto the grid that Shizen Energy is not so little anymore.

We’ll talk about that growth, of course, and we also take a deep dive into the current state and the future prospects of the most important renewable energy technologies in Japan.

But you know, Ken tells that story much better than I can, so let’s get right to the interview.

[pro_ad_display_adzone id="1411" info_text="Sponsored by" font_color="grey" ] Interview Tim: So, I’m sitting here with Ken Isono of Shizen Energy, and thanks for sitting down with me.

Ken: Thanks for the chance to speak.

Tim: Now, Shizen Energy, you guys are a vertically integrated renewable energy company. You guys do generation, your financing, and the retail side as well.

Ken: Yeah.

Tim: That’s a lot for a startup to do.

Ken: We started with solar but the three co-founders used to work in wind power generation company together for five years.

Tim: What made you guys decide to leave that company and start your own project?

Ken: So, actually, Shizen Energy, we found this company 2011, June, so three months after Fukushima accident. Before that, there was no demand from the market, from policy in renewables, but we knew that it’s going to change.

Tim: At first you were focused on large scale solar projects? Was it just the financing, the construction?

Ken: Yeah. So, we knew that this is very capital-intensive business and it’s really difficult for the startups to sustain the business. You have to keep on financing all the time, so our strategy was to be in the renewable business but start with the service. Started with the development of project. We also created EPC. It’s Engineering Procurement Construction. It’s basically the construction of the large-scale solar PV.

Tim: Okay, well, let’s walk through what an early project was like. So, were you using investors’ capital to build these plants or did you fundraise for each individual project?

Ken: So, we found the investor for the asset, but basically, we do everything for them.

Tim: So, an asset would be a single solar farm?

Ken: Yeah. Actually, feed-in tariff in Japan started 2012. So, when we found this company, there was no feed-in tariff yet and we didn’t know how much it’s going to be, so basically, there was no business model when we started. We just believed that there will be opportunity and there will be necessity of renewables. That’s it. So, after one year, we were looking for how we can build sustainable renewable business, and then the feed-in tariff came up.

Tim: So, did the projects make sense without the feed-in tariff? For our listeners at home, the feed-in tariff is the amount that the utility guarantees they will buy your electricity from you. Did these projects make sense economically even without the feed-in tariff?

Ken: Actually, it didn’t make sense at that time. The system cost was much higher compared to now.

Tim: You would raise funding for a specific project, you had the expertise in managing the purchasing of the materials and the construction, and then do you also manage the operations of the plant?

Ken: Yes, so we did basically everything, and we didn’t know that this business model exists around the world. After we started, we found out this is not like very new business model.

Tim: Actually, it’s very common in every country that has feed-in tariffs.

Ken: Yeah.

Tim: But now, as you mentioned, the costs have come down so much that in a lot of places, it makes sense without any kind of subsidy.

Ken: Yes. That’s true.

Tim: Actually, we’ll get into that a bit later, but tell me about your customers, so who finances this? Are these outside investors? Are these individual companies? Are these communities that want renewable energy for the community? Are they power companies?

Ken: It has changed over time. In the beginning, it was a very small project. So, basically, it was like local companies who wanted a new business or who sympathized with creating clean energy. Also, we worked, we co-invest with municipal government also, so we have a joint venture with the municipal government in Kumamoto, and as our team gets bigger and with more experience, we could work on larger projects, and then investors – financial partners have changed. We did with the trading houses like Mitsui Corporation. We created a fund with one of the largest real estate fund company in Japan. Now, we are working a lot with Tokyo Gas, yeah. If we create the right project in the world, there are more money than projects.

Tim: So, how do you find the projects? Do your partners bring you the projects or do you actively go out and try to locate sites that would be appropriate?

Ken: Yes, we do that. 20th century, it was like, globalization but in 21st century and 22nd century, we need how we can localize, like we commit to the local community. This is one of, I think, the reason we could grow with small capital is that we have the trust from the community that we are committing to long-term, so that’s why we get the land.

Tim: What does that mean, to commit to the local community?

Ken: Basically, the energy business is a very domestic business. Nobody wants people from outside. It’s about the land. Especially the Japanese, land is very tied to your family or your history. People feel that just selling the land for money, I think you have a bad reputation in that community.

Tim: So, how do you commit to the community?

Ken: So, one is we have a foundation called 1% for Community, and we basically invest 1% of revenue to that community. One project is that we made investments in local entrepreneurs who started business and education in that community.

Tim: Well, I think that is interesting because the energy business in particular tends to be very extractive. It’s large global companies that are often taking resources out of a community.

Ken: Yeah.

Tim: Well, let’s talk a bit about renewables in Japan. There are three basic types of renewables that you’re involved with and that I think are important for the future of Japan, which is solar, wind, and small-scale hydro. So, let’s talk about each of these. A lot of people outside Japan don’t realize how big solar energy is in Japan. In fact, until last year, Japan had the second most solar capacity in the world, and US just barely passed last year. What’s been driving this huge rollout for solar energy in Japan?

Ken: Biggest impact was feed-in tariff. I think from now on, it’s more like small scale, the price of the generation is going lower than the energy price from the grid. I think that will be the next driver for the -

Tim: For the mega solar projects, the big solar projects. The feed-in tariff, when we started out, was ¥42 per kWh, and now for residential, it’s down to about ¥26, and for large scale projects, it’s an auction, basically, right?

Ken: Yeah.

Tim: So, how much has that caused solar deployment and solar development to slow in Japan?

Ken: Yes, I think large-scale, I think it will slow down for a moment until solving the issue of the grid.

Tim: Looking forward, now that the end of the feed-in tariff – back in the good old days, it was ¥42 per kWh. It was actually kind of hard to lose money building solar plants in Japan,