A novel financing solution for Japan’s solar energy ambitions

Canadian Solar has sealed a JPY 24.5 billion (EUR 185 million) financing for the 100 megawatt Azuma Kofuji Solar power project, which counts among the largest solar projects in the country, and is Canadian Solar’s flagship project in Japan. The deal harnesses an inventive financing approach to advance Japan’s clean energy ambitions and help revitalising the Fukushima prefecture, reinvigorating the local economy in a region devastated by the 2011 Tohoku earthquake. 

Societe Generale recently acted as Mandated Lead Arranger (MLA) in the financing of Canadian Solar’s Azuma Kofuji Solar photovoltaic project. 

In Japan’s updated energy plan announced in April 2021, its government committed to a 2030 target of cutting greenhouse gas (GHG) emissions by at least 46% from 2013 levels. Renewables will make up between 36% and 38% of overall generation by then.¹ Of this target, of solar’s share is set to be 15% while wind (predominantly offshore wind) will account for 6%. 

Japan’s solar ambitions, however, are a challenge in a country where land use is at a premium and geography restricts available options for solar installations. In addition, solar sites are relatively complex, often requiring capital-intensive civil works. Japan’s feed-in tariff (FiT), introduced in 2012, has helped to meet these challenges by guaranteeing a fixed purchase price for renewable power. It boosted non-hydro renewables’ growth rate from 9% CAGR between 2009-12 to 29% between 2012 and 2015.² A new Feed-in-Premium (FiP) is due to be introduced in 2022 which will further incentivise renewables generators to sell their power to the grid. 

Putting finance in place

While the FiT and FiP mechanisms provide a strong ‘pull’ factor for installing solar generation, suitable financial solutions are needed to support construction and commissioning. 

Unusually for a long-term power asset, this deal is structured as a hard mini perm, a short-term facility with a maturity one year after construction is complete. This solution allows for the debt to be taken out by capital markets funding once the plant is up and running: after the solar farm is completed in 2023, it is expected to be acquired by the Canadian Solar Infrastructure Fund, which will subsequently receive the revenues from its operations at a predictable rate guaranteed by the FiT.

“This funding model has real potential to help accelerate Japan’s energy transition, providing additional financing options to address the country’s specific challenges and enabling the project sponsors to benefit from a wider range of funding schemes. It’s a great example of how international and local institutions, as well as commercial debt and institutional funding, can make a difference through innovative financing,” said Cedric Chatel, Managing Director - Energy Finance & Advisory, Societe Generale.

Canadian Solar is one of the biggest solar power developers in Japan, having successfully bid for projects at every auction since the FiT programme was launched in 2017. It is also the sponsor of the Tokyo-listed Canadian Solar Infrastructure Fund, which offers access to efficient capital markets funding for long-term infrastructure assets. 

“Canadian Solar is committed to working with all stakeholders in furthering Japan’s renewable energy journey. Obtaining financing that suits the country’s specific circumstances is key to enabling the construction phase of solar projects by tapping into the government’s strategic incentive programmes,” said Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar Inc. 

The reduced tenor and capital markets-friendly structure of the Azuma Kofuji financing is unusual in Japan but is a regular feature in the US, applying Canadian Solar’s and Societe Generale’s global experience to the local market. 

This is Societe Generale’s first financing for a domestic Japanese solar project, having entered the Japanese renewables market in 2020 with financing for the Marubeni Corporation’s 140 MW Akita offshore wind project.³ The Azuma Kofuji facility will be one of the largest solar projects in the country to date, critical to the meeting the country’s energy transition commitments, as well as playing a substantial role in the reconstruction of the Fukushima prefecture.

1 https://asia.nikkei.com/Business/Energy/Japan-aims-for-nearly-40-renewable-energy-by-fiscal-2030 
2 https://shulman-advisory.com/2020/06/19/fit-fip-and-the-future-of-renewables-in-japan/ 
3 https://wholesale.banking.societegenerale.com/en/insights/clients-successes/clients-successes-details/news/how-marubeni-using-sun-and-wind-power-asiaes-energy-transition/