By JURO OSAWA
As Japan rethinks its dependence on nuclear energy in the wake of the Fukushima nuclear accident, Sharp Corp. is out front in the discussion over what's next.
A proposed shift in Japan's energy policy could mean higher electricity costs for Sharp and its fellow manufacturers. Sharp—whose biggest businesses are liquid-crystal display panels and television sets—is a member Keidanren, a powerful Japanese business lobby opposed to the proposed renewable energy bills.
However, Sharp could benefit from the new policies, which would require utilities to buy up electricity that comes from renewable sources. The company is Japan's largest supplier of solar panels, which accounted for about 9% of Sharp's overall revenue of ¥3.02 trillion (US$38.57 billion) in the last fiscal year.
Sharp President Mikio Katayama sat down for a recent interview with The Wall Street Journal at the company's headquarters in Osaka. Edited Excerpts:
WSJ: How has the Fukushima Daiichi nuclear accident changed the nature of discussions about renewable energy?
Mr. Katayama: In recent years, most people have talked about solar power as one of the ways to address global warming. Reducing carbon emissions was the main incentive for promoting renewable energy. If you just focus on the issue of global warming, you could argue that using more nuclear power is already sufficient.
Since the nuclear accident, discussions are no longer limited to the context of global warming. As people have become more aware of the risks nuclear power involves, Japan is now asking itself a more fundamental question of how to secure energy, like it once did during the oil crises in the 1970s.
WSJ: Is it necessary for Japan to gradually move away from nuclear power?
Mr. Katayama: It would be too simplistic to say nuclear power is good or bad. There's no doubt that people are starting to question nuclear power's safety and security. Nobody would say "please build a nuclear plant next to my house." The actual cost of nuclear power may be different from previously estimated. Still, under the current system, using an alternative power source would be more costly.
Safety may be the most salient issue for people living relatively close to a nuclear plant, but it may not be so for those who are relatively distant. Wealthy people may not mind paying a bit more for electricity, while others may find it painful. Among businesses, manufacturers that consume a large amount of power and service industries that don't require much power may have different perspectives. The question is how to find a way to design a compromise plan and agree on it. That's what political leaders need to work on.
WSJ: Is solar power cost-competitive?
Mr. Katayama: People often misunderstand the cost of solar power. Its cost is mostly the initial investment of buying solar panels and setting them up.
Because solar power generation involves no turbines, motors or other driving systems, it has a very long life span. Semiconductors used in our solar cells could last for a century or longer. In Japan, solar panels are still primarily used on rooftops of houses and Japanese houses typically last only about 30 years. When houses are finished, so are the solar panels on their roofs.
But at large solar-power plants, once you've collected the initial investment, the rest of the cost will be just for maintenance. Large solar projects in the U.S. and Europe are all based on such long-term cost analysis. Japan has yet to develop a system for solar power generation for industrial purposes, because the country has been depending mostly on thermal and nuclear power.
WSJ: How does Sharp compete against Chinese solar-panel makers?
Mr. Katayama: Solar power, or any other energy, is in the realm of government policies. It would be a huge mistake to think that the cost of solar power is determined by competition among private companies. Governments get involved in all sorts of ways, like feed-in-tariffs or other subsidies for construction of facilities.
China, as a result of its strategic decision, has many solar cell companies. That's causing a supply glut. China's current inventories are said to be larger than the world's solar power demand for this year. What will Japan do? If the government doesn't do anything about the situation, we would have no choice but to make our domestic operations smaller.
WSJ: Why is Sharp's profit margin from its solar-panel business very low?
Mr. Katayama: Japan has talked about renewable energy in the context of global warming, but the government has so far implemented few concrete policies to promote it. We built our [new] plant in Japan expecting domestic demand for solar power to grow. But the gap between the actual demand and our capacity is making our domestic operations less profitable. We've also tried to export more solar panels from Japan, but the yen's strength since the financial crisis has made us less competitive overseas.
WSJ: How are you coping with the yen's strength?
Mr. Katayama: We need to change the way we manage our businesses so that foreign exchange movements won't affect us as much. The basic idea is that, whenever we see markets where demand is sure to expand, we'll try to build solar-cell plants there. Our solar panel manufacturing plant in Sicily [a joint venture with Italian utility Enel SpA and STMicroelectronics] is scheduled to start production in November. Despite the excessive inventories in China, at least that plant in Italy won't be affected by the yen's strength. We will continue pushing that strategy of producing locally in each market.