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Goldman Sachs group to build biomass power plants in Japan

Solar unit changes tack as government cuts generous incentive

An artist's image of Japan Renewable Energy's planned biomass power plant in Kamisu, Ibaraki Prefecture.

TOKYO -- A Japanese solar power company established by Goldman Sachs Group will expand into the biomass power generation business as profit margins decline at its main operations.

Japan Renewable Energy plans to build biomass power plants at 10 or more locations by 2020 by investing roughly 40 billion yen ($365 million). The total power generation capacity of those facilities is projected to reach 70,000 kilowatts.

The Tokyo company will start building its first biomass plant next Tuesday in the city of Kamisu, Ibaraki Prefecture, at a site previously used as a factory. The 24,400-kilowatt facility is expected to generate 200 million kilowatt-hours of electricity a year by burning woodchips. The construction is slated to finish in April 2019. The total cost, including the land, will exceed 10 billion yen.

The U.S. investment bank established JRE in 2012 as part of its investment in renewable energy. Today, the Japanese unit operates 27 megasolar plants and two wind farms across the country.

As part of its review of the feed-in tariff system for electricity generated from renewable sources, the Japanese government has been lowering the tariffs for solar and wind power, resulting in the payment for solar roughly halving from the levels in fiscal 2012, when the system was introduced. At the same time, the government has kept the tariffs for biomass-derived electricity at high levels.

Unlike solar and wind, biomass power plants can generate power steadily regardless of the weather. For this reason, Tokyo wants to triple the total power generation capacity of biomass from 2014 levels to 7.28 million kilowatts in 2030.

The introduction of the feed-in tariff system sparked a boom in construction of solar farms. But as they have become less profitable with the progressive cuts in the tariff, the focus in the renewable energy industry is shifting toward biomass.

For instance, major Japanese leasing company Orix, which currently operates roughly 110 megasolar facilities, aims to put more efforts into developing geothermal and biomass plants, said Yuichi Nishigori, head of the company's energy and eco-services business division.

Paper manufacturers and trading companies have also announced plans to build biomass power plants one after another. It is the same story with JRE. The company is looking to stabilize its earnings, which have been hit by declining feed-in tariffs for solar, by shifting the focus of its new investment to biomass.

JRE has received about 10 billion yen in investment from MA Platform, an investment company established by Akira Mori, chairman of Mori Trust.

Biomass power plants face challenges such as the difficulty of securing a reliable woodchip supply. But the decision by a Goldman Sachs company to enter the biomass power generation business may also inspire foreign investors to put money into the Japanese sector. A number of foreign investment funds jumped on the bandwagon and invested in Japanese solar farms during that boom.


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