A Japanese project to build the world’s largest storage battery system in Hokkaido this autumn underlines the country’s urgent need to restructure the electricity generating industry and invest in its national power distribution grid.

As has been extensively covered in CleanBiz.Asia, Japan’s generous post-Fukushima feed-in tariff (FiT) scheme for renewable energy has simulated a massive boom in solar photovoltaic power plant construction in the last 15 months. The country recently passed the 10-GW mark in installed solar PV capacity and, according to some, will end up being the world’s biggest solar market in 2013.

The frenetic pace of solar project development, however, has rapidly exposed the fact that Japan’s current structure of 10 regional electricity companies, and their grids, are not at all well suited to carrying renewable energy from where it is be being generated to where it needs to be consumed.

The 60,000-kwh “redox flow” battery being built in Abira, Hokkaido, will store electricity generated by renewables when weather conditions are favorable and discharge it when they are not. Joint developers Hokkaido Electric Power and Sumitomo Electric Industries say it will be as high as a six-story building, but nonetheless it appears to be little more than a stop-gap measure.

Japan’s Ministry of Economy, Trade and Industry (METI), which is funding the entire demonstration project to the tune of ¥20 billion (USD203 million) to cover all development and manufacturing costs, believes that using such batteries will allow utilities to buy 10 percent more electricity from green energy sources. Compared to solar generating capacity already developed or in the pipeline, however, that is far from adequate.

Thanks to the high solar power FiT, cheap land and generally fair weather in Hokkaido, many solar power developers have been drawn to the region. Hokkaido Electric, however, can only buy around 400-MW from utility scale solar power developments. That has left a glut of more than 1.5-GW of solar capacity looking for a market.

To make use of the excess, the utility would need to build a grid to transmit it to the Tokyo metropolitan area but Ryuichi Yokoyama, a professor at Waseda University’s Faculty of Science and Engineering, says building such a grid would come at a high cost.

“Surplus electricity in Hokkaido can be sent for use in Tokyo if a total of 1 trillion yen (USD10 billion) is spent,” he said, calling for the government to take the initiative in building such grids.

As well as new grid investment, Yokoyama also said that raising green energy’s share of Japanese electricity output to 15 percent from the current 1.6 percent requires the dismantling of the utilities’ regional monopolies.

The idea of liberalizing Japan’s electricity market has been around for years and was included in a series of economic overhauls, intended to improve the country’s competitiveness, by the Prime Minister Shinzo Abe’s administration when it came to office at the end of last year.

The initiative received cabinet approval in April and in June a House of Representatives committee passed a resolution which will see the country’s utilities split power generation and distribution.

The lower house’s economy and industry committee approved the plan which calls for the creation of a new body around 2015 to co-ordinate power supply and demand. Parts two and three of the effort includes fully liberalizing the nation’s electricity retail business by 2016 and spinning off utilities’ transmission and distribution operations between 2018 and 2020.

These moves, however, will not come in time to maintain the current pace of Japanese solar power development. According to new report from Tokyo-based market research body the Yano Research Institute demand for large-scale PV in Japan will drop rapidly after 2014, while residential solar will continue growing until 2020.

In the latest edition of its bi-annual ‘Solar Photovoltaic Systems Market’ report, the institute argues that while the market for large-scale commercial PV will continue to grow until 2014, incrementally lowered subsidies and the lack of suitable land and grid connectivity are likely to cause a significant shrinking in the market for large-scale solar going forward.

It predicts that the Japanese domestic solar power market will be worth ¥3.16 trillion (USD31.9 billion) in 2014, before beginning to fall and arriving at around ¥1.17 trillion (USD11.9 billion) in fiscal year 2020.