By James Topham and Aaron Sheldrick TOKYO (Reuters) - The failure of solar developers to deliver on planned projects in Japan will cost the country's utilities close to $3.5 billion annually in additional coal and gas imports to generate power. Japan's government banked on solar power to help meet the shortfall in electricity supply after the Fukushima disaster in 2011 shattered public confidence in nuclear energy. The country's reactors are shut while the government struggles to convince the population the plants are safe to restart. To encourage solar investment Tokyo introduced generous subsidies more than a year ago, sparking a rush from developers who came forward with plans that would have supplied the equivalent to 21 nuclear reactors. But in contrast to the experience in countries such as Spain and Britain, where subsidies sparked solar booms that strained government finances, in Japan developers are struggling to deliver. The promise of turning a quick profit from subsidized solar power encouraged speculative developers lacking the experience and expertise needed to deliver in Japan, industry experts say. "This is gold rush territory," said Arthur Mitchell, an attorney at White & Case in Tokyo who advises on solar projects. "Everybody and his brother and sister were kind of rushing in without any ability. The law doesn't have any eligibility requirements. Absolutely none." Less than a fifth of the projects the government deemed fit for subsidies are supplying power to the grid as developers struggle with problems ranging from lack of funds, grid capacity limitations, land permit issues, wait lists for Japanese brand equipment and a shortage of qualified technicians, industry watchers said. Solar projects can take up to three years to complete, so some are still being built. But more than half of the approved projects may never be built, sources said. "There's a lot that won't come to fruition," said one Tokyo-based solar industry consultant who declined to be identified. "If 30-40 percent of (projects approved by March) come online in three years, that would be a good outcome." Japan's utilities are falling back on liquefied natural gas (LNG) and coal imports to meet the solar shortfall. The volume of imports of LNG and coal has hit new highs since Fukushima, and played a big role in Japan registering a trade deficit for a record 15 consecutive months. SOLAR RUSH The failure has tarnished the Japanese solar market, which panel suppliers viewed as a growing alternative to a solar-saturated Europe. Lower-than-expected demand may weigh on solar panel makers like China's JinkoSolar Holding Co and Canadian Solar Inc, which have expanded into Japan, China and the United States as they lower their exposure to Europe. It could also hurt Japanese manufacturers of solar panels such as Sharp Corp and Showa Shell Sekiyu, and solar equipment suppliers such as Ulvac and Ishii Hyoki Co, preferred by Japanese consumers and financial institutions funding the projects. SOLAR SHADOWS As of July, only 3,916 megawatts of the 22,068 megawatts of solar capacity approved since subsidies were introduced in July 2012 is selling power to the grid, according to data issued on Monday by Japan's Ministry of Economy, Trade and Industry (METI). A disappointed METI in September launched a review of approved solar projects over 400 kilowatts in size to determine what was preventing the completion of many projects and is in the process of analyzing those responses, an official said. The principal reason is the gulf between the ability to obtain approval from METI for a project and the ability to actually build it, industry watchers say. "There is no connection between obtaining the facility approval from METI and a project's feasibility, in terms of cost, design and (other) government approvals," said Seth Sulkin, President & CEO of Pacifica Capital K.K., a Tokyo-based solar developer. "Many projects receiving METI approval cannot be built as they are designed on forests or mountains with no regard to anything but obtaining the facility approval." For projects on undeveloped land, a permit is required from the forestry ministry. This has proved a stumbling block for some applicants, because the ministry requires up to 35 percent of forest plots be kept green. This can kill projects, as a change of 20 percent or more in the proposed output capacity means losing the precious METI subsidy approval. Japanese utilities have to buy power from renewable energy suppliers at guaranteed rates from approved projects once they start generation. Where projects are succeeding, they also face limitations accessing Japan's grid. Hokkaido Electric Power Co has put output limitations on larger solar projects due to a lack of grid capacity for the region it covers - Japan's major northern island, which has expanses of uninhabited flat land suitable for large solar panel arrays. Tokyo is already reducing solar subsidies for solar as it aims to encourage investment in other renewables, according to local media reports. ($1 = 100.2850 Japanese yen) (Editing by Simon Webb and Alex Richardson)
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