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It’s an unlikely dream for Japan’s beleaguered government but one that the worst nuclear accident in 25 years has made more alluring: an urban landscape topped with gleaming solar panels powering a nuclear-free economy.

Solar is one of the power sources the government of the world’s third-largest economy is focusing on after the March earthquake and tsunami shattered Tokyo’s nuclear-dependent energy policy.

Energy captured directly from the sun costs more than from imported fossil fuels, and would add to the already daunting reconstruction bill the country faces.

To unleash a potential hundreds of billions of dollars of private investment in solar Japan needs a coherent national energy policy to include a generous feed-in tariff — a subsidy paid by end-users.

“Energy has become the biggest theme after the earthquake; the most important investment opportunity created after the crisis,” said Sparx Group Co. president and chief executive Shuhei Abe at the Reuters Rebuilding Japan Summit.

“But the government must take action. It must quickly implement a feed-in tariff,” said Abe, who manages $300 million worth of assets in the cleantech sector.

Prime Minister Naoto Kan, facing criticism over his handling of the crisis and struggling for his political survival, in May announced a plan that would put solar panels on some 10 million roofs by 2030. The announcement cheered investors, but the government has so far failed to follow through.

Kan has given no details on how the government plans to cut the high installation cost of solar. For now, plans to pay more for renewables are stalled in parliament.

Solar energy is inefficient and variable, costing about eight times more per kilowatt-hour than nuclear.

Solar power could jack up consumers’ bills by a third in a scenario where 30 gigawatts of solar rooftop panels are deployed along areas served by Tokyo Electric Power Co, said University of Tokyo assistant professor Ryoichi Komiyama.

He said if this scheme went ahead it would create a market for 21 trillion yen ($261 billion) of solar panel production and installation.

Large-scale solar plants also need batteries and back-up power plants to smooth erratic supply. Komiyama said his scenario for the 30 gigawatt potential includes solar developers spending 2 trillion yen for 8 gigawatt of batteries.

Nationally, an estimate by the environment ministry showed the potential for commercial solar projects, regardless of economic feasibility, could theoretically reach 150 gigawatts, about 10 times the capacity of the world’s biggest solar market Germany. That would also be equivalent to 60 percent of Japan’s existing power generation capacity.

But solar is less dependable than baseload coal or gas-fired power.

The environment ministry’s estimate showed that if solar panel costs are cut by two-thirds and the Japanese government sets the rate power companies buy all the solar-generated power at 36 yen over 15 years it would pave the way for commercial solar projects of 72 gigawatts nationwide. Japan’s existing feed-in tariff scheme, introduced in November 2009, is limited to surplus electricity from small-lot solar power suppliers, mainly house owners.

Even so, it encouraged solar module installations to a cumulative total of 3.7 gigawatts by March, up from 2.6 gigawatts a year earlier.

“Solar power, when compared with wind, will be more affected by the policy measures,” said Komiyama, who does research for the Institute of Energy Economics of Japan.

“Whether Japan will able to follow the solar case of Germany should depend on a passage of the bill [on feed-in tariff].”

Solar Rising

Shares in solar companies including panel-makers Sharp Power Corp. and Kyocera Corp. and solar equipment firms Ulvac Inc. and Ishii Hyoki rose after Kan’s announcement that Tokyo would support solar power.

The news lifted stocks for firms planning expansion in the sector including mobile phone operator Softbank Corp and thin-film solar maker Showa Shell Sekiyu KK.

Gains in these stocks stalled after the parliament failed to follow through on the debate over a bill, but many investors have stayed bullish.

Sparx’s Abe sees opportunity in almost all segments of the solar business, from the molding of solar cells down to the construction and maintenance of solar power stations.

“There’s a lot of opportunities to make money in solar, not just manufacturing. You need contractors and builders of solar plants. You need project developers,” said Abe, whose asset management company is looking into investing in the sector.

The world’s largest solar panel-maker and No. 5 panel supplier in Japan, Suntech Power Holdings, is among companies that await a passage of the feed-in tariff bill.

“We can win once the feed-in-tariff starts,” said Yutaka Yamamoto, president at Suntech’s Japan unit, which trails Sharp, Kyocera, Panasonic Corp and Mitsubishi Electric Corp in sales. Yamamoto’s goal is to double the firm’s market share in Japan to 10 percent by next year.

(Additional reporting by Mayumi Negishi and Reiji Murai; Editing by Simon Webb and Michael Urquhart)