To encourage the generation of renewable energy, the Tokyo Metropolitan Government introduced a regulation mandating the installation of solar panels on the roofs of new detached buildings starting in April 2025. The new regulation will require large house builders—those undertaking projects exceeding 20,000 m² annually—to install solar panels on new houses and other buildings with a floor area of less than 2,000 m². Given the limited space available in urban areas for large-scale renewable energy projects, the initiative aims to significantly boost the utilisation rate of residential PV systems. This effort supports Tokyo’s ambitious goals of achieving net-zero carbon emissions by 2050 and increasing the share of renewable energy to 40-50% by 2040. *1 Apart from potential effects on house prices, the initiative is expected to have broader implications on the stability of the power grid.
As Tokyo transitions to a decentralised energy generation system—where households act as both consumers and producers (‘prosumers’)—significant challenges emerge for the power grid and market participants. Insights from international examples suggest that these challenges should be addressed before PV systems are widely deployed.
Figure 1 : Annual additions of residential PV (<= 10kW)
Germany offers a case study on the difficulties associated with the rapid expansion of residential PV systems. In 2022, Germany accelerated its PV installation efforts and raised its target to 215 GW of installed capacity by 2030. In 2024, the country set a record by installing solar systems with a combined peak capacity of 16.2 GW in a year, surpassing its planned targets, with the speed of small-scale PV deployment also accelerating (see Figure 1).*2 To put this into perspective, the maximum output of all added PV in 2024, if delivered simultaneously, would equal the capacity of 16 nuclear power plants.
In Germany, most residential systems, unlike large solar farms or wind installations, cannot typically be controlled or curtailed. This creates challenges for grid stability, especially when high energy supply coincides with low demand. The two leading PV developers (Enpal and 1Komma5) have even warned of regional blackouts during national holidays in spring 2025 if regulation of PV assets is not implemented soon.*3
Short-term consequences include frequent periods of negative electricity prices on spot markets. In 2024, Germany recorded 457 hours of negative prices—around 5% of the total hours in a year—a trend that continues to rise (see Figure 2). *4 During hours of extreme negative prices (<-100€/MWh) in 2023/24, the majority of producing capacity came from PV assets (34 GW) compared to renewable (15 GW) and conventional power plants (8 GW) *5, illustrating the inelastic generation of PV in the market.
Figure 2 : Hourly contracts with negative prices at German EPEX spot market
While some market participants, such as industrial consumers, battery owners or households with dynamically priced contracts, may benefit from these conditions, periods of very low or negative prices significantly increase the overall cost of energy supply in the current market design. Grid operators are often forced to sell surplus production on sunny days regardless of market prices and are compensated by the state for these losses. In 2024, the German government provided €18.5bn to transmission system operators to cover the gap between the guaranteed feed-in tariffs for renewable energy and actual market revenues, with the majority of the payments going to owners of PV assets. *6
One of the root issues is that the current subsidy system rewards maximum feed-in, giving PV system owners little incentive to reduce their output during periods of oversupply. Historically, solar systems in Germany have been supported through guaranteed feed-in tariffs, which have decreased in value over the years but are still the dominant marketing mechanism of small-scale PV. Moreover, there was no cap on the total capacity subsidised, even as solar panel costs declined significantly over time.
German policymakers have recognised these issues and announced reforms aimed at integrating renewable energy more effectively into the electricity market. The proposed reforms include the requirement of systems larger than 25 kW (down from the previous threshold of 100 kW) to be marketed in the wholesale market as well as the elimination of subsidies during periods of negative electricity prices.
While Germany’s experience demonstrates the success of capacity expansion, it also highlights pitfalls that Japan should avoid as its PV capacity grows and wholesale markets become more volatile.
Key lessons from Germany include the importance of:
The next publication will cover the increasing liquidity in the power wholesale market in Japan.
*1 METI( https://public-comment.e-gov.go.jp/pcm/download?seqNo=0000285102)
*2 Data from Statista, Meti, Fraunhofer Insitut
*3 PV Magazine (https://www.pv-magazine.de/2024/11/11/enpal-und-1komma5-warnen-vor-blackout-durch-ungeregelte-photovoltaik-anlagen/)
*4 Federal Grid Agency (www.smard.de)
*6 University of Cologne (https://www.ewi.uni-koeln.de/cms/wp-content/uploads/2024/10/240927_EEG_Mittelfristprognose_2024_sent.pdf)
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