Integrated MBA – 5 Years Program

(School Of Management Studies)

Similarly, when the price of a good rises, there is an incentive for firms to produce more. After all, the
good is now more profitable to produce and thus firms might consider producing more of this and cutting
down the production of less profitable products.

These two incentives of a rise in price could be seen as desirable, as they result in the shortage being
eliminated and consumers being able to buy more of a good where demand initially exceeds supply.

Incentives, however, could be ‘perverse’. In other words, they could have undesirable effects. For exam-
ple, if a particular course or module on your degree is assessed by two pieces of coursework, this may act
as an incentive for you to concentrate solely on these two pieces and do little work on the remainder of the
course! There are plenty of other examples where incentives can be perverse. For example, making
insurance com- pulsory may encourage people to take risks. Making cars safer may encourage people to
drive faster. Increasing top rates of income tax may encourage high earners to work less or to evade
paying taxes by not declaring income – tax revenues may end up falling.

If an economic system is to work well, it is important, therefore, that the incentives are appropriate and do
not bring about undesirable side-effects. This is a threshold concept because virtually every action taken
by households or firms is influenced by incentives. We need to understand just what the incentives are;
what their effects are likely to be; and how the incentives could be improved.

This was something increasingly recognised in the for- mer Soviet Union in the days of central planning:
but too late! The targets given to factory managers (see Box 1.5) were often inappropriate. For example, if
targets were specified in tonnes, the incentive was to produce heavy products. Soviet furniture and
cooking utensils tended to be very heavy! If targets were set in area (e.g. sheet glass), then the incentive
was to pro- duce thin products. If targets were set simply in terms of number of units, then the incentive
was to produce shoddy products.

The lessons of Soviet planning, however, have been lost on many in the West. Today across the public
sec- tor, and large parts of the private sector too, people are set targets. Thus if hospitals are given the
target to reduce waiting lists, the incentive is to cut down on the quality of treatment so that as many
patients as pos- sible can be seen. If the target for universities is to reduce failure rates, then the incentive
is to make it easier for students to pass. One crucial incentive we shall be examining is that of profit. In a
competitive environment, firms striving for increased profit may result in better products and a lower price
for consumers as firms seek to undercut each other. In other cases, however, firms may be able to make
bigger profits by controlling the market and keeping competitors out or by colluding with them. Here the
profit incentive has a perverse effect: it leads to higher prices for consumers and less choice.
Case-2: MARKETS EQUATE DEMAND AND SUPPLY
Leave things up to the market. The market will sort it out. It’s what the market wants. You can’t buck the
market.

These are typical sayings about the market and empha- sise the power of market forces. The point is that
our lives are affected massively by markets. Market forces affect the prices of the things we buy and the
incomes we earn. Even governments find it difficult to control many key markets. Governments might not
like it when stock market prices plummet or when oil prices soar, but there is precious little they can do
about it.

In many ways a market is like a democracy. People, by choosing to buy goods, are voting for them to be
produced. Firms finding ‘a market’ for their products are happy to oblige and produce them. The way it
works is simple. If people want more of a product, they buy more and thereby ‘cast their votes’ (i.e. their
money) in favour of more being produced. The resulting shortage drives up the price, which gives firms
the incentive to produce more of the product. In other words, firms are doing what consumers want – not
because of any ‘love’ for consumers, or because they are being told to pro- duce more by the government
– but because it is in their own self-interest. They supply more because the higher price has made it
profitable to do so.

This is a threshold concept because to understand mar- ket forces – the forces of demand and supply – is
to go straight to the heart of a market economy and under- stand what makes it tick. And in this process,
prices are the key. It is changes in price that balance demand and supply. If demand exceeds supply, price
will rise. This will choke off some of the demand and encourage more supply until demand equals supply
– until an equilib- rium has been reached. If supply exceeds demand, price will fall. This will discourage
firms from supplying so much and encourage consumers to buy more, until, once more, an equilibrium has
been reached. In this process, markets act like an ‘invisible hand’ – a term coined by the famous
economist Adam Smith (see Box 1.6). Market prices guide both producers to respond to consumer
demand and consumers to respond to changes in producer supply.

In many circumstances, markets bring outcomes that people want. As we have seen, if consumers want
more, then market forces will lead to more being produced. Sometimes, however, market forces can bring
adverse effects. We explore these at various parts of the book. It is important, at this stage, however, to
recognise that markets are rarely perfect. Market failures, from pollution to the domination of our lives by
big business, are very real. Understanding this brings us to Threshold Concept 6 (see page 26).

Partial equilibrium

The type of equilibrium we will be examining for the next few chapters is known as ‘partial equilibrium’.
It is partial because what we are doing is examining just one tiny bit of the economy at a time: just one
market (e.g. that for eggs). It is even partial within the market for eggs because we are assuming that price
is the only thing that changes to balance demand and supply: that nothing else changes. In other words,
when we refer to equilibrium price and quantity, we are assuming that all the other determinants of both
demand and supply are held constant.

If another determinant of demand or supply does change, there would then be a new partial equilibrium as
price adjusts and both demanders and suppliers respond. For example, if a health scare connected with egg
consumption causes the demand for eggs to fall, the resulting surplus will lead to a fall in the equilibrium
price and quantity.
Case-3: MARKETS MAY FAIL TO MEET SOCIAL OBJECTIVES
Although market forces can automatically equate demand and supply, and although the outcomes of the
process may often be desirable, they are by no means always so. Unbridled market forces can result in
severe problems for individuals, society and the environment.

Markets tend to reflect the collective actions of individual consumers and firms. But when consumers and
firms make their decisions, they may fail to take account of the broader effects of their actions. They may
act selfishly. If people want to buy guns and knives, market forces will make it profitable for firms to
supply them. If people want to drive fuel-hungry cars and fit bull-bars to them, then this will create the
market for firms to supply them. Market forces are not kind and caring. They mechanically reflect human
behaviour.

And it’s not just selfish behaviour that markets reflect; it’s ignorance too. You may be blissfully unaware
that a toy that you buy for a child is dangerous, but by doing so, you are encouraging unscrupulous firms
to supply them. A firm may be unaware that a piece of machinery it uses is dangerous until an accident
happens. In the meantime, it continues using it because it is profitable to do so.

If wages are determined purely by demand and supply, then some people, such as pop stars, footballers
and accountants, may be very well paid. Others, such as cleaners, bar staff and security guards, may be
very poorly paid. If the resulting inequality is seen as unfair, then market forces alone will not be enough
to achieve a fair society.

Recognising the limitations and failings of markets is a threshold concept. It helps us to understand how
laws or taxes or subsidies could be framed to counteract such failings. It helps us to relate the mechanical
operation of demand and supply to a whole range of social objectives and ask whether the market system
is the best way of meeting such objectives.

But to recognise market failures is only part of the way to finding a solution. Can the government and
various public agencies, such as the police and health service, put things right, and if so, how? Or do the
limitations of government mean that the solution is sometimes worse than the problem? We examine these
issues in many parts of the book. We set the scene in Threshold Concept 7 below.
Case-4: ANALYZING THE FACTORS INFLUENCING THE
DEMAND AND SUPPLY OF SOLAR MODULES IN JAPAN

INTRODUCTION

Due to a scarcity of resources, Japan has been dependent on fossil fuels. For this reason, the
Japanese economy took a direct hit from the 1970s’ oil shocks. Since crude oil has been a vital
energy commodity, fueling the world economy, several studies (see, inter alia, Hamilton 1983;
Barsky and Kilian 2004; Taghizadeh-Hesary et al. 2013, 2016) have evaluated the impacts of oil
price fluctuations on various macroeconomic indicators. In addition, in March 2011, a
devastating earthquake and tsunami struck eastern Japan and damaged the nuclear power plant at
Fukushima, resulting in a nuclear shutdown throughout the whole country. Due to the lack of
safety and people’s opposition to nuclear power, the government kept the nuclear power plants
off and substituted the nuclear power lost with more imported fossil fuels, which reduced the
self-sufficiency of energy in the country. Taghizadeh-Hesary, Rasoulinezhad, and Kobayashi
(2016), in an empirical analysis, found that, after the Fukushima disaster, because of the greater
reliance on oil imports, the sensitivity of most sectors to oil price volatility declined, endangering
the energy security in the country.

After
the Fukushima disaster, Japan’s energy self-sufficiency fell from a high of 20.2% in 2010 to
6.4% in 2014 (METI2016). At the same time, this incident engendered an opportunity for the
renewable energy (RE) sector. The share of renewable energy in the generation mix rose from
9% in 2010 to 12% in 2014. Japan’s Ministry of Economy, Trade and Industry (METI) set
several objectives for its energy generation mix by 2030. It set targets for fossil fuels’ share to
decrease to 56% and nuclear energy to restart and to account for 20% to 22%. The RE source
objectives are ambitious, set to reach 22%– 24% by 2030, with hydropower accounting for
8.8%–9.2%, solar 7%, wind 1.6%, biomass 3.7%–4.6%, and geothermal 1.0%–1.1% (JOGMEC
2018).

Japan has experienced significant growth in the renewable energy sector, specifically in the solar
photovoltaic area. The changes in the total amount of solar photovoltaics installed in Japan are
shown in Figure 1. In the past 5 years, the amount of solar photovoltaics installed has grown
tenfold. Driving this growth is the change in the global price of solar modules. In the past 5 years,
the unit price of solar modules has fallen by half its original price.

In addition, Japan has witnessed tremendous growth in its installations since 2012, the year when
it implemented the feed-in tariff (FIT) policy. The FIT policy is a policy that allows electricity
generators to sell renewable energy at a fixed price to the grid. The government’s aim was to
encourage renewable electricity generation. Its expectation was for the learning curve to help cut
the production cost of solar modules through increased production. The FIT policy was
successful in terms of introducing the use of solar modules. However, the growth in the
production of solar modules in recent years has started to diminish. To be able to increase the
self-sufficiency of energy and raise the share of renewable and clean energy in the energy basket,
Japan needs to implement new plans to keep the installed solar projects perdurable even without
the existence of the FIT. The aim of this paper is to understand further the structure of the solar
module market in Japan by assessing the factors that determine the demand and supply sides of
the solar module market. The goal is to offer an effective policy recommendation to make the
renewable energy sector of the country sustainable.

Section 2 provides the results of a literature review in an effort to understand the past research on
the drivers influencing the solar module market. We reconfirm the importance of providing a
structural demand and supply model for solar modules using economic variables. In section 3, we
construct an original model of the solar module supply and demand. Our solar module model
takes into account the impact of solar module prices, the price of oil (substitute energy), the GDP
(economic activity), the exchange rate, and the FIT as explanatory variables on the demand side.
On the supply side, our model has solar module prices, the price of silicon, the GDP, the real
interest rate, and the exchange rate as explanatory variables. Section 4 presents the results of the
econometric analysis that we conduct on our structural model. Section 5 provides the concluding
remarks and the policy recommendations.
Market Structure

The market structure of the solar module plays an important role in finding a solution to
accelerate the development in the solar power infrastructure. One main market factor that has
been the key in this field of study is the price of solar modules. Originally, the high price of solar
modules acted as a barrier, preventing countries from investing in solar photovoltaic technology.
The high price of solar modules reduces the rate of return on investment in solar power projects;
therefore, the private sector shows reluctance to invest in these projects (Yoshino, Taghizadeh-
Hesary, and Nakahigashi 2019). Therefore, the drivers influencing solar module prices have
become a hot topic in the field of renewable energy studies. One of the most common methods of
evaluating the tendency of solar module price change is to analyze the learning curve effect of
solar modules. The learning curve effect refers to the tendency in the manufacturing industry to
optimize the manufacturing process over time by considering the decrease in the price of
products as cumulative production rises. The solar energy policies in Japan are based on the
estimated future price of solar modules by taking into account the learning curve. Researchers
have created several learning curve models to explain better the cost reduction process in solar
modules. Numerous learning curve models have emerged in the field of renewable energy. The
research by Neij (1997) indicated that learning curves are applicable to solar PV technology.
Messener (1997) later created one of the first learning curve models applicable to renewable
energy. This model became the basis for many renewable energy cost studies, such as the study
by Barreto et al. (2000), which created the commonly known renewable learning curve model
called the ERIS (Energy Research and Investment Strategy). However, the learning curve effect
is only a tendency in the manufacturing price, which is the sum of numerous factors, such as the
wage rate and the material price. Nemet (2006) concluded that the actual effect of the learning
curve is less than 10% of the overall cost reduction. In another group of studies that considered
various determining factors for the price of solar modules, Pillai (2014) created a model
explaining the cost reduction of solar modules using independent variables such as the time,
polysilicon price, plant size, and firm investment. De la Tour, Glachant, and Ménière (2013) used
a similar model to predict the solar module price from 2011 to 2020. They identified an
experience curve model using cumulative production, R&D expenditure, the silicon price, and
the silver price as independent variables. These studies concentrated on the change in the solar
module price from the engineer’s perspective.

Several researchers have expanded their scope to include the influence of certain factors on the
demand side of the solar module market. Gan and Li (2015) conducted a quantitative study on the
long-term global solar photovoltaic market using the learning curve model. They took into
account the influence of the silicon price, the influx of lower- cost Chinese modules, and the
supply–demand gap in the PV market to explain the recent cost reduction and to forecast the
 future decline in solar module prices. Taghizadeh-Hesary, Yoshino, and Inagaki (2019) used an
oligopolistic model and econometric method to determine the economic factors that have an
influence on solar module prices by employing a reduced-form model for the top solar module
suppliers, namely the People’s Republic of China (PRC), Germany, Japan, the Republic of
Korea, and the United States (US). Their empirical results showed that the interest rate (cost of
capital) has a positive correlation with solar module prices, while the exchange rate, knowledge
stock, and oil price have a negative association with solar module prices on average.

Although a large number of studies have deconstructed the dynamics of the solar module price,
no research has analyzed the influence of certain factors on the solar module supply and demand
separately using a structural model. Earlier research on the solar module market has provided
insights into the impact of different factors on solar module prices. To understand better the
influence that various economic and non-economic factors have on solar module prices, it is also
necessary to examine the changes in the solar module demand and supply. This is the
contribution of this paper to the literature: to develop a structural model to identify the
determining factors of the demand and supply of solar modules.

Price Competitiveness of Solar Electricity

The price reduction surrounding the installation of solar photovoltaic systems has been
tremendous. According to Lazard (2017), the unsubsidized leveled cost of electricity (LCOE) of
utility-scale solar photovoltaic systems in November 2017 was $43/Mwh, whereas conventional
energy sources, such as coal, IGCC, gas peaking, and nuclear, had an LCOE of $60/Mwh,
$96/Mwh, $156/Mwh, and $112/Mwh, respectively. Figures show that solar PV technology has
become cheaper than conventional electricity sources in recent years. A report by IRENA (2017),
which calculated the global-averaged LCOE in the years 2010 and 2017, showed that the reduction
in solar PV module and system costs drove the decline in utility-scale solar PV projects.

GDP and Renewable Energy

The GDP influences the demand side of the solar module industry. It affects solar modules by
promoting an increase in renewable energy consumption. Studies have shown that countries with a
higher GDP tend to consume more electricity. Kantar and Keskin (2013) found that there is a strong
relationship between electricity consumption and economic growth regardless of a country’s income
level. As a country progresses economically, the amount of electricity grows. This is because it is
possible to understand the GDP as a scale for the volume of economic activity within a country.
Therefore, countries with a higher GDP are more likely to consume a larger amount of electricity
due to corporate activity. Especially for countries such as Japan, which has scarce energy resources,
the demand specifically for renewable electricity skyrockets to meet the increasing domestic
demand for electricity without importing exhaustible resources from foreign countries.

Oil Prices and Renewable Technology

There are two ways in which oil prices influence renewable energy. First, oil, a fossil fuel with a
high level of greenhouse gas (GHG) emissions, acts as a substitute for renewable energy. Therefore,
with a rise in the oil price, a country’s demand for renewable technology will increase to substitute
oil with renewable energy. For countries such as Japan, which has scarce energy resources and
imports most of its energy in the form of fossil fuels from abroad, the influence of an oil price
increase on the demand for renewable energy technology is significant. Another way in which oil
prices influence renewable energy is through its influence on renewable R&D. Cheon and
Urpelainen (2012) conducted an empirical analysis on how oil prices influence renewable energy
development. Their analysis showed that an increase in oil prices increases countries’ incentives to
invest more in renewable energy technology. Similarly, Wong, Chia, and Chang (2013 found that oil
prices and renewable R&D show a positive correlation. Therefore, oil prices influence both the
supply and the demand side of the solar module market as a substitute good for solar modules and as
a key driver of renewable R&D.

Effects of the FIT Policy on Solar Modules

The FIT allows electricity generators to sell their renewable electricity to consumers at a fixed price.
The purpose of this policy is to reduce the risk of investment in renewable energy technology to
promote the incentive to invest in them. The implementation of the FIT in the early stage of
renewable energy installation allows for a cost reduction in renewable energy equipment through the
learning curve effect, eventually leading to competitiveness of renewable energy technology in the
energy market. Japan first implemented this policy in 2012. Following the implementation of the
FIT, the generation cost of solar PV dropped by 38% by the fifth year of implementation and the
solar module installation grew to double the original amount, which suggests that the FIT has a
correlation with solar module infrastructure in the short term (REI 2017). Moreover, the number of
corporations involved in solar PV, seeking a profit, has risen since the implementation of the FIT
(REI 2017). The impact of the FIT on solar module production mainly occurs through the
stimulation of the demand side. The FIT policy raises the demand for solar modules.

Financing and Solar PV Technology

Solar electricity-related industries, like other renewable sources, tend to be capital intensive. One of
the key characteristics of the solar electricity system is that the capital expenditure (CAPEX) tends
to be high, involving a tremendous amount of funding. Solar PV installation usually takes place on a
large scale to maximize efficiency through economies of scale. Therefore, past research has
discussed the influence of the interest rate on renewable energy development (Taghizadeh-Hesary
and Yoshino, 2019). Brunnschweiler (2009) investigated the influence of renewable energy finance
on renewable energy electricity generation. The analysis results showed that countries with financial
development tend to generate a larger quantity of green electricity. Brunnschweiler (2009) continued
by stating that enhancing the renewable financing channel is essential for the renewable industry to
develop. The econometric analysis by Taghizadeh-Hesary, Yoshino, and Inagaki (2019) supported
this statement. Their analysis results showed that the interest rate has a significant impact on the
solar module price. The Council on Economic Policies (CEP) analyzed the influence of a low
interest rate on renewable energy technology (Monnin 2015). The research results indicated that the
interest rate has a significant impact on green energy technology costs. According to Sachs et al.
(2019), for the development of renewable energy projects and the achievement of the Sustainable
Development Goals, which are related to the environment and clean energy, it is necessary to scale
financing through new financial instruments known as “green finance.”

Influence of Silicon Prices on Solar Modules’ Prices

One of the main components of solar modules is polysilicon. The manufacturing process of solar
modules involves first processing polysilicon into silicon ingots, then slicing the ingots into silicon
wafers and putting them together to form a solar cell for integration into solar modules. Pillai (2014)
concluded that the price of silicon partly drove the price changes in solar panels from 2005 to 2012,
which suggests that the influence of the silicon price on the solar module price is vital. Pillai’s
analysis results suggested that a 1% drop in the silicon price results in approximately a 0.9% drop in
the solar module price. Japan does not have a domestic source of silicon; therefore, it must rely on
its neighboring country, the PRC. Thus, the exchange rate of Chinese yuan and Japanese yen will
have an influence on the production cost as well. Moreover, there are exportations between every
manufacturing process, because the production plants tend to disperse to minimize the cost through
the use of cheap labor in Southeast Asia. Therefore, exchange rate fluctuations influence the solar
module price not only for importing the main raw material but also for importing and exporting the
parts and equipment in the solar module supply chain.

Influence of R&D on Solar Modules’ Prices

Nemet (2006) emphasized that, for the solar module industry to prosper, a vast amount of
knowledge accumulation must occur through factors such as investment and R&D expenditure.
These investments not only increase energy conversion efficiency but also act as one of the most
important drivers of cost reduction for solar modules. Many researchers have conducted empirical
analyses of the influence of R&D expenditure on the solar module price (Barreto and Kypreos 2004;
De la Tour, Glachant, and Ménière 2013; Miketa and Schrattenholzer 2004). In an empirical
analysis, Taghizadeh-Hesary, Yoshino, and Inagaki (2019) found that, while R&D expenditure had
a statistically significant impact on the solar module price in countries such as the PRC, the
Republic

of Korea, and the United States, it did not have a significant impact on the solar module price in
Japan. This is because the objective of R&D projects is not always to reduce costs. In the case of
Japan, R&D mainly aims to cope with the strict domestic environmental regulation rather than
accelerating the cost efficiency. Similarly, the research by Hayamizu, Furubayashi, and Nakata
(2014) indicated that public R&D projects do not have as much influence on solar module prices as
private R&D expenditures, because public R&D projects usually aim to develop a certain function
of solar modules rather than to optimize the manufacturing process.

THEORETICAL MODEL
Demand Side
From 1 April 2016, full liberalization of the electricity retail business happened in Japan. Although
now the market is open to power generators and retailers, they still rely on the public sector for
transmission, as the establishment of another power grid is not feasible for the private sector. In
developing the theoretical model of this paper, we assume that the private sector is generating
electricity and selling it to a public electric power company (EPCO) for transmission. Here we
consider the case of Japan, where the demand for electricity to purchase comes from an EPCO,
which purchases the electricity from private generators and sells it to households, the industrial
sector, and the commercial sector, which are the end users. It is possible to analyze the demand for
solar electricity through its relative superiority in terms of electricity generation to alternative
sources of electricity. For simplicity, we assume that the only alternative source of electricity to
solar electricity is thermal power. We compute the demand for solar electricity as a portion of the
total electricity demand in Eq. 1, which determines the portion based on the difference between the
price of solar electricity generation and the price of thermal electricity generation, as in Eq. 2.
delectricity, t is the total electricity demand in year(t), (solar electricity ratio)t is the share of solar
electricity in the total electricity demand in year(t), pthermal, t is the price of thermal electricity in
year(t), and psolar, t is the price of solar electricity in year(t).
GDPt is the gross domestic product in year(t), pelectricity, t is the average price of electricity, is
the GDP elasticity, and is the electricity price elasticity.

The purpose of this paper is to analyze the demand not for solar electricity but for solar modules.
As the demand for solar electricity and the demand for solar modules have a strong positive
correlation, we can assume that the same factors influence the demand for solar modules and the
demand for solar electricity. In addition, in the supply chain of solar modules, each country is not
the sole producer of all the components and equipment and needs to import components from
different countries; hence, the importing of components and material and, thus, the exchange rate
matter (Taghizadeh-Hesary, Yoshino, and Inagaki, 2019). Therefore, we include the exchange rate
as a control variable to identify its explanatory role in the demand for solar modules.
Supply Side

To develop the supply equation for solar modules, we assume that the production function for solar
module producer countries takes the form of the Cobb–Douglas production function with five
production inputs, as in Eq. 7:

where (C ) is the cost of solar module production in year(t), (w ) is the labor cost in year(t), (r ) is
the interest rate in year(t), (p , ) is the price of silicon in year(t), e t is the exchange rate in year(t),
and M is the amount of silicon used for the production of solar modules in year(t). Here, the cost
is the sum of the labor cost, capital cost, and silicon cost. We assume that the country imports all
the materials that it uses to produce solar modules from abroad and is thus under the influence of
the exchange rate.

Policy Recommendation

We confirmed through the analysis results that international and external factors, such as the
price of silicon, have a strong influence on the solar module market, and the Japanese
Government does not have control over these external factors. For Japan to expand its solar
module market, it must shift from the reliance on the FIT policy to enhancing the financing
channels for solar module production, which are an important internal factor. The feed-in tariff
policy (FIT) manipulates and forces a fixed price on solar electricity to enhance the market
demand for solar electricity. As the empirical results in Table 3 show, it has a significant impact
on the demand side of the solar module market. We can still consider the FIT policy to be an
effective tool for enhancing solar module installation. However, the manipulation of the solar
electricity price through the FIT is not the most efficient target in terms of accelerating solar PV
development. First, the FIT policy involves careful price setting to maintain company incentives
to invest in solar PV and minimize the cost imposed on electricity consumers. A report by REI
(2017) emphasized the difficulty of setting an efficient price for the FIT and the insufficiency of
the discussions focusing on FIT price setting. Therefore, the continuous use of the FIT policy has
the risk of misconfiguration. Moreover, the FIT policy might increase the incentives for green
technology investment, but the absence of channels for initial finance might act as a bottleneck,
limiting the potential increase in solar PV market entries. Therefore, the more efficient target for
the further development of solar PV technology is access to finance. Easing the access to finance
and reducing the capital costs will lower the initial financing hurdle, allowing an increase in the
number of new entries into the solar PV market. At the same time, it will not impose the cost of
capital directly on the consumers. As Taghizadeh-Hesary, Yoshino, and Inagaki (2019) noted, for
the solar module industry to accelerate its development, the government must implement new
renewable energy funding tactics to reduce the capital cost as well as to enhance the financing
opportunities in the industry. We reconfirmed in this research that the interest rate as a capital
cost as well as M2 as the money stock have significant impacts on the supply side of the solar
module market. As renewable industries are high-tech, the influence that the capital cost has on
the technology price is significant. The government’s efforts to provide industries with low-
interest finance will accelerate renewable business. Countries are implementing many different
policies regarding green finance globally, such as green bonds and green banks. However,
Taghizadeh-Hesary and Yoshino (2019) stated that the current variety of green financing
channels and the amount of money invested in green projects are inadequate. They proposed the
establishment of a green credit guarantee scheme (GCGS) to reduce the risk of green finance, as
the government will alleviate part of the risk.

The recent movement in Japan may become a gateway to realize this type of green financing. The
Japanese Government has recently started putting effort into the green financing sector, leading
to the creation of the Green Finance Network Japan (GFNJ) in November 2018. The Green
Finance Network Japan is a taskforce consisting of financial institutions, institutional investors,
development banks, think tanks, academics, NGOs, and international organizations to provide a
platform to connect Japanese and international stakeholders and encourage the development of
the green financing market. Although this network is still in its experimental phase, its broad
network, which is not exclusive to financial institutions, may encourage all types of organizations
to find their green project investment opportunity. This organization has the potential to become
a pathway to the diversification of green financing channels and the expansion of the green
financing market. The government should make an effort to create the infrastructure for a global
green financing network that is not exclusive to financial institutions, which will consequently
reduce the cost of finding a lender, and implement a well-structured policy to create more
opportunities for green financing. The construction of this green financing platform altogether
will lead to an increase in solar PV installation.