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TOKYO (Reuters) - Japan's lower house of parliament passed a bill on Tuesday to promote investment in solar and other renewable energy sources as politicians took a step toward the prime minister's goal of reducing reliance on nuclear power.
Damage and the radiation leak at the tsunami-hit Fukushima Daiichi nuclear plant has shattered the public's confidence in the safety of atomic power and plunged the country's energy policy into disarray. Ahead of the disaster, Japan had planned to build enough reactors to raise nuclear power supply to meet 50 percent of demand by 2030 from 30 percent.
Now, the country is debating whether it can live without nuclear power. Unpopular Prime Minister Naoto Kan had designated the passage of the renewables bill -- a step toward a new energy policy -- as a condition of his departure.
The bill's passage follows weeks of intense deliberation between ruling and opposition parties and will require utilities to buy any electricity from solar and other renewable sources.
The upper house could now approve the bill by the end of the week. Related laws are due to take effect in July 2012.
Japan's recent history of short-lived governments and the implied risk of a change of policy by a future administration will be an immediate concern for investors. The bill is due for a mandatory review after Tokyo decides a new plan for it energy supply mix target in 2030, expected next year. Another mandatory review is due in three years.
Kan, whose handling of the disaster has been criticized, has said Japan needs to wean itself from nuclear energy. But it is unclear if lawmakers will throw their weight behind his position as nuclear power is economical for resource-poor Japan. If the government can restore public confidence in its safety, nuclear represents a cheaper option than renewables or imports of fossil fuels for resource-poor Japan.
"Prime Minister Kan has deliberately made the bill an immediate focus of debate and succeeded," said Ryuichi Yokoyama, professor at Waseda University's power system and environment laboratory.
"A key question yet to be answered even after the passage would be if Japan will be able to get rid of nuclear as he has suggested," Yokoyama said.
The bill leaves key details unresolved that could ultimately dilute its impact on energy policy. These include the price to be paid by utilities for each type of green energy, which will be decided by a parliament-appointed panel not set to meet until next year.
If the pricing is too low, investors would be reluctant to start the massive build in capacity Japan needs.
A long delay in the pricing would also delay the deployment of more renewable energy plants, said Ryuichi Hokao, head of product planning at Tokio Marine Asset Management Co, which is marketing to domestic investors its first fund to build and run more than 10 large solar plants together with Mitsui & Co.
"The timing is important as well as the price itself for making investment decisions." he said.
The new laws will require utilities to buy any amount of electricity generated from solar, wind, biomass, geothermal and small hydro power plants at preset rates for up to 20 years, and allow utilities to pass the cost to end-users.
The higher the prices are set, and thus the more quickly renewable energy electricity is introduced, the greater the cost that users will have to bear.
The bill includes provisions for energy-intensive industries, such as electric furnace steel makers, that will trim extra costs by at least 80 percent in a bid to cushion the impact on the world's third-biggest economy.
The pricing panel would need to find a balance between encouraging investment and limiting the pain to consumers of higher bills.
"We understand renewable energy is the next candidate after natural gas to replace nuclear. But it's an expensive option and its lack of reliability will require a lot of investment, and the new scheme requires users to share the cost," Waseda University's Yokoyama said.
Solar is expected to be the initial growth area as it can be installed quickly.
Daiwa House Industry Co, which like mobile carrier Softbank is moving into large-scale solar projects, said on Tuesday it plans to construct and operate solar plants on behalf of corporations and local governments.
Trade Minister Banri Kaieda told a parliament committee on Tuesday that the bill was expected to help solar capacity expand to 100,000 megawatts (MW) by the middle of this decade, from almost 40,000 MW currently.
That pace of growth would be about six times Japan's solar panel sales in 2010, which had the generation capacity of 992 MW. Such rapid growth would raise the question of how Japan would secure such a large number of panels.
One possible scenario, if domestic panel makers remain hesitant to add production lines, would see imports rise and to fill the gap, said Kazumichi Ito, general manager at Mitsubishi Research Institute's environment and energy research division.
That could defeat the bill's objective of helping promote the development of the renewable energy industry in Japan, he added.
"My concern is that the revised bill, which aims to promote the (renewable energy) market for an initial three-year period, now appears to have nothing to do with its original purpose of fostering the renewable energy industry in a long run," he said.
Editing by Nathan Layne and Simon Webb