Solar cell manufacturers are bullish on demand for their products in Japan despite a reduced power rate for output from solar farms that will receive government approval this fiscal year.

The government recently reduced the solar feed-in tariff--the guaranteed price utilities must pay to approved solar projects for a period of 20 years under Japanese law--by 10%, to 37.8 yen ($0.39) per kilowatt-hour for projects approved starting in the year that began April 1. This has diminished interest from some solar-project investors, who are concerned that the lower rate won't give them a quick enough return on their investments.

Other investors are unfazed by the reduced feed-in tariff. In the meantime, solar cell manufacturers have been running at full capacity to process orders for projects that were approved between last July--when the feed-in tariff law took effect, guaranteeing a price of 42 yen/kWh--and March 31.

They're likely to stay at full capacity for some time, as only a fraction of those projects are up and running. Japan 's Ministry of Economy, Trade and Industry said Tuesday that it had recognized the eligibility of 6.7 megawatts of solar power capacity between July and January, the only period for which it has made data available. Of the total, only 20% had started operations, while the remainder of the capacity was still under construction.

In the run-up to the March 31 deadline for approval of projects at the higher rate, investors, including JX Holdings Co. (5020.TO), Idemitsu Kosan Co. (5019.TO) and Toshiba Corp. (6502.TO) rushed to apply for eligibility.

"Demand won't slow down," Showa Shell Sekiyu KK (5002.TO) President Jun Arai has said. "There are huge backlogs." Showa Shell's unit Solar Frontier is a solar cell producer.

Spokesmen for JX Holdings, Idemitsu and Toshiba said previously that they weren't sure whether they would be interested in solar-project investments at the lower rate.

But Sky Solar Japan, a unit of Chinese renewable energy developer and investor Sky Solar Group, is forging ahead with new project applications. "We are planning as many projects this year as we got approved last year," a spokesman said, citing the company's cost competitiveness.

Japanese and foreign solar cell manufacturers were also positive, saying they had expected a tariff cut on the order of 10%, and they will be able to adjust costs to make generation at the lower rate profitable.

A spokesman for Hanwha Chemical Corp. (009830.SE), which runs its solar business through its unit, Hanwha Q-Cells, said the lower rate will likely "open a new opportunity for foreigners," who are able to offer solar panels at lower prices.

While the new feed-in tariff isn't "as exciting as the old one, it still seems profitable," Mitsubishi UFJ Research & Consulting energy analyst Tomomichi Akuta said.

A matter of greater concern is whether power grids have enough capacity to handle the increased load, Mr. Akuta said, noting that most renewable energy projects are planned either in northern or southwestern Japan , where sunlight and wind are abundant and land tends to be cheap.

The government hasn't provided any data about Japan 's maximum capacity to receive renewable energy in its grids. But METI Minister Toshimitsu Motegi said in December that the grid's capacity to receive solar power in Hokkaido was close to full, adding that the local utility and the government should come up with plans to resolve the issue.

As of March 31, Japan had 231.4 gigawatts of power generation capacity. Non-hydroelectric renewable power generation accounted for less than 1% of the total.

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