JAPAN Trends and Developments Contributed by: Norihiro Sekiguchi, Daisuke Mure, Yuki Kuroda and Ryosuke Sogo, Oh-Ebashi LPC & Partners
This chapter of the guide provides an overview of sec - ondary transactions in renewable energy generation projects and battery storage businesses in Japan. Secondary transactions in renewable energy generation projects Under the FIT regime, renewable energy projects expanded rapidly because investors could expect stable and relatively high electricity sale prices over extended periods. In recent years, however, reduc - tions in FIT prices, the introduction of the FIP scheme and the scarcity of suitable development sites have limited opportunities for new greenfield projects. Against this backdrop, secondary transactions involv - ing the acquisition and sale of existing renewable energy projects have become increasingly prevalent. Secondary transactions offer several advantages for investors. Existing projects may continue to benefit from FIT prices granted under earlier certification con - ditions, which are often more favourable than current rates. In addition, given that the facilities are already constructed and operational, purchasers are not exposed to construction or completion risk. The exist - ence of an operational record also allows investors to evaluate actual generation performance. Moreover, as electricity generation has already commenced, the time required to achieve stable revenue generation is significantly shorter than in primary project develop - ment. From a transactional perspective, secondary acqui - sitions are typically structured either as share trans - fers or asset transfers. In a share transfer, the buyer acquires equity interests in the project company that owns and operates the renewable energy facilities. In an asset transfer, the buyer acquires specific assets and contractual positions, such as power generation facilities, land use rights and related contracts. Due diligence is a critical aspect of secondary trans - actions. Where the project company is organised as a special purpose company, its activities are generally limited to a single renewable energy project. Accord - ingly, due diligence differs from that conducted in the acquisition of a diversified operating company and focuses primarily on project-specific issues. At the same time, it also differs from due diligence in primary
projects, which often commence before assets and contractual relationships are fully established. In sec - ondary transactions, existing facilities, permits, certi - fications, grid connection arrangements, land rights and key contracts must be carefully reviewed to con - firm their validity, legal compliance and transferability. Recent amendments to the Act on Special Measures Concerning Procurement of Electricity from Renew - able Energy Sources by Electricity Utilities have also introduced requirements for community briefings and prior public notice. Where applicable, these pro - cedures must be incorporated into the transaction schedule. The timing of explanatory meetings with local residents and advance notice measures may have a direct impact on the closing of a transaction, making early assessment of these requirements par - ticularly important. Battery storage businesses Renewable energy output fluctuates depending on weather conditions, so ensuring a stable electricity supply remains a persistent challenge. In response, battery storage businesses have emerged as an important means of mitigating volatility and support - ing grid stability. In Japan, battery storage businesses can broadly be classified into co-located battery stor - age and grid-scale battery storage. Co-located battery storage systems are installed alongside generation facilities or demand facilities and are not directly connected to the transmission or distribution grid. These systems are typically used to store surplus electricity during periods of excess generation and may also serve as emergency power sources during outages. Their primary functions are improving self-consumption efficiency and enhancing energy resilience. Grid-scale battery storage systems, by contrast, are directly connected to the power grid. Electricity is charged from the grid and discharged back when demand or prices are higher, allowing operators to generate revenue by utilising price differentials. Grid-scale battery storage is therefore increasingly regarded as an independent business model rather than merely an ancillary function of renewable energy facilities.
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