JAPAN Law and Practice Contributed by: Rintaro Hirano, Yutaro Fujimoto, Yurika Masakane and Yutaro Kato, Nagashima Ohno & Tsunematsu
in the demand for electricity due to extraordinar- ily cold weather, curtailment of electricity pro- duction arising from an LNG shortage, growing dependence on LNG power plants due to the recent abandonment of many oil power plants, the suspension of nuclear power plants, and the expansion of the use of photovoltaic and wind power, the supply of which fluctuates. Further, since 2021, as in other countries in the world, the economic recovery from the COV- ID-19 pandemic, decrease in upstream invest- ment in fossil fuels due to the decarbonisation trend, extreme weather conditions and the Rus- sian invasion of Ukraine have all led to extreme supply-and-demand pressures and increased fuel and electricity prices. As a result, in March 2022, the government for the first time issued a warning to people in the Tokyo area with regard to electricity supply-and-demand pressures. Learning from the above, the government issued guidelines for electricity generators in respect of good practice in fuel procurement, and sug- gested hedging trades in markets such as the forward market, futures market and base-load market (see 2.1 The Wholesale Electricity Mar- ket ), as well as issuing another set of guidelines to explain and demonstrate basic risk assess- ment methodology and good practice for risk management in the electricity field. In addition, the government created a framework for the relevant parties (ie, electricity compa- nies, OCCTO and the government) to deal with the tight supply-and-demand balance, such as emergency power and fuel accommodation and an urgent call to increase power generation. Further, on 13 May 2022, the Diet passed a Bill to amend the Electricity Business Act (the “2023 Amendment”) which changed the ex-post filling
obligation for the abolishment of certain genera- tion facilities to a prior filling obligation so that the government can secure sufficient time to deal with electricity supply shortages. The 2023 Amendment came into force on 1 April 2023. Changes to the Renewable Energy Special Measures Act The Act on Special Measures Concerning Pro- curement of Electricity From Renewable Energy Sources by Electricity Utilities (Act No 108 of 2011, as amended – the “Renewable Energy Special Measures Act”), promulgated in 2011, introduced the FIT Regime. Under the Renew- able Energy Special Measures Act, renewable energy that meets statutory and regulatory requirements is sold at a fixed price for a speci- fied number of years (20 years, in many cases) to transmission and distribution network opera- tors. In order to promote investment in renew- able energy, the feed-in tariff – that is, the price of renewable energy – is set at a rate generally higher than the market rate. The 2022 Amendment also amended the Renew- able Energy Special Measures Act. In order to harmonise the renewable energy market with the conventional energy market, the 2022 Amend- ment introduced the FIP Regime from 1 April 2022 to complement the existing FIT Regime. The FIP Regime grants to renewable energy generators the balance obtained from subtract- ing the reference market rate price of supplied electricity from a fixed rate (which will generally be set higher than the market rate), assuming that the generators will sell their electricity to the market. Under the FIP Regime, renewable energy generators will need to manage, to a cer- tain extent, the volatility risks of the market price and the off-taker’s credit risks of the energy they generate. Moreover, under the FIP Regime, as with conventional power plant operators, renew-
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